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Operator: Welcome to the Invitation Homes Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. At this time, I would like to turn the conference over to Scott McLaughlin, Senior Vice President of Investor Relations. Please go ahead. Scott McLaughlin: Thank you, operator, and good morning. Joining me today from Invitation Homes are Dallas Tanner, our President and Chief Executive Officer; Scott Eisen, our Chief Investment Officer; Tim Lobner, our Chief Operating Officer; and Jon Olsen, our Chief Financial Officer. Following our prepared remarks, we'll open the line for questions from our covering sell-side analysts. During today's call, we may reference our fourth quarter 2025 earnings release and supplemental information. We issued this document yesterday afternoon after the market closed, and it is available on the Investor Relations section of our website at www.invh.com. Certain statements we make during this call may include forward-looking statements relating to the future performance of our business, financial results, liquidity and capital resources and other nonhistorical statements, which are subject to risks and uncertainties that could cause actual outcomes or results to differ materially from those indicated. We describe some of these risks and uncertainties in our 2024 annual report on Form 10-K and other filings we make with the SEC from time to time. Except to the extent otherwise required by law, we do not update forward-looking statements and expressly disclaim any obligation to do so. We may also discuss certain non-GAAP financial measures during the call. You can find additional information regarding these non-GAAP measures, including reconciliations to the most comparable GAAP measures in yesterday's earnings release. With that, I'll now turn the call over to Dallas Tanner. Go ahead, Dallas. Dallas Tanner: Good morning, everyone, and thanks for joining us today. I want to start by thanking our residents for the trust they place in us. That trust is central to our business, and we work every day to earn it through strong service, clear communication and a better resident experience. This morning, I'd like to spend a few minutes on 3 areas: First, housing affordability; second, our recent acquisition of ResiBuilt Homes, which gives us in-house development capability; and third, our long-term objectives as we head further into 2026. Let me begin with housing affordability, an issue that continues to draw significant attention and represents a significant challenge for many Americans. Renting provides an attractive alternative for many households, which is why since 1965, about 1/3 of all Americans have rented their home. Yet with only 10% of multifamily apartments offering 3 bedrooms or more, there is a clear gap in family-oriented rental options. This is where we're proud to lead, providing homes for growing families seeking value, services and convenience in the neighborhoods they care about. As a result of this focus, we have a clear view of the needs of our customer base, including many first responders, health care workers, teachers, veterans and other vital community members. We are committed to providing them with well-maintained, high-quality homes. And that commitment matters even more today as higher home prices, elevated interest rates and large upfront costs have put buying a home out of reach for many households. According to data from John Burns, residents in our markets save nearly $12,000 a year on average by renting their homes, helping families manage their budgets, build savings and access schools and neighborhoods that might otherwise be out of reach. And for residents ready to take the next step, we help them prepare for it. Historically, more than 20% of our move-outs have been residents who purchased their own home. One way we support that journey is by offering a free company-funded credit building program that reports positive rent payments to the credit bureaus. This allows our residents to build credit from the rent they already pay with us, a benefit most smaller landlords don't or can't offer. We have more than 160,000 residents today currently enrolled, with residents having seen an average credit score increase of 50 points. This strengthens their financial foundation, lowers borrowing costs and improves their ability to qualify for a mortgage when the time is right. Of course, housing affordability is fundamentally a supply issue, which brings me to my second point. One of the most constructive ways we can help is by adding more homes to the markets we serve. While our homebuilder partnerships have supported that effort for years, our acquisition of ResiBuilt expands it even further and improves our control over cost, product quality and delivery pace. ResiBuilt is already delivering homes at a pace of over 1,000 homes per year in its Fee-Built business. We expect to grow on that foundation over time to add even more high-quality homes for Americans where demand remains strong. And that leads me to the third topic I outlined this morning, which is our long-term objectives. We laid these out at our November Investor Day, and they continue to guide how we're going to operate in the future. They include: first, delivering attractive same-store NOI growth; second, allocating capital thoughtfully across accretive growth opportunities and share repurchases; third, using our scale and technology to drive efficiencies and elevate the resident experience; and fourth, maintaining a strong balance sheet. Looking back over the past year, we made meaningful progress on each of these priorities. We continue to strengthen our platform and improve the resident experience. We took an important step toward expanding future housing options with the ResiBuilt acquisition. As we move further into 2026, we are reaffirming these objectives with a focus on controlling what we can control. That discipline will continue to guide our decisions as we work to deliver value for residents and shareholders, while expanding housing choice and flexibility in our communities. At the center of our work is a commitment to the people we serve and the people who make our progress possible. To our residents, associates and shareholders, thank you for your continued trust and partnership. Now before we turn the call over to Tim to discuss our operating results, I've asked Scott Eisen to share a few more details on the ResiBuilt acquisition. Scott? Scott Eisen: Thanks, Dallas. We're excited to welcome the ResiBuilt team to Invitation Homes. This acquisition accelerates our in-house development capabilities while keeping our upfront approach asset and capital light. ResiBuilt is a best-in-class builder of single-family rental homes, having delivered over 4,000 homes since 2018 in Georgia, Florida and the Carolinas. Around 70 ResiBuilt employees have joined us, and the team will continue operating under the award-winning ResiBuilt brand. Leading the platform is Jay Byce, a highly respected leader in the build-to-rent development space. Jay will continue serving as President of ResiBuilt and report directly to me. Today, ResiBuilt has 23 active fee built contracts with over 2,000 home starts planned for 2026 and beyond. We expect nearly all near-term activity to remain third-party fee-based, generating capital-light earnings and providing modest accretion to 2026 AFFO. Beyond this currently contracted work, ResiBuilt offers opportunities to develop around 1,500 lots in Atlanta, Charlotte and Orlando. Over time, we expect to selectively develop homes for the Invitation Homes balance sheet and for our JV partners. Together, ResiBuilt capabilities elevate our long-term supply strategy by giving us greater command over product, location and timing. We expect to unlock new operational efficiencies, achieve more seamless integration and gain stronger control and foresight across our growth pipeline. These capabilities also provide additional flexibility while complementing the strong relationships we maintain with our national homebuilder and joint venture partners. In short, ResiBuilt strengthens our foundation for future growth and expands the housing options available to families across our markets. With that, I'll turn it over to Tim to walk through our fourth quarter and full year operating results. Tim Lobner: Thank you, Scott, and good morning, everyone. Our fourth quarter and full year operating results highlight the strength of our platform, the dedication of our associates and the trust our residents place in us. For the full year 2025, we delivered solid same-store performance with same-store NOI growth of 2.3%, finishing above the midpoint of our guidance range. This was driven by 2.4% core revenue growth and 2.6% core expense growth. In the fourth quarter, same-store NOI grew 0.7% year-over-year, supported by 1.7% growth in core revenues and a 4% increase in core expenses. Resident satisfaction continues to be a central focus and a differentiator for Invitation Homes. Turnover remained low during 2025 at 22.8%, consistent with the prior year and average length of stay remained well over 3 years. In addition, same-store average occupancy for the year was 96.8%, landing at the high end of our 2025 guidance. These metrics all underscore the stability of our resident base and the quality of the service we provide. Turning now to same-store leasing performance. Fourth quarter blended rent growth was 1.8%. This reflected strong renewal rent growth of 4.2%, which more than offset a 4.1% decline in new lease rates, given that renewals account for about 75% of our total lease book. In January, occupancy held just under 96% and blended lease rate growth improved by 30 basis points from the prior month to 1.5%. Renewal growth was roughly flat with December at about 4%, while new lease rates were down 4.2%. Performance over the past few winter months was broadly in line with our expectations for this time of year and reflects the effect of targeted specials in some of our slower markets where supply has exceeded near-term demand. These concessions helped support steadier occupancy through the softer seasonal period, which should better position us as we move into the spring leasing season. Looking ahead, we remain fully committed to achieving the $0.14 to $0.20 of incremental AFFO per share growth over the next 3 years that we expect on top of our baseline growth as we outlined at our Investor Day. Operational enhancements are expected to provide roughly half of the projected AFFO growth, and our team remains focused on executing the initiatives to unlock this incremental value. In the meantime, our mission of elevating the customer experience continues to guide our decisions and our daily execution. We are making steady progress modernizing our service model, expanding the use of centralized functions where they can improve speed, consistency and quality and giving our teams better tools to serve our residents more effectively. These efforts also tied directly into how we control the controllables across the business. There's still more work to do, but we continue to believe our initiatives will drive higher satisfaction and stronger long-term operating performance over the next few years. I'd like to thank all of our teams for their commitment to this work and for the progress they're delivering. With that, I'll turn the call over to Jon. Jonathan Olsen: Thanks, Tim. This morning, I'll cover 3 topics: First, our balance sheet and liquidity position; second, our fourth quarter and full year financial performance; and third, our 2026 guidance. Starting with the balance sheet, we continue to maintain a conservative leverage profile that supports our investment-grade ratings. We ended the year with $1.7 billion in total liquidity, including unrestricted cash and undrawn capacity on our revolving credit facility. In addition, our year-end net debt to adjusted EBITDA ratio remained at 5.3x. Approximately 94% of our total debt was either fixed rate or swapped to fixed rate and approximately 90% of our wholly owned homes were unencumbered. We have no debt reaching final maturity before June 2027. As previously announced, in October, our Board of Directors authorized a $500 million share repurchase program. Since that time, we've repurchased 3.6 million shares totaling approximately $100 million. We see meaningful value in our shares and expect to continue repurchasing as opportunities permit. Turning now to our financial results. Core FFO for the fourth quarter increased 1.3% year-over-year to $0.48 per share, while core FFO for the full year was up 1.7% to $1.91 per share, primarily due to NOI growth. AFFO for the fourth quarter was generally flat year-over-year at $0.41 per share, while AFFO for the full year grew by 1.8% to $1.63 per share. The last thing I'll discuss is our full year 2026 guidance. This includes our expectation for same-store NOI growth in a range between 0.3% and 2%, driven by expected same-store core revenue growth in a range between 1.3% and 2.5% and same-store core expense growth in the range between 3% and 4%. Our same-store core revenue growth guidance assumes average occupancy of 96.3% at the midpoint, while we expect same-store blended rent growth in the mid-2% range. In addition, our outlook incorporates approximately $550 million of dispositions at the midpoint, which we expect to serve as the primary funding source for additional share repurchases and $250 million of anticipated wholly owned new home deliveries at the midpoint. Together, these assumptions result in full year 2026 core FFO guidance of $1.90 to $1.98 per share and AFFO of $1.60 to $1.68 per share. For complete details of our 2026 guidance assumptions, including a bridge from 2025 core FFO to our 2026 guidance midpoint, please refer to last night's earnings release. As we embark further into the new year, we believe our operating discipline, capital allocation strategy and strengthened development capabilities support our ability to remain nimble and focused while continuing to serve residents with quality and genuine care. Combined with a solid balance sheet, clear priorities and steady progress across the business, we believe we are well positioned to deliver long-term value for our shareholders and the families who call our homes their own. That concludes our prepared remarks. Operator, please open the line for questions. Operator: [Operator Instructions] Your first question comes from the line of Jana Galan with Bank of America. Jana Galan: Thinking about your expectations for same-store blended rent growth in the mid-2% range. Just curious kind of the kind of quarter-to-date. It sounded like you said 1.5% so far for blended lease growth. Just how does that track? And then how are you kind of anticipating the peak leasing season to play out this year? Jonathan Olsen: Jana, it's Jon. I'll take the first part and then see if Tim wants to add any color. I think the mid-2% blend aligns with where our guidance is coming out. I think 6, 7 weeks into the year, we've only just gotten into peak leasing season. So I think it's a little bit premature to draw any conclusions based on what we've seen thus far. I would note that in terms of top of funnel demand, lead volume feels very healthy compared to last year. I think the challenge for us at the moment, and this was true in the fourth quarter as well, was just the amount of available inventory on our book and in some of the markets where we operate. So I think time will tell. We'll know a lot more about how peak season shapes up the next time we get together. But I would note that each of the last few years, the nature, timing and kind of shape of the demand curve in peak season has changed. So we just want to be we want to be judicious in terms of the assumptions we make about the blend. Tim Lobner: Thanks, Jon. And I'll add, look, supply and demand dictates our pricing. Supply, we talked about this on past calls, has been slightly elevated in a few of our core markets, namely Florida, Texas and Arizona. But we are seeing those supply levels come down. And as Jon mentioned, our peak season really starts right after Super Bowl, goes into mid-summer. We're seeing healthy demand, and we look at that through a variety of different metrics, but our lead volume remains strong, clearly a strong indicator that there is demand for single-family housing. We will continue to see over the next couple of months, our spreads between renewal growth and new lease growth narrow as our new lease growth expands. Right now, I'll add that we don't have any concessions on our scatter site product. We use that tool as we have in years past to incentivize residents during our slower season. Right now, the only specials that we have going are on our build-to-rent communities, and that's pretty customary for developers and investors during lease-up to achieve stabilization. So we're really happy with the supply and demand fundamentals as they're heading into peak season right now. Operator: Your next question comes from the line of Eric Wolfe with Citi. Eric Wolfe: I think some drafts of the institutional investor ban have been circulating through Congress. I was just curious if you could comment on sort of what you would like to not see in that bill versus what you're advocating for, sort of how you hope the legislation ultimately looks? Dallas Tanner: Eric, this is Dallas. Thanks for your question. We're certainly all over it, as you'd expect. And I'd just, at a high level, say that we've been encouraged by the discussions with policymakers on both sides of the aisle through this process. Obviously, the well, the tweet, I should say, and then the EO was something that I don't think the industry really expected. That being said, we have a sensitivity and appreciative nature of the focus being on this issue around affordability. I believe through the trade association, also the work that we've been doing with the companies in the NRHC, I believe we've been able to highlight appropriately where SFR and more importantly, professionally operated single-family rental lives in this -- in the broader ecosystem. That being said, I think it's a little too early to speculate on what we what we do or don't want to see. In some regards, I think the industry is hoping for clarity. I think we like the idea of having some clarity of what you're able to do versus maybe what you're not able to do. It certainly feels like BTR and the production of new product is something that feels pretty favorable based on the conversations we've been having. So we view that as a positive. We're excited about that and what it means for both the way we work with our current builder partners and also what we can do now with our own platform and ResiBuilt. During these conversations, the focus has certainly just been on affordability, path to homeownership and to create sort of lanes for folks that want to transition into homeownership over time. And as you guys are well aware, we've been hyper focused on that latter point really for a couple of years now and making sure that we have positive credit reporting. We have currently about 160,000 residents enrolled in positive credit reporting. We've seen credit scores go up by 50 basis points. So I think all these facts have also been very helpful as we've been talking with policymakers around how SFR can fit into the broader ecosystem. And I think the important part here is that we want to meet customers where they are. And there's certainly a number of customers, we see it in our business day in and day out that transition from rental to homeownership. I think in the last quarter, it was around 16% or 17%. Traditionally, it's been between 20% and 25%. We view that as normal. But with the differential in costs being about $1,000 a month cheaper to rent than to own, not including the down payment burden and then the other things that go into homeownership, we know we offer a pretty attractive value to customers, and they continue to tell us that, both in our surveys and as we work for ways to refine and improve our processes. So I think that's all I can say from a legislative perspective. We're certainly engaged. We're having great discussions, and I feel like it's been candidly pretty collaborative. Operator: Your next question comes from the line of Austin Wurschmidt with KeyBanc Capital Markets. Austin Wurschmidt: So I appreciate kind of the decision to step in and buy your shares here and comments around being a net seller and using some of those proceeds to buy back shares. But I guess, Dallas, given your comments about being encouraged with what's happening on the regulatory front, Tim mentioned you're starting to see supply moderate. What would it take for you to really ramp up the buyback even further given that meaningful value that you referenced you see in shares today? Dallas Tanner: Thanks for the question, Austin. I want to echo what Jon said in his prepared remarks. I mean we see real value there in terms of where the shares are currently trading. We are clear about that at Nareit at the end of the year. Now we certainly have limited windows where you can sort of operate. And then at the end of the day, and I think you guys know us about us, from a capital allocation perspective, we also want to be moderate. We know that we have opportunities on the horizon, both with external growth and some of the opportunities that we'll look at over the coming year. But I think for us, it will be about when the opportunities are available to us, as Jon said, with always thinking about where our current cost of capital is and highest best use on a risk-adjusted basis for economic returns that make sense for our shareholders. So you can certainly argue that if the shares continue to trade in this range that on a risk-adjusted basis, it can make sense to continue to be active there. Operator: Your next question comes from the line of Steve Sakwa with Evercore ISI. Steve Sakwa: I was wondering if you could provide a little more commentary around your expense growth assumptions. I know that you guys did a very good job containing expenses and I think handily beat your initial expense outlook for '25. I know you put a few assumptions around taxes and insurance for '26. But maybe just speak to some of those numbers, and they seem a little bit elevated, but maybe there's some tough comps going on. So any clarity around expense growth would be helpful. Jonathan Olsen: Yes, Steve, thanks. I think a couple of things going on there. With property taxes, obviously, the outcome in 2025 was pretty favorable relative to our guidance. I think it's worth pointing out that we had a fairly sizable good guy in Texas last year. And absent that, property tax growth would have been closer to the mid-4s. So the range we've articulated in our guidance, I think, is generally consistent year-over-year. With respect to insurance, a couple of things going on there. 2025 was a very favorable year for us. It creates a bit of a tougher comp. I think if you look at the property market, we think that, that is going to be a very constructive renewal. It's in the general liability, excess casualty and auto market that has become materially harder and where we think we'll see some outsized increases year-over-year. So when you put it together, that's the driver around the insurance expense growth. Now our policy year runs from March 1 to March 1. So we'll be buttoning that up in the next 1.5 weeks, and we'll have more information that we can share. Certainly looking at all the levers we can pull to try to drive a better outcome, but we're not going to change the way our program is constructed. We want to make sure that we are well insured. And the insurance market has sort of ebbs and flows similar to other markets. If you look at what that implies for overall controllable expense growth or all other expense growth, I guess, I should say, it's really in the range of 1% to 2%. So we think our cost controls continue to be effective. We continue to be laser-focused on trying to make sure that we are being as efficient as we can be. I think the other thing I would call out with respect to expenses is something that we included in our earnings bridge. I think several of you noted it, but I would just point out that we have incorporated in our bridge an estimate of $0.02 per share related to advocacy and other costs. I want to be clear that, that is an estimate. We've incurred some limited costs to date and the timing and magnitude of any additional costs we incur is a bit of an open question. But we wanted to include something there in the bridge just to be transparent about the likelihood that there will be costs associated with navigating the current regulatory backdrop. Operator: Your next question comes from the line of Brad Heffern with RBC. Brad Heffern: On the repurchase, I was wondering if you could talk about what the rough maximum amount is that you can accomplish in any given year without running into tax issues or needing to issue a special. I know it varies based on what exactly you're selling with the gains on sale, et cetera. But I'm kind of wondering if the guidance assumes a number that's sort of close to what the annual maximum might be or if there's upside to that? Jonathan Olsen: Thanks. I would just point out that we're not going to get into any specifics about the quantum of share repurchase embedded in guidance. But I would say that as Dallas noted and as I think I touched on in my prepared remarks, when we see a material disconnect between where our shares are trading and what that implies as far as the value of our portfolio and what we view the actual value of our assets to be, we have to evaluate that as an opportunity for capital deployment, right? And if we look at the relative risk-adjusted returns of the various alternatives available to us, it is hard to conclude that share repurchases aren't a very, very compelling use of funds. So I think what we've outlined in our guidance in terms of capital allocation activity sort of suggests that there will be excess disposition proceeds that should the shares continue to trade at a level that is meaningfully dislocated from the value of our assets, suggest that we'll be active in the market buying back shares. Operator: Your next question comes from the line of Haendel St. Juste with Mizuho. Haendel St. Juste: I wanted to follow up on Jana's question on blend. I appreciate the color, Jon, but I'm still having trouble, I guess, getting to the mid-2% that you mentioned. So maybe some more color on what you're implicitly expecting for turnover, renewal, new lease rates? And then while you're at it, maybe some color on bad debt and ancillary as well. Jonathan Olsen: Sure. Thanks, Haendel. We are assuming turnover at the midpoint that is slightly higher than last year. We expect our renewal rate will remain healthy given the favorable value proposition that we talked about in our prepared remarks. But I think the guide also acknowledges that there is a larger volume of rental product competing on the basis of price, and we anticipate that will lead to slightly higher turnover year-over-year. As far as days to re-resident, I would note, again, the supply pressures we're facing in certain of our markets are likely to have a flow-through occupancy impact primarily through longer days on market. We have done a very good job, I think, and tip of the cap to Tim's team in keeping days and turn pretty consistent. But the days in market number has certainly elongated. I think we did about 48 days to re-resident in '25. And my expectation is that in 2026, it will take us a few days longer on average over the course of the year to get new residents into homes and getting them cash flowing. With respect to sort of the components of the revenue growth guide, I would just point out that I think the earn-in from '25 will represent about 105 basis points. Blended rent growth this year is about another 105 basis points. And then the increase in other income contributes about 20 basis points. And so then if you net against that about a 40 basis point deduct for lower occupancy year-over-year, that's how you get to the 190 basis points at the midpoint. Operator: Your next question comes from the line of Juan Sanabria with BMO Capital Markets. Unknown Analyst: This is [ Emily ] on behalf of Juan. I wanted to ask if you could talk about what you've seen so far in January across the new lease renewal and blended rates as well as occupancy. Tim Lobner: Yes. This is Tim. That's a great question. Yes, we've seen what we would expect to see in early February heading into the new year. Typically, you start to see a higher demand, higher lead volume across the assets. And so we're seeing that materialize in a stronger new lease rent growth. On the renewal side, look, the renewal side of the business is a very consistent part of our business. It represents 75% of the book. The renewal rates continue to remain very firm. And I think residents are generally very satisfied with what they're experiencing. We do expect to see, as I mentioned earlier on the call, we do expect to see our spreads start to narrow as we get deeper into spring, and we expect to see that continue until mid-summer. So you can expect to see that blend continue to pick up in these next couple of months. Operator: Your next question comes from the line of John Pawlowski with Green Street. John Pawlowski: Jon, a follow-up question on property taxes. Just given a lot of markets are seeing flat to declining home prices now. Outside of the Texas kind of tough comps associated with Texas, are you seeing signs where municipalities are assessing property taxes more aggressively on investor-owned homes versus owner-occupied because I still think the 4% to 5% guide strikes us is really high given home prices are declining, not really rising that fast. Jonathan Olsen: Yes, Jon, it's the right question. Thankfully, we are not seeing a differential treatment of investor-owned homes versus owner-occupant-owned homes. I think any approach to "property tax relief" that benefits owner occupants at the expense of SFR operators effectively transfers costs from the families that own their homes to families that choose to rent. Our hope is that the folks making those decisions recognize that renters are voters, too. I think with property tax overall, Jon, we just want to be cautious. I think as we've talked about at length, Florida and Georgia are 2 of our 3 biggest markets. and we have seen a continuing catch-up in terms of assessed values relative to what we view true market value to be. Just as a reminder, from '22 to '25 in Florida, we saw over 22% home price appreciation. And in Georgia, over that same period, it's over 23%. And so the ability of assessed values to catch up to that market value when it has expanded as rapidly as it has is somewhat limited. In Florida, in particular, a portion of property tax bills are capped such that assessed values on a percentage of the total tax bill can only go up 10%. So structurally, it sets up a multiyear catch-up. And so I think as I take it all together and we look at property taxes, certainly, we're hopeful that we will do better than that. I think, as you know, we've had some nasty surprises if you go back enough years, and that's something that we want to make sure we avoid by just being thoughtful about what is likely to happen at that line item. Operator: Your next question comes from the line of Jamie Feldman with Wells Fargo. James Feldman: I guess, first, thinking about development with the ResiBuilt platform, do you think you'll need to buy more platforms if you're going to grow your development platform across the country? Or do you think ResiBuilt -- you'll stay within the ResiBuilt platform to expand into other markets? And maybe a little bit more color on where you think you can be building going forward. Dallas Tanner: Jamie, thanks for the question. This is Dallas. And I'll also let Scott add anything he wants to add to this. I think at a high level, we feel really comfortable about the capability we just brought in-house. Jay is a seasoned operator in the space. We've known him for over a decade. We've been impressed with the work they've done. They've built out a really remarkable platform in terms of both capability and scale. Scott talked about the 20-plus existing projects they have ongoing, which, by the way, we didn't underwrite this initially, but has led to a lot of great synergies with our lending efforts in terms of opportunity sets and things we're getting an opportunity to look at on that perspective. I don't know that you necessarily have to go out and acquire other platforms to try and grow your development business. I think we've got the capability in-house. It's just a question around which markets do we want to be in and why. And we have a ton of experience prior to the ResiBuilt acquisition of understanding sort of what our costs are in particular parts of the country as we build with partners and the like. And so I think for us, we feel pretty confident that we don't really need to do much outside of manage the mature organization we just brought on and find ways to sort of blend and extend in the right parts of the country over time and over distance. The nice thing about this is this is really accretive in terms of how we think about it. They have a cash flow positive business that does great work in the marketplace with multiple parties. And we can start to look at opportunities, as Scott mentioned in his earlier remarks, that are already sort of in front of us, and we can also sit on the sidelines if we want to until we decide that a particular opportunity makes sense. Scott, anything you want to add to that? Scott Eisen: No. Thanks, Dallas. Thanks, Jamie. This is Scott. I think at our Investor Day in November, we shared our long-term vision to create value through our BTR growth strategy that combines construction lending and development. And our announcement of buying the ResiBuilt platform was months of thoughtful planning to advance that vision. The acquisition of Resi is a great step forward for us. They're a best-in-class developer that enhances our execution capabilities, expands our capacity to address the nation's most pressing challenges on housing affordability. We're focused on adding supply in desirable markets and creating communities that families are proud to call home. They're currently focused in the Carolinas and Florida and Georgia, and we're going to continue to leverage their capabilities and boots on the ground in those markets. And that's really where our efforts are going to be focused for the foreseeable future. Operator: Your next question comes from the line of Michael Goldsmith with UBS. Ami Probandt: This is Ami on with Michael. The homebuilder partnership pipeline has been moderating and cap rates on acquisitions have also been slowly ticking down. So I was wondering how have your relationships with the homebuilders evolved? And what factors are leading to the slower pipeline and potentially maybe a little bit lower growth from this avenue? Scott Eisen: Thanks. Great question. As far as the homebuilder dialogue, it continues very strong, right? We have great relationships with both the national builders and the regional builders. But given our cost of capital, we have been less aggressive in terms of committing to future transactions with the builders, mainly as a signal because of our cost of capital. I will tell you, we continue to receive substantial opportunities, in particular, the end of month tape from the builders. For the first 2 months of this year, we've received a lot of deal flow from them. So there's still opportunities out there, but we're trying to be a little less aggressive and obviously listening to the signal in terms of our cost of capital and the balancing act between acquisitions and share repurchases. And so I think -- but that being said, I think our relationship continues to be strong. We obviously purchased more than 2,000 homes last year from the homebuilders. We continue to have a daily dialogue. We're very selective. We are looking at opportunities for our joint venture partners. But again, given our cost of capital right now, I think we've just been less aggressive in terms of acquiring from that pipeline. Operator: Your next question comes from the line of Jason Wayne with Barclays. Jason Wayne: The release mentioned that ResiBuilt could serve as an in-house development contractor. Can you just give some more color around how their team will assist in the process as you're growing out the build-to-rent platform? And then just the longer-term growth profile of the ResiBuilt fee-based business specifically? Scott Eisen: Sure. This is Scott. Great question. Look, this platform, the ResiBuilt, we've known these guys for a long time. They commenced operations 6 or 7 years ago in terms of building up their platform. And they're essentially a general contractor that has the capabilities to source land and do construction management oversight of projects. They have a business that historically had built for one particular institutional partner where they acted as a GP. But they also have acted as a fee builder on behalf of other third parties where they've done general contracting work and receive payment for performing services on behalf of other equity investors and developers. We will continue to have them work in that business and generate revenue by working with third parties. And over time, they're going to explore opportunities to also perform work both for our joint venture partners and eventually for ourselves when our cost of capital improves. And so I think that they're a full-service GC developer, and they're going to continue to do what they've been doing. Operator: Your next question comes from the line of Linda Tsai with Jefferies. Linda Yu Tsai: Just on ResiBuilt delivering 1,000 homes per year, and I know you're going to grow that more over time. But how long would it take to, say, doubling it to maybe like 2,000 homes per year? Scott Eisen: I think it's too soon really for us to be speculating on that. These guys have a platform and boots on the ground in place that gives them the ability to perform at least 1,000 home starts a year on behalf of their joint venture partners and customers. And over time, we'll kind of see where the business goes. But I think it's just too soon. We closed on this acquisition 5 weeks ago. We're still working on integration of them into the platform. I think it's too soon for us to be speculating on things like that. Operator: Your next question comes from the line of Jade Rahmani with KBW. Jason Sabshon: This is Jason on for Jade. So homebuilders are offering rates below 4% in markets such as Phoenix. Can you comment on the supply-demand balance in key Sunbelt markets and whether you're seeing an increase in move-outs to buy? Dallas Tanner: Jason, thanks for the question. This is Dallas. As I mentioned earlier, we're only seeing about somewhere between 16% and 17% of our move-outs say that the reason they're doing so is because of homeownership opportunity. Now that being said, and we're not mortgage experts, we clearly follow it. There's plenty of supply on the market for sale today. There certainly feels like there's a bid-ask spread between where homes are selling, where a home can be financed at. And you're certainly right in highlighting that builders have had an opportunity to buy down rate, which has helped candidly, probably keep home prices somewhat stable over the last couple of years. That being said, on a seasonally adjusted rate, we're still seeing somewhere, I think, just less than 4 million total transactions in a given year. That's really low. Like most economists would tell you that we should probably see somewhere between 5 million, 5.5 million transactions. The amount of inventory in the MLS is almost 2x this year of what it was last year. So all of these fundamentals sort of suggest a couple of things to us as we look at the macros. One, there is just a cost of ownership that is pretty egregious at the moment when you consider all things being loaded in. And we pick on mortgage quite a bit, but I think we need to be honest about property tax and insurance. Jon just talked about it. Property tax has been egregious in most states over the last 4 or 5 years as it's caught up with the inflationary pressures put on housing prices. And then on the insurance side of the equation, it's been equally as tough, I think, as people think about that fully loaded cost. So that probably has something to do that. And then you -- the fourth multiplier here is at what price can you finance this. And so you're right in the highlight that the builders have an advantage in terms of how they're buying down rate. But it feels like with the 30-year being around 6 or low 6s, it's got some room to go probably to peak enough curiosity. But let's see how the spring and summer play out. Operator: Your next question comes from the line of Jesse Lederman with Zelman. Jesse Lederman: Can you talk through what you're seeing on the supply side of things? Now of course, new move-in rent growth of negative 4% during the quarter, coupled with a sequential decline in occupancy. We know development starts for BFR down, multifamily has also come down. What are you seeing from a supply perspective in terms of those pressures alleviating? Tim Lobner: Yes. This is Tim. Great question. Look, supply in a lot of markets is higher than we've seen in the history of this industry. And there's a couple of different factors, right? And you mentioned some of them, right? There's build-to-rent product that has come online. Most of the peak deliveries in our markets are in the rearview mirror. And so it's a matter of time before the demand kind of eats that up. You're also seeing scatter site SFR, both institutionally owned and mom-and-pop SFR that's out there. We're seeing slightly higher levels of mom-and-pop SFR as people choose not to sell, they enter that product into the rental market. And there also is, as Dallas talked about earlier, there's the market for newly built products. So there is a supply -- a slight oversupply right now. We're not seeing that grow right now. What we are seeing is that kind of chip away based upon the demand. Everybody talks about homeownership as being kind of the end. There's a lot of people, and we see this in our data with our residents, they choose to rent. And so we believe that there is a long-term healthy demand for our product across our markets. And again, we talked earlier about the specific markets where we do see higher supply, namely the Sunbelt, you've got Florida, you've got the Texas markets in Arizona, and we do see that in our numbers. But at the same time, lead volume is still there. A lot of people entering that age. Our average age of residents is about 38, 39 years old. So there is just a wave of demand for our product. And when you look at our renewal rates at 75% of -- renewal rate of 75% roughly of our book of business, it's pretty obvious that people who are renting want to continue to rent. And so does the supply backdrop concern us? Well, it's there, and I think it's a little bit of a cycle. It's transitory in nature, and we're going to let demand continue to gobble that up over the coming months and quarters. Operator: Your final question comes from the line of John Pawlowski with Green Street. John Pawlowski: I have a 2-parter, forgive the 2-part question. Tim, your comments that there are 0 concessions on your scattered site portfolio, does that represent a meaningful improvement from this time last year? And then secondly, for renewals that have already gone out for, I guess, March and April, are we expecting the achieved renewal rate to still hover in this 4% plus or minus range? Or should it be worse or better? Tim Lobner: John, great questions. I'll tackle each of them. The first question on concessions. Look, we offer specials through the winter months historically. And that ranges depending on kind of what we're seeing in the marketplace in terms of the supply and demand fundamentals. We're very nimble. Our pricing structure allows us to do that to target those specials. And our specials are not significant. They're really around -- historically, this cycle, we've offered $500 off. And then for a 2-year lease, we've thrown an extra $250. Those specials are off. We are seeing demand tick up. And so there's not the reason to deploy tools like that right now. But again, we've offered them in years past. And then on your second question, can you remind me the second question? John Pawlowski: Yes. Again, maybe a clarification on the first one. Again, are concessions a lot lower than this time last year across your platform? The second question is on achieved renewals that are for renewals that are due, that become effective in March and April? Do we expect effective renewal increases still in the 4% range? Or should it be better or worse? Tim Lobner: I think it will hover around the 4% range in answer to your renewal question. It could go a little bit low, it could go high, but 4% has been very consistent for us, and we continue to see about 75% of the book, maybe a little bit more renew. And getting back to your concession question, look, it's not any more or less than last year. This is typical for what we do, and we take it off this time of the year as we see the market return into our peak leasing season. Operator: That concludes our question-and-answer session. I will now turn the call back over to Dallas Tanner for closing remarks. Dallas Tanner: We want to thank everyone for their participation today, and we look forward to seeing everyone at the upcoming investor conference. Talk soon. Operator: Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Ladies and gentlemen, welcome to the HOCHTIEF Full Year 2025 Results Conference Call. I'm Morris, the chorus call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mike Pinkney. Please go ahead, sir. Mike Pinkney: Thanks, operator. Good afternoon, everyone, and thanks for joining the HOCHTIEF Full Year Results Call for 2025. I'm Mike Pinkney, Head of Capital Markets Strategy, and I'm here with our CEO, Juan Santamaria; and our CFO, Christa Andresky; as well as the Head of IR, Tobias Loskamp and other colleagues from the senior management team of HOCHTIEF. We're looking forward to your questions, but to start with our CEO is going to run us through the details of another very strong set of numbers and provide you with an update on the group strategy. Juan, all yours. Juan Cases: Thank you, Mike and team, and welcome to everyone joining us for this results call. I'm delighted to present to you HOCHTIEF's results for 2025 a year in which we achieved an outstanding operational and financial performance as well as major advances in our strategic delivery. Let's kick off with the numbers and then I'll give you an update on the important progress we're making with our growth strategy. HOCHTIEF's operational net profit increased by 26% to EUR 789 million, which rises to 35% on an FX-adjusted basis. This result significantly exceeds the guidance we provided to the market 12 months ago of EUR 680 million to EUR 730 million and is even slightly above the updated 2025 target we indicated in November of EUR 750 million to EUR 780 million. Nominal net profit is also higher at EUR 902 million, up 16% year-on-year. The excellent profit trend was driven by strong sales growth of 15% to over EUR 38 billion, 21% adjusting for FX as well as higher margins. The quality of HOCHTIEF's profit delivery is underlined by the strong cash conversion achieved. Operating cash flow in 2025 of EUR 2.1 billion was EUR 248 million higher year-on-year pre-factoring, supported by strong working capital performance. As a result, the group ended the year with a slight reduction in net debt despite significant net strategic M&A investments in dividends. If we adjust for capital allocation effects, we would have finished the year with a net cash position of over EUR 1 billion. A further highlight of 225 was the acceleration in the growth of our project wins. New orders were sharply higher at EUR 52.6 billion, up 32% FX adjusted year-on-year with a strong fourth quarter momentum in key wins across our strategic growth verticals. New work secured during the year represents a book-to-bill ratio of 1.3x and highlights HOCHTIEF's positive growth trajectory. As a result, we ended last year with our order backlog at an all-time high of EUR 72.5 billion, up 18% on a comparable basis and providing a strong and diversified foundation for continued growth. Furthermore, we continue advancing in our derisking drive with around 90% of our project portfolio of a lower risk nature. Reflecting HOCHTIEF very strong performance and taking into account the solid growth prospects we envisage 2026 and beyond, the proposed dividend for last year is EUR 6.6 per share. This represents a 26% increase year-on-year, consistent with the group's operational net profit growth and is in line with our 65% dividend payout policy. The group's operational net profit guidance for 2026 of EUR 950 million to EUR 1,025 million, envisages another year of a strong growth of HOCHTIEF and corresponds to an increase of 20% to 30% year-on-year. Let's take a quick look at our performance at the second level. Turner delivered a standout performance in 2025. Sales increased by 34% year-on-year to EUR 25.8 billion or 40% FX adjusted driven by the very strong growth in our data center business. The acquisition of Dornan Engineering, the rapidly growing advanced mechanical and electrical business further enhanced growth. In other areas such as health care, education, sports and airports were also strong with solid double-digit revenue growth. Turner delivered every strong operational PBT, reaching EUR 921 million, an increase of 62% and above the top end of the recently raised guidance of EUR 850 million to EUR 900 million. And I think it is worth underlying that the original indication we provided to you a year ago of up to EUR 750 million was exceeded by a striking 23%. This profit growth was supported by a further increase in the operational PBT margin 60 basis points year-on-year to 3.6%, meaning that we have already surpassed the 3.5% target we had for 2026, a year ahead of schedule. And Turner's outlook remains extremely positive. New orders rose a very significant 38% to EUR 33.6 billion, with particularly strong growth in data center contracts, which more than doubled as well as increases in areas such as biopharma, aviation and commercial. As a result, the record year-end order backlog of EUR 37.7 billion was up 34% in USD terms. Due to Turner's sustained growth trajectory, we expect an operational PBT increase of 25% to 30% to between USD 1.3 billion and USD 1.35 billion in 2026. Moving on, CIMIC delivered a steady performance in 2025. On a comparable basis, sales were stable year-on-year with solid increases in the key growth verticals, offsetting the completion of large transport projects. I would highlight that data center revenues almost doubled year-on-year. Operational PBT of EUR 473 million was up 5% with a solid margin in line with 2024 and supported by improved operating cash flow development pre-factoring. CIMIC's solid order backlog of EUR 21.8 billion, was up by 6% year-on-year adjusted for the UGL Transport stake divestment and FX. Over half of the year-end work in hand relates to high-growth areas, including digital and advanced tech, defense and further diversification of the group's commodity mix. We expect CIMIC to achieve an operational profit before tax for '26 in the range of approximately EUR 780 million to EUR 830 million, a 4% to 10% comparable rate, adjusting for the UGL transport sale. Next, we have our Engineering Construction segment, which is on a very solid growth path. Sales of EUR 1.7 billion increased by 9% year-on-year, and operational PBT grew by 28% to EUR 98 million, both on a comparable basis and just ahead of our EUR 85 million to EUR 95 million profit guidance range. The business delivered a strong cash conversion with net operating cash flow of EUR 156 million in the period. During the year, Engineering Construction securing the orders of over EUR 6 billion, up a very notable 38%. As a consequence of this strong development, the EUR 13 billion order backlog is 18% higher on an FX-adjusted basis. For 2026, we see our Engineering Construction segment accelerating its growth with an operational profit before tax of between EUR 125 million and EUR 140 million, which implies an increase of up to 42% year-on-year. Let's take a brief look now at Abertis, which achieved a solid operational performance in 2025. Average daily traffic at the toll road company increased by 2% year-on-year with revenues and EBITDA on a comparable basis, up 4% and 6%, respectively, reflecting a solid underlying business performance. The operational net profit pre-PPA amounted to just over EUR 700 million with a year-on-year variation, including adverse tax effects in France. The profit contribution from our 20% stake in Abertis after PPA amounted to EUR 58 million, and we expect Abertis to deliver a similar operational contribution in 2026. Now allow me to update you on the group's strategic delivery and long-term growth opportunities. Active strategy has positioned the group as a uniquely well-placed global provider of engineering-led end-to-end infrastructure solutions. During the last 3 years, we have advanced to become a leader in rapidly expanding strategic growth verticals, including the AI digital and tech sector, energy including nuclear, critical minerals and defense, where infrastructure investments continue to accelerate. This momentum builds on our long-established locally embedded presence in core infrastructure markets in North America, Australia and Europe, which remains the foundation for our competitive strength and our ability to scale into these next-generation markets as a life cycle partner. We command a strong competitive position in the AI, digital tech sector, and we have solidified our global leadership in data center engineering and construction with EUR 16.8 billion of new orders in '25, representing 21% of the group's total backlog. Just last week, Turner was selected as a construction manager for the USD 10 billion 1-gigawatt data center campus from Meta in Indiana. And we have solid medium-term visibility via our order book and our expanding private pipeline in North America, Europe and Asia Pac. Growth in the global data center market remained is strong, showing demand for cloud services and artificial intelligence is expected to quadruple [indiscernible] and compute CapEx by 2035, boosted by the growth of generative AI and further cloud migration. The group has the capacity and capabilities as a firmly established global end-to-end solution provider to address rising demand supported by its ability to attract talent and by number one, leveraging scale and relationships with hyperscalers and subcontractors; two, applying our global sourcing expertise three, by our increasing adoption of modularization and offsite manufacturing to deliver projects faster, safer and with higher quality. As part of the strategy to expand the group's presence in the entire ecosystem, HOCHTIEF is developing a pan-European network of sustainable edge data centers. A few months ago, we inaugurated our first edge data center developed own and operated by HOCHTIEF, a major milestone for the group's data center strategy. Three further data center sites will go live by the end of '27. Our ambition is to have over 30% of them in Europe by the end of the decade. HOCHTIEF will operate this edge data center network with innovative cloud computing solutions that offer digital sovereignty and enormous growth potential. Overall, we're increasing our participation for the full AI stack, including not just data centers, but also semiconductors, cloud infrastructure services and applications as well as moving into longer-term opportunities in areas such as agents and robotics. Energy is a strategic growth market for HOCHTIEF. Rising investment in energy security and the global transition to low-carbon systems underpin sustained demand for energy projects. HOCHTIEF is deeply engaged in these segments, delivering projects spanning electricity generation with scale storage, high-voltage transmission and regional grid fortification. We have several decades of experience designing and building nuclear power plants and facilities across the world, delivering end-to-end services in an industry which could see over EUR 500 billion in investment in Europe by 2050. During the final quarter of '25, we secured a EUR 685 million 50-year framework contract in the U.K. for civil infrastructure work at the Sellafield nuclear site. By the beginning of '26, an important strategic milestone was reached where HOCHTIEF was selected as part of Amentum's global product delivery team for the Rolls-Royce's SMR nuclear program. In renewables, we continue to strengthen our market presence, particularly in Australia, where companies have delivered more than 20 million renewable and storage projects. We're also capitalizing on the accelerating requirement for critical minerals, driven by clean energy technologies, digital infrastructure and defense organization. HOCHTIEF through the combined capabilities of Sedgman and Thiess has built a global position in minerals processing and sustainable mining services with projects across key commodities, including lithium, copper, rare earth, nickel, vanadium, uranium and zinc. In December, the group expanded its partnership with Vulcan Energy with a significant cornerstone equity investment as well as securing an end-to-end role in developing sleeping production and processing infrastructure here in Germany. As part of the agreement, the group has been appointed as the engineering, procurement and construction management contractor and named as preferred supplier for the projects, civil construction works. We have also won a contract to provide a feasibility study in front-end engineering this framework for a major lithium project in France. Defense is in our key growth vertical for the group with investment in related infrastructure expected to substantially increase globally for several years. In Europe, major multiyear defense investment plans, including Germany, present substantial opportunities in defense-related capital works and potentially via the PAP model. And in the U.S. and Australia, governments plan major ramp-ups in defense spending over the next decade. At the end of 2025, the group had a defense order book of over EUR 2 billion, which included the construction of major dry dock at Pearl Harbor for the U.S. Navy, work for the Royal Australian Air Force based in Queensland and defense infrastructure upgrades in South Australia. Furthermore, a North American civil works business, Flatiron has been selected as one of the group of companies for a potential USD 15 billion worth of contract opportunities for the U.S. Air Force Civil Engineering Center. And Yesterday, we announced that HOCHTIEF has secured a major 10-year collaborative contract for the German Armed Forces in Hamburg worth several hundred million euros. Our core infrastructure capabilities are key for the group's ability to fully harness the growth opportunities we have identified. On average, around 85% of infrastructure investment in our growth verticals relates to our core construction know-how. As you know, we're hold leading positions across several core segments, including health care, biopharma, sports stadiums and education. And we have been a global leader in transport infrastructure and sustainable mobility for several decades where the outlook is very positive due to several infrastructure stimulus packages in our key geographies in North America, Asia Pac and Europe. In Germany, for example, the EUR 500 billion infrastructure fund was its first full year deployment in '26. HOCHTIEF is very well positioned to benefit due to the scalability of its business model and its core expertise in bridges, rail and transmission lines with the group's German order book doubling over the last 3 years to over EUR 5 billion. Let me take a moment now to outline our dynamic and disciplined capital allocation approach, which is a key objective for management. 2025 was a very active year for strategic M&A. In January, we closed a EUR 400 million acquisition of Dornan, a major milestone in Turner's European expansion strategy, and we also finalized the FlatironDragados combination, creating the second largest civil engineering construction player in North America. During the year, we strengthened our position in high-quality concessions through an EUR 80 million participation in Abertis, EUR 400 million capital raise to support its acquisition of the A-63 toll road in France, expanding its portfolio duration and enhancing our exposure to stable infrastructure assets. As part of the expanded agreement mentioned earlier with Vulcan Energy, HOCHTIEF agreed in December to an EUR 130 million cornerstone investment in Vulcan shares to become its largest shareholder. The move is aligned with HOCHTIEF's strategy to expand for critical minerals and energy transition value chain, building an integrated presence in investment, extraction, processing and infrastructure. In CIMIC announced the formation of a strategic partnership with Sojitz Corporation under which the Japanese company will acquire a 50% equity interest in UGL's transport business. Our capital deployment remains focused on scalable, high return equity investment opportunities to increase our presence in the value chain for strategic growth markets and [PPPs]. Group-wide cooperation and synergies are critical delivering on this strategy. Over the last 3 years, we have committed EUR 600 million of equity investment in strategic growth markets, including initial investment in our edge data center platform based in Germany as well as the acquisition of the remaining 50% of cloud services provider, Yorizon. Internally, we're optimizing our core tech platform and systems as well as supporting our talent, management, AI and digital systems, transforming how we work and enabling the group to deliver innovative, efficient and smarter solutions for clients. Our third expertise, talent mobility as a collaborative culture, enable HOCHTIEF to operate as one unified global organization, strengthening the quality, consistency and impact of its work. Talent management is critical to create the teams which drive the business forward, and we're proud to have had a 2025 intake of 4,500 engineers in technical employees. Moving to ESG. Our focus on environmental, social and governance initiatives remains on track. On this front, it is notable that HOCHTIEF has been accreted to premise status during the 2025 for its ESG performance and achievements by ISS BSG rating agency. So let me conclude with a few closing remarks. Our strategic agenda is focused on positioning HOCHTIEF for sustained high-quality growth while reinforcing resilient long-term value for the group. Our key priorities are: first, driving top line growth by expanding our value proposition and capturing megatrend demand; two, expanding margins through the delivery of higher value services, engineering capabilities, supply chain and integrated systems, advancing operational integration by simplifying corporate structure and transitioning into a more high-tech enabled efficient organization with a lower cost base, enhancing cash flow stability and sustainability through further derisking the group's business model, generating long-term value creation and sustainable dividend growth drive shareholder remuneration. HOCHTIEF has entered 2026 with a strong financial foundation and with a unique position as a global end-to-end provider of infrastructure solutions across our high-growth verticals, supported by our leadership position in core markets. The group's operational net profit guidance for 2026 was EUR 950 million to EUR 1,025 million target in our year of accelerating growth, implying an increase of 20% to 30% year-on-year. Based on our guidance in 2026, we will have double HOCHTIEF's profit in the space of just 4 years. Looking forward, HOCHTIEF is embracing the future by developing a strategic presence in its growth markets. Our strong and expanding presence in these interconnected sectors is a key competitive advantage and underpins our long-term growth strategy. Combined with our strong balance sheet backed by disciplined cash management, we have created the necessary conditions to pursue further significant growth opportunities and continue delivering substantial value for all stakeholders. Thank you for listening. We're ready now to take your questions. Mike Pinkney: We're ready for questions now, operator. Thank you. Operator: [Operator Instructions] And the first question comes from Graham Hunt from Jefferies. Graham Hunt: I've got 3, if that's okay. First, just on the guidance that you provided at your CMD last year. I just wanted to confirm that's still intact for Turner, so the 3.9% EBITDA margin, I think, and the 30% EBITDA growth. That's the first question. Second question, just trying to reconcile what's been extremely strong order intake in the Turner business. I think up doubling in Q4 and very, very strong outlook from some of your hyperscaler customers with relative to that, maybe growth, which is not as strong as maybe some are expecting or just not reflecting that sort of extremely strong outlook from your customers. And I was just wondering, are you reaching some capacity limits in the Turner business? Is there a reason why maybe that doubling of order intake isn't translating to faster growth in 2026? And then third question, just on operational synergies across the business. Just an update there in terms of how you're progressing with some of those projects. Juan Cases: Thank you, Graham. So let me start with the first one. Let me start with a reflection that pretty much talks about guidance in general. I mean, when it comes to Turner, you're right. I mean, 2025 order book of around EUR 17 million, it's represents a 144% growth and the new orders of EUR 18.1 billion, it's 170% and we had a very strong Q4. Furthermore, there's around EUR 10 billion to EUR 12 billion of work that is not reflected in the backlog for Turner because as we always say, the way we engage into this contract is always through a negotiation, working in design once we are preferred, but before we can really put it in the backlog. So the growth of Turner is [indiscernible]. Now in terms of guidance, we -- there's always at the beginning of the year, a lot of unknowns and uncertainties, geopolitically speaking, et cetera. So we prefer to be conservative as we were last year, and we were the previous year, and we prefer to update throughout the year, right? So Turner is not reaching capacity not at all. We continue seeing very strong growth. We'll continue seeing very strong growth. We're very comfortable with that. We just want to make sure that we secure all that into the balance sheet, that there's no surprises, that there's no geopolitical changes before we provide further updates. And that applies to Turner and that applies to the rest of the business. In terms of operational synergies, we -- I mean, we expect -- I believe that we're going to make progress in 2026. We do have a high target. We're expecting to reach -- I mean, cost reduction first as we streamline the process, release bureaucracy, we upgrade our systems and we're going to be simplifying and decreasing cost. How much we would like to get that update throughout the year, right, especially because we want to make sure that we achieve all those synergies during 2026. And our intention is, by the end of 2026, to update through our Capital Markets Day as we did back in '24 for the following next 3 years. So we want to make sure that we secure we consolidate in all the high-growth areas. We incorporate all these projects. We put all the synergies in place, and then we provide the update. Operator: The next question comes from Marcin Wojtal from Bank of America. Marcin Wojtal: Yes. My first question is on cash flow generation, you had a strong inflow of working capital in 2025. To what extent do you believe this is something that is structural and should continue in 2026 you have strong order backlog. So presumably, we could expect another wave of prepayment. Is that the right way to think about cash flow for 2026? My question number 2, this is just a bit detail on the numbers, if you allow me. I wanted to ask you about your -- in your segmental reporting, you have a line, which is basically referring to Abertis and headquarters expenses and this line remains very negative. So I'm just wondering why such a negative item in that line? And is there any change in that line for 2026? So maybe -- yes, maybe those 2 questions. Juan Cases: Yes. Okay. So starting with the cash flow. We -- I mean, as we continue to grow, we expect to see an improvement in cash flow. So we -- I mean, we are looking to a positive 2026 from a case perspective as well and net operating cash flow has been the last 3 years. The -- I mean a lot of the cash conversion, positive development that we're seeing, it's also a consequence of the change in our strategy, getting into a lot of these high-growth areas, securing all these projects. So we hope that, will continue. When you're asking about holding. That was an Abertis level or at HOCHTIEF level? Just to clarify. Marcin Wojtal: No, no. So that is for segmental reporting of HOCHTIEF, there is a slide, Abertis and headquarters. So that's more at HOCHTIEF level, let's say? Juan Cases: Yes. So what we did was we introduced noncash provisions and some deferred taxes. So the underlying is stable. But I mean we had noncash profits during the year. And typically, we don't want to reflect that in the P&L. Operator: And the next question comes from Dario Maglione from BNB Paribas. Dario Maglione: First of all, congratulations for the results. I mean these are the amazing results stepping back. Yes, I'll start with 2 questions. First, on partner as you said, the margin -- the profit before tax margin, 3.6% already in 2025. Where can margins go for Turner, let's say, in the medium term as the mix of data center increases? The second question is more -- some more details about Turner data centers. And if you could provide us the new order intake in data centers for the full year '25, the backlog and the revenue from data centers in USD terms, please? Juan Cases: So let me start with the first one. So a couple of things. First, on the profit before tax margin, that was 3.6% in 2025. In the capital -- in the last Capital Markets Day in 2024, we anticipated that 3.5% will be reached in '26. So we achieved that 1 year. Now what's going to happen? First, that will continue growing at least at the same pace and has been growing the years, right, as we do more high-tech projects. But two, there's going to be another component, which is we will continue to increase our sales performance capabilities and a portion of the projects through supply chain, but also through modularization. So that's going to increase margins. And that's a big part of our strategy that we did announce last year, and we will want to consolidate during this year. So with Turner, as I said before, we had a strong intake. We're seeing big prospects coming to Turner and the areas of the business. If you go through data center specific question, the backlog right now in data center is EUR 16.4 billion. Just in data centers, there's another EUR 10 billion to EUR 12 billion that is not included in this number, but we've been preferred, but we're going through the design, so therefore, we cannot reflect, right? And that it's a year-on-year increase of 144%. The order intake of data centers during the year has been EUR 18.1 billion, and that's an increase of EUR 170 million. And again, that does include EUR 12 billion that I mentioned, right? If we move to the rest of the areas, we are seeing very much increase in biopharma, in aviation, including aerospace, some increase in -- a significant increase, but it's coming from a much lower base in commercial. And then the rest of the business is stable, except probably other areas like I mean, like hotels or some more traditional that is coming down, okay? But in the rest of the segment, there's another EUR 10 billion that is not reflected in their backlog in the same way that a EUR 12 billion data centers that we are preferred, but it's not in the backlog. So in a sense, there's a total backlog of USD 44.3 billion of Turner, out of which USD 16.4 billion is data centers, and you would need to add an amount of USD 22 billion to that USD 44.3 billion that we are preferred, but it's not in the backlog. Operator: Then the next question comes from Luis Prieto from Kepler Cheuvreux. Luis Prieto: I had 3, if I can. The first one is, if my numbers are correct, there's been a sharp acceleration in the E&C margin in Q4. I don't know if you can shed some light on why that has been. The second question, and apologies if you have mentioned it, there's so much detail and information that I might have missed it. But the operational result contribution was guided -- from Abertis was guided at EUR 81 million for the full year, but it was EUR 58 million in the end. Could you please explain the reasons behind this, behind the miss, if I may call it? And then the third question, there have been press reports in Spain on your potential interest to spend as much as EUR 1 billion in defense technology players, the military driven players, not construction related or anything like that. Should we expect you to be active on this particular M&A front? Juan Cases: Excellent. So let me start with the first one on E&C in Q4. E&C, especially Germany and Europe is going to see a big increase moving forward. And we're expecting a big increase in '26. In '26 certainly, the profit of HOCHTIEF in Europe will start going up and you saw the guidance that we're giving. But more importantly, the order intake and the backlog. And why? Because there's a lot of work coming from Deutsche Bank, there's a lot of work coming from Autobahn, and there's a lot of work coming from defense. And that's going to start coming to the company. Now when it comes to Abertis, I mean, in general, the performance, there's a positive operational performance in '25, right, when you look at the target developments and the traffic. So that continue. There's an impact on the profit because of the corporate tax in France, right? And that's probably what you're looking at when you see the difference. And then the other part could be the foreign exchange rate movement on OBBBA. And then when it comes to the press report in defense, I mean, we don't know where the article came from. Certainly, when it comes to M&A, we're going to continue being selective and making sure that it incorporates additional capabilities to us. We -- I mean, I know that there's a lot of focus on our growth in data centers in the last years and the next years for the right reasons and that will continue to grow significantly. But we would like to grow in the different verticals, right? There's growth in the critical metal sector. There's a lot of growth in the energy sector. We see a lot of growth in the nuclear sector, and we see a lot of growth in defense. Now where do -- how we use our capital allocation among all those verticals to incorporate engineering capabilities and additional capabilities is something that we're deeply analyzing and we will be very selective. But we haven't announced anything. And if we do, you will all be the first ones to know. Operator: Then we have a follow-up question from Graham Hunt from Jefferies. Graham Hunt: Yes. Just one on your nuclear capabilities actually. I don't know if you could provide a little bit more color around the Rolls-Royce SMR program just in terms of the time lines there in terms of when we might see impact on the order book and maybe just scale and just what your thoughts are there on the outlook for that win or that partnership? Juan Cases: So let me start with the main numbers on the project, right, that you saw. So the contract -- the Rolls-Royce contract is in reality a program, right? This is pretty much to deploy the SMR plant from Rolls-Royce across Europe and potentially beyond. We won that incorporation with Amentum to become the program delivery partner and maybe is to start the first ones will be implemented in United Kingdom and other places in [indiscernible]. Now in terms of the contract, the -- right now, they are looking at the deployment of the first 3 to 4, but there's an initial plan of like 15 that will be deployed. The initial ones have a cost of around EUR 6 billion, and this is just an estimate, and the idea is to decrease that over time. We're still working on the different components of that CapEx and how we'll be distributed, et cetera. The initial part is mainly engineering. And our objective, our work will be to help on -- as part of the traction to try to modularize as much as possible to optimize those SMRs and make sure that they can build, I mean, at scale with the right supply chain, right mineralization and standardizing the contact. So for us, it's a very important project. As you know, HOCHTIEF built 13 out of 20 large plants in the past. Since then, we've been basically maintaining and dismantling. You saw that, well, we continue doing all of that work in Germany, and we won't sell a field in eastern countries, but now we wanted to go taking advantage of the new wave of nuclear moving from dismantling and maintaining to building large plants. And there's a big plan that we are deploying with the first contract being this one, but we continue working to enhance our capabilities because we see a lot of potential in Europe, in the U.K., in eastern countries, other places, but then it won't come in the U.S. So we're building our capabilities, and we're creating alliances. We will announce as we evolve in our strategy, we will provide further updates during 2026. Operator: And we have another follow-up question from Dario Maglione from BNP Paribas. Dario Maglione: Yes, maybe 3 more from my side. On the data center revenue, in Turner. I don't know if you provided that detail before. It would be helpful to know the revenue from the percent in Turner in USD terms in 2025. Then second question around the order backlog for data centers. You mentioned before -- sorry, the intake was EUR 16.4 billion. I think, for Turner, that implies another USD 3 billion of intake in data center somewhere else in the business. Is that mainly Asia Pacific? Maybe can you tell us more about these projects? And the last question, strategically, why are you investing in the in the digital cloud infrastructure for the edge data center in Germany and Europe? Like why not just keeping the edge data center, why also investing in the digital part of the infrastructure? Juan Cases: Okay. So starting with revenues of Turner. In 2025, I think that it was USD 10 billion, just in data centers, okay? And we're expecting that figure to continue increasing all the way up to EUR 25 billion to be achieved '29, '30, in conservative. In the case of the -- I mean, let me jump to the last one because I will ask some clarity around the EUR 16.4 billion question. On the digital cloud, I mean the difference between the big ones and the small ones is that the small ones have 2 main purposes. The first one is it's mainly inference processing capability, but also from a data storage perspective is pure colo. So we commercialize among a lot of different clients. The big ones, typically between 1 or 2 clients. And that type of business with the big ones is more kind of a lease of the facility versus the other business that will provide the full package, right? The cloud services, the cyber, et cetera. That's why we -- as we deliver the full service, we are enhancing our capabilities in this area. Now around the second question, can you repeat the question about the EUR 16.4 billion, please? Dario Maglione: Yes. So in Slide 8 of the presentation, at the very top left, it says total order for data centers is EUR 16.8 billion in 2025. So I guess most of it is in Turner, but there is a portion of that orders that is somewhere else in the business. So I was curious to learn more about these projects outside of the U.S. outside Turner let's say. Juan Cases: So I don't have -- I mean the Turner 1 is the figure that I gave before. That was the order intake of EUR 18.1 billion and the backlog EUR 16.4 billion. The difference is mainly [indiscernible] towards the rest of the numbers. But we can provide you with the figures in a follow-up call. Operator: So it looks like there are currently no more questions. So I would like to turn the conference back over to Mike Pinkney for any closing remarks. Mike Pinkney: Yes. Thanks very much, operator. So thanks to everyone for calling in. And obviously, we're delighted to follow up with any further detail offline. Thank you, everyone. Thank you for your time. Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.
Operator: Good morning or good afternoon all. Thank you for joining us for the Expro Q4 2025 Earnings Conference Call. My name is Carly, I'll be your conference call coordinator today. [Operator Instructions] I'll now hand over to our host David Wilson, Investor Relations, the floor is yours. Dave Wilson: Thank you, operator. Good morning, everyone, and welcome to Expro's fourth quarter call for the year ended 2025. I'm joined today by Mike Jardon, CEO; and Sergio Maiworm, CFO. Both Mike and Sergio will have some prepared remarks, after which we'll open the call for questions. As part of today's call, we have an accompanying presentation and supplemental financial information on our fourth quarter and full year results. Both of these are posted on the Expro website, expro.com, under the Investors section. Before we begin today's call, I'll remind everyone that some of today's comments may refer to or contain forward-looking statements. Such statements are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. These statements speak only as of today's date, and the company assumes no responsibility to make such forward-looking statements. The company has included in its SEC filing cautionary language identifying important risk factors that could cause actual results to be materially different from those set forth in any forward-looking statements. A more complete discussion of these risks is included in the company's SEC filings, which can be found on the SEC website, sec.gov, or on our website, again, expro.com. Please note that any non-GAAP financial measures discussed during this call are defined and reconciled to the most directly comparable GAAP financial measures in our fourth quarter and full year 2025 earnings release, which was issued this morning and can also be found on our website. With that said, I'd like to turn the call over to Mike. Michael Jardon: Good morning, everyone, and welcome to Expro's fourth quarter call. I'll begin by reviewing the fourth quarter and full year 2025 financial results from today's press release. Next, I'll cover Expro's strong backlog, the macro environment and our current outlook for the year ahead as well as give some input on some guidance. We will conclude with operational highlights for the quarter. Sergio will then provide some further details on our financial performance and address the company's ongoing capital allocation framework. So let's begin on Slide #3. For the year, 2025 marked another year with several successes for the company. We delivered on expanding margins, cost efficiencies, higher free cash flow generation, a strong balance sheet, technology deployments and not least of all, returning cash to shareholders. The company generated just over $1.6 billion of revenue and $353 million of adjusted EBITDA, representing a 22% margin. This financial performance was within the guidance ranges previously provided. Additionally, it represents the progress we have made in expanding our margins, moving us closer to our longer-term goal of EBITDA margins at 25%. A key metric that registered above the guidance range was adjusted free cash flow, which came in at $127 million for the year, more than doubling the amount generated in 2024. Going forward into 2026, we expect another sequential increase in the amount of free cash flow that the company can generate. For the quarter, the company reported quarterly revenue of $382 million and adjusted EBITDA of $88 million, representing a 23% margin in the quarter. Adjusted free cash flow for the quarter was $28 million or 7% of revenue. These quarterly and annual financial results reflect the ongoing operational efficiency gains, technological product advancements and their impact on margins and cash flow and the continued impact of our globalization strategy. Moving to Slide 4. Expro's $2.5 billion backlog reflects a $196 million increase during the fourth quarter. Our current backlog provides robust revenue visibility heading into 2026 and reinforces the strength of our diverse portfolio and operations across our geographic regions. Within our backlog, our long-term contracts, which provide a solid base and some stability in our revenue generation. One such recent example was a 4-year $380 million contract for a customer in North Africa. This achievement represents one of Expro's largest single customer awards, and I'll address this in a little bit more detail in some of my comments later on. Now as we've mentioned before, this level of backlog is encouraging and supports our strategic planning and visibility on revenue, but it does not represent a guarantee of future outcomes. Rather, we view our backlog as a reasonableness test and health check for our business one that offers insight into the business going forward. As we look to the year ahead, we consider the evolving market landscape, which continues to shape demand, investment and opportunity across the sector. Global demand for oil and gas remains resilient, supporting long-term investment, particularly in the international and offshore markets to which Expro is well positioned. We believe the current macro environment will result in a modest recovery in upstream investment with growth concentrated in international and offshore projects, particularly deepwater developments. This will be supportive of demand for Expro's well construction, well flow management, subsea and digital solutions. While brownfield optimization and production enhancement requirements from our customers continue to provide prospects for our well intervention, production optimization and digital offerings. Expro's diverse service portfolio, strong international footprint, technology differentiation and operational efficiency position us to capture opportunities across our geographic segments. To summarize, Expro maintains a cautiously constructive outlook for 2026 and beyond allowing us to continue supporting customers throughout the full well life cycle of their assets. Turning to Slide 5. We are providing our 2026 financial guidance based upon what we currently see in the global market. For the year, projected revenue for 2026 look to be at similar levels to 2025. And although revenue expectations remain relatively flat this year, Expro remains strongly committed to further expanding EBITDA margins and free cash flow generation. We plan to achieve this with the full year benefiting from our DRIVE25 initiative, our increased capital efficiency and further improving our wallet share with existing customers. To that end, we expect our 2026 CapEx to be similar to that of the 2025 level. Looking more near term and specifically at our first quarter guidance, you will notice that we expect our first quarter results to be impacted by the normal seasonal factors that we experienced almost every year in our business. The U.S. activity and revenue levels for the first quarter are projected to decline from fourth quarter due to the winter season in the Northern Hemisphere, where the U.K. or Norwegian North Sea as well as the U.S. Gulf activity tends to be lower due to ongoing winter storms and rougher than normal seas, which makes it harder to operate in the offshore environment. Additionally, the seasonal dip is due to some customers' CapEx and operational spend that tend to be lower at the start of their annual budget cycles, which tends to be the case with most of our NOC customers. To be clear, the lower level of projected revenue and margins for the quarter is due to the normal seasonality of our business and not representative of our overall expectations for the year. Overall, based on our activity outlook and our position today, I'm confident in our ability to achieve these 2026 objectives. Before turning to our customer and technology highlights, I want to revisit a few things that sets Expro apart and that we think are important attributes for investors to consider. You see these on Slide #6. Due to our exposure to across the well life cycle, we see opportunities to expand our wallet share with existing customers. We can do this by providing additional or enhanced services to customers leveraging our installed base to help expand margins, especially with the deployment of new technologies. Another theme central to Expro is our commitment to technology and innovation. While the rate of technology adoption varies greatly among customers, geographic regions and the different parts of the well life cycle, it's importance cannot be overstated. Without technology and innovation, we think it is very difficult to remain competitive or relevant in this industry. We put a lot of emphasis on this as we know it creates value for both our customers as well as our shareholders. Additionally, our global footprint enables us to leverage technologies internally developed or acquired through M&A in one geographically to then deploy them to another geography where we operate. For example, our acquisition of Coretrax in 2024. That business was primarily in roughly 18 countries at the time of the acquisition, but now we are deploying those technologies that we've acquired across roughly 31 countries. Moving to our customer and technology highlights for the quarter on Slide 7. During the fourth quarter, Expro continued to deliver safe and reliable performance to our customers across our global portfolio. We secured several major contract wins, advanced key technology deployments and demonstrated our commitment to safety for both our employees as well as our customers. While there have been several notable operational achievements and customer successes for the quarter, I will just quickly highlight 4. This quarter, Expro secured one of the company's largest single customer awards, a 4-year $380 million contract across multiple fields in North Africa for production optimization and well management services. Also during the quarter, the company successfully deployed its proprietary extended range drilling or XRD Spider is the first and only 1,250-ton spider of its kind. This innovative technology supports drilling, tripping and landing string operations, significantly reducing tool change outs. Consequently, it saves substantial rig time and minimizes red zone exposure, thereby enhancing both operational efficiency and safety. Expro plans to deploy the XRD Spider to more customer operations and expand the fleet in accordance with customer demand. In Australia, Expro successfully supported a major operator in delivering one of the region's largest offshore campaigns completing multiple subsea wells with 0 QHSC incidents. The campaign involved integrating subsea, well testing and sampling capabilities, resulting in over 2,200 man days of activity in which we received job performance review scores of 100%. In Indonesia, our CaTS ATX system enabled real-time wireless downhole data and remote valve control during drill stem testing. This product offering again demonstrates Expro's commitment to innovation and risk reduction in well operations. Before moving on, I would like to address another geography that has been topical as of late, and that is Venezuela. Having lived and worked earlier in my career in Venezuela, I'm intimately aware of the geological reservoir and production challenges in the country. These high technology and challenging conditions are where the Expro solutions approach really shines. While we don't currently see any near-term opportunities in the country, we do believe we are well positioned should opportunities arise in the future. Expro has operated in Venezuela for many years previously, still having a facility and some stranded equipment in the country related to both our tubular running services as well as our well flow management product lines. For now, we will stay engaged with our customers that may have opportunities there to develop, but also realize that this will take time and a significant amount of industry investment in order to mature these opportunities. Before turning over to Sergio, I'd like to remind everyone of Expro's long-term strategic pillars. These that we adhere to, to drive value for our shareholders, we see on Slide #8. Expro's long-term strategy is to build a large diversified company with a compelling business and product mix and market leadership positions. We are striving to build a company that is able to generate healthy levels of free cash flow, which will be used to achieve our various capital allocation goals, which Sergio will expand on in his comments later on. One of these strategic pillars is our commitment to continually improving the company's financial profile. The avenues used to achieve this goal are our relentless focus on margin expansion and free cash flow generation, our ability to drive cost efficiencies and reduce capital intensity and our ability to return cash to shareholders all backed by a strong balance sheet. Another pillar is our technical leadership and innovation. We continually develop and deploy new technologies into the market across our global footprint. This footprint also enables us to globalize technologies that we have acquired through acquisitions and then implementing those technologies in one geography location to another. Finally, Expro looks to grow through inorganic scalable acquisitions. We seek opportunities to target international and offshore opportunities that have adjacent product offerings and are accretive to the company's financial position. We have made several successful and accretive acquisitions and have developed a proven blueprint for integrating acquired businesses in an efficient and cost-effective manner. With that, I'll turn the call over to Sergio to review our financial results in detail. Sergio Maiworm: Thank you, Mike, and good morning to everyone on the call. As Mike noted, Expro executed well on its financial results for both the quarter and full year. While annual revenue was at the lower end of guidance, the free cash flow generated surpassed expectations and exceeded the high end of guidance. Specifically to Q4, our adjusted EBITDA was $88 million with a margin of 23.1% up about 30 basis points from last quarter and 10 basis points year-over-year. For the year 2025, adjusted EBITDA was $353 million with a margin of 22%, up 170 basis points year-over-year. Slide 9 illustrates our annual margin growth for the past few years. We remain confident that we will experience further margin expansion in 2026 driven by a full year impact of our DRIVE25 cost efficiency initiative, increased customer wallet share at higher margins and continued international growth resulting from previous acquisitions like Coretrax. Moving to Slide 10. Longer term, EBITDA margin expansion is not the goal in and of itself, but rather a means of increasing free cash flow generation. And in Q4, Expro posted its quarterly free cash flow generation of $28 million on an adjusted basis, bringing full year 2025 free cash flow generated to $127 million. which, again, was above the high end of the $110 million and $120 million guidance and more than double the amount generated in the prior year. Along those lines, we expect even stronger free cash flow in 2026, both as a percentage of revenue and in absolute terms as we plan to further reduce the capital intensity of the business, holding 2026 projected CapEx relatively flat. Turning to liquidity. The company closed the quarter with $551 million in total liquidity. That includes $198 million in cash in the balance sheet after accounting for the voluntary prepayment on the revolving credit facility, which totaled $20 million during the quarter. This voluntary repayment reduced the outstanding drawn balance on the revolving credit facility from $99 million to $79 million as of December 31, 2025, further enhancing the company's net cash position. Before turning to our segment performance, I do want to reiterate and summarize our financial outlook for 2026, as Mike previously addressed in Slide 5. Overall, we're cautiously optimistic with our 2026 outlook, recognizing the seasonal impacts on our projected first quarter results with noticeable improvement in the subsequent quarters with a stronger back half leading to a good start for 2027. Any anxiety over the flattish revenue guidance should be viewed in conjunction with projected sequential increases in adjusted EBITDA and EBITDA margins and free cash flow generation. The achievements will continue us on the path of one of the strategic pillars that Mike just mentioned, that of continued financial improvements which we believe will ultimately translate into increased shareholder value. Now I'd like to quickly address our segment performance this quarter before finally addressing our capital allocation framework. A reminder that details around our segment performances can also be found in the appendix of this presentation. Turning to regional results for North and Latin America or NLA. Fourth quarter revenue was $130 million or down $21 million quarter-over-quarter, reflecting lower subsea well access and well construction revenue in the U.S. where projects have shifted into 2026 offset by higher well intervention and integrity revenue in Argentina. Segment EBITDA margin at 24% was flat as compared to prior quarter. For Europe and Sub-Saharan Africa or ESSA, fourth quarter revenue decreased $10 million to $116 million sequentially, primarily driven by lower subsea well access and well construction revenue in Angola and Central and West Africa partially offset by higher well flow management revenues in Bulgaria. Segment EBITDA margin at 34% was up approximately 120 basis points sequentially, reflecting a favorable product mix. The Middle East and North Africa or MENA delivered another solid quarter, sequentially higher as compared to Q3 with revenues at $93 million driven by an increase in well flow management revenue in Algeria and Saudi Arabia. MENA segment EBITDA was 39% of revenues, an increase of 400 basis points from the prior quarter reflecting the higher well flow management activity and more favorable activity mix. Finally, in Asia Pacific, or APAC, fourth quarter revenue was $43 million, a decrease of $6 million relative to the third quarter, primarily reflecting the lower well flow management activity in Indonesia and India, lower well construction revenue in Australia, and offset by higher subsea well access activity also in Australia. Asia Pacific segment EBITDA margin at 16% of revenues decreased approximately 400 basis points from the prior quarter, reflecting decreased activity and mix. Now I'd like to briefly revisit Expro's capital allocation framework on Slide 11. Expro's capital allocation framework is designed to maximize long-term value creation by maintaining a disciplined and balanced approach across 4 equally important capital deployment priorities. Our philosophy is that every dollar of capital must be deployed where it can generate the highest risk-adjusted returns. And as such, each of these 4 areas continuously compete for capital on an ongoing basis. As a consequence, it may appear that priorities shift and they are, but only to those that we believe will generate the highest risk-adjusted return. One of our capital priorities is to continue to invest in our business to drive organic growth with superior return profiles. This includes funding projects and initiatives through CapEx deployments that enhance our core capabilities, improve efficiency and support technology innovation across our service lines. Every organic investment is rigorously evaluated to ensure it meets our standards for superior returns throughout the business cycle. As a reminder, the vast majority of our capital expenditures are geared towards specific projects with known return profiles that meet our standards. I would reiterate these are not speculative investments. Another area where we can deploy capital is inorganic growth opportunities. We pursue selective, highly accretive mergers and acquisitions that complement our existing capabilities and customer relationships. Our M&A strategy is focused on opportunities that offer clear industrial logic, scalable technologies and synergies and the potential to expand our presence in attractive markets. We applied the same disciplined capital allocation criteria to acquisitions as we do to organic investments, ensuring that only the most compelling opportunities receive funding. The company has a successful track record of executing on this strategy. We're also committed to returning capital to shareholders. Our framework targets the return of at least 1/3 of free cash flow to shareholders annually, primarily through share repurchases. This commitment reflects our confidence in the company's ability to generate sustainable free cash flow and our focus on delivering direct value to our investors, particularly over the long term. During the fourth quarter, we were unable to repurchase as many shares as we intended, causing the total percentage of free cash flow return to shareholders for the year to come just short of 32%. Finally, maintaining a strong fortress balance sheet ensures that we have the financial flexibility and resilience to act on our other capital allocation priorities. Additionally, preserving a strong balance sheet enables us to navigate market cycles, invest in growth opportunities as they arise and protect the company's long-term stability. Importantly, these 4 priorities constitute our capital allocation framework, organic investments, M&A, shareholder returns and balance sheet strength, and again, are not ranked in a set order of priority. Instead, they're managed dynamically with each area continuously competing for capital based on the quality of the opportunities available. This disciplined, balanced approach ensures that Expro remains agile, resilience and focused on maximizing value for all shareholders. And with that, I'll turn the call back to Mike for a few closing comments. Michael Jardon: Thank you, Sergio. As we conclude our prepared remarks and before opening for questions, I'd like to conclude with the following comments. I'm excited about what was achieved by Expro's employees in 2025. I'll reiterate, we collectively implemented cost efficiencies as part of our DRIVE25 initiative, increased our EBITDA margins moving closer to our long-term goal, successfully deployed new and innovative technologies, generated a high level of free cash flow and return of cash to shareholders and improve the company's net cash position. We executed on multiple priorities that Sergio just referred to in our capital allocation framework. Looking ahead, I'm also excited about what the company plans to achieve in 2026 even in a macro environment where we are cautiously optimistic. We acknowledge a somewhat softer start to the year related to the normal seasonal factors that impact both the industry and Expro. But we expect sequential improvements in the latter quarters, especially as we head into 2027 and beyond. We do expect to generate improved EBITDA margins and free cash flow in 2026 and anticipate executing again across our strategic pillars. I remain confident in Expro's resilience and ability to continue to deliver on operational and financial performance. Finally, we thank our employees, our customers and our shareholders for their continued support and look forward to building on our momentum in the quarters and years ahead. With that, we can open up the call for questions. Operator: [Operator Instructions] Our first question comes from Ati Modak from Goldman Sachs. Ati Modak: Mike, can you talk more about the increase in wallet share comment? It sounded like there's some inherent cross-selling opportunities? What exactly are those opportunities? And is this a little bit more geographical expansion? Any color you can provide around it? Michael Jardon: No, Ati, thanks for joining us and appreciate the question. This really is especially in some of our well construction operations, where we're providing TRS services, and we're also providing cementation services. We're adding additional services in there. Some of our Cure Technologies is a great example where we're already on the rig. We're already running TRS operations. We run our cementation operations significantly reduces the weighting on cement cure time. And we use the same personnel that are out there running our TRS services. So it's -- when I say expanding the wallet, it's we're already on the rig. We're already providing services. We provide some incremental services or products to our customers that help drive efficiency for them, and we're utilizing the same what we call installed base, but really the same personnel on the ground. So it's something that we can do across geographies. We're doing similar things in well construction. We're also doing that across our well flow management product lines as well. Ati Modak: That's very helpful. And then as you think about the EBITDA range you provided for '26, what are the puts and takes that you're focused on, whether it's activity-wise or idiosyncratic for you as you think about the bottom and the high end of the range? Michael Jardon: Yes. I mean, I guess how I would frame it Ati is, the market's going to do what the market is going to do this year. We're going to maintain our market share. We're going to expand our customer wallet exactly how many offshore floating assets are going to be operational in Q3 and Q4, that can always ebb and flow. We're just really focused on -- laser focused on making sure that even if we're in a flattish climate, we can still expand our margins. And that's really kind of what our guidance is framed up to give. It's not that we look at a massive step-up in activity in the second half of the year. It's more around the visibility we see today, and that's why we've given the guidance range that we have in there. Operator: Our next question comes from Eddie Kim from Barclays. Eddie. Edward Kim: Just staying on the full year 2026 guidance, EBITDA of $365 million at the midpoint, which reflects a modest improvement year-on-year. Just wanted to understand better understand the market assumptions behind that guide. Is the guidance sort of, I guess, valid at Brent in this kind of $60 to $70 range for the year? And could there even be further upside if commodity prices firm up from here. And on the flip side, if market conditions were to deteriorate, is there an oil price at which you expect operators might maybe push back or delay some programs? I know there was lot in there, but any color that would be great. Michael Jardon: No, Eddie, thanks for joining us and really, really good question. It's one that we talk a lot about internally. I guess how I would try to frame it up for you is our activity set is really based on what we're seeing with current commodity prices. I still think we've got a range here where even if commodity prices were to be compressed a little bit more, I don't know that we're so active in offshore deepwater projects that have a long investment cycle. And our customers are not going to throttle that down significantly here in the short term. I do think that we're cautious on how we're viewing the total activity set this year. I do quite frankly, think that there could be some potential things are going to ramp up more. We've heard some positive commentary from the drilling guys and those kind of things. It really depends on how that some activity translate into turning to the right, so to speak. So I think there could be some upside in the back end of the year. We're not going to rely on that. We're going to get our fair share. We're going to stay focused on technology rollouts and those kind of things. We'll kind of look at that as upside potentially, I guess, is how I'd frame it up. But we are laser-focused on even if we're in a situation in 2026, and I hope I'm wrong, but even if we're in a situation in 2026, where we're in a flattish revenue climate to even slightly down meaning the market is flat to slightly down. We're still going to be able to expand our margins modestly, and we're going to expand our cash generation as well. That's what we're really focused on. Edward Kim: Got it. Got it. That's very helpful color. And just wanted to touch on the offshore activity inflection. As you mentioned, there's kind of growing maybe consensus or optimism about an activity and collection back half of this year into 2027. Just from a regional perspective, could you talk about which regions you expect will sort of drive the recovery in which you expect or remain flattish or maybe take longer to ramp up. Michael Jardon: Sure. No, it's -- so I think one of the -- and this is something we've been consistent about talking about for a number of quarters. I think the subsea tree outlook has continued to be very positive and very strong and very robust. You look at the order backlog that some of our peers are adding in, that's been quite positive. That's a good leading indicator of what's to come. But those are things when they add backlog today, they're not -- those aren't trees that are going to be installed tomorrow. Those are trees that are going to be installed 9, 12, 18 months down the road. So I think that's been a good set of breadcrumbs that's been laid out there. And it's one of the reasons why we've been consistent. We think the second half of this year is more robust, especially going into 2027. And I think you're going to see this -- the U.S. Gulf is probably going to be a flattish year in 2026. I think good potential as we go into 2027 for some expanded investments. South America is going to be strong. West Africa is always the one that -- it's going to take a little bit more time to ramp up, but that's the one that will really kind of help start to move the needle when that happens. So I think West Africa in particular is why we're going to start to see the '27 and beyond, that's when we're going to start to see more of that real inflection point. And those are bigger projects. Those are multi-rig campaigns, those are significant drilling and completion -- drilling complete operations. Operator: [Operator Instructions] Our next question comes from Colby Sasso from Daniel Energy Partners. Colby Sasso: I just wanted to ask, given the current administration has been favorable to pushing deals through, have you got other meaningful deals announced in the offshore space a few weeks ago. I'm curious seeing the increased transactions go through. Has that changed your strategy at all? Or maybe could you update on the surrounding thoughts given M&A that you've done, and they haven't done anything in a while. Michael Jardon: Sure. No, Colby, it's a great question. I mean I think it's -- yes, the current administration is probably more amenable to M&A and those types of things. Quite frankly, our -- the things that we have an appetite in and we have an interest in aren't -- they're going to have a global nature. They're going to have a global presence and we don't have a significant concern around our ability to -- for those that go through antitrust or those kind of things. So for us as a company, the type of things we're interested in looking at aren't really being influenced heavily by whether the administration is more or less amenable. I think there continues to be -- they're still over the last 5, 6 years, there still has only been a handful of consolidations of size in the services space, whether that was hours back in 2021 or what Patterson has done, it was nice to see the rig and the Valaris transaction here. I think that's a good move for the industry. I think we'll continue to see those type of things happen. And we are working on those kind of things every day of the week because it really is about helping us become more relevant to our customers, helping them more solutions and more efficiencies and those type of things. And we're absolutely convinced if we're more relevant to our customers then we're going to become more relevant to our shareholders as well. So it fits in, but it's something we continue to work really, really hard on because we have a great platform. We're offshore, we're international, we have touch points with our customers all the way from exploration through appraisal, through development, through production all through P&A. So we have a lot of flexibility and latitude on a type of things that would fit into our portfolio and that we could help drive value with. Colby Sasso: And just another follow-up. One of the themes over the last 2 quarters of large operator calls has been increased need for exploration offshore. Any thoughts on what you're seeing in the areas geographically that could surprise the upside over the next couple of years? And how do you see yourself taking advantage of what you're seeing and hearing? Michael Jardon: No. Colby, it's a great question. It's a really perceptive question. So kudos for you for picking up on that. Our customers, yes, we're having more and more exploration project discussions. Part of that's because they need to add more and more into their portfolio for future production and future reserves. We provide a lot of services in the exploration activity set. So whether it's well construction or it's well flow management, when we start flowing these wells back to evaluate the reservoirs or it's being able to help provide the connectivity in a subsea application from the rig to the sea floor. So it's a great opportunity for us. We play a lot of those kind of services. And I think as we see more and more of that translate into activity, I think we'll continue to see more exploration opportunities, and that means more exploration revenue in dollars for us. So it's -- we've been really over the course of the last really since 2012, there hasn't been a lot of meaningful exploration activity going on globally. So I'm excited to see that potential. We'll see how much of it translates into 2026. I think more of what we're going to see in 2027. Operator: Our next question comes from Derek Podhaizer from Piper Sandler. Derek Podhaizer: I just want to go back to the conversations around the 2026 guidance. So just going up to the top line revenue here. I know the prior guide was for '26 to be flat, but down now the new guidance is flat to up. So I was hoping you could help us understand some of the puts and takes there. Why our outlook has improved maybe from a regional standpoint? And then just thinking about how the guidance ties to the implied sequential growth on the top line, the second, third, fourth quarter because it looks pretty meaningful. Michael Jardon: Yes. And Derek, thanks for joining. I guess what I would -- we're more -- and I kind of alluded to it in one of the earlier questions, we are laser-focused on if the market grows, 2% or 5% or 10%, we will absolutely get our fair share of projects. We have a very high bid win rate. we have great customer relationships. So what the market does, we're going to benefit from that as well as anybody else. And I don't want to say we don't have any control over that, but we -- the timing of somebody adding a rig in Angola or the timing of additional rigs and activity in the U.S. Gulf, we're not going to have an influence over that, but we're going to be able to provide those services. So it's not so much that our view has become more positive or more negative. What I have the organization focused on is execution, service delivery, HSE performance, continuing to win our fair share of activity and fundamentally driving more efficient operations. We expanded margins in 2025, and we expanded cash flow generation significantly in 2025 because we were focused on the things we could control, and we're going to do that again in 2026 and even if the market is flat to slightly down, that's not to say I think it's going to be slightly down. My message is even if the market is under a little bit more pressure, we will still expand our margins and expand our cash flow generation. So that's -- really that's a little bit of a subtle difference, but it's much more around I want my team and myself to focus on what we can control. And if the market grows, that's fantastic. We'll have some upside potential to what our forecast looks like going forward. Derek Podhaizer: Yes. That makes sense. And I appreciate the color. Maybe just follow-up there is, could you maybe break down the geographies, where do you see maybe the points of strength as we work second, third, fourth quarter, maybe you can rank order them just your geographic regions? Michael Jardon: Sure. So I do think that for us, Middle East, North Africa is going to be solid this year. We're going to have some projects that will deliver in the fourth quarter that we're already actively engaged in. So I think that's going to give us some -- that's part of the reason why we see and anticipate a solid Q4. South America, we've got some similar just projects and activity that's going to happen there as well. I suspect that when we do a look back on 2026, I would be very surprised if there's not some surprise to the upside in the U.S. Gulf. I think for operators access to those reservoirs, the carbon advantage nature of it, the ability to get access to rigs that are working for one operator today, and they come to another operator tomorrow. So I think that's going to be another one that could be strong potential. I would probably put Asia Pacific is continuing to be just because of the cycle time and some of the -- where they're at in the sequence of activity in places like Australia, I think that's going to be more of a 2027 phenomenon. I kind of view Asia Pacific in that same kind of context. It's going to be a little bit more -- it's going to be a little bit more of a laggard than the others. And then West Africa is one in which I think by the time we're talking in 2027, it's going to be quite robust, and it's really, for me, it's the transition of does that start to happen in the third quarter of 2026 or the middle of the fourth quarter, the end of the fourth quarter, I think that's just a little bit more of a timing for when they take delivery of rigs and when they really kind of start solid drilling and completions activity. Operator: [Operator Instructions] Our next question comes from Josh Jayne from Daniel Energy Partners. Joshua Jayne: I apologize if you covered this earlier. I just wanted to hit on pricing quickly. So we've been in this period, I guess, over the last 24 months where we saw a pretty sharp acceleration in rig rates. And then things have come off, but I would say, stabilized over the last 6 months. How does potentially a tightening rig rate environment frame your pricing conversations and allow customers to see some more value in a lot of the things that you offer. Maybe you could just elaborate on that a little bit. Michael Jardon: Sure. No, Josh, thanks and appreciate that. I guess, how I would frame it up is I think it's been a -- I think the pricing climate we have had, although we're not getting, we don't have a lot of ability to raise prices right now. I think there's not been downward pressure on pricing. And I think a lot of it has been the rig guys and the rig rates and those kind of things, they really kind of -- they kind of set the tone, so to speak, they kind of set expectations for customers. And so the fact that those guys have been extremely disciplined. They've demonstrated a willingness, they're going to stack rigs or they're going to retire rigs or those kind of things before they're going to move rates down materially. I think that's been helpful and constructive, our prices aren't indexed or directly correlated to the rigs, but I think it kind of sets an expectation or a tone within the space and within the sector. So I think as we're seeing consolidation with those guys and we're seeing more demand for those rigs, hopefully, we go back to a climate which there's actually some discussions around rising rig rates. And I think that kind of conversely starts to set some of the -- starts to set some of the opportunities there as well. I think the other flip side for us is really around as we expand and roll out new technology, our new technology, especially the ones that help us -- that allow us to expand our wallet share. Those typically come at more of a premium because we're generally out there servicing it with the same crews we have who are already running services. So when you add incremental services, that's what helps us expand the wallet share and also really kind of helps us expand the margins. So -- at the same time, we're very disciplined on we're going to roll out technology at the right rate. We have pricing expectations, we have value creation expectations. When you run Cure Technologies in an offshore application, you save almost 24 hours of rig time not waiting on cement, we have a value expectation of the time savings and we're not going to try to increase the technology adoption rate by lowering our prices. We're going to stay disciplined. We'll take a longer period of time because over the course of the next couple of years, rig rates will rise, things will tighten and you get an opportunity to price things only once. So we're going to be disciplined about that. Joshua Jayne: And then just one, if I may. And again, if you covered this already, apologies, understanding that offshore Venezuela isn't projected to be something massive. I'm just curious as things calm down geopolitically within that country. How does that potentially open up areas like Colombia or Trinidad or Guyana, just given the geographical proximity to those areas? Any thoughts there. Michael Jardon: Yes. No. It's -- and Josh, thanks for bringing it up. I commented in the prepared remarks earlier that for myself, having lived and worked in Venezuela, my kid spent a number of years growing up and going to school in Venezuela, it is -- I'm really, really excited to see the opportunities that are going to happen in country. It's going to be interesting. It's going to be unique because you're going to have land opportunities. You're going to have shallow water Lake Maracaibo opportunities. You're going to have potentially deepwater offshore, there's FPSOs, there's infrastructure that already exists with Guyana and what's going to happen with Suriname. I mean I think it's tremendously positive. I'm really excited about it. And especially for us as a company because we're really, really good at the high technology component, the things that are difficult producing environments or difficult drilling environments. That's where we really can shine. So I'm super excited about it for us. The question is, when is that going to happen? It's not the question of if there's an opportunity, it's when is it going to materialize? So no, I think it's fantastic. I think it will really provide a real growth engine for the industry because of the close linkage between Guyana, Suriname, Trinidad even into French Guyana, I think it's just -- it's a great opportunity. So I'm super excited about it as you can probably pick up. Operator: We currently have no further questions. So I'd like to hand back to the management team for any closing remarks. Dave Wilson: Okay, everybody, thanks for joining us today. This is Dave Wilson. If you have any follow-up calls, please reach out to me. Again, I appreciate your participation. Thank you. Operator: As we conclude today's call, we'd like to thank everyone for joining. You may disconnect your lines.
Operator: Hello, and welcome to Broadstone Net Lease's Fourth Quarter 2025 Earnings Conference Call. My name is Emily, and I'll be your operator today. Please note that today's call is being recorded. I will now turn the call over to Brent Maedl, Director of Corporate Finance and Investor Relations at Broadstone. Please go ahead. Brent Maedl: Thank you, everyone, for joining us today for Broadstone Net Lease's Fourth Quarter 2 Earnings Call. On today's call, you will hear prepared remarks from Chief Executive Officer, John Moragne, President and Chief Operating Officer; Ryan Albano; and Chief Financial Officer, Kevin Funnell. All 3 will be available for the Q&A portion of this call. As a reminder, the following discussion and answers to your questions contain forward-looking statements, which are subject to risks and uncertainties that can cause actual results to differ materially due to a variety of factors. We caution you not to place undue reliance on these forward-looking statements. For a more detailed discussion of risk factors that may cause such differences, please refer to our SEC filings, including our Form 10-K for the year ended December 31, 2025, and note that such risk factors may be updated in our quarterly SEC filings. Any forward-looking statements provided during this conference call are only made as of the date of this call. With that, I'll turn the call over to John. John Moragne: Thank you, Brent, and good morning, everyone. Before I dive into our results and outlook, I want to briefly reflect on what we accomplished in 2025 because I believe it was an important year in Broadstone's history. 2025 was pivotal in terms of proving out the promise of this company and our strategy. and was crucial in terms of establishing a strong foundation for B&L's future. We successfully executed our Investor Day and used it to reinforce who we are as a company and why we believe our differentiated strategy is built to generate consistent and attractive long-term shareholder value. Delivering on our strategic objectives last year required significant effort across the entire organization, and I couldn't be prouder of what our team accomplished. As a reminder, our strategy continues to be driven by our 3 core building blocks: First, solid in-place portfolio performance, anchored by our top-tier contractual rent escalations, same-store growth potential and revenue-generating CapEx; second and most importantly, a laddered pipeline of committed build-to-suit development projects that provide attractive yields, value creation and derisk future AFFO per share growth; and third, stabilized acquisitions, including sale leasebacks and lease assumptions particularly those that are directly sourced and relationship-based that supplement and enhance our built-in growth profile. In 2025, we made meaningful progress across each of these building blocks. And as we look ahead, we believe our build-to-suit strategy will provide meaningful embedded long-term growth and value creation. With high-quality mission-critical facilities with attractive economics and high-quality tenants, our portfolio and pipeline provide a powerful driver of durable growth that is unique within the net lease space. With our differentiated strategy established and our team firing on all cylinders, we delivered a strong year on all fronts, including generating $1.49 of AFFO per share, representing 4.2% growth year-over-year. We also maintained solid portfolio performance ending the year 99% leased and 99.8% of rents collected. We also incrementally disposed of some of our remaining legacy clinical health care assets, and we continue to tightly manage expenses and grow cash flows. On the investment side, we deployed $748.4 million, including $429.9 million in new property acquisitions, $209.3 million in build-to-suit developments, $100.8 million in transitional capital and $8.3 million in revenue-generating capital expenditures. The new property acquisitions and revenue-generating capital expenditures had a weighted average initial cash capitalization rate of 7%, a weighted average remaining lease term of 14.2 years and weighted average annual rent increases of 2.6%, providing contractual growth that is 50 basis points above our portfolio average. On a weighted average basis, these investments also carried a straight-line yield of 8.4%, reflecting attractive growth-oriented returns while extending the duration and embedded rent growth profile of our portfolio. Alongside our investments, we also successfully navigated multiple headline tenant situations throughout the year, and I want to give our team all the credit here. These situations require a lot of work, and our organization has tangible tested experience in managing them to completion. Our team brings a creative and solutions-oriented mindset to find outcomes that work for us and our tenants. It's the ability to find mutually beneficial solutions to difficult problems that helps us build long-term relationships with our tenants and clients. which you hear us talk about often. Despite the headlines, the actual financial impact from tenant situations last year was limited with bad debt for 2025, amounting to only 31 basis points. That outcome underscores the strength and reliance of our portfolio as well as our team's ability to manage through these events and should serve as a reminder that while credit events are bound ahead. In most cases, the underlying impact on the business is minimal and does not necessitate the outsized swings in our share price that we have experienced historically. A recent example of this disconnect was when American Signature filed for bankruptcy over a weekend in November last year, a filing that was not communicated to us in advance. In response, our share price declined over 5%, representing approximately $150 million of market capitalization despite American Signature representing only approximately 1% of our total ABR. As you saw in our earnings release last night, through the court supervised process, Gartner White Furniture has assumed all 6 of our American Signature leases at current rents effective as of February 6. We realized no bad debt throughout the process, and we now have a strong retail furniture operator in all 6 of our locations with what we expect will eventually be a new and structurally improved long-term lease. Overall portfolio performance remains solid, and our credit and underwriting platform, paired with our proactive relationship-based focus allows us to stay close to our tenants and anticipate issues early. We've also been intentional about communicating potential tenant concerns as transparently and as early as possible. With that backdrop, we want to provide an update on what we are seeing across our Red Lobster sites. The tenants post-bankruptcy operating performance has been mixed. With its turnaround strategy positively impacting some sites, while others have experienced weaker traffic and profitability. We are monitoring this closely and remain in active dialogue with Red Lobster while we continuously assess each of our sites to understand our highest value pathways forward, which could simply mean maintaining the status quo. Given the continued underperformance at some of our sites, however, we are in the process of evaluating potential mutually beneficial 4 sale or 4 lease paths that could reduce our exposure to the brand over time. We remain highly confident in our ability to navigate our exposure to Red Lobster as we have proven with this and other distressed tenants time and time again. Turning to 2026. And as we previously outlined in connection with our Investor Day, we are reiterating our 2026 AFFO guidance of $1.53 to $1.50 per share or 4% at the midpoint. Kevin will walk you through our key guidance assumptions in his remarks. But I think it's worth reminding everyone that the success we had in 2025 and establishing our build-to-suit pipeline provides for a very strong foundation for 2026. The incremental investment activity required to achieve our 2026 guidance targets is relatively insignificant. And our primary focus on our investment committee conversations centers around what we are seeing that will deliver in 2027. We remain in a great position to start the year with approximately $350 million of high-quality build-to-suit developments scheduled to reach stabilization during 2026, adding nearly $26 million of incremental ABR. Additionally, we have approximately $142 million of additional build-to-suit developments that are under executed LOIs consistent with what was previously provided in conjunction with our Investor Day. We are also excited about some opportunities to continue to add to our transitional capital bucket. As many of you have been focused on since our third quarter earnings call and from our Investor Day presentation, our transitional capital investment in Project Triboro is top of mind and we have now invested approximately $100 million in the project through December 31. As I've said previously, we are very excited about this project, and we intend to use 2026 to evaluate all available paths for this investment opportunity, while staying actively involved in the development work to preserve optionality and ensure we maximize value for shareholders. Ryan will provide more details on Project Triboro in a few moments. Finally, while we have been encouraged by improving market sentiment around REITs and some improvement in our equity multiple, we remain frustrated with our relative valuation. We continue to focus on disciplined execution to close the remaining gap versus our peer average and expand our ability to fund growth opportunities over time. As you saw in our earnings release last night, we raised a small amount of equity under our ATM since November. In total, on a forward basis, we have raised gross proceeds of approximately $43 million. While the market setup has been incrementally constructive, we do not expect to raise significant amounts of additional equity at these levels. So we will remain opportunistic in our decision-making. As we have made clear over the last 3 years, we will control our own destiny and look to opportunistic dispositions and alternative opportunities for capital when we do not believe the equity markets are properly valuing our shares. That being said, we know that publicly traded net lease REITs like B&L work best when they are in the virtuous cycle and raising accretive equity capital to be redeployed into attractive investments, and we look forward to the day when we're able to consistently raise equity in that manner again. As I said at the beginning of my remarks, I couldn't be prouder of what our team accomplished in 2025, and I look forward to sharing with you all that we will accomplish in 2026. With that, I will hand the call over to Ryan and Kevin to take you through some of these themes in greater detail. Ryan Albano: Thank you, John, and thank you all for joining us today. As John mentioned, 2025 marked a pivotal year for the strategic road map implemented following the executive team transition in early 2023. Our differentiated approach in core building blocks are firmly established, supporting robust growth in 2025 and enabling visibility into embedded growth through 2027, well ahead of most net lease companies. . Over the course of the year, we had approximately $4.5 million of ABR commenced from build-to-suit projects, featuring weighted average annual rent escalations of 2.9% and a weighted average lease term of 15 years, further strengthening our robust portfolio metrics. Furthermore, our UNFI build-to-suit project, which began generating rent in late 2024, contributed a full year of ABR during 2025. At present, we have 9 in-process developments, representing an estimated total project investment of $345 million. These projects offer strong estimated initial cash yield of 7.4% and estimated weighted average straight-line yield of 8.6%, driven by weighted average lease term and annual rent escalations of 12.9 years and 2.7%, respectively. Notable, these tenant-driven projects are structured to mitigate traditional development risks such as construction timing and cost pressures. Of equal importance, our pipeline building methodology serves as a strategic differentiator. We primarily source opportunities through existing and direct relationships facilitating repeat transactions and expanding access to new investment opportunities. Our development partners value certainty of execution, expertise, creativity and flexibility while assisting them in securing investment opportunities and advancing their businesses, setting us apart in the market. Aligned with our Investor Day announcement on December 2, we maintain approximately $142 million in advanced stage projects under executed LOIs, sustaining a pipeline that supports our target of $350 million to $500 million in committed build-to-suit projects for the foreseeable future. In 2025, while focusing on developing our initial build-to-suit pipeline, we also pursued stabilized acquisitions primarily through direct sourcing efforts. We invested approximately $430 million in new property acquisitions, achieving initial cash yields of 7% and strong weighted average rent escalations of 2.6%, resulting in straight-line yield of 8.4%. Regarding the transaction market, we observe healthy activity, including some notable portfolio opportunities, especially within the industrial property segment. However, we remain disciplined. In many cases, pricing levels do not align with our targeted risk-adjusted returns, and we refrain from prioritizing volume over quality. We continue to exercise caution regarding tenant credit, considering broader economic conditions and sector-specific constraints. Consequently, we prioritize opportunities involving strong relationships and investment structures that protect downside risk, whether via our build-to-suit platform, revenue-generating capital expenditures or stabilized property acquisitions. Turning to dispositions. We sold 28 properties in 2025, yielding gross proceeds of $96 million at an average cash cap rate of 7.3% on tenanted properties. These transactions were primarily focused on routine portfolio sales and risk mitigation efforts, including the sale of Stanislaus Surgical, which further reduced our exposure to nonreimbursable expenses associated with clinical assets. Now focusing on our in-place portfolio. We completed 19 lease rollovers during the year, addressing over 1% of the total portfolio ABR. This resulted in a weighted average recapture rate of 110% at an average new lease term exceeding 7 years. For 2026, 3.3% of our in-place ABR is scheduled for rollover with negotiations already underway and positive outcomes anticipated. Regarding our watch list, our team successfully managed key tenant events in 2025, including positive outcomes with At Home, Claire's and Zips. Following year-end, Gartner White assumed all 6 of our sites through the court-approved American Signature bankruptcy process. As a strong Michigan-based furniture retailer, they were already familiar with these locations and a logical candidate to operate these sites into the future. Additionally, in January, Claire's exercised its lease termination right effective June 30. We are collaborating with Claire's to facilitate a seamless transition and optimize our leasing and disposition efforts, having already attracted interest in the property. As John indicated, we are increasingly cautious regarding our exposure to Red Lobster, given the slower-than-anticipated return to historical foot traffic patterns. Red Lobster currently represents approximately 1.3% of total ABR across 18 sites under a single master lease that runs through 2042, offering meaningful protections as we move forward. We are evaluating strategies to gradually reduce exposure over time, retaining flexibility to pursue optimal outcomes while continuing to monitor the company's operating performance. On a forward-looking note, I'm excited to update you on Project Triboro, our primary transitional capital investment. Triboro is a fully entitled industrial development site in Northeastern Pennsylvania distinguished by its strategic location, a highly attractive market demand backdrop, coupled with limited near-term supply and committed power capacity totaling 1 gigawatt with supporting infrastructure. These attributes have generated considerable interest from several market participants and multiple paths to value creation. Consistent with John's remarks, we are focused on maintaining optionality for Project Triboro as we progress through 2026. Today, given the substantial power commitment, the primary path we are evaluating is a future hyperscale data center campus with potential transaction structures ranging from powered land to powered shell configurations. Importantly, we have a clearly established floor. If the data center path does not produce the optimal outcome, the site is already fully entitled and designed to accommodate multiple industrial build-to-suit developments, ensuring attractive alternative investment opportunities. Phased execution serves as a cornerstone of this project, enabling a deliberate and systematic approach that delivers incremental value at each stage. This framework permits advancement towards future milestones while preserving adaptability at every juncture to facilitate additional investment, partial monetization or complete monetization of our investment. To date, we have received unsolicited proposals, reflecting valuations significantly higher than our capital invested. Site work commenced in the fourth quarter and remains ongoing with multiple concurrent work streams underway and initial power delivery anticipated as early as the third quarter of 2027. We look forward to providing additional updates each quarter as the project progresses. Triboro demonstrates our relationship-focused, value-driven conditional capital approach. Relationships port through this transaction continue to yield additional investment opportunities. With that, I will now turn the call over to Kevin. Kevin Fennell: Thank you, Ryan. During the quarter, we generated adjusted funds from operations of $75.8 million or $0.38 per share, a 5.6% increase over Q4 of 2024. For the full year, we generated $296.3 million or $1.49 per share, a 4.2% increase year-over-year, driven by strong same-store rent growth of 2% and approximately $430 million in stabilized investment activity throughout the year. The year's results also benefited from lower nonreimbursable property expenses from re-leasing activity that occurred at the end of 2024 and lower carrying costs from health care-related dispositions that occurred at the beginning of 2025. Lost rent totaled 31 basis points for the year, down from 67 basis points during 2024. Core G&A was well managed once again during the year, with expenses totaling $7 million during the fourth quarter and $28. 7 million for the full year, down 2% year-over-year. These were partially offset by higher interest expenses associated with our revolving credit facility driven by an increase in acquisitions activity. With respect to the balance sheet, we ended the year with pro forma leverage of 5.8x, approximately $11 million of unsettled equity and over $700 million available on our revolver. In December, we amended our bank term loans, resulting in a 10 basis point reduction to each of the loans all in rates, and an incremental 25 basis point reduction to the 2029 term loan rate. We also amended the 2029 term loan maturity date, providing a fully extended maturity into February 2031. With limited debt maturities through 2027, we maintain sufficient financial flexibility as we look ahead. Regarding the capital markets more generally, our posture remains opportunistic. Example of what you saw with our $350 million September bond issues. More recently, our decision to issue a small amount of new shares via the ATM was similarly situated as we evaluate our robust pipeline of investment opportunities and approach rent commencement on a number of our build-to-suit projects. Including incremental sales after year-end, we currently have approximately $43 million in unsettled equity that we expect to sell at the end of the year. As John alluded to, we are not interested in raising equity and significant scale at these levels, and we'll look to self-fund our investments if or as needed. Last week, our Board of Directors approved a quarterly dividend of $0.2925 per share, representing a $0.25 or approximately a 1% increase over the prior dividend. The dividend is payable on or before April 15, 2026, to shareholders of record as of March 31, 2026. This increase reflects our return to growth in 2025 and visibility to additional growth in 2026 and 2027, and we are excited to be in a position to translate that momentum into dividend growth while continuing to target a mid-70% payout range at the end of 2026. We are reiterating our 2026 per share guidance range of $1.53 to $1.57 per share with the following key assumptions: investment volume between $500 million and $625 million. disposition volume between $75 million and $100 million. And finally, core G&A between $30 million and $31 million, revised down from $30.5 million to $31.5 million in our initial guide given better-than-expected core G&A for 2025 and our continued success in managing these expenses. As previously mentioned, we also include 75 basis points of lost rent with our 2026 guidance and we'll revisit this assumption throughout the year. It's always worth reminding everyone that our per share results for the year are sensitive to the timing, amount and mix of investment and disposition activity as well as any capital market activities that may occur during the year. Please reference last night's earnings release for additional details, and we will now open the call for questions. Operator: [Operator Instructions] Our first question today comes from Anthony Paolone with JPMorgan. Anthony Paolone: My first question relates to just the competitive landscape for build-to-suit opportunities. We've seen since you all have ramped this up a couple of the net lease name also lean into that strategy. I'm just wondering if you're starting to see any more competition or others enter into the space. John Moragne: Invitation certainly is the sincere form of flattery, right? We're pleased to see that others are finding the same value in build-to-suits that we do. That being said, we have not seen an increase in the level of competition on the deals that we're looking at. And that goes to what Ryan was discussing in his remarks, the relationship-based nature of the way that we source our deals. . Our goal is to find partners who are looking to help us grow our business where we're helping them grow theirs. And so in the same way that we look for mutually beneficial solutions to tenant issues. We're also looking for mutually beneficial relationships on the build-to-suit side. So by contrast, we've actually seen a big uptick in the amount of build-to-suit activity that had come across our teams desks, particularly in the last 10 days of new opportunities that we're excited about with potential completions in 2027 and even out into 2028. So certainly more attention and activity in the area, but it's not impacting the top of our funnel or the way that we're able to source deals that we'll be able to add to our pipeline over time. Anthony Paolone: Okay. And then just my second question relates to Project Triboro. You mentioned maybe an initial delivery in 3Q '27 for power. Like how much of the 1 gigawatt would that be? I mean the gigawatt is a lot, and it seems like the capital investments could be quite sizable. And so just trying to get a little bit more context around that time line and what that means? Ryan Albano: Sure. I'd say it's a little too early to tell. We are looking at different load ramps in talking with PPL about it, I would say that when we think about the power, we really kind of think about it in 2 phases, and the first phase is 300 megawatts. And the second phase takes you up to the gigawatt. It would likely be some portion of that initial 300 megawatts and probably somewhere over 100. Operator: Our next question comes from Eric Borden with BMO Capital. Eric Borden: You talked about different types of capital sources that you may potentially be using in 2026. One of those was the potential opportunity to recycle assets. I just want to talk about UNFI. If you were to sell UNFI today, how would you expect to deploy those proceeds? Would it be towards traditional acquisitions or funding new developments? And then additionally, how are you guys thinking about the potential leverage implications if the proceeds were used to fund new development activity? John Moragne: Sure. couple of questions, I guess, to answer. The first is UNFI as a capital source most optimally later this year as that becomes more tax efficient. So as you think about. Your question on use of proceeds, I think there's a timing component to introduce as well. And so we think about all the dollars we're deploying, our commitment in the build-to-suit is sort of a known number today. It will grow over time. And similarly related, we've got a lower target for stabilized acquisitions. And so I'd say, it's less about the mix of the deployment dollars and more about the timing of those dollars is the first answer. And then second, on leverage, you've heard us the last couple of quarters, especially get really comfortable talking about our sustained target of 6x on a pro forma basis. I think with where we're trading today, we're still dancing around those levels and evaluating what that next capital source is. And to the extent that its equity, it certainly helps the leverage equation. To the extent is a dispo, you sort of maintain that leverage target where it is. So a little bit more to come as the year plays out, but intend to be opportunistic and maintain that level of flexibility. Eric Borden: Okay. And then just on internal growth. I understand you don't provide like formal same-store revenue guidance, but how should we be thinking about internal growth for '26 and beyond is that 2% annual growth rate, a reasonable run rate assumption for B&L? John Moragne: Sure. I think that's reasonable. I mean you'll see, particularly these disclosures come out quarterly, maybe a little bit of upper momentum around that number, but we look back historically, when we started to disclose this information and for probably 8 or 9 quarters relying on that 2% as a go-forward assumption is reasonable, and then you'll see us move around that and really move that higher over time. . Operator: Our next question comes from Upal Rana with KeyBanc. Upal Rana: On Red Lobster, I understand all 18 sites were under a long-term single master lease. Just wondering how many of your sites are under consideration to either sell or re-lease? And how that impacts the master lease itself? And if there could be some terminations coming in there as well? John Moragne: Early days in this discussion. We've been, as you've heard us say before, we've reduced our exposure to Red Lobster over the years. We originally had 25 sites were down to 18. We've been interested in reducing the 18 even further, but that was held back by the bankruptcy process, you weren't in a place where you'd be able to reduce it further. We've been actively looking to do that for a while now. . We're having good productive conversations, but hit a theme over the head multiple times. We are looking for mutually beneficial solutions here. We want to be able to help Red Lobster in their efforts to improve. These sites were performing well on an aggregate basis prior to the bankruptcy. The bankruptcy unfortunately, has had a pretty harsh impact on foot traffic, although Red Lobster CEO was recently interviewed in the Wall Street Journal and talked about 10% increases in brand-wide sales, 18% increases in placer data from a foot traffic standpoint. So there has been some recovery, not to the pre-bankruptcy levels. we are currently below that 2x rent coverage where we were prior to the bankruptcy. We have seen efforts that they've had in terms of cutting costs and changing up their market strategy. They've had some success with some of those things and particularly attracting young people back to the brand. So we're hopeful that we'll continue to see that. We're open to ideas for re-leasing, moving on from some of the sites, selling them, working with them to improve here. but it has to be something that's mutually beneficial and is helpful to us in our efforts to continue to grow our AFFO per share and not take a big at that is otherwise unwarranted. So early innings, not sure that we'll see any real movement here in the near term, but we'll continue to have conversations and keep an open mind. Upal Rana: Okay. Great. That was helpful. And then on American Signature, I know you're still negotiating a new master lease there. What do you think rents could potentially end up relative to the current rents? And how does this impact the bad debt that you have embedded into full year guidance? John Moragne: No change. Rents will stay what they were when we win. We're not negotiating a change in those rent levels. The only thing that we're looking at right now is a handful of small lease issues, including consolidating the individual leases into a master lease as you referenced. Upal Rana: Okay. And then the bad debt portion for maximizer for this year? John Moragne: No change in our assumptions on it. we take a conservative position early in the year with the things that we're looking at. And as Kevin said, we'll revisit that over the course of the year. So if we continue to do as well as we have historically, you'll see that 75 number come down. I mean we were 31 basis points last year, 67 the year before, '24 and '23, and 3 in '22. So our bad debt experience on an actual incurred basis is substantially below what our reserve is. Operator: The next question comes from Caitlin Burrows with Goldman Sachs. Caitlin Burrows: On the build-to-suit pipeline today and for the future, it sounds like you're targeting to announce and complete $350 million to $500 million of projects per year going forward. So I guess, first, is that right? And then can you give any detail on your pipeline of unannounced build-to-suit projects today maybe versus a year ago? And what portion is new versus repeat business? John Moragne: So the $350 million to $500 million, we think of it as more of like a rolling target. That's how much we'd like to have in the active development stage at any particular point. starts may vary year-to-year depending on what we started the prior year and what we have sort of in the hopper for active developments. So a little bit of a nuance there, but essentially $350 million to $500 million on a rolling basis, which is where we sit today. with what we have under LOI. It's almost entirely a repeat business, either from a developer or from a tenant standpoint. So folks that we have worked with in some capacity previously. There is one new project in there. We started a new academy sport after our Investor Day at the end of December. We actually started another Academy Sport deal yesterday. And then we have 2, a little bit larger industrial deals that we expect to start here in Q1 that we should have an announcement out about shortly when those are finished up. Caitlin Burrows: Got it. Okay. And then maybe back to Claire. So totally hear you guys on how bad debt has come out relatively attractive over the past few years. You mentioned that you're now expecting or they did exercise their lease termination right for you in 2026. So just wondering what your current expectation is maybe what's assumed in guidance for -- is there a lease termination fee there or maybe not because of the bankruptcy history and then expectation on re-leasing versus selling and what you're seeing kind of in terms of those options right now? John Moragne: Yes, you're right. There's no termination fee because of the bankruptcy history there. So they exercise the right, they'll walk away under the current structure at the end of June. We know they're in the process of negotiating for new space a little bit further down on I-90, but that hasn't been finalized yet. So this is still a little bit up in the air. But we're working under the assumption that the property will be vacant on June 30, and we're looking to re-lease it or sell it on July 1. And we've had some good discussions so far with potential counterparties on it, so we're fairly confident. And then any impact from that has already been baked into our view from a guidance standpoint and our view of bad debt for the year. So no change in the way that we would think about the performance over the course of the year relative to Carson. Operator: Our next question comes from Ronald Kamdem with Morgan Stanley. Ronald Kamdem: Just two quick ones. Going back to Project Triboro. I guess, when do you think the Domino's fall in place that you could have a sort of a tenant in hand, willing to take the space. Does that make sense? Like what more do you need to do on your end? And when do you get to the point where you can have a tenant committing to that project? Ryan Albano: Sure. I'd say as we're looking at it, the real 2 focal points right now, or I guess I'd say 3 are zoning, which we expect in the near term second being sort of power ongoing conversations with PPL, really working out sort of T&D line paths to the site, their substation, our substation. So significant progress there. And then overall, some say work that commenced in Q4, keep things sort of progressing from a time line perspective. So I would say that I think we'll officially be in market, looking for tenant and leasing activity in the fairly near term, I call it, first half of this year. But that said, that hasn't stopped folks from calling us. I think -- as well as I do, they're probably like 6 to 10 hyperscale companies that would be interested in the site, they know all these sites, especially those that are a gigawatt of power plus in the country. I don't need to really advertise it for them to find me. So they're calling, and -- but I think to your exact question, we'll be in market in the near term. Ronald Kamdem: That's really helpful. My second question was just sort of, I guess, sort of a capital recycling question, right, in terms of, of course, you're not sort of forced seller of anything here, but given sort of the activity, given some of the market, does it make you want to sort of push more in sort of the noncore sales this year? And then as your sort of capital recycling that, can you just talk about cap rates and return trends both on the acquisition and the sort of build-to-suit side? Like are we seeing those hold? Are we seeing those compressed? Just any sort of high-level color would be helpful. Kevin Fennell: Sure, I'll take the capital recycling point and hand it back to John for the second. Look, I think with a lot of what's going on in the portfolio, particularly some recent lease renewals and whatnot, some legacy assets are incrementally more attractive. And so we have some interesting opportunities to think about older assets that have a different value equation today. So there's a source there. And then obviously, the sort of flush the equation lever is the build-to-suit. So the spectrum is quite wide in terms of which assets could be able. We're not forced sellers, we are opportunistic sellers and the trade needs to make sense. And so that range of outcomes when you pair that with some portfolio management probably puts you in a singular outcome of something in the mid-5s to, call it, into the 7s of a range of opportunity, and we'll look to wait that out certainly in the lower end of the spectrum. And so as we get through the year, you'll see us make those decisions and print those numbers. But accretive is the answer and ideally 100 basis points or better. So on the cap rate side, from a build-to-suit standpoint, we're continuing to find good opportunities in that on an upfront initial cash capitalization yield standpoint in the mid-7s down to the high 6s that then blends to a place in the low to mid-7s just like our existing pipeline. As Ryan mentioned, our existing pipeline is at 7.4% on the upfront cash yields and 8.6% on a straight line yield. So we're still continuing to find things in the build-to-suit that fit well within that, including being able to structure things in a creative way to drive the yields for our benefit when we're still helping our developers close on these projects and start new ones. Where we have seen a little bit of compression, and I'm sure you've all heard this, other places is particularly on larger portfolio deals and regular way acquisitions. There's been a handful of industrial food processing deals that have been out there that have traded at cap rates that haven't made a whole lot of sense to us given the overall risk-adjusted profile of those investments. We've been pleased to see that there was an uptick in overall traditional acquisition volume towards the end of 2025 and seeing that going into 2026 as well, not get back to sort of the pre 2023 levels in the same level, but it's been good to see more volume. But as I've been talking about for quarters and quarters now, the demand level for regular way deal flow, sale leasebacks and lease assumptions is significant. And so the dry powder and the demand that's out there is still continuing to put some pressure on those regular way cap rates, which makes us feel even better about our opportunity in the build-to-suit core vertical that we have and the success that we've been having. Operator: The next question comes from Mitch Germain with Citizens Bank. Mitch Germain: How should we think about the guidance for deployment, $500 million to $625 million. I mean, what do you consider to be the breakdown between the various diverse ways that you can allocate capital in that number? John Moragne: Yes. Look, I think you saw it through last year as we were building this pipeline. You walk into 2026 and a bulk of the dollars slated for deployment this year are going to be related to the build-to-suit investments. Certainly, you've heard John say also the last year, especially that we're not interested in saying no to partners who are bringing us strong deals on a stabilized opportunity set. So the answer is both. But I'd say starting this year, it's definitely weighted towards build-to-suit dollars versus kind of the inverse last year. Mitch Germain: Great. And then any competition that you're seeing -- increasing competition you're seeing on the traditional acquisition side? John Moragne: For us, at least, it's just as high as it's been over the last 2 years. I think I've been sort of ringing the bell on the competition for a little while now. We've been in a place where supply-demand characteristics in that lease haven't really matched up for a while because of the steep drop that you saw in net lease transaction volumes in '23, '24, '25. . Thankfully, that's starting to change a little bit, and you're starting to see that number come up. So hopefully, it will leave you a little bit of the pressure, but we haven't seen that yet. There's been a huge amount of competition. And for us, as an industrial focus, net lease REIT in those industrial assets, they're a little bit chunkier when you can find a portfolio. They're very interesting, and it's a great way for particularly a lot of the private institutional net lease investors to deploy a lot of capital in a very short period of time. So it can sometimes drive a little bit more pressure on those cap rates. Operator: The next question comes from Ryan Caviola with Green Street Advisors. Ryan Caviola: There's been a lot of noise in the political landscape because of the midterms. But have you seen any of the tailwinds from onshoring start to materialize over the last year, particularly on the industrial development demand front? John Moragne: We've certainly seen in the build-to-suit pipeline. We've had lots of conversations with developer partners and with potential tenant clients who are all looking actively at ways in which they can bring more of their production capacity here in the United States or to sort of rework an existing logistical chain, you name it. So it's going to be slow going. These are not decisions that get made overnight. We see it often the conversion time line for a build-to-suit deal is much longer than a regular way deal because of the amount of work that has to go into it. going back from site selection, the entitlement process, permitting, working through the design build process, all of the various components that have to go in to make this work. It takes a long time to get there. So we're excited by the tailwind that we expect that will come from this effort to sort of onshore, nearshore, reshore or whatever, but it's going to take some time to build. But because we've already had so much success in building this strategy and in building the pipeline that we have today, we can be patient and wait for that to come, and we'll use that as a continued opportunity to build this out in the years to come. Ryan Caviola: Got it. Appreciate that. And then just a quick one on casual dining. Being mindful that Red Lobster challenges are mostly operator-specific. But what commentary have you heard from other casual dining tenants going into 2026, just on sector strengths and their appetite to expand? And is it a bucket that you'd want to add to in your portfolio? Are you kind of built up there? John Moragne: It's -- I think you hit on it in your question, it's very operator and brand specific. There are casual dining brands that have struggled in recent years, Red Lobster being one of them. And there are other casual dining brands that have done exceptionally well. We've seen both of those in our portfolio with the Red Lobster exposure in years and Applebee's being 2 that have had a little bit of hard time. On the flip side, J. Alexander is a casual dining brand in our portfolio that is doing exceedingly well with coverage as well north of what we would want to see on a stabilized but on a regular basis. So it really depends, to your point on whether or not we would invest more, it would be very operator and brand specific. We are not actively looking at new casual dining as sort of a focused strategy. But the ones that come across our desk, we'll take a look at it. It's very easy to sort of make a quick decision on, all right, this is something that we would want to do or not. And it's far more of the latter than the former. Operator: The next question comes from Michael Gorman with BTIG. Michael Gorman: Maybe just one more on Project Triboro. Just trying to understand when you think about it, kind of we've seen the press reports about the land rush in the data center space. And I'm curious kind of what the incremental value had is from the site work that you're undertaking now versus just looking to be in the market for the raw land to the hyperscalers as it is right now. . And then maybe just the second point, how do you think about that in the terms of maybe some rising political headwinds around data center development or concerns about AI CapEx into the future and kind of the time line into 2027. So maybe you could just talk a little bit about how that plays out in your underwriting and thought process. Ryan Albano: Sure. I think I can take this. John, feel free to jump in. I think there are several questions there. The first is sort of value creation and various milestones along the way from raw land through Powered wind. And then how hyperscalers sort of fit into the mix versus developers and typical real estate investors. I would say that there is certainly value creation we're seeing it kind of play out and some of the unsolicited offers that have come through. When we think about what our invested capital is to date in the project versus the level at which the office are coming in are coming in, in line with what we'd expect from a power land perspective. So certainly significantly higher than our invested capital to it. A lot of it really focuses on the time and quantum of power delivery. And sooner rather than later is obviously more valuable. Hyperscalers are certainly competitive in the mix, trying to get in at earlier stages from a land perspective. Like I had mentioned sort of in my other remarks that this is in sight that needs to be highly advertised. They know it's there, they know it's a gigawatt of power and they're certainly circling on it. So I'd say that they although attempted to get in earlier, we just happen to be's there sooner than them. That is playing out across the country. I think some of the other parts of this question relating to CapEx spend in the future related to AI and data centers and then just political es around it. I would say, we haven't really seen any slowdown despite whatever the headlines are on CNBC. Certainly, a lot of continued chase and investment, especially when you're getting into the quantum of power we're talking about here. That said, at lower stages, maybe it's a different market, just not as in tune with it. And then from a political headwind perspective, I think you're going to have that with various new things that are occurring. I don't really see a whole lot of challenge with that with respect to this site. Frankly, one of the primary activist groups in the area that have been critical of data center expansion, have even made public commentary about if you're going to do it, this is the type of site that you do it with where it's off the highway, up a hill set apart from residential and not very disruptive. So hopefully, I covered everything. I'm not quite sure, but I think I covered most of what you're looking for. Operator: The next question comes from Michael Goldsmith with UBS. Michael Goldsmith: First question, you invested $750 million in 2025. You're guiding to $500 million to $625 million. I think you talked a little bit about maybe the outlook for '26 being a little bit conservative or doesn't require that much incremental investment. So just trying to reconcile those 2 facts and just trying to understand, assume why point to -- you sell an investment at this point in the year, just kind of given some of your -- also your earlier comments on just the opportunities that you're seeing out there. John Moragne: I think you sort of touched on it in your question there. We usually start the year a little conservative. Our guide for investment activity. to start 2026 is consistent roughly with what our guide was last year for 2025. And then we revised and updated over the course of the year as we saw more opportunities. With our focus being on this rolling $350 million to $500 million build-to-suit pipeline, we know going into a year that we've already got the majority of our investment activity taken care of. . We're always going to leave a little bit of room there for opportunistic regular way deals, sale leasebacks and lease assumptions as partners come and approach us for direct deals. And so right now, that's what we've built into this is that we're going to execute on the plan that we already have. We're going to be sticking to the script and moving forward with what we have told you that we were going to do and execute on that. But we are very open to the idea of opportunistically increasing that if we see the right opportunities with the right people, the right economics over the course of the year, and we've got the capital to do it. So we'll start conservative and we'll build over time. So if that should hopefully help reconcile the way you're thinking about year-end activity for '25 and sort of how we started '26. Michael Goldsmith: Exciting. And then just as a follow-up, you amended some of the term loan agreements. How much of a benefit do you expect to see -- how should that translate to 2026? How much savings do you anticipate from that? John Moragne: Yes. I mean the $1 billion of term loans that are impacted by the 10 basis points and then $300 million by the 25 basis points. So you got about $2 million. . Operator: The next question comes from John Kim with BMO Capital Markets. John Kim: John, you mentioned raising equity in significant scale is not really what you're interested in at this time. That's consistent with what you said at your Investor Day in December. But since then, your stock price has improved, your multiple has gone up about a turn. Can you just remind us what levels you feel comfortable raising equity? And how do you view the potential for multiple expansion if your balance sheet improves back to -- towards the 5x leverage that you've historically operated at. John Moragne: Yes. So I think it is fairly consistent with what I've been saying. I am thrilled with the improvement that we've seen. Trading where we are getting a full multiple turn above is good. We're still below average. So as I said in my remarks, I'm still pleased and very proud of the total return that we've delivered to shareholders over the last 3 years and in 2025, in particular, and the resulting increase in our equity multiple. But sitting where we are, the relative valuation still frustrates me, not even being at the average level is something that -- we'll continue to frustrate me until we get there. And when we do, you're talking even at an average equity multiple, you're talking about a stock price that's in that like $21 to $22 range. The word constructive is probably overused in our space on these calls, but I'll use it here. The setup is certainly more constructive today than it was even 6 months ago. And my hope and belief is that with the execution that we delivered in '25 and the execution that I know we're going to deliver in 2026. It will be even more constructive hopefully towards the end of the year or into 2017, where we can more consistently raise equity at a place that's going to be attractive and getting us into that virtuous cycle. Until we get there, we'll continue to control our own destiny. Kevin has been dabbling, as he said, on the ATM with the $43 million that we've got on a forward basis through the end of the year with an effective price in the mid- to high 18s, which feels good. relative to the opportunities that we have in front of us with 8.6% straight-line yield on these build-to-suits, the acquisitions that we're seeing, as you heard us talk about earlier. So the place where we're investing the capital relative to what we've been raising makes these dollars work even though it's not sort of the dollars that make my heart go pitter patter. So we will continue to evaluate. And I think the efforts that we've had should justify pushing this multiple up, even though I know that, that takes time and consistent execution, but that's what I know we're going to deliver, and I think we'll be having a different conversation about this towards the end of the year and into '27. John Kim: I appreciate that. But just to clarify, is this a relative multiple that you're looking at relative to your peers, which could be kind of moving around or a total WAC concept? I know you gave the '21 to '22 as a guidepost, but what metric is more important to you? John Moragne: Both. I mean the answer is both, right? I mean the absolute value is on the second part of John's comments is all measured against what the opportunity set is. And so the answer is both. I think I would apply the concept of sale to the former, meaning relative valuation and levels that are a bit further from the absolute number that works maybe in a different set of circumstances. . So I'm not trying to give you a not to answer. It's just -- to your point, it is a moving target, and our posture remains opportunistic. Operator: The next question comes from CAitlin Burrows with Goldman Sachs. Caitlin Burrows: I had a quick follow-up question on American Signature, sorry to bring it up again. But just to clarify, I figured all together. You mentioned that they filed in November, and I think the new tenant is paying the unchanged rent as of February 6. So I was just wondering if you could clarify what went on between November filing and February 6? John Moragne: It was a fairly small assumption. So we had 6 leases that were part of the bankruptcy process. I think we probably have this conversation with folks. There was a handful of them that were identified for rejection as a part of bankruptcy process, but Gartner White was very interested in our sites. . They have been looking to expand in the last 2 years and this was a great opportunity for them to do it. So as it stands today, they have simply stepped into our 6 leases. And then the conversation that I alluded to earlier is that we're looking to leverage that into a new master lease as well as some additional minor changes in the lease structure itself. But in terms of the lease dynamics, we didn't lose any -- there was no bad debt associated with American Signature because we were able to collect off of our letters of credit for the [ misrent ] in November. We collected debt -- excuse me, we collected our rent on an administrative basis in the bankruptcy proceeding. And then Gartner White has picked up the tab going forward. So we're in a great spot on that and just want to sort of make some incremental improvements. Caitlin Burrows: Got it. Okay. And then changing topics. You mentioned a few times about seeing what comes across your desk and that kind of inbound type of activity. which is great when it happens. I guess as you think about your investment targets build-to-suit or acquisitions, how active is Broadstone today on that outbound effort either on the build-to-suit of the acquisitions? And how has that changed over time? Ryan Albano: Extremely. I would say that a lot of it -- all of it is outbound. I think what John was referring to is they also call us. So a lot of this is direct sourced its relationship that we're talking to multiple times a week. So whether the call is coming in or call is going out, I'd say that it's sort of a 2-way street and it's constant communication. In terms of new relationships that we're mining, I'd say the majority of those new relationships are on an outbound basis versus an inbound. . Operator: Thank you. We have no further questions. And I'll hand the call back to the management team for any closing comments. John Moragne: Thanks, everybody, for joining us today, and we're getting into the conference season. So we're looking forward to seeing many of you in person in the coming months. Enjoy the rest of your day. Thanks all. . Operator: Thank you, everyone, for joining us today. This concludes our call, and you may now disconnect your lines.
Operator: Hello, everyone. Thank you for joining us, and welcome to the Nordson Corporation First Quarter Fiscal Year 2026 Conference Call. [Operator Instructions] I will now hand the call over to Lara Mahoney. Please go ahead. Lara Mahoney: Thank you. Good morning. This is Lara Mahoney, Vice President of Investor Relations and Corporate Communications. I'm here with Sundaram Nagarajan, our President and Chief Executive Officer; and Dan Hopgood, Executive Vice President and Chief Financial Officer. We welcome you to our conference call today, Thursday, February 19, to report Nordson's fiscal 2026 first quarter results. You can find both our press release as well as our webcast slide presentation that we will refer to on today's call on our website at www.nordson.com/investors. This conference call is being broadcast live on our investor website and will be available there for 30 days. During this conference call, we will make references to non-GAAP financial metrics. We've provided a reconciliation of these metrics to the most comparable GAAP metric in the press release issued yesterday. Before we begin, please refer to Slide 2 of our presentation, where we note that certain statements regarding our future performance that are made during this call may be forward-looking based upon Nordson's current expectations. These statements may involve a number of risks, uncertainties and other factors as discussed in the company's filings with the Securities and Exchange Commission that could cause actual results to differ. Moving to today's agenda on Slide 3. Naga will discuss first quarter highlights. He will then turn the call over to Dan to review sales and earnings performance for the total company and the 3 business segments. Dan will also discuss the balance sheet and cash flow. Naga will then share a high-level commentary about our enterprise performance and provide an update on the fiscal 2026 second quarter and full year guidance. We will then be happy to take your questions. With that, I'll turn to Slide 4 and turn the call over to Naga. Sundaram Nagarajan: Good morning, everyone. Thank you for joining Nordson's Fiscal 2026 First Quarter Conference Call. We entered 2026 optimistic about end market demand trends, and we achieved a record first quarter sales of $669 million. This is a 9% increase over the prior year and reflects 7% overall organic growth. Organic growth was broad-based across our segments with notable strength in our ATS segment, which grew over 20% compared to prior year due to momentum in the semiconductor end market. Solid execution and volume leverage drove strong profit performance for the quarter, increasing EBITDA by 8% and increasing adjusted earnings per share by 15% compared to prior year, both first quarter records. I would also like to highlight our free cash flow of $123 million and consistent cash flow conversion over 100% of net income during the quarter. We strategically deployed this cash to repurchase shares, return dividends to shareholders and maintain our debt leverage while continuing to invest in the company. I'll speak more about the enterprise performance in a few moments. But first, I'll turn the call over to Dan to provide a detailed perspective on our financial results for the quarter. Daniel Hopgood: Thank you, Naga, and good morning, everyone. On Slide #5, you'll see first quarter fiscal 2026 sales were a first quarter record of $669 million, up 9% from the prior year first quarter sales of $615 million. Total organic sales increased 7%, driven by robust demand in Asia across most of our end markets. And while all of our segments contributed to growth, we saw particular strength in our advanced technology product lines, responding to growing demand in the semiconductor space. Favorable currency translation added an additional 4% to the top line in the quarter and was partially offset by the small divestiture that we completed in the fourth quarter of last year. Adjusted operating profit increased 10% year-over-year to $166 million, driven by increased SG&A leverage on the organic sales growth as well as benefits from the divestiture of our medical contract manufacturing business. EBITDA was up 8% year-over-year at a first quarter record of $203 million. EBITDA margins as a percentage of sales were 30%, in line with the prior year as our sales growth was concentrated in Asia, where our gross margins are generally lower, particularly on system sales. As a result, we saw lower incrementals during the quarter, which we would expect to normalize over time. Looking at non-operating income and expenses. Net interest expense during the quarter was $23 million, a decrease of $3 million versus the prior year, driven by lower year-over-year debt levels and a stable to declining rate environment. Other income increased $19 million year-over-year, principally related to a non-cash gain on a minority investment. To give a little color on this since this is a new item, this relates to a small, but strategic technology investment that we've accumulated over a number of years. The company we invested with completed an initial public offering in December of 2025 on the Korean Stock Exchange. As a result of this offering, we're now required to mark this investment to market value each quarter. The initial gain that we recognized was $22 million in the quarter before tax. We've excluded this non-cash gain from adjusted earnings, and we'll continue to treat future adjustments to mark-to-market as such going forward. Excluding this non-cash gain, year-over-year changes in other income and expense were driven by foreign currency contract fluctuations. Our tax expense on a U.S. GAAP basis was $31 million for an effective tax rate of 19%, inclusive of the impact of the non-cash gain that I just mentioned. Excluding this impact, our effective tax rate on an adjusted basis was 18%. This result is slightly below our annual guidance range for fiscal 2026 due to some discrete benefits that hit in the first quarter, primarily tied to stock compensation. We still project our full year tax rate to be at the lower end of our initial guidance range of 18.5% to 19.5%. Net income in the quarter totaled $133 million or $2.38 per share. Excluding intangible amortization and the noncash gain, adjusted earnings per share totaled a first quarter record of $2.37 per share, $0.02 above the midpoint of our quarterly guidance and a 15% increase from prior year adjusted earnings per share of $2.06. This improvement in year-over-year earnings reflects solid operating leverage from the organic sales growth as well as benefits from the divested medical contract manufacturing business. Now let's turn to Slides 6 through 8 to review the first quarter 2026 segment performance. Industrial Precision Solutions sales of $327 million increased 9% compared to the prior year first quarter. Organic sales increased 3% compared to the prior year with a favorable currency impact of 6%. Growth was broad-based across most product lines with particular strength in Asia Pacific markets. Notably, demand for polymer processing and automotive product lines have stabilized as we expected. EBITDA was $110 million in the quarter or 34% of sales, down 2% over prior year, largely due to the geographic product mix of organic growth and the lower incremental leverage on foreign currency changes. Turning to Slide 7, you'll see Medical and Fluid Solutions sales of $193 million were relatively flat compared to the prior year's first quarter. Organic sales increased 3% in the quarter, led by strength in our engineered fluid solutions product lines. Divested sales from the medical contract manufacturing business had a negative impact of approximately 4% compared to the prior year. The 3% growth was a slower start than we expected for the segment, but we remain confident in the mid-single-digit outlook through the year. It's worth noting that the winter storms at the end of January did impact some of our production as well as some of our medical supply chain on a temporary basis. We estimate to the tune of about a 1% impact on our sales in the quarter. EBITDA for Medical and Fluid Solutions was $70 million or 36% of sales, which was an increase of 9% from the prior year EBITDA of $64 million. EBITDA margin improved driven by the divestiture, organic sales volume and strong incremental performance. Now turning to Slide 8. You'll see Advanced Technology Solutions sales were $149 million, a 23% increase, compared to the prior year's first quarter. The 21% organic sales increase was driven by double-digit growth in electronics dispense product lines related to semiconductor applications as well as recovering demand for our X-ray systems. First quarter EBITDA was $33 million or 22% of sales, an increase of 43% compared to the prior year first quarter EBITDA of $23 million or 19% of sales. The improvement in EBITDA margin compared to the prior year reflects stronger sales volume and volume leverage. The team did an outstanding job of maintaining SG&A during the quarter as a result of sustainable operational and footprint changes that they made within their segment in prior years, guided by the NBS Next growth framework. Finally, turning to the balance sheet and cash flow on Slide 9. At the end of the first quarter, we had cash on hand of $120 million and net debt was approximately $1.9 billion. Our leverage ratio of 2.1x remained consistent with year-end results and is in line with our long-term targets, allowing us to continue to strategically deploy capital and giving us plenty of firepower for acquisition of strategic assets. Our free cash flow generation was $123 million during the quarter, resulting in a 105% conversion rate on net income, excluding the non-cash gain. This represents the third consecutive quarter above 100% conversion despite the accelerated revenue growth we achieved. As noted on Slide 10, during the quarter, we invested $18 million in capital projects to drive future organic growth. We paid $46 million in dividends to our shareholders and repurchased $82 million in shares on the open market. We also modified and extended our existing $1.2 billion credit facility. As part of that transaction, we consolidated a term loan coming due in fiscal 2026 into the new facility to provide greater overall financial flexibility to pursue strategic opportunities with no change in our total outstanding debt. At quarter end, we have about $800 million available under the new facility. So to summarize the quarter, we achieved high single-digit organic sales growth while maintaining our strong 30% EBITDA margins despite some geographic and product mix headwinds. Our cash conversion remains strong, allowing us to strategically deploy capital to sustainably grow the franchise and return value to shareholders. Our team delivered on their commitments for the quarter and worked to grow backlog to position us for success in the second quarter. While market conditions have improved for most of our businesses, we remain balanced and vigilant for more meaningful recovery in select end markets, which is reflected in our updated guidance for the full year that Naga will cover in a moment. With that, let's turn to Slide 11, and I'll turn the call back to Naga. Sundaram Nagarajan: Thanks, Dan. This strong first quarter performance has set the stage well for fiscal 2026. Now 3 months into the year, our end markets are playing out as we expected. Within IPS, investments in packaging and product assembly are sustaining. Precision agriculture investments continue to grow over prior year and automotive and polymer processing applications have stabilized. Medical end markets are returning to more normalized growth, and we expect to see these benefits continue as the year progresses. Growth in engineered fluid solution product lines is being driven by electronics and industrial applications. Within advanced technology, our dispense and surface treatment product lines for semiconductor application continue to drive growth, while our X-ray systems that ensure the quality of semiconductor packaging are starting to inflect. Growth in general and automotive electronics is more muted, but there are early signs of growing capacity needs in these end markets. Because it is such an important growth driver, I want to take a moment on Slide 12 to remind our investors about why Nordson wins in the semiconductor space. Semiconductor applications account for approximately 50% of revenue in the ATS segment and drove the overall double-digit organic growth in the first quarter. ATS core competency is in the advanced packaging process of semiconductor manufacturing. Our precision dispense applications, including our market-leading Vantage and Spectrum S2 electronics dispense systems enable underfill and encapsulation applications that allow the stacking of increasingly small chips on printed circuit boards. Our close to the customer model positions Nordson as a partner when customers start developing advanced manufacturing processes for semiconductor packages. Our technology enables these increasingly sophisticated manufacturing processes. Quality control of these costly and complex chips is also creating more opportunities for our test and inspection portfolio. Current investments are primarily in Asia Pacific, and we are well positioned across the semiconductor supply chain, both technologically and geographically as investments grow into other regions. Clearly, I am pleased with the momentum across our end markets and our ability to meet our customer needs. Turning now to our outlook, starting on Slide 13. We entered the second quarter with continued order momentum and increased backlog, up approximately 4% over the prior year. Order entry momentum was broad-based in the quarter with strength in our ATS segment. These trends position the company to deliver second quarter fiscal 2026 sales in the range of $710 million to $740 million. Second quarter adjusted earnings are forecasted to be in the range of $2.70 to $2.90 per diluted share. Based on strong start to the year, the second quarter outlook and the current foreign exchange rate environment, we are increasing our full year guidance as noted on Slide 14. Sales are now expected in the range of $2.860 billion to $2.980 billion, which is an increase of 4.5% at the midpoint. The top end of our range assumes continued momentum from electronics end markets as well as modest improvement in our industrial and automotive product lines. The bottom end of our guidance would assume some broader pullback in end market demand in the second half. While we certainly don't see signs of that today, we still believe it is prudent to plan for this potential scenario. Adjusted earnings will be in the range of $11 to $11.60 per diluted share, which is an increase of 10% at the midpoint. As always, I want to thank our customers and shareholders for your continued support. In particular, I want to thank our Nordson employees who are passionate about meeting the needs of our customers. Our focus on innovation and operational excellence continue to position us well to serve our customers. With that, we will pause and take your questions. Operator: [Operator Instructions] Our first question comes from Jeff Hammond with KeyBanc. Jeffrey Hammond: So really just want to -- can we just unpack kind of the margin dynamics around this kind of systems geographic mix? And do you think that continues over the next few quarters? Do you see mix improving? Maybe what's showing up in the order book that would support kind of a mix change or staying the same? Daniel Hopgood: Yes. It's a good question, Jeff. Yes, I would say, number one, if I step back, we saw very strong incrementals in our medical business, I would say, normal incrementals in our ATS business. Really, the primary segment where we saw the mix challenges was in IPS. But I think more importantly, what we would say is there's been no fundamental change in the margin outlook for our business. We've always said 40% is kind of the normal ongoing incremental expectation for our businesses. There's been no change in our gross margin profile. It's really just a mix issue in the quarter. So we see things moving back to normal certainly as the year plays out. Sundaram Nagarajan: And maybe just to add to it, if you think about our second quarter guide and our full year guide, both contemplates Nordson delivering strong best-in-class EBITDA margins like we have done in the past. Jeffrey Hammond: And then can you just expand on kind of the slow start in medical ex, I think, the weather issues and just what you're seeing that gives you confidence that, that business starts to pick up as you move through the year? And if you can just give us kind of underlying incrementals in that business if you exclude kind of the divestiture impact? Sundaram Nagarajan: So we'll take the incremental first, Dan go and then I'll talk about the trends. Daniel Hopgood: Yes. And as I said, incrementals were actually quite strong. I mean our incrementals all in are essentially off the chart. I think when you kind of strip out the impact of the CDMO divestiture, our incrementals are still north -- well north of 50% in the quarter. So quite strong and reflective of a good strong outlook in that business. From a growth standpoint, I mean, I'd say our 3%, while it's a slower start than we would have liked, part of that was weather related. We mentioned about 1% impact. But we're, frankly, very comfortable with the mid-single-digit outlook kind of return to normal growth. We see strong underlying demand in the business and our backlog and our project activity with our customers. So it's really just a slightly slower start and really not that much slower than we expected, not far off that mid-single digit if you adjust for the weather impact. Sundaram Nagarajan: Maybe add additional color to it, Jeff, is that supply chains in the interventional businesses have stabilized. We see some pretty good movement in order entry momentum in our fluid component business. Our ongoing demand for the Atrion businesses look good. I would just remind you that the Atrion businesses are going to be lower than our interventional businesses. But all in all, if you take the current order entry and you take the backlog and take the healthy pipeline of customer projects, we feel pretty good about delivering on the mid-single digits for MFS for the full year. Operator: Our next question comes from Mike Halloran with Baird. Michael Halloran: Can we start on the ATS piece and maybe just give some more context to the moving pieces in the larger buckets there. The dispense piece, it seems like it's tracking the right way, starting to see some signs on X-ray. Maybe broadly on the T&I piece, what are you seeing? And just maybe put it all together, talk about the 3 pieces, the order trajectory and where you're the most confident? Sundaram Nagarajan: Yes, sure. Overall, strong momentum on order entry as well as revenue shipments in the quarter for these businesses. Clearly, our dispense businesses were the strongest, and that is to be expected, right? If you think about our dispense businesses and their applications in these complex chip manufacturing processes driven by AI computing power needs of our customers, we see tremendous amount of investment going on in this business, and that is reflective of the revenue performance as well as the order entry. If you think about our T&I, you want to think about it in 2 pieces. One is our X-ray businesses and the other one is our what we call as AMI businesses. And so these are acoustic emission-based inspection techniques and optical techniques. So if you think about the X-ray, we are beginning to see some pretty nice momentum in our X-ray business. Remember, last year, this business was a little bit down. We are beginning to see that business starting to inflect and feel really good about where we are. Think about these complex chips. These complex chips are now both combined logic and memory on the same stack. And so these are very expensive chips and yield rates are everything here. And so the test and inspection applications continue to expand for us in these manufacturing processes. And so we feel good about the long term, but also feel good about the near term where we are seeing these orders starting to inflect. One thing that is -- we also have our AMI business, which is our acoustic emission business. There, we are coming off of 2 really strong years of growth. We still have pretty decent growth planned for them this year. But in general, we feel really good about ATS segment, and that is reflected in our second quarter outlook. If you get into the second half, you need to remember that this business started to inflect in the second half of last year. The comps get a little bit difficult. But yet, based on what we can see in terms of backlog and order entry momentum, we feel still good about this year, this business being north of its long-term targets of mid-single digits. Michael Halloran: And maybe you can just have the exact same conversation around the IPS segment, given all the moving pieces there? Sundaram Nagarajan: Yes, sure. If you think about the IPS business, what we feel -- the headline really is we returned to growth with IPS. We posted a 3% organic growth in the quarter, expect that we will do so in the rest of the year. That's sort of what we contemplate in our midpoint of the guide. Investments in packaging and product assembly end markets are sustaining. We see -- we continue to see growth in our Precision Ag or ARAG business in Europe and South America, where we are market leaders. Stable aftermarket demand. Remember, this is a business where we are -- aftermarkets are a significant part of their revenue, which is north of 55% or so. Polymer processing and automotive end markets, we expect a nominal recovery through the year. They're stabilized, but not meaningfully inflecting yet. Daniel Hopgood: The only other thing I would add is as the growth that we are seeing -- I'm sorry, go ahead. Michael Halloran: I said the exact same thing. I apologize and said, go ahead. Daniel Hopgood: Well, the only other thing I was going to add, Mike, is that the growth that we are seeing back to our kind of prepared remarks is largely in Asia today or in Asia Pacific. Again, that's not just China, that's broad Asia Pacific. And so opportunity, we're still not seeing much inflection in the European and North American market demands. I think certainly, there's some early signs, as Naga mentioned in his comments, but we're really not seeing that yet. And I think also being very cautious to call when that's going to happen. Operator: Our next question comes from Matt Summerville with D.A. Davidson. Matt Summerville: Just a quick follow-up. On the medical side of the business, can you just give a little bit more granularity as to the weather impact you saw in the quarter, which business line was impacted? And if you kind of normalize for that impact, what would the medical organic performance, medical-only organic performance have looked like in the quarter? Daniel Hopgood: Yes. It was primarily in our interventional products and then also to some extent, in our fluid components, particularly some of our Atrion-related businesses. We had several businesses that have operations on the East Coast as well as supply chains that are East Coast based. And the long and the short of it is we lost a few days of production because we had literally operations that were mandated to be shut down because of the weather impacts. And so we estimated about a 1% impact. It's -- think of it as 2 to 3 days of production, very temporary in nature. We're back up and obviously fully running, but did have an impact on our ability to deliver during the quarter, especially with that happening late in the quarter. So again, I think the simple math is 3% overall growth. Normalized, that would have been about 4% in the quarter without that late storm impact. Matt Summerville: And then maybe if you can just comment on what you're seeing from an M&A standpoint, multiples, potential deal sizes, actionability and where you see most activity across the company. Sundaram Nagarajan: Just a reminder, in terms of our acquisitions, we continue to work our pipeline, pretty active pipeline. Lots of different opportunities they will pursue. What you don't want to look at lack of announcements and relate that to lack of activity, right? Because we remain financially and strategically disciplined. The areas we are continuing to work on are continue to expand our medical component portfolio. We're working on test and inspection opportunities and any core technology, any technology that would add to our core offering in industrial. So that is sort of the 3 areas that we are looking at and working on. Yes, the multiples look a little elevated in some cases. In some places, it look reasonable. I think for us, it is -- we're going to continue to be pretty disciplined around what we buy. And our criteria has remained the same. We're looking for businesses that would add to our growth portfolio, businesses that are differentiated, businesses that have strong technology plays. And from a financial perspective, we're looking for Nordson-like gross margins. And maybe EBITDA was in the 20% range with meaningful opportunity to expand margins and an appropriate return. So all our criteria, both strategic and financial, remain the same. Healthy pipeline, continue to work on. lack of announcement shouldn't be assumed for lack of activity or work on our part. Operator: Our next question comes from Christopher Glynn with Oppenheimer. Christopher Glynn: Just wanted to -- you mentioned, I think, seeing some initial signs of the general electronics of ATS starting to show signs of life that pretty consistent with what we're hearing from kind of adjacent companies or exposures to yours. But I just wanted to spend a minute exploring that topic. Daniel Hopgood: Yes. I guess maybe just to add a little bit of color. I would say we're not really seeing inflection in those businesses. I would say stable demand at low growth levels. I think the early signs that I would say we're pointing to is -- and you guys see the announcements as much as anybody else, you're starting to see some of the semiconductor -- I'll say, the high-end semiconductor demand and investments seem to be trickling into the lower level electronics applications. If you think of memory and general electronics requirements, we're starting to see announcements and discussions around capacity investments. We're not seeing those yet, but certainly, those are early signs that we may see inflection coming at some point in the future. Right now, what I would say we're seeing in those markets is stable demand at low growth rates. Christopher Glynn: And then just want to explore also when emerging technologies in the semi application space start to hit you, say, in the case of both packaged optics, is that a meaningful opportunity? Is that down the line? Or are you seeing some early action derivative of that technology. Sundaram Nagarajan: Are you talking about optical modules? Is that what you're talking about, Chris? Christopher Glynn: Yes, exactly. Sundaram Nagarajan: Okay. Yes. That is an area of -- we have some interesting products there that helps our customers manufacture those optical modules. It's certainly an area that we are playing in, and it's an area where we are beginning to see orders directly related to that. Christopher Glynn: And last one for me. What was -- as I recall from back in the past, it's been a while, but FX can have a substantial impact on ATS, IPS margins. And they were certainly well below the steady state that you've delivered for a long time there. I know you talked about mix, but ahead of the call, I was certain it would be FX. So I just wanted to ask about that. Daniel Hopgood: Yes. And we mentioned that as well. FX is certainly -- if you think of the incremental performance for IPS, that's certainly one of the items that impacts us. And the simple math I would give you is because FX was about a 6% positive impact on IPS sales. We -- obviously, we don't get the same incrementals on FX movements. In fact, we would give you the math of use a 25% to 30% range for a normal incremental on FX, both on the upside and downside. And so with 6% growth coming from FX at a lower incremental, certainly, that's a contributor to the performance in the quarter. Operator: Our next question comes from Robert Jamieson with Vertical Research Partners. Robert Jamieson: Just really wanted to follow up quickly on that FX incrementals. Should we be assuming the same sort of incremental drop-through of those 25% up or down across the other segments as well for FX? Daniel Hopgood: It varies a little bit by segment. But yes, generally speaking, that's a good benchmark. And again, the only thing I would maybe caution you on is the outlook for the year, that FX impact will lessen at current rates as you saw FX rates improving throughout the year last year. So Q1, we get a pretty big lift, but that will lessen as the year plays out at current rates. But yes, the drop-through should be pretty similar. It moves a few points one way or the other, but not significantly different by segment. Robert Jamieson: And then I just want to talk about full year guidance. Really solid performance in 1Q, nice 2Q guide. Just taking Naga's comments, and I think it's wise here to have a level of conservatism baked in. And hopefully, I'm reading those comments right. But what I'd like to kind of understand is what end markets and areas would you expect to outperform your base case estimates to get us at or above the high end of your sales range? Does it need to be an acceleration in like auto? I mean, I've been watching auto CapEx for 20-plus global auto OEMs. And even since December, we've seen auto CapEx revised higher by like 5% growth in '26 from flattish in December. So would it be kind of like a mix of that plus more of an acceleration in some of the minimally invasive and specialty medical business? Would that be like kind of like a fair assessment if we were to -- things -- everything were to align and get us towards the high end of your guidance range? Sundaram Nagarajan: Rob, thank you for your comments. That exactly mirrors our thinking. What we are trying to be is balanced and prudent in our thinking for the rest of the year. And in terms of the details of how we're thinking about each of these end markets, I'll have Dan talk to you about the high end and the low end. Daniel Hopgood: Yes. And I'll start with, frankly, I think the easier one. Medical, we see, as we mentioned, good ongoing stable growth in the mid-single-digit range. Is there potential for upside there? Potentially, but we're not really -- I would say that's not a market that we expect to inflect further necessarily. If I think of what would drive the higher end, it would be exactly what you're talking about, some further inflection in general industrial and automotive demand. And then the other key factor that I would say is if you look at our ATS performance, as we've highlighted a number of times, ATS deliveries being 70% systems tend to be lumpy. We're not factoring in a 20% run rate and growth in this business. We know that there will be some lumpiness quarter-to-quarter. But one potential upside is if we see continuing ongoing strength in demand, that would be upside versus our kind of base case thinking. Sundaram Nagarajan: Maybe let me just add one thing there, particularly on ATS. Some of the demand and the exact delivery depends on our customer, right? So we are part of somebody else's large manufacturing supply chain that they're bringing a process up to speed. So occasionally, there may be a pull ahead and sometimes a pullback. Postponing is the way to think about it. So think of our lumpiness also from a customer demand delivery requirement. Daniel Hopgood: Yes, it's a good way to think about it. Robert Jamieson: No, that makes perfect sense. And then just one last one. Just I don't see this being an issue for you all, but DRAM pricing, have there been any impacts? Or how much is that of like your bill of materials? Is it pretty de minimis? And then I guess another question would be, with just some of the capacity constraints there, could that be a potential opportunity for you all if -- like on the back-end processes, if they need to increase capacity? Or am I not kind of on course there? Sundaram Nagarajan: Robert, could you repeat your -- the early part of your question before the pricing, we missed something there. We just... Robert Jamieson: Yes. Sorry. So I was just talking about DRAM pricing, and I was wondering just with like memory costs going up, do you have any significant exposure there that would be related to margin? Sundaram Nagarajan: Yes. We don't have a significant amount of exposure, but we do have exposure in the memory space, in the traditional memory. And when there are capacity adds there, we will benefit. Operator: Our next question comes from Andrew Buscaglia with BNP Paribas. Andrew Buscaglia: Just wanted to check on -- within ATS, I know you said about half of your sales tied to semis. But we're seeing that test and inspection piece maybe start to recover with X-ray. Can you just talk a little bit about how -- I know that your test and inspection stuff is quite niche. So I'm wondering what a cycle looks like for that side of your business? And is this X-ray piece sort of a precursor for a lift in that chunk of your ATS business? Sundaram Nagarajan: Yes. If you think about our X-ray business, this is one is a little slower to recover when compared to our dispense business and when compared to our Acoustic Emission. And so if you think about year-on-year, our X-ray has some automotive exposure as well. the semi side of X-ray is doing really well and the auto is flattish is the way to think about it. Does that help the question that you asked? Andrew Buscaglia: Yes. Sundaram Nagarajan: Sorry, as automotive comes back, we will continue to see X-ray do well. Andrew Buscaglia: On the MFS, you run into some pretty tough margin comps in the back half of the year. Can you just remind us I guess, is that something when you -- when we come to lap that, you expect to expand off of such a high base? I mean there are pretty impressive margins you're kind of running into? And maybe what -- why would that be? What would lift that demand if you don't -- or margins if the demand is not really accelerating? Daniel Hopgood: Yes. No, it's a good question. And I mean, maybe I'll even go back to our fourth quarter. We printed a very strong margin in the fourth quarter. And I think we made comments during that call that, that was a high point and not necessarily an ongoing run rate. And so we think margins in the MFS segment are very much sustainable in the 37%-ish range. And we may have some selective quarter-over-quarter comp issues like the fourth quarter where we had a really strong performance. But we think maintaining that margin performance and continuing to generate reasonable incrementals as we grow is very much attainable in the medical business. It's worth pointing out, maybe just to reiterate, the divestiture that we completed in the fourth quarter is kind of a, call it, a onetime adjustment that impacts our ongoing margins. And so you're certainly seeing that in the year-over-year margin comparisons in Q1, and you'll see that through the year until we hit Q4. Sundaram Nagarajan: And I think, Andrew, the most important part we, as a company, are focused on, and this message sort of reiterates across all of our businesses. In -- given Nordson's high gross margins, high best-in-class EBITDA margins, it is super important for our businesses to stay focused on growth at reasonable incrementals. So as you think about us, be it MFS, yes, the margins are pretty strong. But day in, day out, what our teams in the divisions are focused on is to drive organic growth, innovate, deliver products at the time the customer is asking us, have the best quality there is, meet our customers' needs in the market where they need us to be, just being agile. That's sort of how we are thinking about it. And I would say the margin is just a byproduct of all of the work, right? So that -- if you want to think about us, I would think about above-market growth at reasonable incrementals. That's what we're focused on. That's what you will see us deliver. Operator: Our next question comes from Chris Dankert with Loop Capital. Christopher Dankert: Just looking at the ATS segment, I guess I'm fully appreciating that a lot of that business is just lumpier by nature. But was any of that growth a pull forward around Lunar New Year? Or was that just kind of how the orders just happen to fall serendipitously? Daniel Hopgood: Yes. No, nothing that we would say is tied to the Lunar New Year. In fact, to be honest, we've kind of looked at this and the Lunar New Year, it has a pretty de minimis impact, and we've kind of proven that out looking at history. So it's really tied to, as Naga said earlier, customer demand requirements when they want the machines on their floor for installation into their broader lines. And what you're seeing is reflective of, I would say, normal customer demand and requirements. Sundaram Nagarajan: We do hear that our customers are investing for the demand, right? And so this increased demand for AI chip capacity is playing out, and it's playing out in the packaging area right now. And that's why you see our dispense business benefit. You start to see our X-ray business start to inflect. So this is based on what people are asking. And the lumpiness comes from our customer, both investment pattern as well as installation requirements. So... Christopher Dankert: Yes. It was certainly encouraging to see the strong start to the year and the good shipments in 1Q here. So congrats on that. I guess as my follow-up, any comments on kind of the machine builder activity in core Europe and kind of what that demand has been within the IPS segment? Sundaram Nagarajan: They seem to be pretty stable and our packaging business has had a pretty good quarter, expect to continue to have a pretty good quarter. If you think about the nonwovens business, we're coming off of 2 years of incredible capacity adds. A lot of capacity adds for nonwovens came in the last year from a lot of our mid-tier OEMs based in Asia, building out in Africa, Middle East, India, so global middle income growth, still a big secular growth driver for this business, albeit reasonable low single-digit growth, stable aftermarket demand, all the things that makes this business great, still intact, still continuing to do well. Christopher Dankert: Congrats on the nice start to '26 year. Operator: Our next question comes from Walter Liptak with Seaport Research. Walter Liptak: Let me try one on the ATS segment. And if I'm recalling this right, in past positive cycles around consumer electronics for dispensing, the visibility was pretty short, like the customers would place orders and then you'd have to cycle through and ship very quickly already. And it sounds like with this kind of data center build-out for advanced chips that lumpiness is still there. Do you -- can you help us understand, is there any differences between prior kind of consumer electronics-led cycles versus this one? Do you get any more visibility into the capacity that might be going in and those order lead times, if you can just comment. Sundaram Nagarajan: The order lead times are not very different. But the size or the growth differences are -- they are smaller rather than significantly huge chunks and then nothing. So I would say it has dampened. The amplitude of the cycle is dampened is maybe one way to think about it. But the order lead times are no different. But we have built in some new advantages here in the last couple of years. If you remember, this business went through a relocation of capacity to be in geographies where we are closer to our customer and where the customer needs us to be. So that has helped us to be able to respond to this lead time. The other is our NBS -- next application within our factories certainly has improved our own on-time delivery capability. We are consistently in the low 90s starting to march towards a 95% on-time delivery based on customer requirements. So this type of delivery capability that the teams have built over the last couple of years and having capacity where our customer needs us to be is a game changer for this business. Daniel Hopgood: I'll just add, by the way, I mean, your comment is spot on. If you think of our backlog, and this is why we think looking at our backlog quarter-to-quarter or year-over-year is a good indicator, we're turning our backlog pretty quickly. As you think about our backlog, yes, we have some selected areas with longer lead times, but the majority of our backlog turns in the quarter. And so our starting backlog is really an indicator of current demand for Q2. To your point, we also have -- we maintain robust pipelines. We know what we're talking to our customers about on new projects. I think the piece that's harder to pin down sometimes just because of customer requirements is when those turn into orders and delivery, which is dependent on when the customers need them for their factory floor. Walter Liptak: And then you called out the wise Nordson Advanced Electronics winning. I wonder if -- is there a win rate? Like -- it sounds like you might be gaining market share here with some of the quick delivery. Is there a way of quantifying it with the win rate? Sundaram Nagarajan: Walt, we don't share that on the outside. I would definitely tell you our work around growth drivers in each of our businesses, including ATS, around focus on innovation, focus on delivery, having the best in quality and finally meeting where our customers need us to be in the market are 4 core growth drivers that each of our businesses are working on. And what you're seeing in ATS, certainly, there is a market momentum, but to be able to leverage the full potential of the market opportunity, clearly, our teams are doing it. Fantastic job. And I think we're getting rewarded for that in the market. Operator: [Operator Instructions] Our next question comes from Brad Hewitt with Wolfe Research. Bradley Hewitt: So IPS revenue was much better than typical sequential seasonality. Of course, you called out the strength in Asia Pacific. But just curious if you could elaborate a little bit more on what drove that strength in Asia. How much of that was a function of an easy comp? And then how do you think about growth by region for the year in IPS? Sundaram Nagarajan: Yes. As I shared earlier in one of the answers, I would tell you, it is a broad-based demand that we are certainly seeing in IPS. IPS returns to growth, returned to growth in the quarter, expect to have a good growth for the rest of the year. Clearly, you can see growth in packaging, product assembly. Our Precision Ag business is also growing nicely. Polymer Solutions has stabilized. So there is some of that negative going away, right? If you think about polymers and automotive, where last year, we were dealing with still demand going down. That has stabilized. So from that perspective, the comps are better there. So it's a combination of our businesses that were negative last year are stabilized. They've not inflected yet. But our businesses that are having good growth demand in packaging, product assembly and precision ag are contributing to the growth in this segment. Daniel Hopgood: I think that's maybe a good way to think about it, Brad, is what you're seeing in our first quarter growth of 3% is really the underlying growth that we've been seeing in this segment, if not for the drag that we saw in the automotive and polymer space last year. Bradley Hewitt: And then maybe switching over to the ATS side. Given AI demand continues to accelerate in recent months, does that give you confidence that perhaps your electronics business as a whole can outperform the mid-single-digit long-term outlook you discussed at the Investor Day? Sundaram Nagarajan: I think it's really important to remain balanced on this business. We have seen the cycle of this business. And that's the space we play in, and we fully appreciate it, and we capitalize and fully participate in the market when the market is up. So yes, in years when there is going to be significant investment like now, we are going to see higher than the mid-single digit. But then through the cycle, we're going to be in places where this business will go down. And that's something you have experienced. You've seen us. So you want to think through the cycle, mid-single digit in the up cycle, certainly higher, right? And so that's what we are experiencing now, and that's what we are planning for and that's embedded in our guide. Operator: There are no further questions at this time. I will now turn the call back to Naga for closing remarks. Sundaram Nagarajan: Thank you for your time and attention on today's call. We have several upcoming investor events over the next month where our team would be happy to meet with you, including the Loop Industrial Conference on March 10 in New York, the Bank of America Conference on March 17 in London and at the APEX trade show in Anaheim, California on March 18, featuring our electronics product lines. Nordson is well positioned as a diversified precision technology company, our close to the customer model, proprietary and niche technology, diversified geographic and end market exposures, High level of recurring revenue and strong balance sheet are among the many attributes that make us a quality compounder. Have a great day. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Good morning, and welcome to the Host Hotels & Resorts Fourth Quarter 2025 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the call over to Jaime Marcus, Senior Vice President of Investor Relations. Jaime Marcus: Thank you, and good morning, everyone. Before we begin, please note that many of the comments made today are considered to be forward-looking statements under Federal Securities Laws. As described in our filings with the SEC, these statements are subject to numerous risks and uncertainties that could cause future results to differ from those expressed, and we are not obligated to publicly update or revise these forward-looking statements. In addition, on today's call, we will discuss certain non-GAAP financial information, such as FFO, adjusted EBITDAre and comparable hotel level results. You can find this information together with reconciliations to the most directly comparable GAAP information in yesterday's earnings press release and our 8-K filed with the SEC and in the supplemental financial information on our website at hosthotels.com. The operational results discussed today refer to our 76 hotel comparable portfolio in 2025, which excludes Alila Ventana Big Sur, The Don CeSar and St. Regis Houston, which we sold in January. With me on today's call are Jim Risoleo, President and Chief Executive Officer; and Sourav Ghosh, Executive Vice President and Chief Financial Officer. With that, I would like to turn the call over to Jim. James Risoleo: Thank you, Jaime, and thanks to everyone for joining us this morning. 2025 was another strong year for Host. We delivered operational improvements across our portfolio driven by rate growth and out-of-room spending, and we continue to successfully allocate capital through dispositions, portfolio reinvestment, share repurchases and dividends. We also maintained an investment-grade balance sheet while positioning Host to take advantage of future opportunities. Turning to our results, we finished 2025 meaningfully above our most recent guidance estimates. For the full year, we delivered adjusted EBITDAre of $1,757 million, a 4.6% increase over 2024, and adjusted FFO per share of $2.07, a 3.5% increase year-over-year. Comparable hotel total RevPAR grew 4.2% and comparable hotel RevPAR grew 3.8% compared to 2024. Comparable hotel EBITDA margin of 28.9% was down 40 basis points year-over-year, driven by $21 million of business interruption proceeds that we received in 2024 for the Maui wildfires. Our full year RevPAR and adjusted EBITDAre exceeded our initial 2025 guidance by 2.3 percentage points and 8.5%, respectively. Notably, our portfolio outperformed the upper tier industry RevPAR growth by approximately 200 basis points for the year. During the fourth quarter, we delivered adjusted EBITDAre of $428 million and adjusted FFO per share of $0.51. Comparable hotel total RevPAR improved 5.4% compared to the fourth quarter of 2024, and comparable hotel RevPAR was up 4.6%, driven by strong leisure transient demand, higher room rates and increased out-of-room spending. Comparable hotel EBITDA margins declined by 30 basis points to 28% as these operational improvements were offset by certain onetime benefits in the fourth quarter of 2024. Turning to business mix. RevPAR growth in the fourth quarter was better than expected, driven by resilient transient demand, particularly at our luxury resorts. Transient revenue grew by 6%, driven almost entirely by rate increases. In terms of markets, we saw particularly strong transient performance in Maui, New York and San Francisco. In fact, Maui was a standout market, contributing more than 1/3 of the transient revenue growth in the fourth quarter. RevPAR grew 15% and TRevPAR grew 13%, driven by strong demand growth. For context, Maui contributed $111 million of EBITDA for the year, which was slightly ahead of our most recent forecast and significantly ahead of our initial $90 million expectation at the start of 2025. Looking forward, we expect Maui to contribute approximately $120 million of EBITDA in 2026. Turning to business transient. Revenue was up 1% in the fourth quarter as increases in rate offset a decline in room nights. Group revenue for the quarter was up approximately 1% year-over-year as rate increases offset group room night declines, which were driven by renovations and citywide softness in several markets. Our properties sold 900,000 group rooms in the fourth quarter, bringing our total group room nights sold for 2025 to $4.1 million. Ancillary spending remained strong in the quarter with continued growth in food and beverage revenues and out-of-room spending. Comparable hotel F&B revenue grew 6%, driven by strong outlet performance and banquet contribution per group room night. We also saw particularly strong growth in other revenue, which was up 10% in the quarter, including growth in golf and spa. Taken together, we continue to benefit from the strength of the affluent consumer across properties in our portfolio. Turning to capital allocation. In 2025, we sold The Westin Cincinnati and Washington Marriott at Metro Center for a combined $237 million. We also provided $114 million of seller financing for the Washington Marriott at Metro Center transaction at a 6.5% interest rate. Yesterday, we announced the sale of the Four Seasons Resort Orlando at Walt Disney World Resort and the Four Seasons Resort and Residences Jackson Hole for $1.1 billion, which represents a 14.9x EBITDA multiple on trailing 12-month EBITDA. The multiple includes approximately $88 million of estimated foregone capital expenditures over the next 5 years. We purchased the hotels in 2021 and '22, respectively, for a total of $925 million with no significant capital expenditures required under our ownership. The $1.1 billion sale price represents an 11% unlevered IRR and an EBITDA multiple that is more than 4 turns higher than our company's recent trading multiple. The IRR includes $58 million of capital expenditures, which was funded within the FF&E reserve as well as transaction costs. These items negatively impacted the IRR calculation by approximately 170 basis points. We are retaining the ongoing condo development at the Four Seasons Orlando, which is excluded from the sale. In 2025, we recognized $17 million of net adjusted EBITDAre from the sale of 16 condo units, and we expect to recognize an additional $20 million to $25 million when the remaining units are sold. As we assess the best use of capital in the current environment, our investment-grade balance sheet provides meaningful financial flexibility to pursue the highest return opportunities. We expect to recognize a taxable gain of approximately $500 million from the sale of the 2 hotels, subject to final prorations, and we have 45 days to identify a potential like-kind exchange. If we are unable to identify an accretive acquisition within that time frame, we would intend to return the taxable gain to shareholders through a special dividend. For the remaining sale proceeds, we will evaluate the best path forward based on market conditions, which could include returning additional capital to shareholders through special dividends or share repurchases, reinvesting in our portfolio or pursuing accretive acquisitions. We also completed the previously announced sale of the St. Regis Houston for $51 million. The sale price represents a 25x EBITDA multiple on trailing 12-month EBITDA. The multiple includes approximately $49 million of estimated foregone capital expenditures over the next 5 years. Finally, the Sheraton Parsippany is under contract to sell for $15 million with an expected close in the second quarter. Since 2018, we have disposed of approximately $6.4 billion of hotel assets at a blended 16.7x EBITDA multiple, including estimated foregone capital expenditures of $1.2 billion. This compares favorably to the $4.9 billion of acquisitions we completed over the same period at a blended 13.6x EBITDA multiple. In addition to successfully allocating capital through dispositions, we also returned capital to shareholders through share repurchases and dividends. In 2025, we repurchased 13.1 million shares at an average price of $15.68 per share for a total of $205 million. For context, we have repurchased 69.2 million shares at an average price of $16.63 per share for a total of approximately $1.2 billion since 2017. In the fourth quarter, we declared a quarterly common dividend of $0.20 per share and announced a special dividend of $0.15 per share, bringing the total dividends declared for the year to $0.95 per share. In total, we returned nearly $860 million of capital to shareholders in 2025, including share repurchases. Turning to portfolio reinvestment. In 2025, we invested approximately $644 million in capital expenditures, resiliency initiatives and hurricane restoration across our portfolio. As of the end of the fourth quarter, the Hyatt Transformational Capital Program is more than 75% complete and is tracking on time and under budget. Transformational renovations have been completed at the Grand Hyatt Atlanta Buckhead, the Hyatt Regency Capitol Hill and the Hyatt Regency Austin. We are nearing completion of the Hyatt Regency Reston and Grand Hyatt Washington D.C., both of which are expected to be finished in the first half of 2026. The Manchester Grand Hyatt San Diego, the final asset in the program has been phased to mitigate business interruption and is expected to be substantially complete by the end of 2026. Additionally, we started the transformational renovation of the New Orleans Marriott in the third quarter of 2025, which is part of the second Marriott Transformational Capital Program. In the fourth quarter, we received $3 million of operating guarantees related to our Transformational Capital Programs, bringing the total received to $26 million in 2025. We also completed several major ROI projects over the course of 2025, including the oceanfront ballroom expansion at The Don CeSar, villa development at The Phoenician, Canyon Suites; the new AVIV Restaurant at the 1 Hotel South Beach, and the meeting space expansion and reopening of The View Restaurant at the New York Marriott Marquis. We are nearing completion of the condo development at the Four Seasons Orlando, having completed the 31-unit mid-rise building, and we began closing on unit sales in the fourth quarter. To date, we have deposits and purchase agreements in place for 28 of the 40 units, including 8 of the 9 villas, which are expected to complete in the first half of this year. In 2026, our capital expenditure guidance range is $525 million to $625 million. This includes approximately $250 million to $300 million of investment focused on redevelopment, repositioning and ROI projects. As I just mentioned, we expect to substantially complete the Hyatt Transformational Capital Program renovations by the end of 2026. The second Marriott Transformational Capital Program is also well underway. We expect to start construction at The Ritz-Carlton Naples, Tiburon and Westin Kierland in the second quarter. As a reminder, we expect to benefit from approximately $19 million of operating profit guarantees in 2026 related to our Transformational Capital Programs, which we expect will offset the majority of the EBITDA disruption at these properties. In addition to our capital expenditure investment, we expect to spend $15 million to complete the condo development at the Four Seasons Orlando in 2026. Looking back on our portfolio reinvestments, we completed 23 transformational renovations between 2018 and 2023, which continue to provide meaningful tailwinds for our portfolio. Of the 21 hotels that have stabilized post renovation operations to date, the average RevPAR index share gain is 8.7 points, which is well in excess of our targeted gain of 3 to 5 points. As evidenced by our results, the continued reinvestments we have made in our portfolio yield strong returns and drive value creation for our shareholders. We continue to be recognized as a global leader in corporate responsibility over the course of 2025. As part of our climate risk and resiliency program, we completed the purchase and preinstallation of modular flood barriers that exceed FEMA 100-year flood elevation for 8 high-risk properties. We are also working to formalize the connection between our climate risk program and our property insurance premiums to validate proactive resilience investment opportunities, quantify the impact and return on investment and scale efforts across our portfolio where we see elevated climate risk. Wrapping up, we are very proud of the continued outperformance we delivered in 2025, which reflects the disciplined capital allocation decisions we have made since 2017. Our recent transactions represent an important step in advancing our capital allocation strategy and underscore our ability to generate meaningful shareholder value by monetizing assets at attractive returns and accretive multiples with an eye towards maximizing total shareholder returns. Looking ahead, we are optimistic about the travel environment, particularly at the upper end of the chain scale, and we are confident that Host is well positioned to capitalize on future opportunities. With our geographically diversified portfolio, ongoing reinvestment in our properties and fortress balance sheet, we will continue to leverage our competitive advantages to create value for our shareholders in 2026 and beyond. With that, I will now turn the call over to Sourav. Sourav Ghosh: Thank you, Jim, and good morning, everyone. Building on Jim's comments, I will go into detail on our fourth quarter operations, full year 2026 guidance and our balance sheet. Starting with total revenue trends. Total RevPAR growth continued to outpace RevPAR growth as transient guests maintained elevated levels of out-of-room spending. Comparable hotel food and beverage revenue for the quarter grew approximately 6%, driven by outlet revenue and banquet contribution per group room night. Outlet revenue grew 9%, driven by resorts and new restaurants at the 1 Hotel South Beach and the New York Marriott Marquis. Resort outlet growth was led by the ongoing recovery in Maui as well as the Ritz-Carlton Naples and the continued ramp-up of the Singer Island Oceanfront Resort and the Ritz-Carlton Turtle Bay. Comparable banquet and catering revenue increased 4% in the fourth quarter, driven by 6% growth in banquet contribution per group room night. Other revenues increased 10%, propelled by sustained strength in golf and spa operations. Spa revenue was up 6%, driven by higher occupancy at luxury resorts and improved capture, particularly at the Ritz-Carlton, Amelia Island and Fairmont Kea Lani. Golf revenue grew 14% due to strong performance at our Maui and Naples golf courses. Shifting to rooms revenues. Overall transient revenue grew 6% compared to the fourth quarter of 2024, driven by improving leisure transient demand and rate growth across the portfolio. Notably, resorts generated 80% of the transient revenue growth in the quarter. Transient revenue at luxury properties increased by more than 10%, underscoring the strength of high-end demand. The Ritz-Carlton Naples and Fairmont Kea Lani delivered double-digit room night growth while maintaining rates above $1,000, representing a 5% increase year-over-year, further validating the meaningful impact of our transformational reinvestment strategy. Looking at holidays in the fourth quarter. Thanksgiving revenue grew 3%, while festive season revenue grew 9%. Festive season revenue growth, which includes the 2-week period around Christmas and New Year's, was broad-based across the portfolio but led by resorts with 4 resorts generating more than $1 million of incremental revenue over the festive period. Looking at recent and upcoming 2026 holidays, transient booking pace is up meaningfully. For President's Day weekend, transient revenue pace was up approximately 8% compared to the same time last year, driven by rate and occupancy growth at our convention properties. For the spring break and Easter period, which runs from the end of March through the end of April, transient revenue pace is up 17%. Strength is broad-based across property type and led by hotels in Maui, Orlando and New York. Business transient revenue grew approximately 1% versus the fourth quarter of 2024, driven primarily by rate growth as our managers continued shifting towards corporate negotiated business. Group revenue in the fourth quarter was up 1% year-over-year as 3% rate growth outpaced group room night declines. Corporate groups led growth in the quarter, particularly at our properties in New York, Boston, San Diego and San Francisco. For 2026, we have 3.1 million in definite group room nights on the books, representing a 16% increase since the third quarter of 2025 and putting us slightly ahead of where we were this time last year. Total group revenue pace is up 5% over the same time last year, driven by rate and banquet growth. More specifically, we are seeing meaningful total group revenue pace in San Francisco, Washington, D.C., Nashville, Miami, New York, Austin and Atlanta. Group booking pace is strongest for the second and fourth quarters, driven by World Cup bookings and a beneficial holiday calendar shift in October. We are encouraged by citywide room night pace in key markets such as San Antonio, San Francisco and Washington, D.C. Shifting gears to margins. Full year 2025 comparable hotel EBITDA margin of 28.9% was 40 basis points below 2024, driven by the $21 million of business interruption proceeds that we received for the Maui wildfires as well as certain onetime benefits in 2024. Turning to our outlook for 2026. The midpoint of our guidance contemplates a stable operating environment with a continuation of trends seen through the second half of 2025. This includes leisure transient strength driven by special events such as the World Cup, modest improvements to short-term group booking trends and stable business transient demand. At the low end of our guidance range, we have assumed no improvement in short-term group booking trends and weaker special events demand. And at the high end, we have assumed improving short-term group booking trends and increased demand around special events. For full year 2026, we anticipate comparable hotel total RevPAR growth of between 2.5% and 4%, and comparable hotel RevPAR growth of between 2% and 3.5% over 2025. Year-over-year, we expect comparable hotel EBITDA margins to be down 20 basis points at the low end of our guidance to up 20 basis points at the high end. In 2026, our 74 hotel comparable portfolio now includes the Alila Ventana Big Sur, but excludes The Don CeSar due to its closure in 2025. Our 2026 comparable portfolio also removed the Four Seasons Resort Orlando at Walt Disney World Resort, the Four Seasons Resort and Residences Jackson Hole and Sheraton Parsippany, which is under contract and expected to be sold in the second quarter. In terms of comparable hotel RevPAR growth cadence for the year, we expect the first quarter to be the weakest with growth in the low single digits due to tough comparisons related to the presidential inauguration and pickup from the Los Angeles wildfires last year. January 2026 performance exceeded expectations with comparable hotel RevPAR declining only 40 basis points despite challenging comparisons to January 2025. We expect the second quarter to be the strongest of the year with mid-single-digit RevPAR growth driven by the World Cup and an earlier Easter. RevPAR growth in the second half of the year is expected to be between first and second quarter growth. At the midpoint of our guidance range, we anticipate comparable hotel RevPAR growth of 2.75% compared to 2025. This includes an estimated 40 basis point net benefit from special events for the full year with an estimated 60 basis point lift from the World Cup, partially offset by a 20 basis point headwind from last year's presidential inauguration. In addition, Maui is expected to contribute approximately 35 basis points to our full year RevPAR growth. At the midpoint, we expect a comparable hotel EBITDA margin of 29.2%, which is flat to 2025. Our margin performance reflects our continued success in partnering with our operators to drive productivity gains across our portfolio as well as the value-enhancing capital allocation decisions we have made over the past few years. In 2026, we expect wage rates to increase approximately 5%. For context, in 2025, wages grew at slightly over 6%. As a reminder, wages and benefits comprise approximately 50% of our total comparable hotel operating expenses. Our 2026 full year adjusted EBITDAre midpoint is $1,770 million. On a year-over-year basis, this reflects an expected 1% increase despite a decline of $87 million from dispositions, a $17 million net decline in business interruption proceeds and a $7 million net decline in transformational renovation program operating profit guarantees. Our adjusted EBITDAre midpoint includes $28 million of estimated EBITDA from operations at The Don CeSar, which is excluded from our comparable hotel set in 2026, as previously mentioned. It also includes approximately $7 million of business interruption proceeds related to Hurricanes Helene and Milton, which we already received in January. Lastly, our 2026 full year adjusted EBITDAre midpoint includes between $20 million and $25 million of estimated net EBITDA from the Four Seasons condo development, which we expect to recognize concurrent with condo sale closings. Turning to our balance sheet and liquidity position. Our weighted average maturity is 5.1 years at a weighted average interest rate of 4.8%. We have no debt maturities in 2026. We ended 2025 at a leverage ratio of 2.6x, and we have $2.4 billion in total available liquidity including $167 million of FF&E reserves and $1.5 billion of availability on our credit facility. Our fortress balance sheet continues to be a distinct competitive advantage for Host. Wrapping up, in January, we paid a quarterly cash dividend of $0.20 per share and a special dividend of $0.15, bringing the total dividends declared in 2025 to $0.95 per share. On February 17, the Board of Directors authorized a quarterly cash dividend of $0.20 on our common stock to be paid on April 15 to shareholders of record on March 31. As always, future dividends are subject to approval by the company's Board of Directors. To conclude, we are proud of our accomplishments in 2025, and we believe that our diversified portfolio, continued reinvestment in our assets and strong balance sheet uniquely position Host to capitalize on future opportunities. With that, we would be happy to take your questions. To ensure we have time to address as many questions as possible, please limit yourself to one question. Operator: [Operator Instructions] Our first question comes from Michael Bellisario from Baird. Michael Bellisario: Jim, on the Four Seasons sales, certainly great execution there and you're proving out value. So of two parts here. One, how deep is that buyer pool today? And then two, can you, and next maybe, would you sell more of your top assets? Or what's the outlook and thinking around more high-value dispositions going forward? James Risoleo: Sure, Mike. Good questions. As you always have good questions for us, and we appreciate that very much. Before I talk about the Four Seasons specifically, I just want to take a moment and go back and highlight our performance in 2025 and our guide in 2026. We -- Sourav said it. I said it as well. We're very proud of our '25 performance. TRevPAR of 4.2%, RevPAR of 3.8% and adjusted EBITDAre of $1,757 million. And our '26 guide, I think, is very strong with TRevPAR at the midpoint of 3.25% and RevPAR of 2.75%, and adjusted EBITDAre of $1,770 million. I think it is worth noting again, saying again that, that $1,770 million is after we sold $87 million of hotel EBITDA, and we won't benefit from BI proceeds and operating partner guarantees, disruption guarantees of $24 million. So the run rate is really closer to $1.9 billion for 2025. And that didn't happen by accident. That's a result of all the capital allocation decisions that we made over the last 9 years. And as you know, we have been exploring ways to unlock the value embedded in our shares. In other words, looking for ways to expand our trading multiple with the goal of maximizing total shareholder returns. In addition to acquiring $4.9 billion of assets at 13.6x, we sold $6.4 billion of assets with $1.2 billion of avoided CapEx at 16.7x. The shares haven't really responded. We haven't received credit for portfolio recycling despite buying well below where we were selling on a blended basis. So I think it goes back to a healthy amount of skepticism with regard to some of the large acquisitions that we made, starting with the 1 Hotel South Beach, which in 2018, had $46 million of EBITDA. And in 2025, we ended the year with $65 million of EBITDA. So the story is solid, and it holds together very well. But to answer your question, is there a market for these assets? If so, at what valuation? Are we sellers of "the crown jewels" to realize the value that we've created. And the short answer is, yes. I mean you've heard us say that we're constantly testing the market with dispositions and that everything is for sale at the right price, and we mean it. This was an opportunistic transaction to create immediate and tangible value for our shareholders. We were looking for an opportunity to realize that value and we found one and we executed on it. So even though the 2 Four Seasons were top performers for Host, and we fully expect luxury to continue outperforming. We believe that it was prudent to maximize value for our shareholders by selling these assets at an attractive profit and accretive multiple. Quick summary of the transaction. We sold these 2 assets for $175 million more than where we bought them. A 14.9x multiple, which is a 5.9% cap rate that is 4 turns higher than where Host shares have been trading. And we think that provides a really favorable read-through on the value of our portfolio. We generated an 11% unlevered IRR for our ownership period, which clearly demonstrates our ability to create value. That includes $58 million of CapEx, which was funded within the FF&E reserve as well as transaction costs that hit the IRR by 170 basis points. We kept the condos in Orlando, and we expect the IRR and the condos to be above 11% with our guide to roughly $40 million of net EBITDA in total. And as you said in one of your notes, Mike, we sold 6.5% of enterprise value, but only 4.7% of our consolidated hotel EBITDA. So we think this was a really fantastic trade, the Four Seasons Orlando, based on 2019 year-end EBITDA saw an 18.4% CAGR from the time we bought it to our ownership period through '25, so it's performed very well. And we're very, very happy with the round-trip investment we made with these 2 resorts. Not only we feel that the transaction demonstrates the value of our portfolio, it also shows the value that we create for shareholders as a management team, including our unwavering focus on maximizing total shareholder return, which is what we've done here, we believe. So are there other opportunities to maximize value within the portfolio? I think there is, we'll be opportunistic. The buyer pool for these types of assets is, I think, a lot deeper than people realize. There are a lot of sovereigns out there who are very interested in luxury hotels. There are high net worth individuals who are interested in luxury properties as well. And there are a couple of big private equity firms that have a lot of capital that have been sitting on the sidelines waiting to -- waiting for the inflection point to jump back into the market. And we're hopeful that this is the inflection point that we can prove out that there is value here, value to be created, and we're certainly hopeful that we're going to get the read through and see some multiple expansion as a result of not only this decision, but all the capital allocation decisions that we've made over the last 9 years. Operator: Our next question comes from David Katz from Jefferies. David Katz: I apologize if I missed it in your prepared remarks, but the Transformational Capital Program you included in the release with Marriott. Can you just put a little more color around that and sort of why those hotels, why now and what we can expect on the back end of that endeavor? James Risoleo: Sure. Why those hotels, David. They're great assets, and they need to be repositioned, and we believe that by investing in these assets in a transformational way that we're going to meaningfully increase our yield index and realize mid-teens cash-on-cash returns as a result of our incremental investment that will benefit our shareholders. So the thesis is that we prove this out very strongly in our first Marriott Transformational Capital Program, which was 16 assets as well as 8 additional assets. We underwrote 3 to 5 points increase in yield index. On the stabilized hotels to date, we've picked up 8.7 points in yield index, which means other hotels in the market have lost yield index to our properties. And we think that this is a very, very solid use of our capital, and it's a clear read-through to our ability to really invest wisely for the benefit of our shareholders and see the proceeds drop right to the bottom line. And the brands see it as well with Host. I mean we have -- not only is this our second Transformational Capital Program with Marriott. After we did 16 in the first round, we did 4 in this round. But we are in the midst of finishing up 6 properties with Hyatt. So it's great to be able to partner with the brands. And they provide the support that we need to effectuate these transformational renovations while covering off anticipated disruption involved with the renovation and providing enhanced owner priority returns. So we couldn't be happier with our relationship with the brands and the support that they give us and the fact that we are investing in these assets, which elevates not only the EBITDA profile for Host, but the EBITDA profile for the brand as well, and we benefit from that all the way around. It's a round-trip investment, if you will. David Katz: And have you shared with us what the sort of reimbursement for Marriott will be and sort of how that cadence works for our model? James Risoleo: Well, I'm sorry, the reimbursement, when we talk about the operating profit guarantees, sure. And Sourav can give you color on what they are, what we got last year, what we'll get this year. And the -- our anticipated property performance is reflected in our guidance. So that's already there for you. Sourav Ghosh: And just to expand on the guarantees. In 2025, we did receive some operating guarantee from the MTCP2, that was about $2 million. It was $1 million in the third quarter, $1 million in the fourth quarter. But remember, we did get a $24 million for HTCP, the Hyatt Transformational Capital Program, throughout 2025. In 2026, we will get operating profit -- guarantee for HTCP that's about $7 million, and that's really for the Hyatt Manchester in San Diego. And the MTCP2, we will get about $12 million through the year. So that's a total of $19 million. So in other words, it's about a $7 million delta in terms of what we'll get for '26 versus '25, so $7 million lower. Operator: Our next question comes from Dan Politzer from JPMorgan. Daniel Politzer: I wanted to touch on Maui a bit here. You came into last year forecasting, I think, $90 million of EBITDA, ended at $110 million, and now you're forecasting $120 million for 2026. I guess what's -- is there some element of conservatism in there as we think about the path getting back to $160 million? And what are the puts and takes to that 2026 outlook? Sourav Ghosh: Sure. So when you look at -- you're right, we started off like last year at forecasting $90 million for 2025, and we ended up at $111 million. And now we are forecasting an additional $9 million. Based on the current booking pace and how things are shaping up, we feel pretty confident in terms of the $120 million guide. The reality is, as we had talked about earlier, that the Hyatt Regency, that's the one in Ka'anapali, that's the one which is going to take a little bit of time to come back because of the lead time required for the groups to come back in a meaningful way. I will say that the Wailea Hotel, the Fairmont Kea Lani actually reached a high watermark in 2025 with $49 million of EBITDA, and Andaz as well on the way there as well. So the Wailea side is almost completely recovered, if you will, relative to pre-fire. The Hyatt Regency has a little ways to go and has made meaningful progress, and we are expecting a significant amount of growth for the Hyatt Regency Maui. I mean just to put it into perspective, that property, we're expecting to go from about $28 million of EBITDA to close to $34 million for 2026. So significant growth there, and we're making considerable progress. At this point in time, we feel comfortable with the $120 million. Does that change over the course of the year as we see potential group pace pick up and short-term pick up? Absolutely. So we will provide an update on the next call. So there could be potential upside in those numbers. Operator: Our next question comes from Smedes Rose from Citigroup. Bennett Rose: I just wanted to ask a little bit about as these CapEx programs that you're doing with the brands kind of finish up over the course of this year, and it looks like total CapEx spending is kind of on a downward trend. Is it fair to think that, that could continue to kind of move down slightly? And does that change the way you're thinking about -- you and the Board are thinking about your quarterly dividend payments versus kind of year-end true-ups? James Risoleo: See, Smedes, we're always looking for opportunities to invest in our assets if we can generate an acceptable return on that investment. So we have done a lot of transformational renovations in the portfolio. I think it's a total of 33 assets will have been transformationally renovated now, and that excludes the Washington Marriott at Metro Center, which we sold, or would have been 34, that was one of the original 16 programs. So I think stay tuned. We'll look for other opportunities after we complete these assets going forward. The portfolio is in terrific shape given the amount of capital that we put in it. And you can see that in the performance that we've been able to generate. So with respect to the dividend, our objective is to pay out our taxable income and to pay a sustainable dividend going forward. So it's something that we will revisit from time to time. And if a policy change is warranted, that's something we'll discuss with the Board of Directors, and we will inform you at that point in time. But at this point in time, we are on track for our $0.20 dividend that's paid this quarter coming up and stay tuned for the next dividend announcement. Operator: Our next question comes from Aryeh Klein from BMO Capital Markets. Aryeh Klein: Jim, you talked a bit about selling the Four Seasons and your general view on realizing value within the portfolio. I was hoping maybe you can talk a little bit about the other side of that and what you're seeing out there on the acquisition side, particularly with the $500 million of capital gains that could theoretically go towards acquisition. James Risoleo: Sure, Aryeh. I would say that the acquisition market generally is better than it was last year, but it's still not robust. And we do have an opportunity to effectuate a reverse like-kind exchange. If we were in a position to identify assets, accretive asset acquisitions within 45 days, and I want to make that point very clear. If we do a reverse like-kind exchange, it's going to be an accretive transaction. We're not going to acquire an asset just to effectuate a like-kind exchange. I think the proof is in the pudding, and I've talked about it earlier today and talked about it in the past. So we are going to look at what's out there relative to our current trading multiple. And generally, most of the deals that we've done, Aryeh, have been based on relationships that we have in the industry. So we're thinking about it as a team, the investments team and others here at Host are thinking about what assets might be available to us to effectuate this. But we're perfectly comfortable returning $0.5 billion in the form of a special dividend to our shareholders. I mean that is tangible. It's $0.72 a share roughly, it's meaningful, and it is a piece of total shareholder return. So I'd say, stay tuned. But at this point in time, I think it's more likely than not that we will pay the special dividend. Operator: Our next question comes from Cooper Clark from Wells Fargo. Cooper Clark: As we think about the $600 million in proceeds outside of the taxable gains, you noted a few options as it relates to allocation in terms of returning capital through dividend, buybacks, reinvesting in the portfolio and potentially acquisitions. As you sit here today, can you talk about which one of those options looks most attractive and where you're seeing the best opportunity? James Risoleo: Cooper, this is going to evolve. It's not something that we have to -- we don't have to act on the balance of the proceeds in any short-term time frame. So we're going to sit back and take measure of how the market evolves, how our operating performance evolves over the course of the year, what happens in the acquisition market. And at the appropriate point in time, we will make some decisions with respect to what we do with the incremental cash that's left over. But I can't sit here today and tell you what the highest and best use of that cash is. It's something that we're going to take a measured approach to as we always do, and we'll just have to wait and see how the year plays out. Operator: Our next question comes from Chris Darling from Green Street. Chris Darling: Jim or Sourav, I'd like to dive a little bit deeper on the expense outlook for the year. I think you mentioned wage and benefit expected to grow about 5%. Anything you can share on labor availability, whether you're seeing sort of an easing in the market? And then if you're able, it'd be helpful to break down some of your other expenses, any other major line items where you have visibility. Sourav Ghosh: Sure thing, Chris. So obviously, given at the midpoint, we're expecting flat margins. Our expense growth is -- total expense growth is assumed at 3.3% with total revenue growth of 3.3%. Yes, the wage rates are expected to go up 5% for the year. But obviously, we do have certain other benefits that our overall expenses can be lower for the year. That's being driven by a few things. It's productivity enhancements. There's a lot of focus on really honing in on what the best labor standards should be. And we literally are going position by position and working with our managers to make sure that there is keen focus on the ideal standards that drive scheduling and forecasting for labor. So that's a big piece of it. The other thing is insurance should be down for the year. Obviously, we did not have any weather-related events in 2025. So hoping for a good outcome for our insurance renewal. So that stuff should help our overall expense growth as well. In terms of labor availability, we have not seen any challenges. And honestly, didn't see any challenges at all even coming out of COVID. And that's primarily because, as we have stated earlier, we are really predisposed to brand-managed hotels, which really do a great job with talent acquisition and talent retention. So from that perspective, we haven't really had any issues being able to sort of staff at the hotel level. Operator: Our next question comes from Duane Pfennigwerth from Evercore ISI. Duane Pfennigwerth: Just headwinds and tailwinds from a market perspective. You've talked pretty consistently about Maui tracking better, maybe San Francisco. Maybe you could just comment on group pacing in Maui and for those 2 markets, what you expect the level of improvement to be? And then, I guess, away from those 2 markets, any markets you'd highlight in your portfolio that you think are going to be a material driver this year? James Risoleo: I'll let Sourav get into the pacing on Maui and some of the other markets, Duane. But one thing that we're excited about for the year that should be a benefit for our portfolio is the World Cup matches. So World Cup, we expect 60 basis points of full year RevPAR benefit from the World Cup. That's a net 40 basis point pickup if you take into consideration that 2025 benefited from the inauguration to the tune of 20 basis points. So we have -- given the geographic diversification of our portfolio, we have World Cup matches in 10 of our markets, which is, I think, really quite attractive for us going forward. So we would expect a benefit in quarter 2 as there are more matches in more markets in quarter 2 than in quarter 3. At this point in time, we don't have a good handle on how things are going to evolve because we believe that the booking pace is going to be 30 to 60 days out. And we'll have a much better indication in our May earnings call how World Cup is going to affect our performance for the year. So that's a big plus for us. I'll let Sourav talk about pace in Maui and maybe pace in San Francisco as well because those are 2 other really strong markets for us in 2026. Sourav Ghosh: Yes. Overall, just as a reminder, group makes up about only 22% in Maui. So the big push is really getting that group at the Hyatt Regency, and our RevPAR expectations right now for the Hyatt Regency is north of 10%, it's close to 11.5%. And we are pleased with how that is pacing. Overall, Maui pace is relatively flat to last year, but that's just given how well Wailea performed and where pace was last year for the 2 hotels in Wailea. But Hyatt Regency where the group matters meaningfully, we are pacing really strong. In terms of other markets where we're pacing really well, and this is specifically for the Host portfolio, we did mention Nashville, Atlanta, Miami, San Francisco, D.C. and Austin, which is benefiting just from the reno at the Hyatt Regency. Nashville, we were expecting to pace up 13%. Atlanta, we are pacing up right now close to 10%. Miami is double digits, close to 15%. And San Francisco is almost pacing 20%. This is all total group revenue. D.C. is double digit as well at 10%. And Austin is at 26%. And the ones which are pacing behind are where there is a citywide impact. So specifically, San Diego, which you all know about, to some extent, Chicago, Boston and Seattle. Operator: Our next question comes from Robin Farley from UBS. Robin Farley: Great. Most of my questions have been asked already. But just circling back to what you're looking to do with the proceeds from the Four Seasons sale. I know you mentioned you're maybe even leaning towards the dividend. But just wondering if you could talk a little bit about what type of assets you're looking at to use those proceeds for? James Risoleo: Robin, it's a broad question. So let me answer it in the context of the types of assets that we feel that we can create value with and also think about as we're deploying capital, maintaining our geographic diversification, which has served us very well over the course of the last 9 years or so. So it's an asset that we believe will have meaningful upside opportunities from our asset management platform and our enterprise analytics platform. It will have diverse demand generators, a combination of group, leisure transient and business transient, and in a market that we feel has strong growth drivers going forward. So I can't get more specific in that because I don't have a specific asset in mind today, but those are the types of properties that we would be looking to acquire. Operator: And we are out of time for questions. I would like to turn the call back over to Jim Risoleo. James Risoleo: Well, thank you again for joining us today. We always appreciate the opportunity to discuss our quarterly results with you and our, in this case, our full year 2025 results, and we look forward to seeing many of you at conferences in the coming weeks. Have a great day, and thanks again. Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.
Steve Darling: All right. Welcome. We're inside our Vancouver Broadcast Center here at Proactive for another live stream event and this time with Nextech3D.AI and joining us is the CEO of the company, Evan Gappelberg. Evan, it's great to see you again. How are you? We're just -- we seem to be losing your audio there, Evan, for some reason. We got to get your audio taking care of. So we'll take care of that. And we'll tell you that we are here today to talk about Nextech3D.AI's financials that came out recently and also about some of the things that they'll be doing in the future as they sort of transitioned the business a little bit into where they were in the last few years to where they are going to now. Evan's going to talk a lot about that. Also, recent acquisitions as well, Eventdex and also Krafty Labs, Evan will talk about how that changes things and what the next step is towards trying to put this all together. So let's see if we can get Evan back on. Can you hear us now, Evan? No, we're having some technical difficulties with your microphone. So we're going to try to get that all taken care of, Evan. But modern technology, that's what happens when these things go. I can see you attempting to put your microphone on, but... Evan Gappelberg: How about now? Steve Darling: I can hear you now. Yes, just turn it up a little bit, you should be good. So how are you? Evan Gappelberg: I'm good, sorry about that. Steve Darling: That's all right. No problem at all. Good to see you again, as I mentioned, and welcome once again to livestream event here at Proactive. And again, we are with CEO, Evan Gappelberg of Nextech3D.AI. And so Evan, first off, thought I'd give you an opportunity just to say hello to the people that are watching. We always encourage questions from people as well if they want to log those questions on. We've got of a number of them who's asked already. But just overall, your thoughts on where you're seeing as far as your financials are concerned. Evan Gappelberg: Well, I mean, we reported a very strong quarter, but Q3 wasn't just a strong quarter. It really was an inflection point for our company. We delivered 59% year-over-year revenue growth, 20% sequential growth. That's our second quarter in a row of 20% sequential growth, record 95% growth margins, all at the same time. It's a pretty powerful combination. I don't know that we've ever been able to report a trifecta like that where we've had the gross margin sequential and year-over-year growth all coming through at the same time. And so what you're seeing -- what I'm seeing is the beginning of a new sustainable growth curve as our unified AI platform, our event platform gains real traction with enterprise customers. And I just want to stress that enterprise is the main event here. We are doing business now with the largest companies on the planet, including Meta, Microsoft, Netflix, Deloitte, General Motors and many, many, many others, Spotify, Dropbox, Pinterest. And so all those customers are customers that were now talking to about enterprise contracts, and we have multiple enterprise contracts that are just literally waiting for the ink to dry. We expect them to come in, in the next week or two. Steve Darling: So Evan, let's take a step back here and let's sort of -- I don't want to give a whole history lesson, but let's talk a little bit about last year and really what happened last year and sort of led you to this. This has been sort of a transition that you've been making with the company in order to get to a place where you think you could be sustainable and move forward. So why don't you sort of take us back through some of the vision that you saw and where you see things going now? Evan Gappelberg: Yes. I mean this is truly a story of a turnaround to take off where a year ago, we were kind of left for dead by investors. I mean let's be honest. The stock was at the bottom of the barrel, and we were exiting out of our Amazon contract, which was where we made 3D models for Amazon that was a multimillion dollar contract. And so there was a lot of sole searching that went on. And what we realized is that we had AI, which is transformative technology, and we had a very, very strong position in the event space with Map Dynamics, and they have 500-plus customers. And so what we decided to do was to build out that platform and add more features and more functionality. And then we decided you know what, why build it when we can buy it. And so we acquired Eventdex in late 2025 and once we acquired Eventdex, it gave us the ability -- we basically acquired a portfolio of clients, plus a full tech stack, which includes badging, ticketing, trade show app, AI matchmaking, which is a very big deal. We could get into that in a minute. And so that plus our Map Dynamics event floor plan gave us this end-to-end one-stop shop solution that we never had before. And then we optimized and added AI into the mix so that we can have very strong margins. And the business started to turn around. And then Steve, as luck would have it, Krafty Lab showed up on my radar, and we were able to acquire that business. And that's going to really put more wind in our sales for 2026. That wasn't a 2025 acquisition, that was 2026. And we're looking at acquisitions now quite differently because AI is really a game changer. It does allow us to make acquisitions that are additive to our company, where those companies might be struggling. We acquired them, and we're able to streamline them. We're able to add AI. So you might have 40 people that we can run a business with 4 people. And instead of having the other 36, we just use AI agents. So we have like an army of AI agents that take the place, Steve. And so that's kind of where we sit today, where we're using AI massively and it's going to be more and more a part of our story and that's why we call ourselves an AI-first company because without the AI, we probably wouldn't even be here today. Steve Darling: Yes. Talk to us about Krafty Lab because for people not familiar with it, what did you see in Krafty lab that you thought was a really nice fit to what you were trying to build with Nextech? Evan Gappelberg: Well, I mean, Krafty adds something that we didn't have. So as I said, with Eventdex and Map D, we had Expo and live event tech. We had the full end-to-end one-stop shop solution. With Krafty, we now have virtual experiential events as well as live kitted experiential events, essentially team building. And as it turns out, Steve, every single large corporation in America and the world has a budget for team building. It really goes down to employee retention, right? How do you keep your employees engaged when they're spread out across the globe? How do you make them feel like they're part of a very big company. And so these platforms, Krafty offers team building. So you have mixology, you're making cocktails with your coworkers, you have a chocolate making class, you have a candle making. You have Trivia. We've done trivia here at Nextech, actually virtual trivia. It's a blast. It's fabulous. It's so much fun. Here's a good example on -- like Krafty. And I've said this before, but I'll say it again, growing up, I used to love recess. Who didn't love going out and playing with your friends. And so -- but when you grow up, recess goes away. And -- so you go to the office just like you used to go to school, but there's no real interaction with your coworkers. So think of Krafty Labs as that platform that allows you to have that recess. And that is a lot of fun, and it does build camaraderie and teamwork. And so that business we see massive, massive upside, too, because it started out, Steve, just as I've described it, experiential. But we've recently announced a gifting component to that. So it's the same HR person that's now ordering gifts for their employees or for corporate customers. Now they're doing that through the Krafty portal. And we're adding off-site events which are potential multimillion-dollar off-sites where you have 50 or 100 of the top execs that travel to Hawaii or some other remote exotic location, and they hire Krafty to put together the entire event from the flight to the airfare to the hotel to the food and all of that is something that we can do now. And so when you look at Krafty, it's a way bigger platform than when we acquired it just 6 weeks ago. Steve Darling: Yes. Talk to me a little bit about companies you mentioned that you're working with. Krafty had its own client list when it came to you. And these type of organizations are so big, so widespread, it's all around the world that the type of events that you're talking about are something that they -- it's not a -- if they want to, if they have to, in essence, do these events. Evan Gappelberg: Yes. It extends beyond these big companies. So yes, we -- our clients now are Google, Microsoft, Meta, Netflix, General Motors, BNP Paribas, Deloitte, just -- I mean all the Fortune 1000 companies, they're all doing these types of events on the Krafty platform. And we're talking to them now about enterprise contracts and really getting a bigger share of their wallet. And so when you think about government organizations, Steve, we're also talking to them because they're spread out. They have a massive size just like Google, right, Google is basically the size of a government. And so -- or our government's the size of Google. And so we're talking to governments about the same thing. Steve Darling: Okay. Are you -- you mentioned that you're looking at other acquisitions as well. I know you can't get into too much details, but is it augmenting what you already have? Or is it adding things that you think you need to have in order to move forward? Evan Gappelberg: So amazingly on the tech side, Steve, I think we're done pretty much. Like AI is going to be the only thing that we develop in-house. We don't need to acquire that. But we're looking at adding more and more. I'm just going to call them modules or potentially customers to our base, right? We just want to have a bigger slice of the pie. And so we're looking at companies in the same space or companies that are just adjacent to us. We have a lot of orgs associations so there might be a company that we're looking at that works with associations. The events industry is quite fragmented. And so it gives us an opportunity to kind of roll them up under the Nextech banner and integrate them into our ecosystem and really just acquire more and more clients, more and more revenue and then optimize that with our AI. Steve Darling: Okay. Just on clients. We've got a question here. You mentioned actively engaging 200 enterprise customers. What's the realistic breakdown over the next 12 months, Tier 1, 2, 3? And how does that sort of apply it to revenue? Evan Gappelberg: So I mean, when you talk about Tier 1, 2 and 3, I mean, they're all Tier 1 and 2. I don't think there are any Tier 3s. Well, Tier 3, if -- I don't know if this investor is talking about Tier 1, 2 and 3 as far as our pricing calculator because if he's talking about our pricing calculator, they're in all tiers, right? So as I've mentioned, and I think that is what he's talking about. Tier 1 is like $25,000 to $50,000 and then Tier 2 is $50,000 to, I think, $150,000 and Tier 3 is above that. And so as we've mentioned, the way that these clients work is they start at one tier and then they move up the ladder. So we're talking to all of them. But you got to keep this in mind. These customers weren't in any tier. They were in no tier they were spending small dollars, relatively small dollars multiple times a year. And so now we're actually putting them into enterprise contracts. That's the big news. Of course, we want $250,000 contracts, but I'll take $25,000, $50,000 contracts all day long because I know we could grow those into 6-figure contracts. Steve Darling: And Evan on that, these companies that you're talking to and talking about are -- as we mentioned, they're always engaging their employees and there's so much demand for employees these days in certain companies. The company is doing everything they can to hold on to employees and especially the good ones they want to hold on to. And so now as in the past, it used to be, companies would say, okay, well, here's what we've got. And if we have any revenue leftover, we'll do something with the employees, like we'll do a pizza night or something like that. But now they're budgeting in their budgets, large amounts of money in order to -- for simply employee retention and employee engagement. And that's -- I think that's the key to all this, isn't it? That these are not something that's just off the side of the desk. These are people who are specifically hired to make sure their employees stay where they are. Evan Gappelberg: So it's the HR department and they're given budgets, annual budgets. Steve Darling: Big budgets. Evan Gappelberg: Big budgets for -- I mean, big companies have big budgets. Even their pencil budget is big at Google, right? Yes. So it's all big, but they're basically coming to us saying, "Hey, I have $50,000. I have $100,000. How can I spend it with you guys? Give me a road map, show me what you guys have. Let's have some fun. Let's build some experiences that are memorable, let's do some team building." I mean you couldn't ask for a better customer than that, right, where they're eager to buy. And they have a mandate to spend that money. And so they're just looking for a company that can give them the ROI. And so our whole thing is about data and analytics. And so in another week or two, Steve, we're going to come back on your show and we're going to be announcing a new platform that has some very, very exciting data and analytics, and it's all AI. It's all on the Krafty platform play with the crafting credits, et cetera, et cetera. And so there's a lot happening at Nextech that's going to make all of this turn into a reality. There's a lot going on behind the scenes with me and my team, and we're going to be showcasing some of that in the next couple of weeks. But we have the clients. We're rolling out the platform. We have the product. We're really just executing at this point. And the 59% growth, Steve, is a clear sign that it's happening. It's not just talk. Steve Darling: Okay. Another question from an investor who wanted to know about ticketing and contracts, big players. And somebody else asked a similar question about Ticketmaster, StubHub, people like that. I know that we've talked about ticketing in the past and in your brand of ticketing, how you do it is very different than what you're seeing there. So can you talk to us a bit about the ticketing part of the company? Evan Gappelberg: Yes. So what we're going to be doing -- we can't just launch me-too ticketing. Let's be clear on that. We will not win. So we're launching blockchain ticketing. As we've mentioned many times, blockchain ticketing is our hero product in the ticketing market. And so we're beginning conversations. It is going to take a little bit of time, but we're starting to have conversations with the big ticket masters and StubHubs and reaching out to them and getting them engaged and talking to, again, agencies, government agencies about blockchain and how we can use that for certification, not just for concerts, but beyond that. So there's a lot happening here. We're trying to do it all at once. It's definitely a bit of a challenge. Steve Darling: Fair enough. I get it. But more to come is what you're saying? Evan Gappelberg: Yes, more to come. It's happening. It's just -- it's in motion. Steve Darling: Okay. A lot of questions, Evan, about total revenue for the year, guidance, all that. From what I understand and interviewed many times, you have not set any guidance for the company, and that's not something you're prepared to do today, I don't think. But you're happy with where the sequential growth that you're seeing in the quarters and you want to sort of build on that? Evan Gappelberg: Yes. I mean, look, I'm confident that we're going to show triple-digit growth in this year. I'm confident that there's going to be surprises to the upside not to the downside. It is a little early for me to project the numbers, but it's definitely going to be way better than last year, which was the [ trial ] and we think that this is really just the first year of a multiyear growth curve, where it's that hockey stick, and we're just at the bottom turning it up, right? But it starts to go like that. And so we're just at that first year, and this is really the first quarter that we can really talk about that. Steve Darling: Yes. Let's talk about margins because that was a big part of your news release as well talking about company margins and I know there's been a lot of work put in by you and the team to try and get your margins to a certain point to where they are now. And it's significant. So can you talk to us about margins and where they're at? And are you at the point where the -- you can't improve on them anymore because your margins are quite high. Evan Gappelberg: Yes, I don't know that we can improve beyond 95% -- we can't get to 100%. But we are a high-margin business because it's primarily been software that we're selling. So software is the highest margin business. In the past, the 3D models, we were trying to get to pure software. We never actually made it there. We were like 50% there. But yes, because we're pure software, because we've reduced our expenses, those margins are very, very high. And we're very proud of that, that the finance team has done an amazing job. I do want to also -- I don't know if the question has come up, Steve, about the acquisition of ARway. Has that been one of the questions? Steve Darling: Yes, as a matter of fact, that was my next one. The next 3 to 4 months, so you're [indiscernible] 3D models as well. And just is the company sort of moving away from that. And -- but let's talk about ARway first. Evan Gappelberg: Well, I will just grab that 3D model thing. So we have some contracts that are ongoing with 3D models, but it's not a big business. It's not millions, it's like hundreds of thousands, right? So we're just not focused on that because we're chasing after the tens of millions, right? And we just don't see that in the 3D modeling space. So it's still there. It's -- if it does take off, we'll be able to take advantage of it. But we did have Amazon, and we weren't able to turn that into a sustainable business. So I don't know what's bigger than that, right? As far as ARway, let's talk about that. So the deal is done, but there's always a but. The deal is done, but in order to get the regulators to approve it, there's a process, and that process is we need to have audited financials for both companies and Nextech is in its Q4 right now. So we're going to be auditing our financials anyway. We don't want to do two audits because that would unfairly burden the company with additional costs. And this doesn't make any sense for us to do an audit today when we're going to be doing an audit in 6 weeks. And that was the calculus over the last couple of weeks that we've been going through. Do we do the audit or do we wait? And so we've decided to wait because we just don't want to burn our precious cash paying auditors twice. And that's really the bottom line. So once the audit is done for Nextech, we'll be able to quickly move that acquisition into the done deal. And so we're just waiting for our audit and then we move to close. Steve Darling: Okay. Let's talk about this year. And you mentioned the revenue in this particular financials is not related to Krafty lab and only partially of Eventdex as well. So what are sort of the things that investors should look for in 2026 as you continue to build the product out and obviously really push sales? Evan Gappelberg: I mean there's a number of things. One is keep a look out for M&A because we are hunting for new deals that would help us to grow even faster. That's kind of the turbo booster. But also, the enterprise deals are going to start to be announced soon. And then for us, it's really just executing on the business that we have landing and expanding into -- we already landed through acquisitions, the biggest companies. Now we want to expand. And so there's a lot happening. I could tell you that, that these government agencies are quite excited to be working with us. These large companies are quite excited to have a one-stop shop of these enterprise accounts. And we think a little bit out of the box. I'm not a techie so I think in terms of just solutions, and I'm trying to find solutions for our customers that maybe other people haven't thought of. And I think there's some really good opportunities there. We're going to innovate and offer some solutions that is unique to us, is proprietary. And so it's really, Steve, about mining the gold mine that we sit on. We have a gold mine. We really do. And now we're just mining it. We're moving the equipment into place. We're moving the people into place and the results are starting to show up in our quarterly reports. Steve Darling: Okay. Let's talk about the blockchain because I want to just ask a question about that because I'm just wondering in the process that you're building and soon to roll out eventually, has it been easier than you thought it was going to be? More difficult to -- what sort of the process involved in trying to put something like that together? Evan Gappelberg: I mean, it's definitely a process, I mean, but it's a high-margin growth engine for investors. I mean global ticketing is a $100 billion industry. Counterfeit and duplicate tickets unauthorized reselling and scalping all of that is a big issue. And these are not edge cases. This is like a structural flaw in the system and blockchain ticketing really fixes this at the foundational level, each ticket becomes a unique verifiable digital asset that can't be forged, duplicated or altered. And so there's trust, transparency and security all built into blockchain tickets. And it's -- again, it's not just ticket, it goes beyond ticketing. Some people think of it as just ticketing for concerts, but think of it in terms of like certification as well. And there's a lot of certification that these big companies that we have as customers need to do better at in terms of preventing fraud. So that's -- every ticket is -- so anyway, we're going to do a demo of the blockchain ticketing, again, in the coming couple of weeks. So get ready, Steve, it's going to be busy. You and I are going to be busy doing demos. And I'm going to be bringing on my team to do screen shares and show how the tech works. Steve Darling: Okay. There's a lot of questions about, obviously, share price because people always talk about that. I know you've talked about that in the past. Share buyback programs, management buying more shares, a lot of things about sort of the corporate side of things. So I'm not sure how much detail you can get into or if you -- I know you're bound by regulations on what you can or can't say. But just on -- I know you're the largest shareholder of the company, I believe. So just for shareholders, you sort of want to talk to them directly and message them. Evan Gappelberg: Yes. Let's just be clear. I mean, it sucks when the share price is down. It really sucks. And I feel the pain. And I've been through this before, though, with Nextech. When we first launched Nextech as a public company, the stock sat for a year in that $0.25 to $0.50 range. And then it took off, went to $1, $1.50, $2.50, it corrected hard and then it had a massive move up to $10. So I guess what I'm saying is that it's not for the impatient investor. But for the patient investor, I think this is going to be a very, very rewarding journey. I hope we all live long enough because it's been a bit of a roller coaster. It's been a while. I do -- when I say I hope -- I'm talking about rear view. People that have been in the stock since 2018, '19 but going forward, I think this is the year, the breakout year for the stock. I think that it's undervalued at the current share price. I don't just say that. I bought 550,000 shares in November at CAD 0.14. I think it's around the same price today, so you could buy at the same price that I bought it at. I'm considering buying more because it's dirt cheap, in my opinion, based on our growth trajectory and based on the fact that we're probably going to go cash flow positive this year sooner than people think. I'm quite bullish. So yes, I think this is just opportunity knocking. I know that when it comes to turnaround stories, everybody always -- like really? You do -- like that. You kind of look at it, you squint a little, you go "Really. Is it really turning around?" Well, the numbers don't lie, the numbers don't lie. And so when you have the kind of numbers that we showed today, and this is our second quarter of 20% sequential growth. It signals to me and it should signal to you, to our investors that this is real. This is happening, the turnaround has happened. And so we're just in that first quarter. And I think, as I mentioned, the Q4, the next quarter is going to be even better. So you can take that and run with it. Steve Darling: Okay. Lastly, I thought this was a really good question. It just popped up here a moment ago. And from -- and this is from -- given your focus on disciplined growth and minimal dilution, do you expect the company can execute its plan with your existing resources? You also mentioned M&A., but if M&A doesn't happen, do you feel confident that you've got the things in place to execute on that plan you just talked about? Evan Gappelberg: I do. The M&A is additive. It's like a turbo, right? We're going fast. We're going very fast. But like the M&A, just catapults you forward even faster because you just -- instead of it taking you a year to acquire customers and build that revenue, it happens in a day, essentially, right? So that's the benefit of M&A. But we do have the resources without M&A to continue, and that is the plan. If the right opportunity comes along, we are comfortable with M&A. I mean we just made two acquisitions. So I'm bringing it up because it's not something that should be discounted, right? So it's something that you should actually think about as likely at some point in the future. Steve Darling: Okay. Last word, Evan, last final thoughts? Evan Gappelberg: Final thoughts are that opportunity comes along every once in a while that again, you've watched me, heard me, listened to me speak over the years. From where I'm sitting today, this is a tremendous, tremendous opportunity to get in at the very, very beginning of a new multiyear growth curve that's driven by AI that has blockchain wrapped around it and that is in the event industry, which is a $1 trillion global industry, and we're doing a couple of million. So when you think about the upside versus the total addressable market, and you start to realize like there is no real limit to how fast and how far we can grow Nextech. It really does represent a tremendous, tremendous opportunity today for smart investors. Steve Darling: All right, Evan. We'll leave it there. Thanks so much, once again for joining us on our live stream and talk about your financials and other things happening with the company and a look ahead for the rest of 2026 as well. So good to see you again. Evan Gappelberg: Thank you. Steve Darling: All right. There is Evan Gappelberg. He is the CEO of Nextech3D.AI. And I'm Steve Darling here at the Worldwide Broadcast Center for Proactive in Vancouver. Thank you once again for joining us for our live stream and we'll see you next time.
Operator: Good day, and welcome to the Coeur Mining Fourth Quarter 2025 Financial Results Conference Call [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Mitchell Krebs. Please go ahead. Mitchell J. Krebs: Good morning, everyone, and thanks for joining our call today to discuss our fourth quarter and full year results. Before we start, please note our cautionary language regarding forward-looking statements and refer to our SEC filings on our website. One housekeeping item. You may have noticed we shifted our reporting to metric units starting this quarter based on feedback we received and to better align with our peers. You'll see that prior period figures in the earnings release have been recast for comparability and additional details are provided. Our record fourth quarter results capped off an incredible year for the company that was full of all-time bests and record achievements. I want to take a couple of minutes to run through a few of them, some of which are shown on Slide 4. Record full year silver and gold production increased 57% and 23% year-over-year, respectively, driven by the impact of the Rochester expansion, the acquisition of SilverCrest in February and consistent performance from our 3 other North American operations. Full year record EBITDA increased 200% to over $1 billion and full year free cash flow increased to $666 million versus negative $9 million in 2024. Slide 8 does a nice job summarizing how far we've come in just the last couple of years when EBITDA was just $142 million and free cash flow was negative $297 million. Our year-end cash increased more than 10x to $554 million, and net income last year also increased tenfold to a record $586 million. Our 3 U.S. operations accounted for nearly 60% of our 2025 revenue and silver represented about 35% of total revenue last year. Rochester made consistent progress toward achieving steady state levels throughout 2025, with full year silver and gold production increasing 40% and 54% year-over-year, respectively. In the fourth quarter, Rochester made a strong statement by delivering record quarterly crush tons and placed tons, along with $78 million of free cash flow, which sets us up for an even stronger 2026 at America's largest source of domestically produced and refined silver. Las Chispas finished the year as our top cash flow generator with $286 million of free cash flow in only 10.5 months of contribution. Just as important was the successful and safe integration of Las Chispas last year, which deserves a big shout out to the entire team. On the exploration front and our year-end reserves and resources that we issued yesterday, it's really gratifying to see the success of our sustained exploration investments and how they continue to drive up our overall ROIC and extend our mine lives, which Slide 16 does a good job of highlighting. The Wharf reserve and inferred resource increases and the near doubling of its mine life to 12 years was especially eye-popping and the Palmarejo results that drove a 5-year extension to its mine life were also very impressive, especially the resource growth off to the east. It was also great to see that we replaced a year of mine life at Las Chispas to remain at approximately 7 years. Looking ahead to 2026 and beyond, it's clear that Coeur is in the strongest position it's ever been in its 98-year history and is poised to deliver another record year this year. Our newly issued stand-alone production guidance summarized on Slide 6 reflects solid year-over-year growth, especially in silver with a 10% expected year-over-year increase, which incorporates a full year of production at Las Chispas and another expected step-up in performance at Rochester. Between higher silver prices and this expected growth in our silver production, silver is expected to contribute approximately 42% of our total 2026 revenue based on current prices and the midpoint of guidance. And with the expected first half closing of the New Gold transaction, 2026 will represent an even more significant step change in the quality, scale and resiliency of Coeur, which is highlighted on Slide 7. Adding New Gold's 2 Canadian operations will further reduce our cost profile and enhance our geographic footprint for investors seeking lower-risk silver and gold exposure and peer-leading margins. This new and unique platform is emerging at precisely the right time and will be ideally positioned as the industry's only all North American senior producer with a cash flow, liquidity and market profile that is unmatched in the precious metal sector. As we said on the November conference call when we announced the New Gold acquisition, we expect the combined company to generate approximately $3 billion of EBITDA and $2 billion of free cash flow on a full year run rate basis based on consensus commodity prices from last October. I'll note that the guidance we issued today does not yet include contributions from the New Gold assets, which will be incorporated into Coeur's production profile following the close of the transaction. Looking out over the next few weeks, we anticipate an active flow of news, including the close of the New Gold transaction, which remains on track and we believe has a good chance to close by the end of the first quarter. Updated S-K 1300 technical reports for New Afton and Rainy River will be filed upon closing of the transaction, which will incorporate year-end 2025 reserves and resources for both assets including a maiden resource at New Afton's K-Zone. We will also provide updated guidance for the combined company and share details of our updated capital return priorities once the transaction closes. Before handing the call over to Mick, I'll close with a big thank you to the team for the incredible amount of work that has gone into getting the company to where it is today. Closing out strongly in the fourth quarter is always a challenge and year-end reporting is always a heavy lift, but these efforts are even more impressive this time around in light of the New Gold transaction and the related integration planning process. Higher prices certainly help, but there is absolutely no doubt that we're as well positioned as we are because of the talent, resiliency and dedication of our people across the entire organization. Mick, over to you. Michael Routledge: Thanks, Mitch. Our fourth quarter was a tour de force of the Coeur portfolio with all 5 mines hitting the straps in a safe and environmentally sound manner. Strong finishes at all of the mines, especially at Rochester, helped ensure the achievement of our annual 2025 production and cost guidance. Consolidated production for the quarter totaled 112,000 ounces of gold and 4.8 million ounces of silver. Adjusted cost per ounce for gold and silver also continued to be well managed with an impressive $1,207 per ounce and $17.29 per ounce, respectively, and allowed for strong margin expansion across the business. Turning to the assets and beginning with Las Chispas. The team turned in another solid quarter to cap off a great 2025 in its first year in the core portfolio. Silver production of 1.4 million ounces and gold production of 15,000 ounces led to $79 million of quarterly free cash flow. The operation's 2026 guidance reflects a full year of production compared to the approximate 10.5 months of 2025 contributions. Turning to Palmarejo. The mine followed up one of its strongest quarters in terms of tonnes milled with an even better result in the fourth quarter with over 470,000 tonnes milled averaging over 6,000 tonnes per day. Together with strong grades and recoveries, Palmarejo's free cash flow totaled $63 million. The team in Chihuahua has demonstrated great results with its fill-e-mill strategy, a unique skill set that we expect to leverage at Rainy River in the future, which is undergoing a similar transition from open pit operations to underground. Our 2026 guidance points to another great year ahead for Palmarejo. Turning to Rochester. Key performance metrics along the crusher circuit saw marked improvement versus the prior quarter, concurrent with the fourth quarter completion of planned modifications and belt improvements. We exceeded 7 million tonnes or 6.4 million metric tons crushed this quarter, which was a nice achievement for the team. It has been impressive to see the mine's steady improvements in silver and gold production as the power of the new crusher train continues to drive results, reaching their highest levels in 2025 at 1.7 million ounces of silver and 17,000 ounces of gold, respectively, in the fourth quarter. On an annual basis, the positive impact of Rochester's larger scale really stands out with silver and gold production increasing 40% and 54%, respectively, compared to 2024. I'm pleased to report that the average particle size continued to beat the budget level for material passing through all 3 stages of crushing at a P80 around 0.84 inch in the fourth quarter. Importantly, related recoveries continue to track our PSD models as expected. The team is also hard at work on the next phase of the leach pad 6 expansion, most of which we expect to complete this year. Rochester is well positioned for an even stronger 2026. We are off to a great start with over 2.3 million metric tons crushed in January. Grades are expected to be lower in the first half of the year, consistent with the mine plan, which is reflected in our 2026 guidance. Our long-term focus remains on building consistency and momentum through the 3-stage crushing line and continuing to deliver quarterly crush tonnes in the 6.2 million to 7.2 million metric tons per quarter range as we drive towards our ultimate objective of a top size of 5/8 inch. Based on the midpoint of our 2026 guidance ranges, we expect silver and gold production to increase substantially compared to 2025. Moving to Kensington. The positive benefits of their multiyear underground development program continue to manifest in the form of new efficiencies and operational flexibility. The team knocked it out the park with its highest tonnes milled and gold grade of the year in the fourth quarter, leading to gold production of 30,000 ounces and the mine's lowest quarterly cost of the year at $1,533 per ounce. This led to quarterly free cash flow of $51 million, Kensington's best result ever. Coupled with the successful reserve additions announced yesterday, the mine remains on excellent footing and well positioned to deliver a strong 2026. Finishing up at Wharf, quarterly gold production totaled 25,000 ounces, leading to free cash flow of an impressive $62.3 million. These good results were overshadowed by a fire in the mine's tertiary crusher following routine maintenance in the fourth quarter. The tertiary crusher area sustained some damage in the upper levels impacting conveyor belts, ancillary equipment like the hoist, crane and electrical systems, and those parts will need to be repaired or replaced. There was no damage to the 4 tertiary cone crushers in that area on the ground floor. The team quickly mobilized temporary mobile crushing units at site in January to supplement crushed ore tonnes. Repairs are expected to be completed over the course of the second quarter. Slide 6 provides an indicative expectation for 2026 quarterly production, showing a second half weighted crushed tonnes as the site returns to normal operations throughout the year. As highlighted in yesterday's reserves and resources update, the future at Wharf is more exciting than ever, thanks to the resounding success of recent exploration and technical work that have unlocked new gold reserves, leading to a near doubling of mine life with additional upside remaining from a significantly larger resource pipeline. We look forward to many great years ahead at this one-of-a-kind asset. With that, I'll pass the call over to Aoife. Aoife McGrath: Thanks, Mick. 2025 was a very successful year for explorations with great results seen across the board. Key highlights include not only replacement of depletion across the portfolio, but growth of reserves by 10%. As Mitch and Mick have mentioned, Wharf and Palmarejo were standout contributors in this regard. Inferred resources also grew by a whopping 40% across the portfolio, led by a 216% increase at Wharf, an 86% increase at Palmarejo and 30% growth at Rochester. Moving to key highlights for the year. At Wharf, the Juno, North Foley and Wedge exploration and technical programs were very successful. In addition to increasing gold reserves by 500,000 ounces, 1 million ounces of inferred resources were added. This is a phenomenal result for relatively modest levels of investment, and it has set us up for another year of conversion to reserves in 2026 and in the future. Earlier stage scout work will also restart this year to help build an even longer-term future of this operation. We had a very busy year at both Mexican operations with up to 26 rigs across both sites. At Palmarejo, reserves saw a very large increase of almost 40%, moving from 1.4 million ounces on a gold equivalent basis to 2 million ounces. Our other key aim of bolstering the inferred pipeline was very successful with over 1 million gold equivalent ounces added, and this is in addition to 400,000 new ounces in the measured and indicated categories. The non-Franco-Nevada area of interest deposits of La Union, San Miguel and Independencia Sur were key contributors along with Hidalgo on the main mine corridor. All these deposits will continue to undergo aggressive exploration in 2026, along with ongoing early-stage work across the district. At Las Chispas, exploration programs resulted in maintaining mine life in addition to the discovery of multiple new veins, including Augusta, La Promesa and Lupita. The exploration pace is expected to continue at similar levels in 2026, involving a healthy mix of scout expansion and infill drilling. Programs at the other sites also fulfill their aims as laid out at the start of 2025, with depletion more than replaced at Kensington and nearly replaced at Rochester. Our understanding of the system at Silvertip is progressing rapidly and program successfully grew the mineralized footprint by another kilometer to the south. This gives a new focus area for infill drilling over the coming years in order to support the study programs underway. Looking ahead to 2026, total exploration investment is expected to increase to between $120 million and $136 million to continue pursuing the high-return opportunities we have across the portfolio. With that, I will turn the call over to Tom. Thomas Whelan: Thanks, Aoife. Beginning with the financial summary on Slide 10, we are excited to reveal the record-setting full year results that Mitch highlighted a few minutes ago. It was truly a transformative year. There were so many highlights in quarterly financial records to choose from, but here are a few of our favorites. It was particularly gratifying to see every mine deliver at least $50 million of free cash flow in the quarter. We saw a 66% increase in free cash flow to $313 million during Q4, highlighted by Rochester's $78 million of quarterly free cash flow. Adjusted EBITDA margin increased 63%, which was a 60% increase quarter-over-quarter. Our return on invested capital was a peer-leading 26% in 2025. Quarterly realized gold and silver prices increased 21% and 40%, respectively, and have only continued to strengthen in 2026. We are expecting another record-setting year in 2026 for the CDE stand-alone portfolio and look forward to providing updated guidance, including Rainy River and New Afton once the transaction closes. One note of caution, Q1 is always seasonally low from an operating cash flow profile with significant year-end payments primarily related to Mexican tax and our annual incentive plans. As shown on Slide 9, you can see the net effect of this cash deluge coursing through Coeur's balance sheet. As previewed during last quarter's call, we achieved our long-standing goal of being net cash positive. Total debt declined $250 million or 42% year-over-year, and we ended the year with a cash balance of $554 million and now have total liquidity nearing $1 billion in climbing. We made some progress on our $75 million buyback program that we announced during the second quarter. We were fairly limited in our ability to execute the buyback program during the second half of the year due to trading restrictions related to the New Gold transaction. This limitation will end upon the closing of the transaction when we intend to announce a robust update to our return of capital strategy. Our capital allocation framework will remain disciplined with a continued focus on generating strong returns on invested capital and deploying excess cash where it creates the greatest long-term value for stockholders. Concurrent with the strengthening price environment, we enhanced our annual guidance related to cash taxes and royalties to reflect the champagne problems of higher commodity prices. One final update for me. We look forward to the closing of the New Gold transaction and welcoming our new Canadian colleagues to the Coeur team. Robust integration planning has been underway since mid-November, and we are prepared for day 1 after closing. With that, I will now pass the call back to Mitch. Mitchell J. Krebs: Thanks, Tom. Before we open it up for Q&A, I just want to touch on several key priorities and themes for the year ahead on Slide 18. Of course, continuing to build on our safety and environmental performance always remains priority #1. Successfully closing the New Gold transaction and accomplishing a smooth integration is obviously a critical priority for the year. A full year of steady contribution from Las Chispas, a further step-up at Rochester and delivering on Wharf's back half weighted plan are also key drivers for the year ahead. And as Aoife mentioned, we are allocating a record amount of capital to exploration investments in 2026, a 47% increase compared to 2025 levels. Delivering the expected results from these programs to keep driving our ROIC higher and adding mine life is also a key priority in 2026. At Silvertip, we plan to continue advancing the project with a potential transition into a pre-feasibility study based on the results of the initial assessment that is now wrapping up. With higher silver prices, continued drilling success, solid project front-end loading and Canadian support for critical minerals projects like Silvertip, there could be an attractive path forward to adding to our future silver profile that we look forward to evaluating together with our Board. And finally, we look forward to updating you on the impacts of the New Gold transaction once it closes with combined full year guidance, reserve and resource updates from New Afton and Rainy River and details regarding the path forward for returning capital to stockholders. With that, let's go ahead and open it up for questions. Operator: [Operator Instructions] And the first question today comes from Wayne Lam with TD Securities. Wayne Lam: Congratulations on a good quarter. Maybe I just want to start off with a question on the reserve grades at Las Chispas. It seems as though there was a bit of taking on the grades now in the past couple of years. Is that a function of a lower cutoff grade or reinterpretation there? And then just given the mine grades have been well ahead of reserves since the start-up of the mine, when will we start to see a bit of a normalization of the grade profile there? Mitchell J. Krebs: Yes, sure. Wayne, thanks. Thanks for those questions. I'll start and Mick, Aoife, if you want to chime in. I think on the Las Chispas grade profile, it really reflects a more conservative approach to modeling that we took here after taking the reins last February. It's consistent with how we do it at our other mines. It's something we had identified in the diligence actually that grade was being overestimated, tonnes underestimated. And so after operating it for 10.5 months, we incorporated that into the year-end resource model. But Mick, anything you want to add to that or Aoife? Michael Routledge: Yes. From an operational perspective, that is what we expected. And after running the site for a year, that's exactly what we found. It reconciled very well to the due diligence that we saw. We tested the plant to make sure that it could run at those slightly higher run rates to make sure we could still deliver against the budget, and we did exactly that. Aoife, any thoughts? Aoife McGrath: Yes. And I think on -- it's certainly not due to disappointing drill results. I think we've actually seen the opposite to that this year, particularly at Las Chispas where we had in our due diligence and our expectations were for lower grades on that block. So we've been very pleasantly surprised with the tenor of the grade out there as well. Mitchell J. Krebs: And so to Wayne's second question about just go-forward grades, should we see more of a tighter fit between reserve grades and actual results? Michael Routledge: Yes. And as we're seeing that, we saw some of that, and we thought would trend in that direction, and that's what we did. So going forward, we should see that normalize to the expected planned levels. Mitchell J. Krebs: Does that help, Wayne? Wayne Lam: Yes, that's really good color. Maybe on the exploration results, a pretty good update on the resource additions across the portfolio. Just wondering on the maiden resources you guys report at East Palmarejo, are those all outside of the Franco stream? And when could we envision those being brought into production? And then just wondering with the guided sales under the stream in the 40% to 50% range this year, which is slightly lower year-over-year. How should we be thinking about that number over the next few years? And should we expect that to continue to decline? Mitchell J. Krebs: Yes. Yes, I'll start off and then maybe Tom on the -- or Mick, on the shape of the percentage inside and outside over time. But in short, Wayne, all of those ounces are outside of the area of interest that the Franco-Nevada gold stream covers. The bulk of them were further off to the east out there in that [indiscernible] area that Aoife mentioned. And so the nearer-term stuff, the Independencia Sur kind of extension of Independencia down there to the South and East, that represents a nearer-term opportunity for us. And then in the meantime, we'll continue to expand and extend, hopefully, those resources off there further to the east, and that can develop a potential future source of ore or maybe even a stand-alone operation depending on where we end up with that additional drilling here over the next few years. In terms of percentage inside, outside, how should we think about that? Thomas Whelan: Yes. It's virtually all inside the AOI for the next couple of years until we get some more success in the areas that you just described, Mitch. Mitchell J. Krebs: But exploration-wise, we will be this year, 70% or so of the exploration budget at Palmarejo will be outside of the area interest over there to the East, Wayne. Michael Routledge: Do you want me to comment on [indiscernible], Mitch? Because that is -- the [indiscernible] area is close to infrastructure underground. And so there's some ventilation work that we'll need to do to develop that and some minor permitting. But as Aoife and the team characterize that better, then that will certainly fall into the nearer term next few years as we get a little bit off the AOI and look at that balance. Aoife McGrath: And in terms of the upside at Guazapares is we have a number of deposits out there, like San Miguel is a mix of gold and silver, and La Union is predominantly gold. So it's really going to give us some nice operational flexibility as we develop that further in the next number of years. Wayne Lam: Okay, perfect. Yes. It sounds like quite a considerable future opportunity. So I appreciate the detail on that. Maybe just last one for me. Just on the cash tax guidance of $400 million to $500 million this year, do you have any additional color on what a breakdown of that looks like between Mexico versus the other operations? And just wondering if you still have tax pools to draw on, particularly in the U.S.? Or does that guidance assume at some point, full depletion of those capital pools? Mitchell J. Krebs: Tom, do you want to take that? Thomas Whelan: My favorite. Thanks, Wayne, for asking the tax question. I would think 80% of the taxes are in Mexico. And so we are going to be paying some cash tax in the United States. And it's just mainly because of the way the tax pools or the tax losses work. We will be sheltering the bulk of the net income, but there's still going to be a little bit that ends up being paid. So if you want to use that 80-20 breakdown and apply that to the guidance, that would be mine. That's the guidance. Wayne Lam: Okay. Great. That's really good color. Congratulations again on a good quarter and looking forward to seeing the closing of the New Gold transaction. Operator: And your next question comes from Josh Wolfson with RBC. Joshua Wolfson: Just looking forward at the upcoming closing and the capital returns comments that were made earlier, is there any kind of preference the company has in terms of dividends or buybacks here? And sort of how is the company thinking about those 2 aspects? Apologies, not to totally front run your upcoming announcement. Mitchell J. Krebs: Yes. We don't want to steal our own thunder before we get to the closing when we'll roll out a more -- a clearer path forward on return of capital. But suffice to say, those are the 2 levers that we're -- we've been looking at and thinking about and talking about with our Board. Obviously, a slight preference more for the buyback route just given the flexibility that, that provides. But recognizing that, look, as on a combined basis, you look at across the peers, and we're sensitive to making sure that we're benchmarking well against the peers as far as how we think about returning excess cash back to our stockholders. Joshua Wolfson: And then another question sort of along the same lines. Given the financial positioning and free cash flow outlook, the company has been active in increasing the exploration budgets and investment across the portfolio. How are you thinking about that for the New Gold assets? Is there anything that you can look to accelerate in 2026 there? Any specific opportunities at least some of the early integration analysis? Mitchell J. Krebs: Yes. No, thanks, Josh. Good question. I think let's get past the close and the integration, ensure continuity. But we are looking at how can we allocate some additional capital to exploration at both sites, in particular, probably Rainy River as you think about some of the regional opportunities there on that big land package. But I think we'll want to take a little bit of time, make sure we've got our ducks in a row, got the team aligned and then we take the next step as far as potentially ratcheting up the level of investment in exploration, in particular at Rainy River. Aoife, anything you want to say? Aoife McGrath: No, that's pretty much covered, isn't it? Mitchell J. Krebs: Yes. Some great opportunities there. I mean, both, obviously, both operations. But I think at Rainy River, we'll apply that same playbook, Josh, that we've used successfully at our other operations, and it takes time and capital and some commitment. But I think over time, there's a lot of potential there. Operator: And your next question today comes from Joseph Reagor with ROTH Capital Partners. Joseph Reagor: So just got to ask on Rochester, and I know Mick touched on it a bit, but I know that the model seems to be internally matching the recoveries as we see them seem a bit light on the silver side, particularly. At what point do you guys have to like go back and kind of like reassess the economics of the project? Or is it just a matter of getting the crush size to where it's supposed to be and then you expect the recoveries will improve accordingly? Mitchell J. Krebs: Yes, it's much more the latter there, Joe, and Mick, you can add to anything that I say. But you're right, the actual results are tracking model for the product size that we're putting out there on that Stage 6 leach pad. As we continue that progression from a P80 7/8 down to P80 5/8. We'd expect to see the recoveries continue to track model and improve. Gold is less sensitive. But in particular, on the silver, we'd expect to see as we get closer to that 5/8, those recoveries ratchet up to just shy of 60% level. It's just, as you know, Joe, it's lower and longer on the silver recovery curve relative to gold. Mick, anything you want to add? Michael Routledge: Yes. And the focus in '25, as we said a few times, was really around getting that throughput level up above the 7 million tonnes or the 6.2 million tonnes per quarter. And we're starting to get really into that range and look to make that sustainable. There were some really good development projects that we did in November to help us with that and to focus on the reliability of the crusher. And so that 2026 is really about trying to hone that in and drive those crush sizes down with the equipment that we've got and then a few small projects throughout the year to get that into. But yes, it's a good path forward, and we're really in the range of what it said it would do on the packet. We've now just got to match the ore body knowledge with the capability of that crusher and make sure that it's doing it every day. But overall, really happy about the progress so far. Joseph Reagor: Okay. And then one other one. Some of your peers have been maybe not successfully, but purchasing puts on things like gold and silver as a way to hedge downside given we've seen some record high prices. Is that something you guys are going to consider doing? Or I think in the past, you've used some collars or you guys, given the cash flow situation of the company, just going to kind of leave it exposed to the market? Mitchell J. Krebs: Yes, you're right. As you recall, Joe, we did use some hedging during the Rochester capital project to kind of help shore up the cash flow and the balance sheet. We're always looking at those things. But as we sit here today, we're going to let -- remain unhedged, keep focusing on what we can control on the cost side to keep pushing ourselves down the cost curve and retain that full exposure to prices. Operator: [Operator Instructions] Your next question comes from Brian MacArthur with Raymond James. Brian MacArthur: So might go back to what Wayne was asking. I had the same question. Just on the tax pools, you made a comment that they're slightly different. I thought there were fairly substantial NOLs. Will they last like a number of years? Or are they something that -- obviously, we've got pretty good profitability now that we're going to use them up in 2 or 3 years? Or can I continue to think that on the U.S. operations, those will last like 3 or 4 years and you only pay fairly low taxes. Is that fair? Or is there something different in the structure of the NOLs based on your comments that it's not going to work that way? Thomas Whelan: Yes. So in the 10-K, you can look to the tax note. So we're down to $530 million year-over-year. It was $630 million. So that gives you a sense that we used up about $100 million last year. And so again, at these prices, that's probably 2 years, Brian, and we've blown through them. But again, just the way the limitations worked, some of the years, you can only shelter 80%. And so that's why we're in a cash tax position in the United States this year. So I hope that gives you a sense. Brian MacArthur: Yes, that's quite helpful. And just on the question about Palmarejo, if you find all this new ore that's off ground. I mean you mentioned we're going to stay up at 40 or 50 for the next couple of years, let's say, does that drop -- I mean, in the past, you've been down as low as 35%. Does that drop pretty substantially though, as we go out 5 years? Or you're still just finding so much or at different areas, you just don't know what your sequencing is going to look like yet. Mitchell J. Krebs: Tom, do you want to... Thomas Whelan: Yes. Look, I mean, Aoife and Mick are absolutely focused on finding as much off the AOI as possible. At this stage, we do not have it, but we've highlighted all of the opportunities that are emerging, and I feel really excited about getting less of that production coming from the area that's covered by the Franco stream. But for the near future, expect virtually all of the production to be subject to the stream. Mitchell J. Krebs: And Brian, what's great there is, obviously, the Palmarejo reserve and resource increases were quite significant and in particular, that extension to the mine life. That's just building out more runway for us as we continue to allocate more and more of our exploration dollars off to the East to, over time, develop that next chapter of Palmarejo more and more to the east over time, starting with the Independencia Sur extensional stuff. But then while we do that, we'll, in parallel, work to better define what that -- those further east deposits mean in terms of the future production profile at Palmarejo. So it's a good strategy. It's taken a long time to kind of put all the pieces in place, but we just need to stick with it. And hopefully, over time, like Tom said, we'll see more and more opportunities open up to the East. And over time, we'll make that slow transition. Brian MacArthur: No, I totally agree with that. I guess I was just trying to push a little bit to see when you saw that transition just when I was looking at those additional years we were adding out. But that's okay. We can take that offline. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Mitchell Krebs for any closing remarks. Mitchell J. Krebs: Okay. Well, we appreciate everybody's time today, and we look forward to speaking with you again in the spring to review our first quarter results. Thanks a lot, and have a great rest of the day. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning, and welcome to the Community Health Systems Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] Please also note today's event is being recorded. I would now like to turn the conference over to Anton Hie, Vice President, Investor Relations. Please go ahead. Anton Hie: Thanks, Rocco. Good morning, and welcome to Community Health Systems Fourth Quarter 2025 Conference Call. Joining me on today's call are Kevin Hammons, Chief Executive Officer; and Jason Johnson, Executive VP and Chief Financial Officer. Before we begin, I'll remind everyone this conference call may contain certain forward-looking statements, including all statements that do not relate solely to historical or current facts. These forward-looking statements are subject to a number of known and unknown risks which are described in headings such as Risk Factors in our annual report on Form 10-K and other reports filed with or furnished to the SEC. Actual results may differ significantly from those expressed in any forward-looking statements in today's discussion. We do not intend to update any of these forward-looking statements. Yesterday afternoon, we issued a press release with our financial statements and definitions and calculations of adjusted EBITDA and adjusted EPS. We've also posted a supplemental slide presentation on our website. All calculations we will discuss today exclude gains or losses from early extinguishment of debt, impairment gains or losses on the sale of businesses, expense from business transformation costs and changes in estimate for professional claims liability in the prior year period. With that said, I will turn the call over to Kevin Hammons, Chief Executive Officer. Kevin Hammons: Thank you, Anton. Good morning, everyone, and thank you for joining our fourth quarter 2025 conference call and for your continued interest in CHS. First, I'd like to say I'm honored to speak to you today as CEO of Community Health Systems. I want to express my sincere gratitude to our Board of Directors for their support and their confidence in appointing Jason and myself to our permanent roles as CFO and CEO, respectively. I would also like to thank many of the people on this call for offering your support and congratulations, which has meant so much to me personally. And of course, I want to acknowledge our employees and physicians and everyone else who contributes to the quality care provided for our patients every day. It is my honor and privilege to lead CHS forward at this point in time and to serve all of you in this role. Reflecting on these past few months, I use my time as interim CEO to speak with many of our employees and physicians. And most importantly, to listen to their thoughts about our current state and future potential of our company. The feedback was candid and enlightening and encouraging. And I entered this year excited and very optimistic about what lies ahead for CHS. Today, I want to share some highlights of our 2025 operating results, but I also want to spend a minute talking about our vision and our top priorities for this year before turning the call over to Jason. Starting with our operating performance. The fourth quarter was in line with our updated expectations, reflecting sequential margin expansion with higher acuity and a slight improvement in payer mix and continued cost controls. Same-store net revenue for the fourth quarter increased 2.1% year-over-year, reflecting a 2.4% increase in net revenue per adjusted admission. Some of our milestone achievements in 2025 were very much the result of focusing on the unique opportunities available in each of our markets. For example, ER visits were up more than 13% in our Knoxville hospitals over the past 2 years following a major investment and ER expansion at Tennova North Knoxville in 2024. The current investment at Tennova Turkey Creek in Knoxville, which will be completed this summer, will add more ER beds to the community and drive even more growth to our Tennessee hospitals. A 20% increase in births, more than 4,000 babies born at Grandview Medical Center in Birmingham, Alabama in 2025 was made possible by a recent $10 million investment in women's services. That is the third expansion of women's services and maternity care services since we opened Grandview 10 years ago. In Carlsbad, New Mexico, more than 450 inbound transfers a nearly 35% increase over the prior year, brought patients into our hospitals for higher acuity care coming from outline communities as far as 30, 50 and even 100 miles away. And in Longview, Texas, heart surgeries were up 16% in 2025 as we develop a top-notch heart program that keeps patients close to home for high-quality, high acuity cardiac care. These are just a few examples of how we seek to understand and address the health care needs in our communities and invest in our core portfolio for long-term growth. We also made several divestitures in 2025, enabling us to invest proceeds back into our core portfolio or use them to reduce debt. We continue to make improvements to our capital structure with leverage down from 7.4x at year-end 2024 to 6.6x at year-end 2025, thus making materially more value available to our stockholders. And with proceeds from transactions completed or to be completed in 2026, we are creating a path for additional debt reduction and deleveraging, which will further strengthen our balance sheet and continue to improve our capital structure. As we discussed in prior quarters and has been discussed more broadly across our industry, we saw some disruptions in 2025, both from an economic standpoint impacting patient behavior as well as a regulatory standpoint, creating uncertainty in both reimbursement and insurance coverage. We believe these disruptions are temporary and there are plenty of things we can be doing and that we are doing to mitigate risk and ensure we are well positioned for the future. Finally, our vision at CHS is to make the health care experience exceptional for our patients, our communities and each other. We know this is aspirational, but also believe it's possible and attainable. To achieve this goal, the health care experience that is exceptional, we have adopted 5 priorities. We intend to improve quality, physician experience, patient experience and employee satisfaction and to grow our cash flows, enabling us to continue to invest in additional growth opportunities. We are working to differentiate ourselves in our markets. And we believe doing so will lead to even greater consumer confidence and choice of our health systems, retention of our workforce, growth and ultimately, enhance financial performance and long-term success. At this point, I will turn the call over to our Chief Financial Officer, Jason Johnson to review financial results in greater detail and discuss our initial guidance for 2026. Jason? Jason Johnson: Thank you, Kevin, and good morning, everyone. For the fourth quarter, CHS delivered results generally consistent with the expectations. The company continued to execute well on the controllable aspects of the business and was able to deliver expansion in adjusted EBITDA margin on a sequential basis. thus achieving the midpoint of our updated guidance for the full year 2025. Adjusted EBITDA for the fourth quarter was $395 million with a margin of 12.7%. When adjusting for divestitures and out-of-period items, adjusted EBITDA was up slightly versus the fourth quarter of 2024. Same-store net revenue for the fourth quarter increased 2.1% year-over-year driven primarily by rate growth and a slight improvement in acuity as net revenue for adjusted admission was up 2.4% year-over-year. Same-store inpatient admissions and adjusted admissions were each down 0.3%. Same-store surgeries declined 1.9% and ED visits were down 3.6%. When excluding the Pennsylvania operations that were divested on February 1, 2026, same-store admissions and adjusted admissions were flat year-over-year and surgeries were down 0.4%. Meanwhile, CHS again performed well on cost controls. Labor was well managed with growth in average hourly wage rate coming in within our expected range for the quarter and the full year, and contract labor spend was essentially flat on both a sequential and year-over-year basis. With live expense continued to be well managed, declining 110 basis points year-over-year to 14.4% of net revenue in the fourth quarter and down 50 basis points for the full year 2025. Medical specialist fees were $169 million in the fourth quarter, which was up 4.6% year-over-year on a same-store basis and held steady with recent quarters at 5.4% net revenue. We continue to expect upward pressure on medical specialist fees in excess of typical inflation, likely in the range of 5% to 8% growth for 2026 driven by radiology and anesthesia. As we previously noted, we have seen operational improvements in areas such as throughput and safety metrics and physician practices that the company has in-sourced. And we'll continue to evaluate in-sourcing opportunities to combat this upward cost pressure when appropriate. Cash flows from operations were $266 million for the fourth quarter, bringing the full year total to $543 million versus $480 million in 2024. Cash flows from operations for the full year of 2025, as reported includes $169 million in outflows for taxes on gains until the hospitals which are paid out the divestiture proceeds that are reported as investing cash flows. When excluding these cash taxes on divestiture gains, our adjusted cash flows from operations were $712 million for 2025 and adjusted free cash flows were $150 million. As expected, during the fourth quarter, CHS received $91 million in contingent cash consideration related to the 2024 divestiture of Tennova Cleveland and net cash proceeds of approximately $152 million from the divestiture of our outreach lab assets. We used a portion of these proceeds to redeem $223 million of the 10.78% (sic) [ 10.875%] senior secured notes due 2032 at 103% via the special call provision and also redeemed the remaining $14 million outstanding principal amount of the 2027 notes in mid-December. Subsequent to year-end and early February, we completed the divestiture of our 80% ownership in Tennova Healthcare, Clarksville in Tennessee for $623 million in gross proceeds and the 3 Pennsylvania hospitals for $33 million in cash plus a $15 million promissory note and additional contingent consideration. We used a portion of these proceeds to redeem another $223 million of the 2032 notes at 103% via the special call provision on February 2. As Kevin previously noted, our leverage at year-end 2025 was 6.6x down from 7.4x at year-end 2024 and has since been further reduced by the second partial redemption of the 2032 notes earlier this month. We have simplified our capital structure by effectively eliminating unsecured notes in the second quarter of 2025. Our next significant maturity is in 2029. And as of December 31, 2025, we had no amounts drawn on our ABL. The previously announced divesture of our Huntsville, Alabama assets is on track to close in the second quarter and is expected to bring in an additional $450 million in gross proceeds, further enhancing liquidity to fund growth investments and/or further reduce net debt and leverage. It is worth noting that once the Huntsville divestiture is complete, our net debt will be approximately $9.2 billion, down from the $10.1 billion at year-end 2025 and the $11.4 billion at year-end 2024. Now moving on to our initial 2026 financial guidance. We anticipate net revenue of $11.6 billion to $12.0 billion, adjusted EBITDA of $1.34 billion to $1.49 billion, cash flows from operations of $600 million to $700 million and capital expenditures of $350 million to $400 million. The guidance range with net revenue and adjusted EBITDA both coming in below full year 2025 levels reflects the impact of divestitures completed in 2025 and those that have been announced and have been or are expected to be completed in early 2026 as well as the exclusion of onetime or out-of-period items that benefited 2025 results and are not expected to recur in 2026. In bridging from 2025 actuals to 2026 EBITDA guidance, the biggest factors are, of course, the divestitures. For those we completed during 2025, which includes Cedar Park, Lake Norman and ShorePoint, the partial year impact that you have to take out of our as-reported EBITDA in 2025 is about $30 million to $40 million -- I'm sorry, yes, $30 million to $40 million. For the class of 2026 divestitures, which includes Clarksville, Pennsylvania and Huntsville, it's in about $80 million to $90 million reduction to the baseline. And then as you recall, we had the retroactive piece related to Tennessee SDP and the opioid settlement, which together added about $45 million of EBITDA in 2025. So after adjusting for all these factors, we view the starting point for '25 as EBITDA of about $1.36 billion. Of that base, our initial guidance range for 2026 reflects core operations of about 4%, which is net of an estimated $20 million to $30 million EBITDA impact resulting from the reduction of HICS enrollment. Our guidance does not include impacts from any new or enacted state-directed payment programs that may still be waiting approval and likewise, does not include any benefits from the rural health transformation program. as the states in which we operate are still in various stages of finalizing their program designs. Additionally, the guidance considers only the impact of divestitures that have already been completed or announced to date. Any such additional transactions is completed during 2026, which reduced net revenue and EBITDA for the year and the associated proceeds would enable the company to further reduce net debt and leverage. A final note for many employers on a biweekly pay schedule, 2026 will include an extra pay period, meaning there will be 27 payment dates compared to the normal 26 payment dates. CHS is in this category. So while this has no impact to adjusted EBITDA, it will be an approximate $140 million headwind to cash flows from operations in 2026 and is reflected in the guidance range. This concludes our prepared remarks. So at this time, we'll return the call back over to the operator for Q&A. Rocco? Operator: [Operator Instructions] Today's first question comes from Brian Tanquilut with Jefferies. Brian Tanquilut: Thanks for all the color on the bridge. So maybe in already gave us that, I'll shift my question to just as I think about the divestitures, right? I mean you've announced a few that are pending here, obviously baked in the guidance. But how do we think about your perspective in terms of further divestitures? And as you've pruned the portfolio, you now have an asset base that is comprised of fairly good hospitals. So how do you -- what's a philosophical view in terms of what is left to sell and how that impacts go-forward performance and then just how much more are you willing to prune the hospital base from here? Kevin Hammons: Brian, this is Kevin. I'll kick this off, and thank you for your question and for joining us today. We are getting, I would say, closer to the end of our programmatic divestitures. We still have some inbound interest as we continue and probably we'll always have some inbound interest because we have some very good markets. There are a couple transactions right now that we are in some early stages of discussions, but we are not sure yet whether those will proceed or whether we will be able to get those across the finish line. But I would say in terms of what we have interest in selling is certainly dwindling. We're very comfortable with our portfolio as it stands, and we really want to be just opportunistic about transacting hospitals that if there were ever to be a change in the economic environment or environment in which we're operating that would cause us to want to make a decision to divest or if it's just an opportunistic transaction at a price point that would allow us to materially deleverage then I think we would want to take advantage of that. Brian Tanquilut: I appreciate that. And then, Jason, as I think about your bridge that you provided, when I think of the HICS adjustment there, just curious if you could share with us the assumption that you've embedded in that number, whether it's shifting to bronze and employer plans? Or just curious if there's anything you can share with us on that. Jason Johnson: Yes. Sure. Thank you for the question. As a reminder, health care exchanges represent less than 5% of our total adjusted admissions and net revenue. And our guidance does attend to account for the potential impact from the reductions in enrollment in health care -- health insurance exchanges related to the administrative reforms, expirations of enhanced premium tax credits, et cetera. Obviously, it's difficult to predict currently what the ultimate outcome will be, which will be highly dependent upon the ACA plan effectuation rates, potential uptake into the employer-based plans, shifting into lower middle tier plans or becoming self-pay. And the success of our company is the eligibility, screening services and assisting uninsured patients with obtaining coverage. We acknowledge that the other peers have, there could be some negative impact to volume trends and payer mix. A 20% reduction in fixed volumes would have resulted in a $100 million to $120 million reduction in net revenue based off of that, where we're kicking off 2025 after excluding the divestitures. And we think that could translate into a $20 million to $30 million reduction in EBITDA. Operator: And our next question today comes from A.J. Rice at UBS. Albert Rice: Maybe first, just to ask -- I don't think I've asked about this in a while. The portfolio is obviously quite diverse. You have midsized city markets that make up a lot of the portfolio, but you also have a number of small community properties still. Has there been a meaningful difference and the way one side or the other of the portfolio, I probably get asked it geographically as well. Do you see meaningful difference as to how within the portfolio assets are performing over the course of the last quarter to last year. Any thoughts on that? Kevin Hammons: Thanks, A.J. We do have a fairly wide range of performance across our portfolio. But as we have trimmed and focused on networks of care, most of those hospitals and even the smaller, more rural hospitals fit within a network that includes a hospital in a larger suburban or midsized metropolitan area in those smaller hospitals, although individually or on their own may operate at a different level, also serve as an access point or transfer point for higher acuity services that we're still able to capture within the network. So really, as we're looking at and evaluating our portfolio, we've been divesting many more of the hospitals that kind of stand on their own where we don't have a network of care build up around it and focusing our efforts on those networks. Albert Rice: Okay. And then maybe for the follow-up, I know you swung free cash flow positive. Congratulations. It's been a while for that. So that's a good thing. I wonder when you look at that, does that change your view on capital spending, and we certainly are hearing a lot about AI and how hospitals could benefit from AI. What are you doing there? And will that be a focus of spending? Kevin Hammons: Sure. Happy to address those. So -- and thank you for recognizing that. It has been something we've been working towards and knowing we needed to get there and we're glad to say that we kind of turned free cash flow positive this year as a result of a number of initiatives, including the divestiture program, which has helped us reduce some of our cash interest and has gotten rid of some of our cash flow headwinds. As we move forward and as you saw in the guidance, our capital spending levels really are not changing from an absolute dollar amount from what we have spent these past couple of years, even though we have a smaller footprint of hospitals, so we're spending more per hospital going forward. And I think we're able to do that now that we're improving our cash flow. Those improvements allow us to invest in some additional growth opportunities. And then as you mentioned, as we look at AI, there's a number of use cases that we're already investing in for AI that we're already using and some additional ones on the horizon. Many of those focus in some administrative areas that are -- should drive some cost savings, even in our revenue cycle, whether it's in the -- we're using some AI in an appeals process some autonomous coding in our prior authorization process. We've also implemented some AI or an AI augmented tool for virtual patient sitters that has helped prevent falls and serious safety events. That's a little more on the clinical side. We're in the process of rolling out the ambient listening and some AI virtual assistance to improve documentation accuracy. And then we have some even more on the clinical side with some AI-enabled maternal fetal early warning systems that improve obstetric outcomes. So we're looking at it across the portfolio. And then as we've talked a lot over the last couple of years about our ERP, the Oracle tools from an administrative standpoint and process transactions are having more and more AI built into the software that will be available to us as we continue to mature our processes with our ERP. Operator: And our next question today comes from Ben Hendrix at RBC. Benjamin Hendrix: I wanted to step back to the guidance bridge a little bit and kind of back it up those elements to revenue. Just so we can get an idea of the pass-through provider tax on that onetime Tennessee DPP item and then also profitability of the divestitures. If we could just get the bridge for revenue. Jason Johnson: Sure, Ben. Thank you for the question. So I'll kind of walk through starting with the divestitures. For 2025, the partial year impact that again, that's ShorePoint that was divested on March 1, Lake Norman on April 1 and Cedar Park on June 30. It's about $210 million to $230 million of net revenue to take out of 2025. And then for those divestitures that have been announced and have been completed or expected to be completed in early 2026, that's about a $1 billion reduction to net revenue. Keep in mind the 3 Pennsylvania hospitals that we divested on February 1, generated a lot of net revenue, about $0.5 billion annually, but they were basically breakeven to EBITDA. And then the 2 onetime items, the Tennessee SDP, the retroactive piece there and the opioid settlement, that was about $60 million net revenue. So if you kind of factor in all those items, then the jump-off point for 2025 net revenue was about $11.2 billion. Benjamin Hendrix: Great. That's very helpful. And then just in terms of the core growth that you're projecting, if we think about the kind of consumer confidence issue that Kevin raised on his prepared remarks. How are we thinking about the impact there of that kind of early year mix shift and how it could impact the pacing through the year? Kevin Hammons: Ben, this is Kevin. Yes. So coming out of 2025, we saw a dip in consumer confidence in December, down to the level that the last time we saw that, I think, was in March of 2025. And following that, we had kind of a pretty soft quarter in terms of volume. So starting off the year, I think you're going to see a little bit of headwind, not only with the reset of co-pays and deductibles, but consumer confidence being light. We do think that's temporary. We think that will improve throughout the year. As I think about kind of cadence throughout the year, although we don't give quarterly guidance, I would expect the back half of the year to be a little stronger than the first half of the year in terms of EBITDA production. Operator: And our next question today comes from Jason Cassorla with Guggenheim. Jason Cassorla: Great. Maybe just going back, you noted the exchange headwind on EBITDA to be $20 million to $30 million. I guess if you were just to back that out, you're suggesting close to, call it, like 6% same-facility EBITDA growth for the remaining business. Can you walk us through that growth rate? Is that more in power flow through? Is that favorable Medicare rates? Just any thoughts there when you kind of back out the exchange in the remaining business would be helpful. Jason Johnson: Sure. Thanks, Jason. The kind of the pure rate increase assumption there is about 2.5% to 3.5% of the growth. And the remainder is the mix of payer mix, acuity and volume to get to that, but sort of about 5.5%, 5.3% increase. Kevin Hammons: Yes, I might just add, if I can jump in with some color too, if you think about Medicare rates this year, we're looking on the inpatient side, about a 4% Medicare rate increase for 2026. That's the highest rate we've seen or the highest increase we've seen in Medicare as long as I can remember. So that's going to be helpful that will help drive. We did see some pretty good rate increase in fourth quarter that Medicare inpatient rates went into effect October 1. So we do think that will pull through and as well as some of the capital growth investments that we've made throughout this past year will also be helpful in driving some higher acuity services and some payer mix improvements. Jason Cassorla: Great. Very helpful. And maybe just a follow-up on the divestiture front. I mean, your hospital footprint is down about 1/3, right, since 2019. I guess as you evaluate the future deals or opportunities, like how are you factoring any potential headwinds that may come from fixed cost leverage leakage as your facility base gets smaller? Just curious how you're thinking about that and how you're factoring that as you look to perhaps sell more assets? Kevin Hammons: Yes. We keep a close eye on our overhead costs here. And I think our overhead costs, we've been very efficient with those costs. Many of our centralized services are volume related, like revenue cycle, like our new shared business center where we've moved accounting, finance, HR, now that we've put in a new ERP. All of those things can be flexed because they're very transactional related. So as we divest facilities and reduce the number of transactions we're processing. We can scale those accordingly. Also keep in mind, we've been adding significant numbers of beds to our existing hospitals, even though we've been divesting some hospitals with our capital projects over the last several years. I think over the last maybe 3 to 4 years, we've added 500 to 600 beds to our core portfolio. We're adding freestanding EDs, surgery centers, clinics, and we would continue to be looking at opportunities to do that. If you go back in 2019, our net revenues, I think, were approximately $13 billion. And to your point, we've sold about 35% of our portfolio but our net revenues this past year were $12.5 billion. So -- and the EBITDA is also relatively close, even though we have 35% fewer facilities. So that's kind of how we're looking at it. Operator: And our next question today comes from Josh Raskin at Nephron Research. Joshua Raskin: I just wanted to go back to that technology agenda that you're talking about. And maybe if you could give a little more details around some of the system changes, the ERP and how that's gone? And where you're targeting more additional efficiencies and savings in light of some of the divestitures. And then I'm curious, any new efforts around revenue optimization or anything else on the revenue side? Kevin Hammons: Thanks, Josh. The ERP implementation and transformation, I would say, went extremely well. It was a multiyear process and 1 that was a big heavy lift for us as an organization, but we did complete that on time. And we went -- fully went live across the entire portfolio effectively January 1, 2025. So we've been up now for a full year on the new systems. They are working as designed. We did not have any issues in terms of closing our books or any expense issues that were of a surprise or they came through that got identified as often as times the case when you go through a big system conversion like that, you find things and we did not find any big surprises. We are still in the process of what I would call maturing the new system. We've had some big successes. We -- by our tracking, it has saved us approximately $50 million this past year. And I think there's runway over the next couple of years for us to continue to increase the savings as if we're getting out of that. Now those savings have come from a couple of different areas. One, it's been reducing the number of other systems. So we've replaced multiple systems, multiple financial platforms with a single platform. And as we get rid of some of those duplicative systems, we're saving money. We are getting better decision support. We have better insights now that we have a single integrated system and standardized data across the entire enterprise. So we're able to see more for instance in the supply chain area. We have a single item master across the entire enterprise and pick an item that you purchased, we have almost instantaneous visibility into how many of those items are purchased across the entire system as opposed to trying to cobble together multiple systems to see what we purchased of a single item. So that all provides better decision support allows us to leverage our scale better. And as that whole process matures, we believe we'll be able to extract more savings going forward. Then with the AI components that are baked into the new platform and that are being rolled out. A lot of this AI was not in Oracle when we initially acquired and began implementing it. But as Oracle is building out their product and now that we're in a kind of a cloud environment, we get updates every quarter with new functionality. They're rolling out new functionality that we can then take advantage of going forward. That will allow us to be able to gain significant efficiencies that I would expect in 2026 and forward that we'll be able to take advantage of. Joshua Raskin: Perfect. And anything new on the revenue side from a tech perspective? Kevin Hammons: Yes. On the revenue side, we're continuing to -- and as I mentioned, we're already using some AI in our appeals process, in some autonomous coding. We're looking at some additional use cases to further expand some of those products. And some of the software that we're using in our revenue cycle is also those vendors are building out some AI technology or components within their products that we'll be able to take advantage. That should help us with charge capture and as well as some prior authorization. Operator: And our next question today comes from Andrew Mok with Barclays. Andrew Mok: Wanted to follow up on the ACA headwind, the $20 million to $30 million EBITDA call out strikes me as a bit low on a potential $100 million to $120 million impact to revenue. So can you help us understand the offsetting factors there and whether that headwind figure is net of any planned cost reductions? Jason Johnson: Yes. Sure. So I mean, first, the deductibles and co-pays that those patients have or generally, we don't collect many of those. And so the $20 million to $30 million was -- we started by applying what our normal 12% EBITDA margin, but then recognizing that there's some fixed costs that remain, we ticked that up to more of the $20 million to $30 million range because, obviously, you don't incur the cost if those patients don't present and supplies, salaries, et cetera. Kevin Hammons: Yes. I would just add on to that, and I think Jason brought up a very good point that our experience has been that a number of the utilization of health care exchange of patients is in the ED and oftentimes those individuals do not pay their co-pays and deductibles. Our collection of co-pays and deductibles is very low on that group of patients. So factoring that in, we don't believe that there is as big a headwind for that business being lost. Andrew Mok: Got it. Okay. And if I could follow up on the cash flow. The operating cash flow guidance seems to embed a meaningfully positive contribution from working capital. Despite the negative callout on the extra payroll cycle. Can you help us understand what's driving that favorable contribution? Jason Johnson: Sure. There's probably 5 to 7 different items that we've identified categories to step over that additional pay period. One is improving our AR collections and the goal to reduce by a day. AP remains a focus. We did have in 2025 some payments of AP from our conversions from old systems that built up and were paid earlier in the year that we shouldn't have to step over in 2026. And then also just focusing generally on AP management. Inventory turnover is a focus of ours, again, this is kind of that next step of being on a single ERP and maturing our processes. We've got -- we expect a lower amount of payments in medical malpractice and there's continued collections on the divested AR that we don't sell to the buyers. So while we don't have that income coming in, we'll continue to collect on the AR, the cash will still come in. And then there's always a State Directed Payment program timing as to when the payments come in versus the recognition of the revenue. Operator: And our next question today comes from Steve Baxter at Wells Fargo. Stephen Baxter: Not to belabor the exchange points too much. I guess I'm just trying to understand a little bit better. On one hand, I think everyone kind of understands that this exchange population does feel like there is a great deal of ER utilization happening. I guess I'm just wondering when you think about sort of the decremental margins here, just philosophically, it seems like in a lot of these situations, you might actually keep the cost, people continue to use the ER but just don't actually have the revenue anymore associated with that. So just trying to understand, I guess, why you wouldn't see a much potentially higher decremental revenue drop through on that? And then maybe just to help kind of square it, like what percentage of the exchange enrollment loss do you assume goes to other covered sources? Jason Johnson: I'm sorry, I didn't catch the last part of that. Kevin Hammons: Yes, the last part was what percentage do you expect to... Stephen Baxter: Yes, like if you expect the exchange market to shrink 20%, like of that shrink, how much of that do you think ends up in another source of coverage? Therefore, like what percentage of this starting 100 to 120, just kind of does not an issue to deal with at all. And then of what's left, that's kind of what the question on the avoided cost and the decremental margin comes in? Jason Johnson: It's frankly a little too early to really accurately predict what's ultimately going to happen with these folks if they'll just be able to pay their own premiums or if they'll downgrade, all the things that we talked about earlier, they'll just go self-pay and not be able to get coverage. So we didn't attempt to determine exactly how much it's going to come back in because it kind of came back to ultimately -- it's less than 5% of our net revenue. So we were kind of sizing it, we took an approach of starting there and then using -- starting 20% and trying to apply what kind of margin that could end up flowing down to. Kevin Hammons: Yes. We think we're generally relatively low margin on that business to begin with. And to your point, some of those folks that lose or drop out of the exchange will actually come back with commercial coverage that we'll get a better margin on as they're commercially covered. Some of them may move into Medicaid, some of them may move into uninsured status. We took a blended rate of 20%. But as we think about given the fact that a lot of the co-pays are not collected, our current margin on that business is pretty low. So that's where we came up with a 20% to 30% EBITDA hit on that revenue. Stephen Baxter: And then just to follow up, I think you might have said this, but just to clarify, the same-store volume growth assumption that's embedded in this guidance. And then as we think about the step from the same-store volume growth this year to what you're looking for in 2026? Like what payer category should we think about as driving that step-up? Jason Johnson: We -- the same-store volume growth would be low single-digit expectation for 2026. Kevin Hammons: And what was the second part of that question, Stephen, sorry. Stephen Baxter: Yes. Just to the extent you were looking for improvement, like what payer classes you might call out is expecting a better volume performance than what you actually realized in 2025? Kevin Hammons: Certainly, commercial. I think we saw some improvement in commercial mix this year. And as we think about where we are making some of our capital investments and service line investments, we would anticipate capturing both some additional Medicare, but also commercial business continuing to ramp up. Operator: Thank you. And that concludes our question-and-answer session. I'd like to turn the conference back over to Mr. Hammons for any closing remarks. Kevin Hammons: Rocco, thank you, and thank you, everyone, for joining the call today. I want to close by reiterating my thanks for our team members for their commitment to our shared vision for CHS and their combined efforts in putting our values into action. If you have additional questions, you can always reach us at (615) 465-7000. Have a good day, everyone. Operator: Thank you, sir. And that concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.
Operator: Good morning, and welcome to Deere & Company First Quarter Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Mr. Josh Beal, Director of Investor Relations. Thank you. You may begin. Josh Beal: Hello. Welcome, and thank you for joining us on today's call. Joining me on the call today are Josh Jepsen, Chief Financial Officer; Ryan Campbell, President, Worldwide Construction and Forestry and Power Systems; and Chris Seibert, Manager, Investor Communications. Today, we'll take a closer look at Deere's first quarter earnings, then spend some time talking about our markets and our current outlook for fiscal 2026. After that, we'll respond to your questions. Please note that slides are available to complement the call this morning. They can be accessed on our website at johndeere.com/earnings. First, a reminder, this call is broadcast live on the Internet and recorded for future transmission and use by Deere & Company. Any other use, recording or transmission of any portion of this copyrighted broadcast without the expressed written consent of Deere is strictly prohibited. Participants in the call, including the Q&A session, agree that their likeness and remarks in all media may be stored and used as part of the earnings call. This call includes forward-looking statements concerning the company's plans and projections for the future that are subject to uncertainties, risks, changes in circumstances and other factors that are difficult to predict. Additional information concerning factors that could cause actual results to differ materially is contained in the company's most recent Form 8-K, risk factors in the annual Form 10-K as updated by reports filed with the Securities and Exchange Commission. This call also may include financial measures that are not in conformance with accounting principles generally accepted in the United States of America, GAAP. Additional information concerning these measures, including reconciliations to comparable GAAP measures, is included in the release and posted on our website at johndeere.com/earnings under Quarterly Earnings and Events. I will now turn the call over to Chris Seibert. Christopher Seibert: Good morning, and thank you for joining us today. John Deere completed the first quarter with a 5.9% operating margin for the equipment operations. Our results reflect the strength and resilience of a diversified portfolio spanning multiple end markets and geographies. All business segments delivered higher net sales year-over-year with both small ag and turf and Construction & Forestry top line growing by over 20%. Our results for the quarter exceeded our forecast, driven by shipping volumes that were ahead of our initial plan. Importantly, over the course of the quarter, we saw continued strengthening of our order books across several product lines, most notably in small ag and turf as well as construction. In earthmoving, double-digit year-over-year growth in retail settlements and the growing order bank have prompted us to increase our industry outlooks for both construction and compact construction equipment in North America. In small ag, order activity for midsized tractors supporting the dairy and livestock production system has remained solid. while order velocity for North American turf equipment and compact utility tractors has increased. Global large ag fundamentals, while still challenged, were largely stable over the quarter. This stability has enabled a modest improvement in our net sales forecast for North American large ag this year as our combined early order program finished better than expected and large tractor order activity has increased. These improvements have helped us to offset softer projections for the South American ag equipment market in 2026. The developments over the course of the past 3 months have strengthened our belief that 2026 marks the bottom of the current cycle as we project mid-single-digit net sales growth for the equipment operations this fiscal year. Slide 3 starts with the results for the first quarter. Net sales and revenues were up 13% to $9.611 billion, while net sales for the equipment operations were up 18% to $8.001 billion. Net income attributable to Deere & Company was $656 million or $2.42 per diluted share. Turning to our individual segments. We begin with the Production & Precision Ag business on Slide 4. Net sales of $3.163 billion were up 3% compared to the first quarter last year, primarily due to positive effects of foreign currency translation. Price realization was roughly flat. Price realization in North America was positive, though was offset by additional incentives for the South American market. Currency translation was positive by nearly 4 points. Operating profit was $139 million, resulting in a 4.4% operating margin for the segment. The year-over-year decrease was primarily due to higher tariffs, unfavorable sales mix and higher warranty expenses. Moving on to Small Ag & Turf on Slide 5. Net sales were up 24%, totaling $2.168 billion in the first quarter because of higher shipment volumes and positive effects of foreign currency translation. Price realization was positive by 2 points. Currency translation was also positive by just under 2.5 points. Operating profit increased year-over-year to $196 million, resulting in a 9% operating margin. The increase was primarily due to higher shipment volumes, favorable sales mix and price realization, partially offset by higher tariffs. Slide 6 gives our industry outlook for ag and turf markets globally. We continue to expect the large ag equipment industry in the U.S. and Canada to decline 15% to 20% this year. However, we are seeing encouraging developments that should provide stability to this segment in the near term while also improving the setup for return to growth. While global row crop production remains strong -- global production remains strong, robust demand for commodities and a normalization of trade flows are providing support for prices at current levels, which are above the lows that growers experienced last summer. Additionally, government programs are supporting farmer liquidity in the short term. Ongoing improvement in the used inventory market is providing a better environment for machine replacement, while the age of the fleet continues to grow. Additionally, proposed government policy actions, including additional support for biofuels, provide potential tailwinds for growth. For small ag and turf in the U.S. and Canada, industry demand estimates remain flat to up 5%. The dairy and livestock sector remains profitable due to strong beef prices, while the turf market is seeing a modest return to growth as that sector normalizes after several years of declines. Moving to Europe. The industry is still projected to be flat to up 5%. The underlying fundamentals of the ag sector are largely unchanged with no near-term material impact expected from newly negotiated EU trade agreements or recent declines in milk prices. Interest rates are steady, long-term financing costs are manageable and the region continues to show resilience across key arable markets. In South America, industry sales of tractors and combines are now expected to be down approximately 5%, driven by the Brazilian market where subdued commodity prices, high interest rates and the stronger real are putting pressure on producer margins. Industry sales in Asia are now projected to be flat to down 5%. The Indian market is now expected to only be down slightly from the strong levels seen in 2025. Next, our segment forecast begin on Slide 7. For Production & Precision Ag, net sales are still forecasted to be down between 5% and 10% for the full year. The forecast assumes roughly 1.5 points of positive price realization and about 3 points of positive currency translation. For the segment's operating margin, our full year forecast remains between 11% and 13%. Slide 8 shows our forecast for the Small Ag & Turf segment. We now expect net sales to be up about 15%. This includes 2 points of positive price realization as well as 2 points of positive currency translation. The segment's operating margin guide is now between 13.5% and 15%. Shifting now to Construction & Forestry on Slide 9. Net sales for the quarter increased roughly 34% year-over-year to $2.67 billion due to higher shipment volumes and positive effects of foreign currency translation. Price realization was negative by just under 0.5 point. Currency translation was positive by 3.5 points. Operating profit of $137 million more than doubled year-over-year, resulting in a 5.1% operating margin due primarily to favorable shipment volumes as well as production efficiencies, partially offset by higher tariffs. Slide 10 describes our Construction & Forestry industry outlook. Industry sales for both construction equipment and compact construction equipment in the U.S. and Canada are now expected to be up around 5% year-over-year. Construction markets remain solid, supported by U.S. government infrastructure spending, declining interest rates, strong rental demand and data center construction starts. Our year-to-date retail settlement activity is running ahead of our expectations, and our order books continue to grow. Global forestry markets are still expected to remain flat. Global road building markets are now expected to be up around 5%, driven by market increases in both North America and Europe. Moving to the C&F segment outlook on Slide 11. 2026 net sales are now forecasted to be up around 15%. Our net sales guidance for the year includes about 2.5 points of positive price realization and just over 2 points of positive currency translation. Our projection for the segment's operating margin also increased and is now estimated to be between 9% and 11%. Now transitioning to our Financial Services operations on Slide 12. Worldwide Financial Services net income attributable to Deere & Company in the first quarter was $244 million. The year-over-year increase was mainly due to favorable financing spreads and a lower provision for credit losses, partially offset by favorable special items recorded in the first quarter last year. For fiscal year 2026, our outlook increased to $840 million, primarily driven by lower provision for credit losses. Finally, Slide 13 outlines our guidance for net income, effective tax rate and operating cash flow. For fiscal year '26, our updated outlook for net income is now between $4.5 billion and $5 billion. Next, our guidance continues to incorporate an effective tax rate between 25% and 27%. And lastly, projections for cash flow from the equipment operations increased by $500 million at both ends of our range and is now expected to be between $4.5 billion and $5.5 billion. This concludes our formal comments. We'll now shift to a few topics specific to the quarter. To start, let's review Deere's results this quarter. Net sales increased by about 18% year-over-year and margins were just under 6%. Although the first quarter of fiscal year '25 had an easier top line compare given last year's underproduction in Small Ag & Turf and Construction & Forestry, it still performed ahead of our plan. Josh Beal, could you explain what happened this quarter and how it affected our full year outlook? Josh Beal: Yes, absolutely, Chris. Let's start with our expectations for the quarter. Overall, we were projecting double-digit net sales growth in the equipment operations, driven by estimates for over 20% growth in both small ag and Construction & Forestry, while large ag sales were expected to be flat year-over-year. Despite the projected net sales increase, we were expecting lower equipment operations operating margin year-over-year due to incremental tariff expenses and an unfavorable product and regional mix in large ag. Across all 3 business units, we executed ahead of our plan for the quarter. And as a result, our performance reflects better top line and margins than originally forecasted. Better-than-expected shipment volume was the primary driver of both the top line and margin beat. In PPA, shipments of North America large tractors were ahead of plan, while C&F benefited from higher road building sales in Europe and North America as well as ahead of planned shipments of both construction and compact construction equipment in North America. On the pricing front, C&F pricing was slightly negative this quarter, although competitive price pressures have started to show signs of easing. The results from the quarter in C&F had a slight impact on the timing of our expected price realization in the segment. And as a result, we've revised our full year forecast down by 0.5 point. PPA pricing was neutral during the quarter, primarily due to discounts implemented in South America, responding to FX movements as well as targeted field inventory reductions. Our PPA price guidance for the full year remains unchanged, and we still expect positive full year price realization in South America. Foreign exchange was also impactful in the quarter. The U.S. dollar was weaker year-over-year against several relevant currencies for Deere, particularly the euro and Brazilian real. The translation impact drove year-over-year net sales gains for all 3 business units. Transitioning to cost management. Excluding tariffs, production costs were lower year-over-year for all business segments in the first quarter. This was largely attributable to operational efficiencies from higher production and disciplined overhead spending. Tariffs for the year are still projected at around $1.2 billion as mitigation on Section 232 steel tariffs and some relief in India have been offset by volume growth. As you mentioned in your opening comments, our full year industry demand outlook for most markets improved over the course of the quarter. We maintained our net sales guidance for PPA, even though South America softened due to some incremental improvement in North America, and we increased the net sales ranges for SAT and C&F by 5 points. That resulted in higher projected margin ranges for small ag and C&F, resulting in an increased net income forecast of $4.5 billion to $5 billion. Christopher Seibert: Perfect. Thanks for that breakdown, Josh. It is encouraging to see that our teams continue to execute and focus on what we can control while also seeing some pickup in end market demand. Now let's take a moment to talk about the broad ag industry. Since late last year, we've seen several supportive developments in the U.S. market, including the recently announced $12 billion Farmer Bridge Assistance program, and renewed purchase commitments for U.S. commodities. Can you add some additional color to what this could mean for U.S. growers? Josh Beal: Sure, Chris. I'll start by reiterating a couple of comments on the global ag economy that you mentioned in your opening. Global crop production remains strong, but so does global demand. At current commodity price levels, producer margins remain pressured in many geographies. Specifically for the U.S., the USDA just updated their 2026 forecast for net cash farm income. While 2026 U.S. net cash farm income is forecasted to be up around 3% from 2025, much of this increase is being driven by more government payments. Crop cash receipts are expected to be up slightly this year, but expenses are projected to increase as well. Given this setup, we continue to anticipate a challenging environment for many row crop farmers. However, as you mentioned, we're starting to see some stability for producers as China has resumed purchasing U.S. soybeans and the recently approved government support program looks to provide some near-term liquidity. Additionally, strong farmland values are keeping debt ratios low despite the lower margin backdrop. Notably, the U.S. fleet age is high and continues to get older as customers put more hours on their equipment. With the stabilization that we're seeing in U.S. ag fundamentals, along with an improving used market, our expectation is that we'll start to see some replacement demand return. Joshua Jepsen: This is Jepsen. Maybe one key point to reinforce. The government payment should continue to mitigate downside risks for farmers' balance sheets, acting as a bridge in an environment where crop cash receipts are under pressure. We believe that future policies around renewable fuels and additional export opportunities should drive demand and provide continued stability. Christopher Seibert: Great. Thank you, both. With the developments over the quarter in North America, it appears that we've moved past peak uncertainty and that the market is stabilizing. Building off that, could you also share an update regarding global ag inventories and order books? Josh Beal: Yes, definitely. Let's start with large ag in North America. On the new inventory side, we continue to be in a great position and hold on to our plan to produce in line with retail demand in fiscal 2026. We also continue to make progress in North American used inventories. We saw a typical seasonal increase in used Deere combines during our first quarter. However, current inventory levels for Deere combines remain about 15% below their peak in March 2024 with model year distribution at a normal mix. Deere high horsepower tractor units were down mid-single digits in our first quarter and have declined by over 10% from their March 2025 peak. Late model mix is improving, too. It's notable that while total Deere high-horsepower tractors are down over 10% from March, model year '22 and model year '23 ADAR tractors are down more than 40% in that same time period. Just this past quarter alone, model year '22 and model year '23 ADARs were down over 20% sequentially with model year '24 ADARs also declining by over 10%. While continued reduction in used tractors remains a focus, we're encouraged by the progress that we're seeing. At the same time, large tractor order velocity for the North American market has picked up, and our rolling order books now provide visibility into the fourth quarter. We also just recently took our last calls for North American combine orders for the year-end, while we still expect that overall North American large ag industry to be down 15% to 20% this year, combines will be down less than that range. Similar to North America, we feel good about our new inventory positions in both Europe and South America. The one exception is combines in Brazil, where we're a bit higher than we want to be. We'll underproduce retail for Brazilian combines in our second and third quarters to bring those inventory levels down. Despite being higher than our target, our current inventory to sales ratio for combines is still significantly lower than what we see with competitors. As far as order visibility, European tractor order books are currently 4 to 5 months out, while South American orders are full through our second quarter. Turning to Small Ag & Turf in North America. Last year's underproduction resulted in healthy beginning inventory levels for this segment that remain in place today. For reference, current new field inventory for both tractor horsepower categories in this segment, that's the less than 100-horsepower category and the 100 to 220-horsepower category are each about 40% lower year-over-year. Our ability to maintain those lower inventory levels reinforces our plan to build in line with retail demand in small ag this year. A commitment to that plan has been further supported by strength in order activity in the first quarter. Joshua Jepsen: This is Jepsen. Maybe share an additional perspective following Beal's comments. Our channel has consistently worked to reduce used inventory levels and our deliberate approach to managing production and inventory set us up favorably both this year and into the next. With growing demand across various other markets and segments, we feel good about how we're positioned to execute for the remainder of '26. Christopher Seibert: Thank you, both. Now let's move on to Construction & Forestry. Josh Beal, we've already touched on C&F's performance in Q1, but can you please give us an update on the current business environment and outlook for 2026? Josh Beal: Yes, happy to, Chris. Let me start with the current market environment, and Ryan, please jump in with any additional color you might have. As you noted earlier, construction markets are a bright spot and continue to demonstrate resilience, bolstered by U.S. government infrastructure investments, decreasing interest rates and improved rental demand. Recall that we underproduced retail in the first half of fiscal 2025, which set us up to produce in line with retail demand this year. We saw strength in our first quarter in retail sales that exceeded our estimates as settlements of construction and compact construction equipment were both up mid-teens year-over-year in our first quarter. What's perhaps most encouraging is that our order bank has risen by over 50% in the past quarter, reaching its highest point since May of 2024. This provides us with clear visibility into the second half of the fiscal year, allowing the Construction & Forestry team to optimize their production plans accordingly. Overall, we're very encouraged by the momentum that we've seen to start the year. Ryan, is there anything you'd like to add? Ryan Campbell: Absolutely. I share your enthusiasm, and I'm excited about what's on the horizon for this business. As I mentioned at our recent investor event in New York, there are numerous reasons for my optimism. At a macro level, the world is facing growing urgency to upgrade or replace key infrastructure. Investment in single-family housing, especially across the United States, needs to increase, and there's a huge demand to support the required infrastructure for AI investments. To get all this work done, the industry must boost productivity significantly with machines doing more work with precision and utilizing less resources overall. Meeting these goals require smart machines and data-driven insights to execute tasks and manage job sites efficiently. And we believe we can help customers meet these challenges and we'll continue to invest on our side to ensure success. Christopher Seibert: Thanks for the recap, Ryan. Could you remind us of the investments that we're making to meet those challenges? Ryan Campbell: Sure, Chris. Let's start with excavators. As we've talked about, we are excited to announce our new Deere designed 20-ton class excavators at the upcoming CONEXPO show in Las Vegas. We've included additional information in the appendix of the earnings presentation for those interested in more detail. Excavators represent about 40% of the North American construction equipment industry, and these models are the first introduction of fully Deere designed and Kernersville, North Carolina built machines to the market. We packed the new units with easy-to-use, productivity-enhancing technology while remaining absolutely focused on and making further improvements in quality and durability. This is the first step of what will be a multiyear launch plan for a complete line of excavators. We couldn't be more excited about sharing these first models with our customers. The CONEXPO event will feature 24 product launches, including world premieres of equipment from John Deere and 6 market debuts from the Wirtgen Group. The last several years, our efforts have been heavily focused on excavators. However, we continue to innovate across the product portfolio. From new equipment designs, the latest in precision and job site technology, we have never felt better about our complete product portfolio. Christopher Seibert: Thank you. On the digital side, yesterday, we completed the acquisition of Tenna. Could you please provide your insights on this acquisition and discuss how it aligns with the broader C&F business and strategy? Ryan Campbell: Yes. We're incredibly excited about bringing the Tenna team and their capabilities into the John Deere portfolio of businesses. It might help to take a step back and talk through our strategy at a high level in the C&F division. We think about the construction industry and how we want to compete in 3 different layers: machines, tasks and job sites. On the machine side, completing our product portfolio of best-in-class earthmoving equipment, both in high-precision machines and those that are more basic is our focus at that level. Second, we're enhancing the tasks that the machines do individually on the job site through precision technologies like SmartGrade, SmartDetect and SmartWay. The agreements with the 3 survey providers to provide a fully integrated grade control experience through our equipment is an example of what we are working on in this area. Third is having the capabilities to help contractors and customers optimize their fleets, operations and job sites. Tenna provides a leading technology platform that automates contractor workflows, gives near real-time insights into equipment operations and maintenance and enhances visibility. planning and coordination to boost productivity and cut costs. Tenna's leading fleet-based products and services, combined with the productivity solutions from Virtual Superintendent, who we acquired a little over a year ago, along with the foundational capabilities we've built through the John Deere Operations Center gives us a unique value proposition to offer customers as they work to optimize their fleets, operations and job sites. Importantly, Tenna and Virtual Superintendent are and will continue to be brand agnostic, focused on mixed fleet solutions in step with the reality of the fleets and job sites in the industry. Christopher Seibert: Thank you, Ryan. It sounds like there's a lot to be excited about in the Construction & Forestry segment going forward. Joshua Jepsen: This is Jepsen. Maybe one thing in addition to the C&F product releases, I'd like to share a quick comment about innovation in our other businesses. At the end of this month, we'll be at Commodity Classic in San Antonio, Texas with several major product launches and updates to our advanced technology solutions. And just last week, at the World Ag Expo in California, we showcased several innovations that are helping drive value for our high-value crop producers as well. Christopher Seibert: Thank you both for your comments. Josh, do you have any final thoughts before we open the line for questions? Joshua Jepsen: Yes. Thanks, Chris. The first quarter demonstrated great execution from our teams. All business segments operated efficiently and delivered results ahead of plan. At the same time, we saw stabilization and improvement in a variety of our end markets. Our channel maintained focus on inventory management, particularly in North American used equipment. Our financial strength has allowed us to maintain high levels of investment throughout the cycle, which positions us well for future growth, particularly as the cycle inflects. The recent and upcoming product and technology introductions are tangible examples of that outcome and bolster our confidence in our growth aspirations through the end of the decade and beyond. Over the quarter, we returned nearly $750 million in cash to shareholders through dividends and share repurchases, demonstrating that strong through-cycle financial performance supports both reinvestment in the business and shareholder return. Finally, I'd like to express my sincere appreciation to all members of the Deere team. The commitment and dedication demonstrated by our employees, dealers and suppliers across every area of the business have been instrumental in maintaining this high level of discipline. The Deere team is committed to executing our strategy and focused on solving our customers' biggest challenges. Christopher Seibert: Thanks, Josh. Now let's open it up to questions from our investors. Josh Beal: We're now ready to begin the Q&A portion of the call. The operator will instruct you on the polling procedure. In consideration of others and to allow more of you to participate in the call, please limit yourself to 1 question. If you have additional questions, we ask that you rejoin the queue. Operator: [Operator Instructions] Our first question comes from Kristen Owen from Oppenheimer. Kristen Owen: And just briefly, Josh Jepsen, thank you so much for all the help over the years. If I could start maybe with the pricing question. You gave some helpful commentary on PPA pricing. But I'm just wondering how we should think about the bridge from here at neutral in Q1 to the full year guide of 1.5%. And similarly, if you could help us, you trimmed your expectation on C&S. Can you just maybe walk us through what you're seeing on the pricing side there? Josh Beal: Yes. Thanks, Kristen. Happy to. Yes, starting with large ag, the first quarter, as we mentioned, we did put some incremental incentives in place -- we put some incremental incentives in place in South America. As we mentioned, we've seen a little bit of a slowdown in that market. And as a result, we're going to pull down inventory a little bit in that market, just in combines. And maybe just for perspective, too, on the combined inventory, while we've come up a little bit in Q1, we're still about half of the levels on combines that we saw that we peaked at in 2023. So still in really good shape, but want to be proactive there. And as we've seen a little bit of a slowdown, we've taken some action. We don't expect that to continue through the year. As we mentioned, our expectation is for Brazilian price realization to be positive for the full year. And we've seen positive price in North America. Recall that we did some accrual in the third quarter of last year in large ag for pool funds that should provide some easier comps as you move through the course of the year as well. So our expectation is to still maintain that 1.5 points for large ag price. Joshua Jepsen: Yes, Kristen, this is Jepsen. I think on the PPA side, that 1.5 points for the full year, and I think we would expect that really as we run through the remaining quarters. So not too lumpy or different as we go 2 through 4Q. Ryan Campbell: Yes. Maybe just a bit on C&F. We took the guide down slightly. That wasn't a function of our lack of confidence in us being able to execute price increases, really a function of how fast the year started. We announced some price increases in January. And quite frankly, we were surprised at how quickly we had built our backlog in the first couple of months of the year. So the price actions are going to be delayed a little bit. It's important to keep in mind that it's Wirtgen, it's parts and also earthmoving. And so it's a combination. Each one will do a little bit differently. And then over the rest of the year, we'll start to lap some of the more aggressive pricing actions that we had to take last year. So overall, we still feel very confident in the price realization for the year. Operator: Our next question comes from Angel Castillo from Morgan Stanley. Angel Castillo Malpica: Just want to maybe follow up on that. If you could just talk a little bit more in detail about what's going on in terms of the order strength, in particular, I guess, on the C&S side, to the comments on the pricing and the strength that you've been surprised by, I recognize it might be difficult to unpack, but just curious if you're seeing -- if you're able to split that up between what might be one big beautiful Bill kind of bonus depreciation related, any kind of versus end market driven versus kind of Deere performance driven by all the portfolio of product innovation you're talking about or just merchandising incentives. Just curious the puts and takes across the various kind of tailwinds that might be driving some of the strength and if you're able to kind of unpack that. Josh Beal: Yes. I'll start, Angel, and Ryan, Josh jump in. I mean, first and foremost, I would just point to contractor confidence. More and more as we have conversations with contractors, they feel good about their backlog. And candidly, they feel good about that backlog growing even as they look into 2027 as well. So I think it's strength in their end markets and particularly around larger projects, I mean infrastructure mega projects certainly supporting data centers as well is where we're seeing more of that strength. Housing, still subdued to start the year. There's some expectation that, that will pick up a little bit as we get some easing as we move through the course of the year, but that's still a segment for smaller contractors where there's still challenged on the housing side. But again, particularly for those larger folks, they're seeing strength in their order book, and I think that's starting to translate into order activity. Joshua Jepsen: Yes. Just to add to that, Angel, we've seen rental refleeting, which has been positive. Our retails were up mid-teens in the quarter. So we see strength there. So not only order activity, but retail more than matching, which has helped as well. So I think that's given us more confidence as we've seen that build. Ryan Campbell: Yes. Just maybe to summarize, kind of all of the above of the things that you identified. I've been out quite a bit with customers, geographic mix and a broad swath of the different types of construction, and it's really broad-based. They feel confident. I think the construction activity has been strong in the last couple of years. They were probably a little more cautious with respect to fleet for various reasons last year and the year before that. But now the confidence in their backlog is growing and they need to start making more investments in the fleet. Josh Beal: And maybe just one last comment on Wirtgen side, too, we're seeing strength there. We mentioned it's not just concentrated in North America, certainly strong infrastructure investment there. But Europe as well, we're seeing some pickup. Infrastructure in Germany, as an example, has been positive. So strength in both of those markets as well on the roadbuilding side. Operator: Our next question comes from Stephen Volkmann from Jefferies. Stephen Volkmann: Maybe I'll just stay with this topic. I guess given what you guys are all saying, which sounds very reasonable, the kind of up 5%-ish kind of forecast feels pretty conservative. So I'm curious if you think there's some headwinds that we should be keeping in mind maybe as the year progresses or something. And then sort of on that same note, your net sales forecast in C&F is quite a bit higher than your end market forecast. So maybe you could tease that part out as well. Josh Beal: Yes. I think you're right, Steve, that there's certainly optimism. You heard us say that in our prior answer. It is mixed in some segments. Housing has still been subdued. So I think that's part of it. But yes, I mean, overall optimistic, and we're seeing strength there. On the sales guide, up 15%. Recall that we did some pretty strong underproduction last year, which has really set us up well for this upturn. I mean it was close to 10%, just high single digits for the segment last year. And so we're building in line with retail this year. So that is helping. On top of that, you're getting 2.5 points of price, so getting positive price and currency has been a tailwind as well. So for all those reasons, we're much closer to 15% now versus those markets we're seeing are up 5%. Operator: Our next question comes from David Raso from Evercore ISI. David Raso: We'll miss you, Josh. When it comes to the large ag commentary, I was intrigued by the order book color. But obviously, you're not willing to change the guide on large ag. I was just curious, that order book, is it coming in just in a sense earlier than you would have thought in the sense of you have the same view and the order book just came in at a level where now you feel you have just better visibility? Or are we at the stage where Waterloo or East Moline is starting to kind of increase line rates? And I'm not just talking seasonality, I'm speaking about versus your original budget. I'm just curious how you're sort of digesting the at least more stable, better order book on large ag when, as you pointed out, I mean, grain prices, even this morning, some of the USDA corn acre number came in, I thought kind of constructive, but corn is still not reacting positively. And I'm just trying to put together how you're thinking about that order book versus corn prices just aren't really supporting the improvement. Josh Beal: Yes. Thanks for the question, David. I mean on the North American side, our guide is still for the industry down 15% to 20% and maybe breaking that down by product lines. Our spring seasonal products, things like sprayers and planters, those EOPs happened over the course of last summer, wrapped up in August, September, still a lot of uncertainty in the market and prices from commodities were much lower at the time. Those product lines are probably the upper end of that range, closer to 15%. What we've seen over the course of the quarter from -- I'm sorry, closer to 20%, at the upper end of that range for those product lines. What we saw over the course of the quarter on the tractor side was some pickup in order velocity, particularly in the last month or so. So we're probably closer to down 15 or so on tractors, the lower end of that range. And then combines, as we mentioned in our commentary, as we close out that EOP, that will finish better than the range, more like probably down 10% to 15% for combines in that segment. So yes, what are we seeing? What's driving that? I mean, as you're right, I think from an ag fundamental standpoint, still challenged and haven't seen a whole lot of change there over the course of the quarter. However, we do feel like things are more stable certainly than where we were end of last summer, into the fall. We've seen China come back to the market. We've seen some stability in grain prices, not a lot of upside at this point in time, to your point, even on some of the recent news, but we've seen some stability there. And then I think the other thing to keep in mind is that the age of the fleet is getting older. We haven't seen much replacement over the last couple of years. and you do have some folks that do need to look to replace even sort of despite of what we're seeing with ag fundamentals. And when you see an improving used inventory market, and we mentioned some significant improvement even over the course of the quarter. And I think most notably, like model year '22, '23 AR is down 20% sequentially in the quarter, just gives you a sense of how those are starting to move. That's starting to free up the trade ladder, free up movement there. And so we are seeing a little bit of pickup from a replacement demand. Not a massive inflection, again, given where the fundamentals are, but replacement does come back over time just given that situation. Joshua Jepsen: Yes, it's Jepsen, the only thing I'd add to that, David, to your question is, yes, we are seeing some increased build rates in tractors, and that's kind of back half related to this order activity that we saw come through. As Josh mentioned, we're already out nearly through 3Q. So the back half of the year, we see some of that step up. But that's based on actual orders that we're seeing. And I think really underlying some of the replacement that Josh just mentioned. And as we see used get healthier, I think that's aiding that trade ladder, aiding the ability to move those used. We've seen stability in used prices. And then as you take inventory down, it's facilitating more activity there. Ryan Campbell: Our next question comes from Tim Thein from Raymond James. Timothy Thein: Josh Jepsen, all the best, and thank you for your help over all these many years. Just a question, circling back on kind of the outline as we came into the year with respect to price versus production costs, given the maybe slower start to the year in some of these segments are we -- but you've also mentioned some maybe fluctuations on the cost and tariff side. Has anything changed in terms of the expectation for the full year and how you expect to play out in terms of price versus cost? Josh Beal: Yes. Thanks, Tim. I mean you're right, some changes over the course of the quarter. We're probably closer now to price/cost neutral for the full year, just given particularly a little bit of a reduction on the pricing side in C&F. Tariff costs -- and by the way, that price cost neutral is inclusive of the $600 million of incremental tariffs that we're seeing this year. So we're covering that tariff piece coming into the business in 2026. But we've -- tariffs have been roughly flattish quarter-over-quarter. There were some puts and takes there, but that $1.2 billion for the full year guide on tariffs is still unchanged. We've seen a little bit of change, maybe a little bit more inflationary pressure on materials, but offset by some improvements on the overhead side as we've added volume, we're seeing more overhead efficiency. And so we'll be slightly unfavorable from a production cost standpoint ex tariffs. But overall, again, price/cost neutral with the price actions that we're taking. Joshua Jepsen: Yes. And maybe just one thing. First quarter ex tariffs, we were production cost favorable. So I think it speaks to just the things we can control and how we're operating in an environment with a fair bit of uncertainty. Operator: Our next question comes from Steven Fisher from UBS. Steven Fisher: I echo my sentiments. Josh appreciate the help. In terms of some of the regional dynamics, I think there were expected to be some pretty big differences between North America and Europe in the first quarter. It sounds like maybe North America ended up being a little bit better on the tractor side, perhaps. Anything in particular from a regional production perspective we should be expecting or just general for Q2, how to model that and any of the differences for the rest of the year because I think those can certainly affect the margin progression in large ag. Josh Beal: Yes. Thanks for the question, Steven. Regional mix was certainly an impact on large ag in the first quarter. I mean if you look at overall volume in the large ag business in Q1, we were effectively flattish year-over-year in terms of total volume, but that mix was Europe up, Asia, it was a smaller part of our large ag business, but Asia up and then both North America and South America down year-over-year in Q1. So given the different profitability profile, excuse me, for those different geographies, that was unfavorable mix for us in the first quarter. That starts to change as you move through the course of the year. I mean, as we'll see a pickup, particularly in North America production here in the second quarter. And as Josh Jepsen mentioned, our order books are for tractors as an example, now into the fourth quarter. So we've got good confidence that we'll see that pick up and we'll revert to a more normal mix going forward, and that will aid margins. I mean you can expect us in large ag to do double-digit margins each quarter for the rest of the year. So it really is a mix that's improving as you move through 2026. Joshua Jepsen: Yes, Steven, I think you see that, too, like in gross margins, that really rings through. And when you look at the first quarter versus the rest of the year, where we bounce back and look a lot more like what do we do for gross margins in PPA in 2025 in the remainder of the year, that's where we operate. And a big part of that is a little bit more normal mix geographically. Operator: Our next question comes from Chad Dillard from Bernstein. Charles Albert Dillard: I got a quick question for you on tariffs. So if we get the tariff relief, will that get rolled back to farmers? And how soon could that happen? Is that something you need to wait to see until the '27 model year pricing? Josh Beal: Yes. Yes. And so maybe just to break down a little bit, Chad, on the exposure. So like I mentioned, total tariff costs this year in 2026 is $1.2 billion pretax. And if you break that down kind of by exposure, the IEPA tariffs is a little less than half of that, a little bit higher in 232, but a little less than half is IEPA. So we'll see what happens on the Supreme Court side. It's been a very dynamic environment. So it's hard to say if those go away or something else doesn't come back. So we'll watch how that plays out. We won't react too quickly. Similar to when we saw tariffs going up last year, we didn't take immediate price action, and you can expect a similar approach for us this year in 2026 as well. Joshua Jepsen: Yes. I'd just reiterate, Chad, I mean, we were relatively muted. I mean we're well below normal or historical averages for price. I mean last year in PPA, we did just below 1 point. We're talking about 1.5 points here this year. So we haven't taken outsized price as it's related to tariffs. We're focused on how do we mitigate, how do we work our way through those. We've seen good progress on mitigation on 232, and the teams continue to do a lot of really good work. So I think we're kind of heads down focused on that, and we'll see what -- how the environment changes, but we're going to keep working on that and focus on the things that we can manage. Operator: Our next question comes from Jerry Revich from Wells Fargo. Unknown Analyst: This is Kevin on for Jerry Revich. Just had a quick question about large ag used inventories. Based on our data, we're seeing North America large ag used inventory destock accelerated over the quarter by 4%. Just trying to understand, were there any higher pool funds or other incentives? And is this pace of destock sustainable based on what you're seeing? Josh Beal: Yes, Kevin, thanks for the question. As we mentioned, we saw a really good progress in the first quarter and maybe worth repeating again, I mean, particularly late model tractors, we saw a really significant reduction over the quarter. I mean '22s and '23 AR is down 20% sequentially in the quarter, even model year '24s down 10%. So really good movement there. We did this in 2025. We increased the pool fund contribution rate to keep those levels healthy for our channel. And we'll continue to support the market with pool funds. We did a little bit in Q1, but still positive price for North America. So like I said, we're seeing good momentum there. We're seeing good movement. Our first quarter tends to be the strongest quarter of the year for used reduction. You do see a lot of year-end calendar buying. So you'll see probably more movement in Q1 than you will be as you get to some of these other quarters. But we've seen continued progression quarter-over-quarter really for the last better part of the year or so, and we'd expect that to continue going forward. Operator: Our next question comes from Jamie Cook from Truist Securities. Jamie Cook: Josh Jepsen, thanks for your help throughout the years and best of luck to you. I guess just my question in terms of how we're managing large ag. It seems like things are getting better. You talked about the combines coming in better, order velocity improving. To what degree -- I know you have orders through the third quarter. To what degree do you want to limit production, I guess, in 2026 to set yourself up for a better 2027 in terms of how you're managing things? And then I guess my second question, just with large ag getting better, production sort of moving up, surprised your margins and the mix getting better with more North America just surprised margins wouldn't be more towards the upper end of the range for the year and production and precision Ag. Josh Beal: Yes. Thanks, Jamie. I mean certainly, as you mentioned, we've seen improvement over the course of the quarter. For combines, as you know, we base our production for the year on that early order program. So that largely defines what we're going to build this year. And so I wouldn't say there, there's any really much change. It will be pretty level through the rest of the year on combines. I mean tractors, as we've mentioned, our order book is now into the fourth quarter. We've seen some increased momentum there. And as Josh Jepsen said, we'll pick up some production towards the back half of the year. Probably not a whole lot of change now at this point, I mean we're getting pretty close to where the full year will have the year filled up. We'll see how things play out over the next quarter or so as we build out the book for the rest of the year. But we'll be pretty steady, pretty level now based on what our plans for the rest of the year. Yes. I mean margin, certainly, as we see North America come back, that's good mix. We've seen a little bit of softening in South America. That's a very profitable region for us as well. And so there's some puts and takes there that don't drive the margin too different from what we've originally forecasted. Joshua Jepsen: Yes, Jamie, it's Jepsen. I think the one thing I'd point out is we're still below trough levels for production and precision Ag overall and North America below that. So when you just the overall magnitude of North America being down 15% to 20% and the pull or negative impact on margins is real there. So I think we're glad to see some of that order activity move, but it's not -- to Josh's earlier point, it's not a bounce. It's not inflecting hard. It's just we're seeing some positive progress and momentum. So that, I think, does demonstrate we should see momentum as we go forward. Inventories are in good shape. Factories are running really lean. So as we see demand come back, I think we will see strong incrementals, particularly ex tariffs, but we're still kind of coming off of very low levels right now. Operator: Our next question comes from Tami Zakaria from JPMorgan. Tami Zakaria: My question is on the new excavator, which is quite exciting. Curious whether you can comment on any marketing plans around the launch of this? Are you expecting to put in some promotions to gain share, any financing promotions, incentive for dealers or anything along those lines to start off on a strong note? Ryan Campbell: Yes. I think the big splash that we have is out at CONEXPO, and so that will be the big launch event. We spent a lot of time with a lot of different operators from customers across the country, testing and understanding the capabilities of the equipment. We had a big launch party and launch event with them. And so I think the capability and the quality of the equipment and what we're going to deliver to the marketplace is pretty well known. We've done more testing than we have in the past. With respect to incentives, the excavator market has been pretty challenging from a price perspective over the last couple of years. This new model gives us differentiation that we haven't had over the last couple of years. We're not going to significantly take price with that, but the value that we're offering to our customers through this and through all the work that we've done, we feel like they really understand it and continue to do that. And again, at CONEXPO, we'll continue to emphasize the message of the value that we're delivering through technology, through improved durability and just the productivity and capability of the new excavator. We think we're in a great spot to launch. And the teams are super excited. The dealers are super excited. There are good products in the market today. We've had a long-standing relationship with Hitachi with good products. This is a truly differentiated product that we're super excited to bring to the marketplace. Operator: Our next question comes from Sabahat Khan from RBC Capital Markets. Sabahat Khan: Maybe just a 2-parter there. I think the initial comments around some of the shipments during the quarter being a little bit better. I guess based on the order book, are you finding that this is more of a structural shift in the outlook that the farmers on the ground have maybe because of some of the trade issues easing and/or other factors? And then secondly, just as the trade issues do ease for the U.S. and China starts to order, how are you thinking about the offset in South America where maybe some of the orders for soybeans and other things might moderate? So how are you thinking about that on a net basis? Josh Beal: I mean specific to the quarter, I would say largely, we ran really well in our factories. We talked about overhead efficiencies that we saw in the quarter as we ran so well. Tractors in North America, we shipped a little bit more than we anticipated just given how the factory ran. And so I wouldn't say in the quarter that production was so much demand related versus just how we ran in our operations. But yes, I mean, as you think about overall for large ag, we talked about the pickup in North America. We've had that point already just on some of the improved optimism we've seen there. Again, it's a minor inflection, but we've seen some positive momentum there. South America, the way I would describe that is just a little more caution in the market. I mean there's a few factors at play there. Certainly, the high interest rates that we've seen in the region have been pressuring customers. We saw the real appreciate quite a bit over the course of really the past month, 1.5 months. Given the structure of our customers' operations, they sell a lot of their commodities in U.S. dollars. That puts some pressure on their margins. So we've seen a little more caution there as well. And certainly, they're keeping an eye on the election -- presidential election in the country that's coming up at the end of the year as well. So for all those reasons, a little more caution in the market, and we've seen just a bit of a cautious ordering as a result. Joshua Jepsen: Sabahat, it's Jepsen. I think the one thing to your point on trade flows and how does this balance North America, South America. I think there's a couple of positive things here, and that's domestic consumption in both geographies, North and South America. North America, we're seeing more crush of soybeans domestically, more use domestically. And conversely, exports of corn and ethanol are higher. And in part, you're seeing Brazil actually consume more corn and more ethanol domestically. So I think you're seeing some puts and takes and just shifts in terms of how domestic markets are evolving vis-a-vis what's happening in exports. So I think positive is we're seeing strong demand both in country when you go U.S. and South America, Brazil in particular. And then obviously, some shifting as trade impacts that. But I think as things settle there, I think the important part is the strong demand we're seeing that's consuming those grains domestically. Operator: Our next question comes from Mike Shlisky from D.A. Davidson. Michael Shlisky: I want to add my sentiments Josh, thanks for everything. All the best to you. I kind of want to just maybe dive into your a little more optimistic tone on large ag and some of the order trends that you're seeing, especially in combines. Do you -- are you seeing or do you think you'll be seeing any market share gains this year? And I was curious whether you could tell us about tech attachments on some of your combines or other products? Are more farmers taking on the ultimate package or other prescriptions this year that might start to benefit you in 2027? Josh Beal: Yes. Thanks, Mike. Yes, I mean, I think overall, in large ag in North America, over the last 12 to 18 months, we've ceded a little bit of share. I think as we've been leaner on the new inventory side, more focused on driving used down, we've talked about the progress that we've seen there. As a result, we're set up really well coming into 2026 and our expectation is we've got some opportunity to gain some share as we move through the course of the year. On the tech side, on combine, super excited. Last year was our first year of harvest settings automation, predictive ground speed automation. We saw really good success in the field. I mean, on harvest settings automation, over 60% utilization of operators in the cab had that tech on while they were harvesting last fall and saw really good productivity gains, really good throughput gains. And as a result, we're seeing a pickup in take rates on that option as well. So 99% of the combines that were ordered this year through the EOP at some level of harvest automation and nearly 80% of that, we're taking the highest level of the ultimate package. That's up 4 or 5 points, Mike, better year-over-year. And so we've seen really good gains there and would expect that to translate into good utilization in the fall as well. Joshua Jepsen: Yes. Maybe stepping back to, as we think about just overall tech adoption and our conversations around are recovering acres with more dear technology, our engaged acres stepped up again this quarter or 500 million engaged acres. That's over 10% increase from a year ago and about a 25% increase on highly engaged. So nearly 1/3 of those engaged acres are highly engaged. So we're continuing to see progression there. which speaks to what we're doing on connectivity and making sure we're reaching deeper into the fleet, but we're seeing that progress. And we're seeing it progress really across the world, which is positive as well. Operator: Our next question comes from Jairam Nathan from Daiwa. Jairam Nathan: So Justin, you mentioned in your comments about biofuels. If you could just expand on that on what your expectations are medium term. And on construction, I think one of your competitors yesterday talked about bringing back some of the incentives. If you could address that as well. Josh Beal: Thanks, starting on the biofuels question. I mean, certainly, as Josh said, around the world, we've seen the power of increased consumption of biofuels. I mean, Brazil is a great example where more and more of their corn production is going into ethanol, and that's having a positive impact. Looking forward, we're looking at a number of different areas. Certainly in the near term, some of the opportunity around the RVO and what that might mean for 2026 and 2027, keep an eye on that. I mean E15, as that legislation continues to move through Congress as well, we see opportunity there to increase consumption longer term for corn through E15. So a number of different fronts. We see opportunity there. On the -- switching to the competitive side on construction and forestry, I mean certainly, that's been a competitive market. We've seen that over the last 12, 18 months. We've seen competition as of late last quarter or 2, take some price increase, signal some price increase. The timing of that, we're keeping an eye on. Many of our competitors still have a lot of inventory in the field. So as those price increases for 2026 start to manifest themselves in transaction price, there's a bit of a lag there that creates some pressure. But overall, as we said, we feel good about the price increases that we've taken and the opportunity to continue to drive increased realization as we move through the course of the year. Operator: Our last question comes from Evan McCall from BMO Capital Markets. Unknown Analyst: It's Evan on for Joel. Just want to talk about your cadence of earnings for the year. If you could just give some color on that? And if you see growth in Q3 as possible? Or would Q4 be the first possible quarter of growth? Josh Beal: Yes. I mean as we look through the balance of the year for equipment operations as a total, our expectation is to see a bit of growth as we move through the entire of the year. I mean it's less Evan, than we saw in Q1. As we mentioned, in Q1, we lapped some significant underproduction, particularly in construction and forestry last year. So it's an easier comp in Q1, but you'd expect to see kind of mid-single-digit growth for most quarters for the balance of the year. Joshua Jepsen: Yes. I think PPA, if you look at that one specifically, Evan and think about that, you're probably -- the toughest comp is 2Q and then get easier when you get to the back half of the year from a top line perspective. And then you've got kind of the, call it, a pretty equal tariff burden as you move through the year. Josh Beal: It looks like that's the last call we have for the day. Thanks all for taking the time -- taking time with us today. We appreciate your time, and thanks for joining. Have a great day. Operator: That concludes today's conference. Thank you for participating. You may disconnect at this time.
Operator: Good day, and welcome to the Industrial Logistics Properties Trust Fourth Quarter 2025 Financial Results Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Kevin Barry, Senior Director of Investor Relations. Please go ahead. Kevin Barry: Good afternoon, and thank you for joining ILPT's Fourth Quarter 2025 Earnings Call. With me on today's call are President and Chief Executive Officer, Yael Duffy; Chief Financial Officer and Treasurer, Tiffany Sy; and Vice President, Marc Krohn. In just a moment, they will provide details about our business and quarterly results, followed by a question-and-answer session with sell-side analysts. Please note that the recording and retransmission of today's conference call is prohibited without the prior written consent of the company. Also note that today's conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other securities laws, including guidance with respect to certain first quarter 2026 financial measures. These forward-looking statements are based on ILPT's beliefs and expectations as of today, February 19, 2026, and actual results may differ materially from those that we project. The company undertakes no obligation to revise or publicly release the results of any revision of the forward-looking statements made in today's conference call. Additional information concerning factors that could cause those differences is contained in our filings with the Securities and Exchange Commission, which can be accessed from our website, ilptreit.com. Investors are cautioned not to place undue reliance upon any forward-looking statements. In addition, we will be discussing non-GAAP financial measures during this call, including normalized funds from operations or normalized FFO, adjusted EBITDAre net operating income or NOI and cash basis NOI. A reconciliation of these non-GAAP measures to net income is available in our financial results package, which can be found on our website. Lastly, we will be providing guidance on this call, including estimated normalized FFO and adjusted EBITDAre. We are not providing a reconciliation of these non-GAAP measures as part of our guidance because certain information required for such reconciliation is not available without unreasonable efforts or at all. I will now turn the call over to Yael. Yael Duffy: Thank you, Kevin, and good afternoon. We ended the year with robust demand for our high-quality portfolio of Industrial and Logistics Properties, consistent with the trends we saw throughout 2025, delivering one of the strongest quarters in ILPT's history. We achieved record quarterly leasing volume, executing nearly 4 million square feet at a weighted average rent roll-up of 25.7%, marking our fifth consecutive quarter of double-digit rent growth. Normalized FFO grew 113% year-over-year and same-property cash basis NOI increased 5.2%. Our improved performance resulted in ILPT generating a total shareholder return of more than 55% in 2025, ranking us third in the U.S. across all REITs. Additionally, we made notable progress on our strategic priorities including improving our balance sheet and positioning ILPT for future growth. In June, we successfully refinanced $1.2 billion of floating rate debt into fixed rate debt, resulting in annual cash savings of more than $8 million. Shortly thereafter, we announced a material increase in our annualized dividend from $0.04 to $0.20 per share. Turning to our portfolio. As of December 31, 2025, ILPT owned 409 properties across 39 states, totaling approximately 60 million square feet with a weighted average lease term of 7 years. Our well-diversified portfolio is further highlighted by our unique Hawaii footprint consisting of 226 properties totaling 16.7 million square feet. More than 76% of our annualized revenues come from investment-grade rated tenants or from our secure Hawaii land leases. Consolidated occupancy at year-end was 94.5%, representing a 40 basis point increase over from the third quarter. During 2025, we completed 42 new and renewal leases and 2 rent resets totaling 7.3 million square feet. This activity is expected to generate an increase of approximately $10.6 million in annualized rental revenue, of which approximately $5.8 million or 55% has not yet commenced and will contribute to cash flow in 2026 and beyond. Additionally, we continue to expand our relationships with FedEx and Amazon, our 2 largest tenants, which accounted for 2.8 million square feet or 38% of our annual leasing volume. These results showcase our ability to realize mark-to-market rent growth through leasing and continued strong tenant retention. Looking ahead to 2026, we remain focused on our leasing priorities, specifically the 2.2 million square foot land parcel in Hawaii and a 535,000 square foot property in Indianapolis. We believe there is continued opportunity to generate organic cash flow growth and reduce leverage, which has declined from 12.4x to 11.8x over the last year. We are pleased with the strong performance and momentum we are building at ILPT, and we look forward to delivering long-term value for our shareholders. I will now turn the call over to Marc, who will provide further details into our fourth quarter leasing results within our Mainland portfolio as well as our pipeline. Marc Krohn: Thank you, Yael. And good afternoon, everyone. During the fourth quarter, we executed nearly 4 million square feet of leasing at a weighted average lease term of 9.5 years and a roll-up in rent of 25.7%. Given the limited available space within our portfolio, renewals represented the majority of the activity this quarter, reflecting a tenant retention rate of 96%. Notable leases include 3 lease renewals totaling 2.3 million square feet with Amazon, our second largest tenant for a weighted average lease term of 11.5 years and a roll-up in rent of 26.8%, a 1.2 million square foot renewal with Restoration Hardware, our fourth largest tenant for a weighted average lease term of 7.4 years and a roll-up in rent of 29% and 3 lease renewals totaling 152,000 square feet with FedEx, our largest tenant for a weighted average lease term of 4.6 years and a roll-up in rent of 11.7%. These results are a testament to the quality of our portfolio, showcase our commitment to fostering strong tenant relationships and underscore our collaborative and strategic approach to leasing. As we look ahead, 8.8 million square feet or 11.8% of ILPT's total annualized revenue is scheduled to expire by the end of 2027, which provides meaningful embedded rent growth opportunities. Today, our leasing pipeline consists of 6.4 million square feet, of which 3.8 million square feet is in advanced stages of negotiation or lease documentation. Based on current discussions, we expect this activity to generate average rent roll-ups of approximately 20% on the Mainland and 30% in Hawaii. I will now turn the call over to Tiffany to review our financial results. Tiffany Sy: Thank you, Marc. Yesterday, we reported fourth quarter normalized FFO of $18.9 million or $0.29 per share, which was at the high end of our guidance. This represents an increase of 9% on a sequential quarter basis and 113% compared to the same quarter a year ago. Same-property NOI was $88.2 million and same-property cash basis NOI was $85.7 million, both increasing on a year-over-year and sequential quarter basis, driven by strong tenant retention and rent roll-ups. Adjusted EBITDAre totaled $85.1 million. During the quarter, we recognized $14.6 million of earnings from our unconsolidated joint venture, which was primarily driven by an increase in the fair value of the underlying real estate owned by this joint venture. Additionally, we sold 2 vacant unencumbered properties totaling 286,000 square feet for total proceeds of $3.9 million, resulting in a $1.4 million net loss. In January 2026, we paid our manager an incentive fee of $5.7 million incurred for the year ended December 31, 2025. This payment resulted from ILPT outperforming the total return of the industry benchmark over the trailing 3-year measurement period by more than 60%. Turning to our balance sheet. We ended the quarter with cash on hand of $95 million and restricted cash of $88 million. Our total net debt to total assets ratio declined modestly to 69%, and our net debt leverage ratio improved to 11.8x. As of December 31, all of ILPT's debt is either fixed rate or fixed through an interest rate cap with a weighted average interest rate of 5.43%. We continue to monitor capital market conditions as we evaluate opportunities to refinance our consolidated joint ventures $1.4 billion floating rate loan. Including its remaining extension option, this loan does not mature until March 2027. We currently expect to exercise this extension option and purchase a related interest rate cap for approximately $4 million. Looking ahead to the first quarter, we expect interest expense to be $61.5 million, including $57 million of cash interest expense and $4.5 million of noncash amortization of deferred financing fees and interest rate cap costs. We expect normalized FFO to be between $0.29 and $0.31 per share and adjusted EBITDAre between $84 million and $85 million. In summary, ILPT ended 2025 with strong operating momentum, improving financial performance and less exposure to market and interest rate volatility. Our leasing results, stable tenant base and focus on strengthening ILPT's balance sheet has us well positioned for 2026. That concludes our prepared remarks. Operator, please open the line for questions. Operator: [Operator Instructions] The first question today comes from Mitchell Germain with Citizens Bank. Mitch Germain: Tiffany, you were speaking a little too fast for me. What's the noncash interest amount for the year -- for the quarter, I mean? Tiffany Sy: For the quarter -- well, for the forecasted quarter is $4.5 million. Mitch Germain: So $61.5 million starting out next year. Is that the way to think about it? Tiffany Sy: That's correct. Mitch Germain: Okay. Great. I believe there was another asset that was under contract or maybe in discussion for sale. Can you provide an update there? Yael Duffy: Mitch, yes, we had another property under LOI for about $50 million, and the tenant was actually going to be the buyer of that property, and they decided that they prefer to engage in a renewal discussion versus buy the property. So we have a signed LOI for them for a 7-year renewal now that we're negotiating. Mitch Germain: Okay. That's helpful. Marc's talked about expirations for the next 2 years. Are there any known move-outs we need to be aware of? Marc Krohn: Mitch, nothing material in nature at this point. We've got -- we're making really good progress on our '26 expirations and '27 as we kind of move into beyond 2026. So we feel good about kind of where we're landing right now. Mitch Germain: And Marc, while I have you, is there any changes that you're making in the marketing process for the Indi and Hawaii vacancies? I know it's been north of a year that you've been sitting on them now. Have you kind of looked at possibly changing the concession package or some sort of adjustments there? Marc Krohn: Well, I'll touch on Indi, and then I'll let Yael touch on Hawaii. But Indi, we made some really good progress, and we're actually exchanging lease comments right now. So that could be as early as next quarter that we would be in a position to maybe provide some positive news about the lease-up of that space. Yael Duffy: Then as it relates to Hawaii, we're continuing -- we're in discussions with the same tenant that we've talked about the last couple of quarters. As I think you know, it's just the size of that parcel and the complexity of it just provides some timing delays, but we're hopeful we'll be able to be able to lease that one. But in terms of concessions, there really -- for that site specifically, there really isn't anything we can do just given it's a ground lease. So it's just finding kind of that unicorn that wants to take such a big parcel. Mitch Germain: Got you. I guess last one for me, maybe just Tiffany, like bridge me from -- I think it was around $64 million or $63 million in interest expense in 4Q to the forecast that you just laid out for 1Q? How do we get there? Tiffany Sy: That's really a number of days. There were 92 days in this quarter, and there's only 90 in the next quarter. Mitch Germain: So does that suggest that it goes up again in 2Q? Tiffany Sy: Well, if you -- no, it doesn't because if you consider what we think we would pay for a cap, $4 million, we'll have the impact of that in Q2, which should lower interest expense. Operator: Your next question comes from John Massocca with B. Riley. John Massocca: So maybe looking at the same-store NOI growth in the quarter, a little higher versus kind of your past 3 quarters. Was there anything specific that drove that beyond kind of leasing and addressing some of the vacancy in the Mainland portfolio? Just curious if there's any kind of cash rent coming online or anything like that, that may have caused that to be elevated relative to the last 3 quarters of the year? Yael Duffy: So I mean, Tiffany might want to expand, but I think really the reasoning is we do a lot of our leases ahead of time. So it could be 12 to 18 months ahead of a natural lease expiration. So it does take a little while for the cash impact of the new leases to kind of hit. And so I think that's the majority of the increase. Tiffany Sy: Leasing. John Massocca: Okay. And I mean, would that be something then as some of those new leases keep hitting that this level of same-store NOI growth is sustainable long term? Or is it really going to be a product of just addressing some of the maturing leases that are still left in '26 and '27? Yael Duffy: So I'll give you as an example. This quarter, we did -- I think the impact of that -- of our leasing was about $10 million of cash growth. And most of that hasn't been -- we haven't seen that yet this quarter. A lot of that, I mean, I would say at least 50% is going to hit probably in the back half of '26 and into '27 because that's when the leases we renewed this quarter are going to actually go into effect, so later. So I will say -- I would say that it's sustainable to continue to see that growth. John Massocca: Okay. And then outside of the transactions closed in 4Q and the transaction that was potentially going to be disposition but became a lease renewal. What's the outlook for disposition activity for the remainder of 2026? Yael Duffy: I don't see it being a huge part of our business plan, at least in the near term, but we do get a lot of inbounds and sometimes they appear really good, and we kind of investigate them further. So I think it will be -- any sales will really be opportunistic, but not a material part of our business plan. John Massocca: Okay. And then with regards to the Mountain JV loan, it sounds like you're going to utilize the extension. But what's kind of the thought process around refinancing? How are you think about timing there? Is there something you want to see in the markets or something else kind of structurally with the JV you want to see before looking to address that refi? Just kind of curious how we should think about that. Tiffany Sy: We're actively evaluating refinance opportunities. The good thing is with the extension option that we have, it gives us flexibility to really not have to rush into anything because it's no extra fees. The only thing we have to do is purchase the interest rate cap, which we can later sell when we refinance -- if we refinance before the maturity date. John Massocca: So I guess is there -- I mean, is it just you want to see what kind of macro environment shapes out in terms of where we are with kind of base interest rates? Or is there something within the portfolio or within the JV you're kind of looking to see before you go out there to kind of maximize the best pricing? Tiffany Sy: No, I wouldn't say that. I think we're currently looking at macroeconomic factors and what's available to us. And these types of things do take some time, and we are aware of that. Yael Duffy: Yes. And I would just add, John, I think the portfolio, it's 100% leased. It has -- we've been seeing really good tenant retention. Even if we get a vacancy, we're able to lease it up. So from an operating perspective, it's -- there's nothing to do to put it in a position to refinance. John Massocca: Okay. And then lastly, I mean, how do some of your kind of core markets look, particularly on the Mainland in terms of kind of competing supply -- is that at all kind of a near-term concern? Or is that something that given where interest rates moved in the last couple of years and et cetera, that that's not really a big issue going forward? Yael Duffy: We haven't seen it be a big issue. I think the construction has slowed, and I think the vacancy increase from a macro perspective has just been new supply coming to the market. But I think tenants are realizing that it costs money to relocate and is also disruptive to their operations. So I think we've had some tenants that have looked into potential relocations and then have come back and wanted to do a lease renewals. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Yael Duffy, President and Chief Executive Officer, for any closing remarks. Yael Duffy: Thank you for joining today's call, and we look forward to meeting with many of you at industry conferences this spring. Please reach out to Investor Relations if you're interested in scheduling a meeting with ILPT. Operator, that concludes our call. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning, and thank you for joining us today. This morning, Donegal Group Inc. issued its fourth quarter and full year 2025 earnings release, outlining its results. The release and a supplemental investor presentation are available in the Investor Relations section of Donegal Group Inc.’s website at www.donegalgroup.com. Please be advised that today's conference was prerecorded and all participants are in listen-only mode. Speaking today will be President and Chief Executive Officer Kevin Burke, Chief Financial Officer Jeffrey D. Miller, Chief Underwriting Officer Jeffrey T. Hay, Chief Operating Officer W. Dan DeLamater, and Chief Investment Officer V. Anthony Viozzi. Please be aware that statements made during this call that are not historical facts are forward-looking statements and necessarily involve risks and uncertainties that could cause actual results to vary materially. These factors can be found in Donegal Group Inc.’s filings with the Securities and Exchange Commission including its Annual Report on Form 10-Ks and Quarterly Reports on Form 10-Q. The company disclaims any obligation to update or publicly announce the results of any revisions that they may make to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements. With that, it is my pleasure to turn it over to Mr. Kevin Burke. Kevin? Kevin Burke: Thank you, and welcome, everyone, to our fourth quarter earnings webcast. We are pleased to provide an update today on our quarterly and full year operating results, along with key accomplishments in 2025, and areas of focus for 2026. We ended 2025 with a solid fourth quarter. The combined ratio of 96.3% reflected excellent underwriting profitability despite the impact of lower net premiums earned and a few large claims that prevented us from matching the record quarterly net income we achieved in 2024. We enjoyed a continuation of relatively favorable weather in our operating regions for the fourth quarter, resulting in a weather loss ratio that was lower than the fourth quarter average for the past five years. Similar to the first nine months of 2025, our core loss ratio for the fourth quarter remained below our target level, driven by excellent underlying results within our personal lines segment. For the full year of 2025, net income of $79,300,000 represents the highest amount we have achieved. While we celebrate these results, we also recognize the need for quality premium growth in order to achieve economies of scale, and sustain excellent financial performance over the long term. Jeffrey T. Hay and W. Dan DeLamater will provide further details about our plans to increase levels of premium growth. Our 2026 business plan includes strategies for engagement with our independent agents, and several initiatives that we expect will generate higher levels of new business submissions, particularly in commercial lines where we are actively pursuing quality mid-market and small business accounts that meet our underwriting criteria. As we shared last quarter, we completed all of the development for the multiyear systems transformation project that we started back in 2018 to replace our legacy systems. We are continuing to follow a phased schedule for the automated conversion of all remaining legacy policies that will be fully completed by mid-2027. That process is on track and progressing well, with minimal disruption to our customers, or the impact to policy retention levels to date. The next step in our technology transformation is the migration of our Guidewire claims, billing, policy administration applications from on-premises systems to cloud-based versions of those applications. We performed a detailed assessment that identified numerous benefits of migrating these applications to the cloud, and we have developed a very comprehensive plan to migrate our claims and billing in early 2027. Migrating to Guidewire Cloud will allow us to leverage the substantial investments of Guidewire and other vendors in the development and seamless deployment of GenAI tools and applications within our core business applications. Upon completion of this initiative, the technology modernization journey that we have been on since 2018 will be fully complete and we will have access to the evolving operating platform that will support our current and future needs. We are excited to move forward and thank all of the Donegal team members and our vendor partners who have labored tirelessly for many years to put us in this very favorable position. At this point, I will turn the call over to Jeffrey D. Miller for a review of our financial results for the quarter. Jeffrey D. Miller: Thanks, Kevin. I will begin my comments with a discussion of the fourth quarter results compared to 2024, and then provide highlights of the results for the full year compared to 2024. For the 2025 quarter, net premiums earned of $226,900,000 decreased 4.1%. Net premiums written decreased by 3.4% following similar trend lines we described throughout 2025, as lower new business volume was offset partially by premium rate increases and solid retention levels. A 12.7% decrease in personal lines net premiums written was offset partially by 3.2% growth in commercial lines. Rate increases achieved during 2025 averaged 5.9% in total and 6.6% excluding workers’ compensation. The combined ratio was 96.3% for the 2025 quarter compared to 92.9% for the prior-year quarter. The increase reflected a 1.3 percentage point increase in the loss ratio and a 2.1 percentage point increase in the expense ratio. We monitor the loss ratio impact of several components. Starting with the core loss ratio, which excludes the impact of weather-related losses, large fire losses, and net development of reserves for losses incurred in prior accident years, we experienced a two percentage point improvement in the core loss ratio. There was a 2.7 percentage point decrease in the commercial lines core loss ratio and a 1.6 percentage point decrease in the personal lines core loss ratio. Weather-related losses totaled $8,200,000 or 3.6 percentage points of the loss ratio for the 2025 quarter, increasing modestly from $7,700,000 or 3.3 percentage points for the prior-year quarter. The quarterly weather claim impact was lower than the previous five-year average for the fourth quarter of 5.2 percentage points. Our insurance subsidiaries did not incur losses from any catastrophic weather events in the 2025 or 2024 quarters. In terms of weather impact by segment, commercial property losses from severe weather totaled $2,400,000 and contributed 4.4 percentage points to the quarterly loss ratio for the commercial multiperil line of business. For personal lines, the weather impact to the homeowners line was $4,600,000 or 14.6 percentage points of the homeowners’ loss ratio. Large fire losses, which we define as over $50,000 in damages, contributed 6.2 percentage points to the loss ratio for the 2025 quarter compared to 4.0 percentage points for the prior-year quarter. We experienced increases in the severity of both commercial and homeowners fire losses during the quarter. Our insurance subsidiaries experienced $2,200,000 of net development of reserves for losses incurred in prior accident years, adding one percentage point to the loss ratio for the 2025 quarter compared to virtually no impact in the prior-year quarter. Line-of-business detail for the 2025 quarter primarily included unfavorable development of $3,900,000 for other commercial, which is primarily umbrella liability, and $2,300,000 for commercial auto, primarily in accident years 2022 and 2024. That was largely offset by favorable development of $1,600,000 for personal auto, $1,400,000 for commercial multiperil, and $1,200,000 for workers’ compensation. The expense ratio of 34.9% for the 2025 quarter increased compared to 32.8% for the prior-year quarter. The increase was primarily related to the direction of year-end adjustments to our estimates for underwriting-based agency incentive costs, as well as the impact of the decline in net premiums earned upon which the expense ratio is based. W. Dan DeLamater will provide more details about our ongoing focus on expense management later in the call. Net investment income increased 17.5% to $14,200,000 for the 2025 quarter due primarily to higher average invested assets and an increase in average investment yield. V. Anthony Viozzi will provide further details about our favorable investment performance later in the call. We achieved net income of $17,200,000 for the 2025 quarter, compared to $24,000,000 for the 2024 quarter. The decrease was primarily due to lower net premiums earned and higher expenses incurred. Turning to the full year of 2025 results. The loss ratio of 61.3% compared favorably to 64.5% for 2024, with a 2.6 percentage point improvement in the core loss ratio. That improvement primarily reflected a 7.2 percentage point decrease in the personal lines core loss ratio as the commercial lines core loss ratio for 2025 was in line with 2024. Weather-related losses for the full year of 2025 were $56,900,000 or 6.2 percentage points of the loss ratio, comparing favorably to $67,700,000 or 7.2 percentage points of the loss ratio for the full year of 2024. Weather impact for 2025 was one percentage point lower than the previous five-year average of 7.2 percentage points of the full-year loss ratio. Large fire losses contributed 4.8 percentage points to the 2025 loss ratio in line with 4.9 percentage points for 2024. Net favorable development of reserves for losses incurred in prior accident years reduced the 2025 loss ratio by 1.1 percentage points, slightly lower than the 1.6 percentage point reduction in 2024. Details by line of business include favorable development of $7,900,000 in commercial multiperil, $4,300,000 in personal auto, $2,200,000 for commercial auto, $1,500,000 for homeowners, $1,200,000 for personal umbrella, and $1,000,000 for workers’ comp. That favorable development was partially offset by $7,900,000 of unfavorable development in commercial umbrella, netting to a favorable development in total of $10,300,000. The favorable development related primarily to accident years 2021, 2023, and 2024 with unfavorable development for reserves in accident years 2020 and 2022 that resulted from higher than expected severity for a relatively small number of casualty claims. The expense ratio was 33.8% for the full year of 2025, nearly unchanged from 33.7% for the full year of 2024. The combined ratio was 95.4% for 2025, comparing favorably to 98.6% for 2024. As Kevin highlighted earlier, the favorable underwriting results coupled with a 17.2% increase in net investment income contributed to a record $79,300,000 in net income for 2025, increasing 56% compared to net income of $50,900,000 for 2024. Before I close, I will provide a brief summary of the renewal of our reinsurance program for 2026. We made no changes to the coverage limits or retention levels in place for 2025 under our third-party reinsurance program, or the intercompany reinsurance agreements between our insurance subsidiaries and Donegal Mutual due primarily to a decrease in property exposures during 2025 and lower property reinsurance rates. We project a $3,000,000 decrease in reinsurance cost for 2026 compared to 2025. With that, I will now turn the call over to Jeffrey T. Hay to provide more details about our commercial and personal lines segment results. Thank you, Jeff. We are pleased to report favorable bottom-line Jeffrey T. Hay: results this quarter and for the full year of 2025. And I continue to be confident that this improvement is not the product of random volatility in our results, but a direct outcome of the strategies and diligent action plans we have put in place over several years to transform our underwriting discipline. Within our commercial lines of business, net premiums written increased modestly by 3.2 percentage points for the 2025 quarter, and by 2.9 percentage points for the full year as the market has selectively softened for new business we continue to stand firm, maintaining underwriting and pricing discipline and executing on targeted geographic and class strategies. With that, I am pleased to report that in the fourth quarter, we experienced continued success in new business writings and strong retention on desired business. The commercial lines new business aligns with our targeted geographic and class strategies that I have mentioned in previous calls, with the majority of new business written in our highly targeted classes with higher expected profitability. Our overall commercial rate and exposure increase excluding workers’ compensation remained steady at 9.7% for the fourth quarter and at 10.6% for the full year. We are generally rate adequate across our lines of business. As we strive to retain quality accounts, we also continue to emphasize driving rate in areas where the intersections of class, line of business, and geography continue to present challenges. Now shifting to commercial lines loss trends in the fourth quarter, we continue to experience upward pressure on liability severity for both commercial auto liability and general liability coverages within our commercial multiperil line of business. Overall, property severity and frequency trend lines across all coverages remain relatively favorable. Fourth quarter 2025 impact from large fires increased nearly six percentage points on the commercial multiperil loss ratio when compared to the same quarter in 2024. This increase was driven by a large increase in the severity of large fires partially offset by a slight decrease in frequency. For the full year of 2025, large commercial fire losses decreased by $3,500,000 for a 2.5 percentage point decrease in the commercial multiperil loss ratio. We experienced relative consistency in the impact of weather-related losses, with the change representing less than a percentage point of the commercial lines loss ratio in the fourth quarter and full year compared to the respective periods in 2024. Commercial lines prior-year reserve development was modestly adverse overall, increasing the loss ratio by 2.6 percentage points for the fourth quarter, driven by umbrella liability claim development in accident years 2022 through 2024. Reserve development was modestly favorable overall for the full year of 2025, reducing the commercial lines loss ratio by 0.6 percentage points. We are pleased to report that our commercial lines core loss ratio, which excludes the impact of large fires, weather, and prior-year reserve development, decreased by 2.7 percentage points in the 2025 quarter compared to the same quarter in 2024. Now turning to our personal lines segment, for the fourth quarter, the decline in personal lines net premiums written improved slightly to minus 12.7% from minus 15.9% in the third quarter of 2025 and minus 13.6% for the full year of 2025. New business written in the fourth quarter totaled $1,300,000, an increase of 10.2 percentage points over the third quarter. New business written for the month of December was up 11.3 percentage points from December 2024. We continue to remove new business restrictions to stabilize premiums in the segment, exercising caution to maintain the rate adequacy we have generally achieved across our footprint. I am pleased to report that our real retention rate for fourth quarter 2025 increased to a very healthy 88.7%. With the intentional nonrenewal of less profitable business I have mentioned in prior calls now essentially complete. Rate and exposure slowed to plus 2.9% in the fourth quarter, driven by the achievement of rate adequacy across all lines, and came in at plus 3.6% for the full year of 2025. Moving to personal lines loss trends, within the personal auto line of business, the loss ratio decreased in the fourth quarter by 7.6 percentage points from the 2024 quarter. This decrease was driven by a point improvement in the core loss ratio coupled with 3.1 percentage points of favorable prior-year development in the quarter, compared to 2.7 points of unfavorable prior-year development in the 2024 quarter. Frequency trends in personal auto remained in check, and physical damage severity continued to show signs of improvement, while bodily injury severity continued to trend moderately upward. The homeowners loss ratio saw a deterioration of 12.1 percentage points for the 2025 quarter compared to fourth quarter 2024. This increase was attributable to 4.1 percentage points higher weather loss impact and 5.3 points of higher large fire experience, with relatively consistent core loss ratio experience. Overall, homeowners frequency trends in the fourth quarter were favorable in property with some pressure on nonweather severity driven by large fire experience. For the personal lines segment in total, we are pleased with the excellent profitability we achieved in 2025, as reflected by the statutory combined ratio of 88.5% for the fourth quarter and 89.3% for the full year. In summary, we have made significant progress during 2025 in the execution of our state-specific strategies and we are pleased with the substantial improvement in our underwriting results. I will now turn the call over to W. Dan DeLamater for an update on our operational strategies and developments and more details about our positive outlook for 2026. Kevin Burke: Thank you, Jeff. W. Dan DeLamater: I will start my discussion of our operational performance for 2025 by providing an update on the expense management initiatives we have discussed in previous calls. I will then touch briefly on the high-level results of our business planning process for 2026 and our alignment on several tangible focus areas for the year ahead. We operated at an expense ratio of 34.9% for the 2025 quarter. Compared to our expense ratio of 32.8% for the 2024 quarter, the increase was a break from the downward trajectory we achieved over the past five quarters. This increase in expense ratio was not related to spending beyond our budget. In fact, our team achieved targeted spending reductions for 2025. One of the primary factors that elevated our expense ratio for the fourth quarter was a $3,100,000 increase in performance-based incentives for our agents, mostly related to higher amounts incurred for agency profit sharing. While this might seem counterintuitive considering that our loss ratio was less favorable for the 2025 quarter compared to the prior-year period, agency profit-sharing compensation is determined by individual agency experience, which resulted in a disproportionate comparative outcome for the quarter. Another primary driver of the increase in our fourth quarter expense ratio was lower premium volume that resulted from writing less new business and needing lower overall rate increases to rate adequacy than originally planned for the year. Despite that top-line miss versus plan, we remain pleased with our organizational focus on budget discipline and our ongoing commitment to realizing efficiencies from our recent systems and process modernization efforts. For the full year of 2025, we performed at a 33.8% expense ratio, compared to 33.7% for the full year of 2024, with the reduction in net earned premiums representing the overriding factor behind the slight uptick in that annual expense metric. As we look forward to 2026, we are operating from a position of strength, in that the efforts of our team have generated outstanding results through rate achievement, underwriting focus, expense discipline, and investment portfolio optimization. We are pleased to report six consecutive quarters of underwriting profitability combined with investment strategies to increase our returns that were opportunistic yet consistent with our conservative philosophy. These results will allow us to be selectively aggressive in our pursuit of profitable growth in the year ahead while being careful not to undermine the hard work of our team that led us to this favorable position. We have entered 2026 intentionally focused on our strategic plan and priorities. Our regional teams have worked closely with independent agents across the country to build tangible and actionable new business and policy retention plans for 2026. This focus on product mix, rate strategy, marketing strategy, and growth objectives in every state and line of business has our teams aligned and ready to achieve our bottom-line and top-line objectives in the year ahead. We have excellent insight into our performance versus plan at a granular level thanks to our technical data and enterprise analytics teams. These teams distill and disseminate vast amounts of data to our business units, keeping them informed and positioning them to efficiently analyze results and take responsive action when required. These data-driven insights empower us to deepen our relationship and engagement with our independent agency partners. As a reminder, we distribute our products exclusively through the Independent Agency Channel, and we consider the relationship with our 2,000 independents across our 21-state footprint to be a core strength. As I close my remarks, I will reiterate we are proud to operate from a position of bottom-line strength. Jeff shared that we are pleased to achieve rate adequacy in 2025. Ongoing rate achievement remains vitally important to ensure that we maintain pace with loss cost trends. We continue to engage our marketing teams, our independent agents, and our analytics and underwriting teams to emphasize pricing discipline as we seek to identify profitable new business opportunities in states and classes that match our objectives. With that, I will turn it over to V. Anthony Viozzi for an investment update. Tony? Jeffrey D. Miller: Thanks, Dan. Throughout 2025, our investing approach focused on V. Anthony Viozzi: strategically increasing our bond portfolio yield and optimizing our portfolio mix. We were able to take advantage of higher market rates and move into more favorable asset classes that we expect will continue to perform well in the future. We had a strong 2025 as net investment income was up 17.5% resulting in $14,200,000 versus $12,100,000 for the 2024 quarter. The strong quarterly performance coupled with actions taken in the prior quarters of 2025 allowed us to achieve a 17.2% increase to full year 2025 net investment income of $52,600,000 compared to $44,900,000 for 2024. The average tax-equivalent yield for the 2025 quarter increased to 3.95%, compared to 3.58% for the 2024 quarter. In addition to actively managing the bond portfolio during the first nine months of 2025, we accelerated yield enhancement through strategic bond swaps in the fourth quarter. Proceeds from bonds that matured, were called, or were sold as part of swap strategies during the quarter totaled $155,000,000, yielding an average of 3.74%. Those funds were reinvested at an average yield of 5.17%, with the 140 basis point improvement projected to boost annual investment income by $2,200,000 going forward. We intentionally extended duration to 5.5 years to lock in what we viewed to be attractive yields for a longer term horizon. We are now investing new money at yields north of 5% and we anticipate the ongoing favorable market environment will provide modest additional bond swap opportunities in the near term. The net investment loss of $1,700,000 for the 2025 quarter reflected the losses we intentionally realized on bond sales, offset partially by a gain in the market value of our equity portfolio during the quarter. For the full year of 2025, we realized a net investment gain of $600,000 compared to $5,000,000 for the full year of 2024. We attribute the year-over-year change to the losses we realized on strategic bond sales in 2025 in order to boost investment income in future periods by amounts that will far exceed the one-time realized losses. At 12/31/2025, our book value increased to $17.33, which was a 12.8% improvement over $15.36 as of 12/31/2024. The increase was driven primarily by net income and an increase in the market value of our available-for-sale bond portfolio, partially offset by cash dividends declared during the year. In closing, we are projecting about $100,000,000 in portfolio cash flow over the next twelve months with a current average yield of 4.4%. Our current reinvestment rate is around 5.25%, providing opportunity for further enhancement in investment income. We continue to optimize our portfolio mix as market opportunities arise. To that end, we are currently emphasizing tax-exempt bonds, mortgage-backed securities, and non-agency structured notes where we find rates most attractive. With that, I will now turn it back to Kevin for closing remarks. Kevin Burke: Thank you, Tony. As we reflect on our accomplishments in 2025 and consider the challenges ahead in 2026, I want to express my appreciation for the devoted team of Donegal professionals who are fully engaged in executing our strategies and fulfilling our mission. I also want to recognize the dedication of our independent agency partners, who reciprocate our loyal commitment to them by submitting quality new business to us and entrusting us to serve the insurance needs of their customers. We look forward to continuing to enhance those relationships through increased engagement in the year ahead. And finally, I am grateful for the ongoing support of our stockholders, and we look forward to providing further updates to you in future calls. Thank you. Operator: Thank you, Kevin. While we requested and received questions in advance of today's call, we have worked answers to these questions into our prepared remarks. We will now open for questions. If there are any additional questions, please feel free to reach out to us. This now concludes the Donegal Group Inc. fourth quarter 2025 earnings webcast. You may now disconnect.
Operator: Greetings, and welcome to Gladstone Commercial Corporation Year-End and Fourth Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, David Gladstone, Chief Executive Officer. Please go ahead. David Gladstone: Well, thank you for that nice introduction, and thanks to all of you who called in today to hear from us. We always enjoy these times with you and on the phone and wish there were more times to talk about it. Now we'll hear from Catherine Gerkis first, our Director of Investor Relations, to provide a brief disclosure regarding certain regulatory matters. Catherine, go ahead. Catherine Gerkis: Thanks, David. Good morning, everyone. Today's call may include forward-looking statements, which are based on management's estimates, assumptions and projections. There are no guarantees of future performance, and actual results may differ materially from those expressed or implied in these statements due to various uncertainties, including the risk factors set forth in our SEC filings, which you can find on the Investors page of our website, gladstonecommercial.com. We assume no obligation to update any of these statements unless required by law. Please visit our website for a copy of our Form 10-K and earnings press release for more detailed information. You can also sign up for our e-mail notification service and find information on how to contact our Investor Relations department. We are also on X, @GladstoneComps as well as Facebook and LinkedIn. Keyword for both is, The Gladstone Companies. Today, we'll discuss FFO, which is funds from operations, a non-GAAP accounting term defined as net income, excluding the gains or losses from the sale of real estate and any impairment losses on property plus depreciation and amortization of real estate assets. We may also discuss core FFO, which is generally FFO adjusted for certain other nonrecurring revenues and expenses. We believe these metrics can be a better indication of our operating results and allow better comparability of our period-over-period performance. Now let's turn the presentation to Buzz Cooper, Gladstone Commercial's President. Arthur Cooper: Thank you, Catherine, and thank you all for joining today's call. We are pleased to update you on our results for the year ended December 31, 2025, our current portfolio and our 2026 outlook. 2025 was a productive year for our portfolio. During the year, we acquired over $206 million of industrial assets across 10 facilities totaling 1.6 million square feet with a weighted average cap rate of 8.88%. At closing, these properties had a weighted average lease term of 15.9 years. We increased portfolio industrial concentration as a percent of annualized straight-line rent to 69% as of December 31, 2025, as compared to 16 -- excuse me, 63% at the same date in 2024. We invested $21 million in existing portfolio towards renewing or extending 1.2 million square feet of leases at 18 of our properties. These leases resulted in a $2.1 million net increase in GAAP rent. We sold 2 properties consisting of 1 office and 1 industrial property and executed an agreement to sell another industrial property in the coming months. We amended, extended and upsized our syndicated bank credit facility from $505 million to $600 million. We closed on an $85 million private placement at 5.99% senior unsecured notes due December 15, 2030. As we have discussed in the past, we remain steadfast in several key focus areas: growing our industrial concentration, adding value in our existing portfolio through renewals, extensions and strategic capital investments and disposing of noncore assets and strategically redeploying those proceeds into quality industrial assets. By executing on these focus areas, we expect to achieve increased portfolio WALT, strong occupancy rates, streamline rental growth across the portfolio, continue to delever and decrease the cost of capital. Our asset management team continues to effectively manage the existing portfolio as evidenced by 100% collection of cash-based rents in the period, and occupancy of 99.1% across the portfolio, average remaining lease term of 7.3 years and a 4% same-store lease revenue increase compared to 2024. Each of these milestones is a testament to the mission-critical nature of the assets in our portfolio, the quality of tenant credits in our portfolio and our underwriting capabilities. We are grateful to our lenders for their continued trust and partnership with us. These long-standing relationships are critical to our continued investment in the current portfolio and the addition of mission-critical industrial real estate going forward. In short, our relationships with our tenants, the capital market community and our financial capacity have allowed us to execute upon our focus areas at a high level. Looking ahead to 2026, we remain focused on evaluating opportunities to acquire higher-quality industrial assets that are mission-critical to tenants and industries and accretive to our long-term strategy. As I mentioned a moment ago, we are working toward our near-term goal of 70% industrial annualized straight-line rent. We will look to achieve this goal and push past it in the coming year. While we do not have a time line for the disposition of all of our office properties, we are keenly focused on growing the industrial concentration of our portfolio. At the same time, we will continue to work with our existing tenants to extend leases, capture mark-to-market opportunities and support tenant growth through targeted expansion, capital improvement initiatives and build-to-suit opportunities. While we remain aware of the challenging office environment, we will be strategic and intentional in evaluating our specific portfolio, seeking opportune times to dispose of office and noncore industrial as part of our continued capital recycling efforts. With the availability via our increased line of credit, access to the private placement bond market, cash on hand and the ATM, we are positioned to deploy capital into accretive industrial acquisitions and portfolio improvements. In closing, 2025 was a great year for the company, and the team is focused on continuing their efforts as we head into 2026. I will now turn the call over to Gary to review our financial results for the quarter and liquidity position. Gary? Gary Gerson: Thank you, Buzz, and good morning, everyone. I'll start my remarks regarding our financial results this morning by reviewing our operating results for the fourth quarter of 2025. All per share numbers referenced are based on fully diluted weighted average common shares. FFO and core FFO per share available to common stockholders were both $0.37 per share, respectively, for the quarter. FFO and core FFO available to common stockholders during the fourth quarter of 2024 were both $0.35, respectively. FFO and core FFO for the 12 months ended December 31, 2025, were $1.38 and $1.40 per share, respectively. FFO and core FFO for the same period in 2024 were $1.41 and $1.42 per share, respectively. Same-store lease revenue increased by 4% in the 12 months ended December 31, 2025, over the same period in 2024 due to an increase in recovery revenue from property operating expenses and an increase in rental rates from leasing activity subsequent to the year ended December 31, 2024, partially offset by a settlement received at one of our properties related to deferred maintenance in the prior period. Our fourth quarter results reflected total operating revenues of $43.5 million with operating expenses of $26.4 million as compared to operating revenues of $37.4 million and operating expenses of $25 million for the same period in 2024. Operating revenues were higher in 2025 due to an increased portfolio size, increased recovery revenues and higher rental rates. Expenses were higher in the fourth quarter of 2025 versus 2024, mainly due to the higher depreciation from a larger portfolio, partially offset by an impairment charge and crediting back of all the incentive fee in the fourth quarter of 2024. At the end of the quarter, we had one industrial property and a portion of a land parcel held for sale. During the quarter, we extended and upsized our bank credit facility to $400 million in term loans and a $200 million revolver. The revolving credit facility maturity was extended to October 2029 and the maturity dates for Term Loan A and Term Loan B components were extended until October 2029 and February 2030, respectively. The amended credit facility also provides the company with options to extend the maturity dates of the revolving line of credit and Term Loan C components until October 2030 and February 2029, respectively. The transaction led by KeyBanc as joint lead arranger and book manager as well as Bank of America, the Huntington National Bank, Fifth Third Bank National Association as joint lead arrangers, Synovus Bank and S&T also renewed their commitments. In addition, PNC Bank and Webster Bank both joined as lenders. In Q4, we also issued $85 million of 5.99% senior secured notes due December 30, 2030, in the private placement market. Investors included Nuveen and New York Life. This is our second issuance in this market, which allows us to decrease our cost of capital and simplify our balance sheet. As of today, we have $27.6 million of loan maturities in 2026. As of the end of the quarter, we had $37.4 million in revolver borrowings outstanding. Looking at our debt profile. As of December 31, 48% was fixed, 47% was hedged floating rate and 5% was floating rate, which is the amount drawn on our revolving credit facility. As of December 31, our effective average SOFR was 3.87%. Our outstanding bank term loans are all hedged to maturity with interest rate swaps. We continue to monitor interest rates closely and update our hedging strategy as needed. During the 12 months ended December 31, 2025, we sold 4.4 million shares of common stock under our ATM program, raising net proceeds of $61 million. We continue to manage our equity activity to ensure that we have sufficient liquidity for upcoming capital requirements and new acquisitions. Taking in the year as a whole, we increased net assets from $1.1 billion to $1.25 billion, which was the result of the net portfolio acquisitions and revenue-generating portfolio CapEx during the year. As of today, we have approximately $4 million in cash and $60 million of availability under our line of credit. We encourage you to review our quarterly financial supplement posted on our website, which provides more detailed financial and portfolio information for the quarter. Our common stock dividend is $0.30 per share per quarter or $1.20 per year. And now I'll turn the program back to David. David Gladstone: Thank you, Gary. That was a good report, and it was a good one from Buzz and Catherine did her part as well. The team has performed very well overall in a very nice quarter indeed that we have for our shareholders. As you've heard today, in summary, during the fourth quarter, we amended and extended our bank credit facility, which is now $600 million. We issued $85 million of 5.99% senior unsecured notes in the private placement marketplace. For 2025, we acquired $206 million of industrial properties that we are gradually becoming a fully industrial real estate investment trust. We increased our industrial percentage on annual straight-line rent to 69%. And here's one you always love to hear, increased occupancy to 99.1%. That is we've got tenants, almost 100% of our stuff is leased out. Gladstone Commercial's team is growing the real estate that we own at a good pace, and the team is doing a great job managing the properties we own, especially during these challenging times. We don't have a lot of industrial property that's somehow related to the Internet or to the M&A that's going on the stock, but we certainly hope to hit some of those big numbers that are out there. My team of strong professionals continues to pursue potential quality properties on the list of acquisitions they are reviewing. We've got a good strong list of acquisitions that we're looking through. Okay. I'm going to stop here and let the operator come in and help us listen to some of the questions that people always ask us. Operator: [Operator Instructions] Today's first question is coming from Dave Storms of Stonegate. David Storms: I wanted to start with the occupancy. It looks like occupancy remained the same, though you did lose a tenant. I was just hoping to get a little more color on what happened there. Arthur Cooper: David, nice to talk with you. Relative to the occupancy, we're at an all-time high, if you will, since 2019. We renewed a tenant and have increased our occupancy. And we -- obviously, the portfolio management team has done a great job relative to that. We see continued maintaining that occupancy. Certainly, there'll be some fluctuations as we add property or dispose of property. David Storms: Understood. I appreciate that. And then one more. I know you mentioned that you're looking to get the portfolio up to 70% industrial. You don't have a time line for that. Just curious as to what you're seeing in the transaction environment and if anything has changed now that we have a little more clarity about the incoming Fed share and the potential plans to reduce the Fed's balance sheet. Arthur Cooper: It's a very competitive market. And almost every day, you see somebody else coming into the space of triple-net. We play in the middle market and our value-add is underwriting middle market credits. We're not playing in the high range, if you will, both size as well as A-rated credits. So we are working hard at adding good properties, good tenancy focused upon the quality of the tenant and quality of the real estate, not just going for the highest return. So we're going to be very discerning as it relates to what we're going to put on our books and what we are going to chase. Well, David, if I could, relative to just thinking through it on your question, the first question, we did have a tenant with a fee we received that may be answering your question relative to the payment as well as the effect on occupancy at that point, but we did have a fee received. Operator: Our next question is coming from John Massocca of B. Riley Securities. John Massocca: Sorry if I missed this maybe earlier in the call, what's the size of the pipeline today roughly? And I guess if you think about maybe cap rates in the pipeline or how cap rates are trending, where do those stand today? And maybe where you think they're going to trend over the course of the year? Arthur Cooper: Thank you, John. And we are continually looking at somewhere in the neighborhood of $300 million in transactions. Obviously, we would love to do them all. We can't do them all. We won't do them all. Cap rates generally from where we are competing are at a floor of 7.5%. And certainly, for us, we look between 7.5% and 8.5% is realistic. But the competition is great. One of our -- again, our value add, as we always say, is our underwriting capability, plus we're able to purchase all cash. So we are also competitive in the market. It was a little slow coming out of the gate at the end of 2025 as it relates to opportunities, but we do see that picking up currently. John Massocca: And maybe kind of cap rate ranges is roughly where you're kind of seeing those today for your target assets? Arthur Cooper: Going in 7.5% and up with an average cap rate north of 9%. John Massocca: Okay. And then in terms of the in-place portfolio, how are you looking at kind of lease maturities over the course of the year? I know you have a relatively sizable one at the very end of the year, but anything else that's kind of noteworthy before then or even maybe in early 2027. Arthur Cooper: Sure. Happy to address that. And as mentioned previously, all the property management team, portfolio management has done a great job. We've been in contact with every tenancy that's coming due in the next 2 years. We have 8 in 2026, half for office, half for industrial. Of that, it represents a total of approximately 8% of straight-line rent. But in our discussions with the tenancy and as we have projected out with some agreements in place relative to waiting just having a signed document or their ability within their lease to just automatically have a right to exercise, we are concentrating on 2 out of those 8 because 6 of them have been, in all honesty, we believe very, very much in the barn. But we have certainly our asset in Austin, where GM is the tenant, which represents approximately 3% of our straight-line rent. It does lease mature at the end of the year. The team is in place and has -- creating a plan that we are going to work relative to leasing, of which we had 2 tours here in the coming week of approximately 50,000 square foot each. But one way or the other, that property will be taken care of. And the other is an industrial -- excuse me, office building of which we do have 2 tours as well. That lease matures at the end of 2026 and 2 full building users are touring in the next 2 weeks. As it relates to 2027, we have 14. Again, half are office, half are industrial. Of those, we are very confident that all but 3 are, for lack of a better word, perhaps not -- I don't want to say not going to happen, but we don't have the clarity we wish. But again, that only represents 1.2% of the straight-line rent of those maturities. Others, again, have the right to extend, and we have every confidence they will and have been in contact with them, but their notice date is not yet upon us, upon them, so they haven't given us notice. and we are diligently working the other small amount of approximately 85,000 square feet in 2027. John Massocca: Okay. And then last one for me on the balance sheet. How are you thinking about the need for additional debt capital given some of the activity at quarter end? I mean, does that provide you think sufficient runway for what your kind of target acquisitions are for the year? Or should we be looking for any kind of additional activity in the debt markets? And I guess, how would you maybe look to spread that between either term loan debt or additional kind of private placement or even mortgage debt? Gary Gerson: John, this is Gary. Really, the way we look at debt right now, our kind of goal is to use our revolving credit facility to acquire properties and then clean up that facility with an issuance in the private placement market. And so that's what we've done in the last 2 years. That's what we intend to do going forward. As you know, we actually have a couple of mortgages coming due. And once those -- once we pay those off, we'll then put those properties into the unencumbered pool, which will increase our availability. So right now, our liquidity is about $60 million on the credit facility that we expect to go up over time, given new properties. We have plenty of room under the facility to grow our availability. So I think right now, that's our general look on debt going forward. Operator: [Operator Instructions] Our next question is coming from Craig Kucera of Lucid Capital Markets. Craig Kucera: I think last quarter, you mentioned that you were working on a couple of transactions that you thought might close in the fourth quarter. Are those still in the mix? Or are those transactions you don't think you're going to execute on? Arthur Cooper: We have one that we believe we can hopefully get done by the end of this quarter. Still some diligence work to do on that. So yes, some bled over, did have one fall out. Actually, the seller pulled back on it, I believe. So we're hopeful of one and a pickup in activity into the second quarter. Craig Kucera: Got it. And can you give us a sense of the dollar amount that might close here in the first quarter? Arthur Cooper: I would say it's in the range of $10 million. Craig Kucera: Okay. That's helpful. And you mentioned a fee earlier. I know we had a discussion about this last quarter about some lease termination income or accelerated rent, but was that recognized here in the fourth quarter at about $1.5 million? Gary Gerson: Yes, it was. That was a termination fee, and we had a tenant that came right in after that tenant left. So the building is occupied the same level of occupancy. So there's no loss there. And that -- yes, that was a onetime fee. Craig Kucera: Got it. I appreciate that. Another for me. I guess just thinking about the incentive waiver, philosophically, I mean, looking at it, it looks like the Board is sort of targeting maybe a core FFO payout ratio of something around 85%, plus or minus. Is that how we should think about that? Or is there any color that you think you can give us on that? Gary Gerson: I mean that's reasonable. I think going forward, we'd like to lower that going forward, but I think that's a reasonable assumption, yes. Operator: Our next question is a follow-up from Dave Storms of Stonegate. David Storms: I just wanted to ask one around average lease terms. It looks like they're trickling up to the mid-7s. Is this by design? Is this something that you're seeing in the market? Maybe just any more color on that. Arthur Cooper: Sure, Dave. And obviously, the longer WALT, the better. So we do look at transactions that allow for that. It gives us more stability within the portfolio. And so yes, we will look at transactions 7 years and up, prefer 15 and up. Of course, that leads to our wheelhouse of sale-leaseback transactions. So yes, the longer we can do, the better. David Gladstone: Okay. Do we have any more questions? Operator: We're showing no additional questions at this time. Mr. Gladstone, I turn it back to you for closing comments. David Gladstone: Thank you very much. And that was pretty puny in terms of number of questions. We like more questions from our folks out there. This really makes a meeting go faster and easier and straight to the point for all of these. So thank you all for calling in, but save up your questions for the next meeting. That's the end of this call. Thank you. Operator: Ladies and gentlemen, this concludes today's event. You may disconnect your lines and log off the webcast at this time, and enjoy the rest of your day.
Operator: Hello, and 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 TechnipFMC Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Matt Seinsheimer, Senior Vice President of Investor Relations and Corporate Development. Please go ahead. Matt Seinsheimer: Thank you, Regina. Good afternoon, and good morning, and welcome to TechnipFMC's Fourth Quarter 2025 Earnings Conference Call. Our news release and financial statements issued earlier today can be found on our website. I'd like to caution you with respect to any forward-looking statements made during the call. Although these forward-looking statements are based on our current expectations, beliefs and assumptions regarding future developments and business conditions, they are subject to certain risks and uncertainties that could cause actual results to differ materially from those expressed in or implied by these statements. Known material factors that could cause our actual results to differ from our projected results are described in our most recent 10-K, most recent 10-Q and other periodic filings with the U.S. Securities and Exchange Commission. We wish to caution you not to place undue reliance on any forward-looking statements, which speak only as of the date hereof. We undertake no obligation to publicly update or revise any of our forward-looking statements after the date they are made, whether as a result of new information, future events or otherwise. I would now like to turn the call over to Doug Pferdehirt, TechnipFMC's Chair and Chief Executive Officer. Douglas Pferdehirt: Thank you, Matt. Good afternoon and good morning to all. Thank you for participating in our fourth quarter earnings call. I am very proud to report our strong quarterly and full year results as we closed 2025 with solid operational momentum. Total company inbound for the year was $11.2 billion. Backlog ended the year at $16.6 billion. Total company revenue for the year grew 9% to $9.9 billion with adjusted EBITDA improving to $1.8 billion, an increase of 33% when compared to the prior year. Full year free cash flow increased to $1.4 billion and shareholder distributions grew to $1 billion, both more than double the levels achieved in the prior year. Turning to Subsea. Orders in the quarter were $2.3 billion, resulting in $10.1 billion of inbound for the full year with iEPCI projects being the largest contributor of inbound in 2025. There was also continued momentum for new opportunities within existing basins with bp Tiber being our most recent iEPCI contract in the Paleogene. Notably, TechnipFMC has been awarded 5 of the 6 20K projects sanctioned thus far. The widespread adoption of our differentiated offering has clearly been a catalyst for our commercial success. Over the last 3 years, we delivered on our goal to inbound more than $30 billion of subsea orders. This has driven Subsea backlog to $15.9 billion with legacy projects now representing less than 10% of backlog. Given our expectation for $10 billion of Subsea inbound in the current year, we anticipate further growth in backlog. Direct awards, iEPCI and Subsea Services represent an increasing share of our inbound. In fact, this combination accounted for more than 80% of our total Subsea inbound in 2025. We continue to be selective in the work that we pursue. We prioritize projects that utilize our iEPCI and Subsea 2.0 configure-to-order offerings. And our services business has been a clear source of differentiation, leveraging the industry's largest installed base. Most importantly, this high-quality inbound derisks project execution, enabling accelerated project timelines and increased schedule certainty. The inbound secured in 2025 also speaks to a change in customer behavior with more clients adopting a portfolio approach to offshore development. Instead of focusing on the next project exclusively, operators are taking a broader portfolio view of their opportunities, executing a vision for their entire asset base. An example of this mindset is simultaneous development of greenfield assets where operators execute multiple projects in parallel, industrializing the entire field. bp's approach to the Paleogene is an excellent example, where TechnipFMC is executing the Tiber and Kaskida projects at the same time, utilizing a consistent project methodology focused on our 20K equipment and integrated delivery. To be clear, this is not business as usual. Historically, operators would wait for the completion of the first project to incorporate learnings into subsequent phases. Today, those benefits are seen as incremental to the more substantive improvements gained from a portfolio approach. By executing as a single unit, operators benefit from integration and standardization that enable them to reach target production more quickly and economically than would be possible as stand-alone projects. This shift in customer focus from a single project to a more comprehensive portfolio view clearly benefits from our differentiation with TechnipFMC's iEPCI model and Subsea 2.0 solutions serving as key enablers of this change in behavior. The increased collaboration that comes with a portfolio approach also provides us with greater visibility into the project pipeline. Importantly, this early engagement provides us the greatest opportunity to help our customers more efficiently design and develop their entire program. Today, our clients are much more confident that they can build cost and schedule certainty into their expectations, and that is creating additional opportunities for our company. This change in customer behavior also has a positive impact on the outlook for Subsea. We expect a greater share of capital spending to move offshore, where reservoirs are prolific, high-quality and accessible to many operators with attractive project economics that continue to improve. And we are seeing the impact of this change on our Subsea Opportunities list, with the latest update reflecting the sixth consecutive quarterly increase in value. The list now highlights approximately $29 billion of opportunities for future development when using the midpoint of project values. This is the highest level ever recorded, and it was achieved even with a significant level of projects awarded in the period. And keep in mind, this only reflects a 24-month view and is not indicative of the full opportunity set for our company. There are multiple new frontiers under consideration for greenfield development, more than at any time I can remember. Greenfields are unique in that they provide a blank slate. They have no preexisting field infrastructure where legacy architecture and technologies can limit flexibility in future enhancements. This makes a portfolio approach very effective for accelerating development in new frontiers, reinforcing our confidence and continued strength in offshore activity through the end of the decade and beyond. I now want to close on a few key messages. First, 2025 was another year of exceptional performance for TechnipFMC. And I want to acknowledge the efforts of the 22,000 women and men across the globe. They take great pride in the company and are passionate about what they do. This is evident in our full year results, where continued strength in order inbound drove growth in high-quality backlog and continued strength in execution elevated the expansion in both EBITDA and free cash flow. This team has a strong desire to win and is unwavering in its commitment to deliver. The second point I want to convey is that 2025 was another major milestone for TechnipFMC, but we are far from achieving optimal performance. We had great commercial, operational and financial success in the year, but the groundwork for these results was set in motion many years ago with our introduction of new commercial models and configure-to-order product architecture and our internal focus on the principles of simplification, standardization and industrialization. While the impact of these changes is real and sustainable, we are confident that considerable upside remains. And much like our current success, it won't be dependent upon any one driver. We are confident that we will deliver further advancements in integrated execution. We will benefit from an expansion in configure-to-order offerings as we adopt them across more product platforms, and we will deliver greater operating leverage than what has historically been achieved in our industry. Finally, I want to reiterate our commitment to the relentless pursuit of the reduction of cycle time. The actions we have taken, which are ultimately focused on driving project returns higher, clearly demonstrate our ability to create sustainable value for our customers and real differentiation for our company. We know that our work is not complete. We know that more value can be created. And with a culture focused on continuous improvement in everything we do, we also know that we have the right strategic mindset in place to make offshore investment an even bigger and more sustainable opportunity. I will now turn the call over to Alf to discuss our financial results. Alf Melin: Thanks, Doug. Revenue in the quarter was $2.5 billion. Adjusted EBITDA was $440 million when excluding $52 million of restructuring, impairment and other charges and a foreign exchange gain of $1 million. Turning to segment results. In Subsea, revenue of $2.2 billion decreased 5% versus the third quarter. The sequential decline was primarily due to lower activity in the North Sea and Latin America, offset in part by higher activity in Asia Pacific. Adjusted EBITDA was $416 million, down 18% sequentially, primarily driven by seasonally lower vessel-based activity and reduced fleet availability due to higher scheduled maintenance in the period. Adjusted EBITDA margin was 18.9%. For the full year, Subsea revenue grew 11% versus the prior period with Subsea adjusted EBITDA margin up 340 basis points to 20.1%. In Surface Technologies, revenue was $323 million, a decrease of 2% from the third quarter. The sequential decrease was driven by lower activity in North America and timing of project-related activity in the Middle East, partially offset by higher activity in Asia Pacific. Adjusted EBITDA was $58 million, an increase of 8% sequentially, due to higher services activity in the Middle East and operational efficiencies related to business transformation initiatives. Adjusted EBITDA margin was 18%, up 160 basis points from the third quarter. For the full year, adjusted EBITDA margin improved 170 basis points to 16.7% even with revenue essentially flat when compared to the prior period. Turning to Corporate and Other items. Corporate expense was $35 million. Net interest expense was $5 million and tax expense was $33 million. Cash flow from operating activities was $454 million with capital expenditures totaling $94 million in the quarter. This resulted in free cash flow of $359 million. Free cash flow for the full year was $1.45 billion. We repurchased $168 million of stock in the fourth quarter. When including $20 million of dividends, total shareholder distributions were $188 million. For the full year, total shareholder distributions more than doubled versus the prior year to $1 billion. Cash and cash equivalents ended the year at $1 billion. Our net cash position increased to $602 million. Moving to our financial outlook. We have provided detailed guidance for the year in our earnings release. I will now provide additional color on the guidance and our first quarter outlook. Starting with Subsea. During the fourth quarter, we incurred restructuring charges related to simplification and industrialization actions being taken to further improve operating efficiency. As Doug indicated, our financial results and operating momentum remains strong, but we know we can achieve even more. These actions will deliver sustainable improvements in 2026 with additional benefits to be realized beyond the current year. With that in mind, we are updating our previous Subsea guidance provided in October. We now expect revenue of $9.4 billion with adjusted EBITDA margin of 21.5% at the midpoint of the full year range. This implies growth in Subsea adjusted EBITDA of 16% when compared to 2025. For the first quarter, we anticipate subsea revenue to increase low single digits sequentially, while adjusted EBITDA margin is expected to improve approximately 50 basis points from the 18.9% reported in the fourth quarter. Moving to Surface Technologies. We are guiding to full year revenue of just over $1.2 billion with adjusted EBITDA margin improving to 17.25% at the midpoint of the guidance range. For the first quarter, we anticipate Surface Technologies revenue to decline approximately 10% when compared to fourth quarter results with an adjusted EBITDA margin of approximately 16.5%. And turning to Corporate. We are guiding to full year expense of $120 million with an expectation that we will incur approximately $40 million in the first quarter. Lastly, I want to comment on our free cash flow guidance. We remain committed to a very disciplined asset-light approach to capital management. We anticipate capital expenditures to approximate $340 million for the full year, representing just over 3% of revenue. Additionally, we expect full year free cash flow to be in a range of $1.3 billion to $1.45 billion. This would imply free cash flow conversion of approximately 65% at the midpoint of guidance. And as previously indicated, we expect to return at least 70% of free cash flow to shareholders in 2026 through dividends and share repurchases. In closing, I am very proud that we delivered on our financial targets in 2025. When excluding foreign exchange, we increased total company adjusted EBITDA to $1.8 billion, an increase of 33% versus 9% growth in revenue. We drove strong improvement in adjusted EBITDA margin for Subsea and Surface Technologies with increases of 340 and 170 basis points, respectively. And we delivered growth in total company backlog to $16.6 billion, up 15% from the prior year. I'm also proud to share our full year guidance for 2026, which reflects continued operational momentum with total company adjusted EBITDA expected to exceed $2.1 billion at the midpoint of our guidance items. This represents growth in adjusted EBITDA of 15% versus 2025 when excluding foreign exchange with margin expansion in both segments. Lastly, we expect strong cash conversion from our growing EBITDA. And given the flexibility provided by our strong balance sheet, you should expect us to return the majority of this free cash flow to our shareholders. Operator, you may now open the line for questions. Operator: [Operator Instructions] Our first question will come from the line of Arun Jayaram with JPMorgan Securities. Arun Jayaram: Doug, I wanted to see if you could elaborate on your thoughts on margin expansion potential from industrializing the SURF process. And you talked about this morning in your prepared remarks about delivering further advancements in your integrated project execution. So just wondering if you could maybe shed some light on your thoughts on industrializing the SURF process to drive margins higher. Douglas Pferdehirt: Thank you, Arun. Look, I'd be happy to. As I noted in, I think, a prior quarter, when we started down the path of industrialization and the configure-to-order product architecture, which we call Subsea 2.0, that was prior to the merger. So we're obviously focused on the assets that reside on the seabed because that what was within the scope of FMC Technologies at the time. As a fully integrated company, we now have access to not only the seabed but the water column in addition. So that is where our focus is now, is to expanding that configure-to-order applications and all the efficiency gains and all the improvements in terms of reduction of cycle time for our clients and improved project certainty in terms of the delivery of the projects, which our clients benefit from, to the remainder of the subsea environment you're referring to the SURF or, if you will, the water column. I will say this. I think that the opportunities there are as substantial as the opportunities we are experiencing now from the Subsea 2.0 architecture on the seabed. Arun Jayaram: Great, great. And just my follow-up, Doug, is you mentioned how 10% of your backlog is legacy, call it, maybe lower margin kind of backlog from a few years ago. But as you look at the margins that you're booking in backlog today relative to your Subsea 2026 guide of 21.5% for EBITDA, can you talk about how much visibility do you have on further margin expansion Subsea? How many years of margin expansion do you see when you think about that backlog versus what you've guided to this morning? Douglas Pferdehirt: Sure. So let me start by confirming that we are inbounding at a level that is accretive to our backlog margin. And that's important. And that will obviously flow through revenue and then ultimately through EBITDA, EBITDA margin. So you will see that. And as you know, we have a substantial backlog already, which is very high quality, and we're adding additional quality to that. Look, I've said this publicly, I want our clients to win. And if our clients win, they like us to win as well. So this isn't about pricing or this isn't about margin. This is about the relentless pursuit of reduction of cycle time and certainty. If I can sit down with a client and show them that we have the unique capability and the only ones who can deliver them a project on a significantly shorter time frame, accelerating their time to first hydrocarbon and giving them certainty in that outcome, then I share a greater economic value that I create. So we feel that we have a long way to go in terms of the reduction of cycle time. Remember, this industry, we just started this with the creation of TechnipFMC. We have a long way to go. We talked about it in response to the first part of your question. There's even more scope within our own remit, let alone further innovation that we are working on today as well. So that is our focus. That's what we think about every single day. That's why we make our customers win. And that's why we win as well. Operator: Our next question will come from the line of Scott Gruber with Citigroup. Scott Gruber: Doug, you mentioned the renewed interest in greenfield developments. Just wanted to see if you could unpack that a bit more for us. Obviously, hearing exploration mentioned on some customer calls, but just how widespread is the renewed interest in exploration across your customer base and across geographies? Douglas Pferdehirt: Yes, Scott. I'm going to parse the question just a little bit, right? Because there's greenfield developments and then there's exploration. And you're right to point out, exploration leads to future greenfield developments. But I want to make sure everybody recognizes or appreciates that there are substantial greenfield developments where the exploration has already been done. These projects didn't move forward for a variety of reasons, including take everything I said to Arun's question in the inverse. The industry wasn't good about reducing cycle time. The industry was not good about certainty in terms of delivery. And because of that, the economics didn't necessarily support those projects to move forward. So we're seeing quite a few greenfield developments that the exploration has been done, that, if you will, have been in the queue. In addition to that, you're hearing about increases in exploration budgets. You're hearing about new emerging basins being identified, be it the equatorial margin in Brazil. We're hearing about Colombia now. I mean, almost every day, we wake up hearing new news of new opportunities in the offshore environment. We would humbly like to think that's because we've given our customers the confidence and the ability to go back and really scrub that portion of their portfolio or their reserve base and look for those opportunities. So really, Scott, they're quite global in nature. And I'm only parsing the fact that this isn't about waiting on seismic and waiting on exploration drilling. That's happening and that's good because that will continue to feed the hopper, if you will, and I kind of referred to that when I talked about through the end of the decade and beyond. But as importantly, there are opportunities out there that are being accelerated right now, and we have the tools and the kit and the ability necessary to accelerate those developments for our customers. Scott Gruber: I appreciate that. And then a quick follow-up on Arun's question around the SURF standardization. It sounds like there's a big opportunity here, and I remember having a detailed discussion with you maybe a year ago or so about it. And I know this takes a while to execute on. But where do you stand in that process? And kind of how much more is there to go? Douglas Pferdehirt: Yes. I thought I was going to get away without committing to it, Scott, so thanks for circling back. Scott Gruber: Well, I wasn't going to let you. Douglas Pferdehirt: That's fair. Look, we've been working on it for a bit. We're impatient. Our customers are impatient, and that's a good thing. But we want to make sure we do it right. But look, there will be more to come and we'll be excited to share that news with the industry. Operator: Our next question will come from the line of Mark Wilson with Jefferies. Mark Wilson: I'd like to ask, Doug, about the point you make about you see considerable upside still. And just to check how clearly returns have been coming through. Margin has been improving. Three years now of $10 billion inbound in Subsea and another $1 billion to come and more opportunities in greenfield than you've ever seen. So could I ask regarding the volume you see able to continue to do going forward, considering that CapEx also remaining just 3% of revenue? You spoke in the past about no expansion to roofline was a key element of previous years. In terms of the capacity that's within this business, should there be more of a response beyond, I don't know, the $10 billion level? How much volume capacity do you think there is within your existing setup? And I think I particularly speak to the Subsea 2.0, if that's done at 2 of your 3 facilities. Douglas Pferdehirt: Thank you, Mark. I definitely knew I wasn't going to get away with this one. So it's a fair question, and let me give you a direct response. So as you pointed out, we've had a healthy rate of inbound. We've had $30 billion over 3 years. We just now reaffirmed the $10 billion for 2026 but we're also showing a Subsea Opportunity list that is really expanding at a rate that we have not seen before. If you look at the number of projects that were awarded in this quarter, i.e., they came out of the Subsea Opportunity list, we're talking about the net increase. But if you look at the gross increase, it was quite substantial and there's others to come. So as we look forward, and you're right, you're hearing this from our clients, which is more important. We're just basically gathering that information and sharing that with you. Their focus is on offshore. Their focus is on developing offshore reserves. Their focus is on adding reserves by focusing on offshore opportunities. And again, we're seeing that happen around the world across our client set. And as we've talked about before, our client set has expanded quite dramatically 3 to 4x what it was historically. There's many new companies that are operating and performing offshore subsea developments enabled by the simplicity and the ability to work with one company, TechnipFMC, in an iEPCI 2.0 direct award manner. But if I really kind of encapsulate your whole question and, to me, what it really comes down to is, is this $10 billion a magic number? Or where do we go from here? And I want to be very, very clear that the Subsea Opportunity list is both growing and accelerating, and we fully expect that this will be reflected in inbound order growth in 2027 and beyond Operator: Our next question will come from the line of Derek Podhaizer with Piper Sandler. Derek Podhaizer: Doug, I wanted to go back to your comments around your portfolio approach, specifically bp's Tiber and Kaskida. Maybe could you help provide us with tangible examples of how Tiber is leveraging the engineering and equipment progress with Kaskida to help drive down cost and increase your efficiencies? Ultimately, just trying to understand more what this means for your earnings power and margins moving forward, if you have more of this portfolio approach from your customers. Douglas Pferdehirt: Sure, Derek. And look, all the credit goes to bp. We're humbled in order to be their partner in the Paleogene. I want to start with that. Working together in many, many discussions, we came to the conclusion that there was a different way of working than the historical way of working together. And when we looked at it, we knew we wanted to go towards standardization. We knew we wanted to have repeatability, the old saying, design one, build many. But when you have large gaps of time and distance in between projects, when you introduce new project directors on both sides, our side, their side, when you introduce new engineering teams, both sides, our side, their side, et cetera, et cetera. And then you get into the supply chain and you're dealing with the supply chain that you turn on, you turn off, you turn on, you turn off, you're never going to get those efficiencies. So bp decided to take a very different approach. We are extremely humbled and honored to be part of it. I don't want to get into, if you will, the dollar savings because I think that would be not appropriate for me to do. That's more bp's business. But they clearly are benefiting. We clearly are benefiting as a result of the ability to be able to have continuity, visibility and continuity into our own manufacturing, also being able to have 1 single project team instead of sending up 2 teams and in the supply chain because our suppliers benefit from that visibility and that continuity as well. So again, I don't like to talk about margin. I'd like to talk about improving Subsea project returns, which benefits our customer and also benefits us. Derek Podhaizer: Got it. No, that's very helpful. I appreciate that. And then maybe on Subsea Services, clearly a differentiator for the company. I think you previously guided that it should grow in line with your top line growth, which we have the guidance on. But maybe could you touch upon what your expectations are for the Subsea Services side of things? Is this an expectation around $1.92 billion for the year? Just maybe some more color and help on how we should think about services as we look into 2026. Douglas Pferdehirt: So again, in line with revenue, so let's call it $2 billion. Operator: Our next question will come from the line of Victoria McCulloch with RBC. Victoria McCulloch: Just one for me on Surface Technologies, I guess, to slightly discussion, but a similar theme. You've seen a material increase in the margin over the past 12 months in Surface Technologies. You attribute it in the presentation to operational efficiencies. This is what you spoke to us about a year ago. But can you give us an idea of how this compares to your expectation and how this was delivered? And again, on that, on Surface Technologies, how much more is there to achieve there? Douglas Pferdehirt: Look, very proud of the segment. As we talked about in a prior call, we took a decision to really look at that business, make some tough decisions, really focus on the right customers in the right geographies utilizing the right technologies, so if you will, high-grading our portfolio. That isn't a business, when you focus on market share, that ends up very well. So we took a different approach and we said, look, we're going to focus on quality, not quantity, and we're going to high grade our portfolio. We've done that. It's performing very well, as you can see as a result of that. There were some incremental benefits in Q4. But as we move forward, we expect this segment to continue to operate at a very high level. It's now 65% of our business in Surface Technologies is in our international portfolio. We continue to benefit from the investments that we've made both in Saudi Arabia as well as in Abu Dhabi in terms of local content, local manufacturing. And so yes, that's how I would summarize. The outlook remains difficult because of the North America market. But we obviously benefit from the strength of having the majority of our portfolio outside of the North American market. Victoria McCulloch: And maybe just a follow-up to look at Subsea. Can you talk to us a bit about how your discussions with customers have been in a very choppy macro environment, but then reflecting how there is greater CapEx moving offshore? And we are seeing pressure certainly, and discussion points around resources and reserves alike. Those are conflicting, I guess, points but more is being added to the Subsea. Do you think that potentially the market is more caught up in the stock pricing than your customers are when they have discussions with you? And how much does that benefit TechnipFMC from a, I guess, pricing perspective? Douglas Pferdehirt: Sure. I would describe it this way. One of the benefits of being in the offshore market is our customers -- some of that near-term choppiness, if you will, is smoothed out. They understand, these are prolific reserves. These are prolific reserves. So when they're going after these, they have a denominator that's much different than any other investment opportunity they have in their portfolio. So all that they're looking for is obviously a forward view of the commodity price and a confidence in the ability to execute the project both from their team as well as from the industry. And this has been the biggest change that has occurred in the last several years, is they have regained their confidence because of what we have created with TechnipFMC with the Subsea 2.0 configure-to-order product line and with our commitment to them and to the investment community of our relentless pursuit of the reduction of cycle time. So we don't talk about price. We talk about improving project returns, which benefit our clients. As I said earlier, if it benefits our clients, it benefits us. And once you get that mindset and you get out of a fixed asset mindset of day rate utilization and pricing, you can really change your conversation with the clients. We have a seat at the table far earlier than anyone else, and they give us visibility, now as they look and take a project approach, that is unprecedented because they like what we're doing and they want to make sure that they have the access to our iEPCI 2.0 solution, which leads to this level of direct awards that is now over 80% of our business is direct awarded to our customer and never goes out to a competitive tender. Operator: Our next question will come from the line of Dave Anderson with Barclays. Unknown Analyst: This is [ Eddie ] who came on for Dave who had a prior commitment this morning. Doug, you mentioned operators are increasingly taking a portfolio approach to their opportunities. Of course, this provides you with greater visibility on Subsea orders. But does this also maybe result in more content with this approach, where developing 2 projects simultaneously results in more content for you than if developed one after the other? And do you expect more companies to start to adopt this portfolio approach going forward? Or is this really limited to a few select majors? Douglas Pferdehirt: Sure, Eddie. Thank you. In regards to the approach, you're on to something. Very astute. Remember, we're the architects. So when we're talking about either a portfolio approach or an integrated FEED study leading to an integrated EPCI study, we are the architects. Now we will always design the field to ensure the best suitability for the reservoir, the best in terms of the relentless pursuit of reduction of cycle time. But clearly, we are going to make sure that if we have any technologies that are applicable that are going to help meet those objectives, that we're going to incorporate those into the architecture. So the benefit of being the architect and the builder, if you will, it's pretty clear that there are benefits of being able to do both. And we're uniquely positioned as the only company that has the capability to do both. So that's the position we're in. So yes, to your point, it does create opportunities. Now in terms of the portfolio approach, look, you have to have the asset base, right? So not all clients have a reservoir that has a clear line of sight to doing multiple greenfield developments. Sometimes it's a one-off development. And that's absolutely fine. That's absolutely normal. But where clients have the ability to do multiple greenfield developments within a area, if you will, it's certainly applicable to any client. And bp is not the only one. I thought it was appropriate to pass the message about bp and what they're doing to Paleogene because it was a recent award, and I do think it's appropriate to do so. But others are looking at the same approach. Unknown Analyst: Got it. So a number of signs pointing to a 2027 inflection in offshore activity that seems to be reflected in your growing Subsea Opportunity list. But could you talk to customer behavior and what you're seeing from them? You've consistently mentioned sort of this growing shift of capital into offshore. I guess what innings do you think we're in, in terms of operators shifting capital to offshore? Just wanted to get your sense of if most operators are already there at this point or if we're still in the early stages of this capital shift into offshore. Douglas Pferdehirt: Good question. And I don't want to answer on behalf of my clients. That would be inappropriate. I'm a service guy, I always have been. I know where I am in the food chain. I would just look at their behavior. And I think what you're seeing in their behavior is they are in the very early stages and they see a long runway ahead. Operator: Our next question comes from the line of Caitlin Donohue with Goldman Sachs. Caitlin Donohue: Doug, you mentioned the iEPCI and Subsea 2.0, representing a good portion of total Subsea in orders in 2025. Can you speak to your long-term expectations for this continued adoption? How do you see this flowing through to further margin expansion over the next few years? Douglas Pferdehirt: Great question, Caitlin. We've identified -- we said that the iEPCI was the majority of our inbound orders this past year, which is really quite substantial. A new product architecture like Subsea 2.0 figure-to-order, introducing that into the market is one challenge. An even greater challenge is when you change the commercial model. So look, there was a point in time -- it was a few years ago admittedly. But there was a point in time where I said if we could achieve 1/3 of our orders from iEPCI or the integrated approach, that would be substantial. We're obviously well beyond that. And when you look at the different applications around the world, neither iEPCI or Subsea 2.0 have any sort of a technical limit or commercial limit that they both couldn't go to 100%. What I did allude to in my prepared remarks, though, is in legacy fields, is Subsea 2.0 backwards compatible? Yes. Is iEPCI applicable in brownfield, greenfield, emerging markets, mature markets? Yes. But sometimes you will find customers who just want to either repeat the past because it's a small tieback and maybe the last activity in that field or that region for them. So I think there's always going to be a percentage. But Caitlin, it's a fair challenge. And I think that we certainly approach every opportunity as iEPCI 2.0 until proven otherwise. And you will see and continue to see both iEPCI and 2.0. As a result of that, you'll see iEPCI 2.0 continue to grow in our inbound. Caitlin Donohue: That's helpful. And then just one more question on the Subsea 1Q revenue guide. I know it's the increase sequentially of low single digits. Is that just more of a comment on a little bit less of that muted seasonality we're seeing in 1Q as a result of some of these macro factors? Or there are certain regions that you can call out that you're really looking out for some of this increased activity through 2026? Douglas Pferdehirt: Sure. I'm going to give that to Alf and he'll get into that detail. But if you don't mind, I'd like them just to first kind of summarize the revision to the 2026 guidance because I don't want that to get lost on the call. It was an important element. Alf Melin: Thanks for the question. So first of all, just to summarize, we did raise Subsea guidance, as you probably all noted. It's an important piece of reaching company EBITDA for the year. The adjusted EBITDA, we expect to be -- adjusted EBITDA, about $2.1 billion. So that is built on a lot of the things that Doug talked about already. We clearly achieved our inbound objective in 2025. We have a growing opportunity list. We are committed to $10 billion and have a solid path to that. The high-quality backlog, all of those things come together and gives us confidence. And then the Subsea Services revenue and growth on top is giving us a $2 billion business. So we thought it was important, as we were overall initiating guidance for the company, to update this. If you look at the margin profile of Subsea, and again, I want to point out that we are introducing through the restructuring charges we've taken this quarter, we're initiating actions, and we are further taking actions in 2026 to further boost our margin expansion, not only in '26 but also beyond. And I think with what Doug said, we are very focused on driving revenue and margin expansion into the years beyond 2026. Regarding the Q1, it is definitely what you were talking about. There is nothing big happening or anything structural that you should think about more than the seasonality. We continue to have 2 quarters a year, where several of our vessels in our fleet is either drydocked. They might be in for maintenance or some sort of upgrade and taking advantage of the slower period, in particular in the North Sea area. And that's what you see pronounced, and you will continue to see some of that in the first quarter. But there is nothing really otherwise. The underlying run rate of our Subsea business is very strong. And then coupled with all the things that we already said about our outlook and our ability to expand margins, we're confident in the overall guidance that we have given for Subsea. Operator: Our next question will come from the line of Mark Bianchi with TD Cowen. Marc Bianchi: Doug, I'm going to ask you if you could to quantify two things to the extent you're able to. So first, on this portfolio approach that you're talking about and working with the customers, can you maybe help us understand how much of the sales funnel of opportunities that you're looking at? And I realize we've got the Subsea opportunity slide and then there's like all these other discussions that you're having that might not be on the slide. So if you sort of take that together, is there a percentage of the stuff that you're discussing with customers that would be part of a portfolio approach? And then as we think about $10 billion of orders this year, more than $10 billion in '27 and beyond, what proportion of those orders would be coming from the portfolio approach? Douglas Pferdehirt: Yes. Mark, hard to put a hard number on it only because, as I said earlier, it depends on the client and it depends upon their portfolio in that particular geography, if you will, because when you do the portfolio approach, it's more focused around a particular reservoir or a particular geography. So I would say today, it's a smaller portion, but it's something that our customers are responding well to and, I think, looking at their own future developments,and seeing where and how it could be applied within their own opportunity list. So I guess that's the big difference, Mark, is we're sitting down looking at their opportunity list instead of, as we were in the past, sitting around waiting to receive a request for tender. So very different seat at the table than we used to have. Marc Bianchi: Yes. Okay. That's helpful. And then the other thing to quantify, and this is really just to maybe level set and understand. You talked about 80% of the orders being direct awarded, right, so with services and iEPCI and so forth. How much of revenue is coming from direct awarded projects maybe in '25, '26 and '27? Just so we can get a sense of the progression on the revenue side and maybe versus what the order percentage is. Douglas Pferdehirt: Sure, Mark. So I think if you go back just a couple of years, we used to talk about 50%. I think 2 years ago, maybe 1 year ago, we started talking about 70%, this year, 80%. Projects take 2 to 3 years to flow through. So I think that gave a pretty good road map, and that's obviously going to benefit us going forward. Operator: Our next question will come from the line of Saurabh Pant with Bank of America. Saurabh Pant: Doug, maybe I'll just dig into the whole Subsea Opportunity list discussion. The one thing that I'm noticing, Doug, is that there are more and more projects that are gas-directed versus just oil-directed, right? We remember a decade back, anybody struck a big gas reservoir, it used to be a disappointing moment, right? But we are more and more developing these bigger reservoirs that are part of the opportunity list. But for you as the subsea architect, how much difference does it make if a project is oil versus gas? Is there any revenue intensity impact? Anything we should read into the complexity and, by extension, margin impact potentially down the road from just the whole oil versus gas dynamic in subsea? Douglas Pferdehirt: No, it's a great observation. It actually is something we internally had anticipated would happen a bit sooner than it has happened. But we are seeing a shift towards gas, and that's partly driven by there was quite an expansion in terms of LNG capacity around the world. That's slowing down but you got to feed that. And I guess, the dots that people don't necessarily connect is other than in the U.S. and Russia, almost all LNG is fed by offshore reservoirs, not onshore reservoirs. That's a generalization but it's directionally correct. So okay, two things happen. One, you have to develop the offshore assets therefore to feed gas. But then over time, you now have a massive investment in an LNG facility. You have to continue to feed that with gas. So you almost commit yourself to continuing doing subsea developments offshore once you build that LNG facility. So we see that happening around the world and we're obviously a beneficiary of that. In terms of gas versus oil, we love everybody equally. That being said, a gas tree tends to be as a higher unit cost than oil tree, and it typically has to do with a more corrosive environment and the velocities that we need to be able to control and operate safely in a subsea environment. So net-net, a gas equipment tends to be more complex. It's better for us because it's more differentiated, and that's who we are. It fits better. It just creates even greater differentiation versus the rest of the industry. But either way, we'll take either one. We're just here to help our customers reach their objective. Saurabh Pant: Got it. Right. Okay, okay. That's fantastic color, Doug. And then Alf, maybe one for you on the whole free cash flow discussion. Like you said, '26 guidance implies 65% conversion out of EBITDA at the midpoint. But we were talking about orders. Working capital is a big part of it, right? So if orders start to inflect again from that $10 billion annualized run rate in '27 and beyond, working capital should be a tailwind, again, just how you get paid from a timing perspective, right? So are we looking at a prolonged period, 2 to 3 years, where so free cash flow conversion out of EBITDA is going to be higher than that 55% working capital neutral number we were talking about on the last call? Alf Melin: Thanks for the question. So first of all, your observation is correct. We've had, first of all, a really strong and exceptionally strong free cash flow generation this past year, I think our cash conversion is actually mathematic close to 80%. And it is, in terms of the foundation for this, is always going to be both commercial and operational execution towards your goals. And that is the foundation of improving our working capital. Now we are setting ourselves up for another strong year. We are clearly improving working capital once again from the same variables that I talked about, the commercials and operational side. And as well, we couldn't forget that our CapEx is being kept at a 3.2% level. However, having said that, looking out several years, there's always a mix of orders, et cetera, so you can never fully predict. But in general, if we are able to continue to have good commercial success in terms of how work is falling into where we have commercial strengths to realize and, as well, we need to execute on this because it's not just commercial we'll be setting up, we need to execute on this. There is opportunity to continue this. But I would caution against just assuming that you can in perpetuity keep putting up better and better working capital numbers. Because every year, you start at a better position, and you need to improve from there. And there are still, from some of the cash that you're collecting, you still need to execute, and that creates timing of where outflows could be higher. So I won't speculate out more, more than say that '26 is going to be a really, really good year where we improve working capital again. But I still think we need to focus on the neutral when we look in the very long term. Saurabh Pant: Yes. No, that makes sense, Alf, right? I mean, the whole point is that yours a very low capital intensity business, right? So on a through-cycle basis, your free cash flow power would be really strong. That's what I wanted to just get into. Alf Melin: Yes. Thank you. Clearly confirmed. Operator: Our final question will come from the line of Paul Redman with BNP Paribas. Paul Redman: You mentioned earlier that you are the only company that is an architect and a developer. But I also wanted to ask, what are the risks about replication on iEPCI or Subsea 2.0 with your competitors? Because a company generating such fantastic margins growth, growth in backlog, you'd assume that companies would like to pick up and think about how, we could possibly challenge this. Are you seeing any actions by customers to copy what you're doing? Is it copyable? Douglas Pferdehirt: Sure, Paul. The short answer is it's difficult. Many years ago, back in 2017, I said it took us 4 years, so kind of an idea of how much detailed engineering program it requires. Look, can others do it? Yes. We have never said we're the only ones that can do it. We were the only ones who chose to do it. We chose the path of integration while either our others have chosen a path of consolidation. Just a difference in strategy. We're going to stick with our strategy. Operator: And I will now turn the call back over to Matt Seinsheimer for any closing comments. Matt Seinsheimer: Thank you. This concludes today's conference call. A replay of the call will be available on our website beginning at approximately 3 p.m. New York time today. If you have any further questions, please feel free to reach out to the Investor Relations team. Thank you for joining us. Regina, you may now end the call. Operator: This does conclude our call today. Thank you again for joining. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Sprott Inc.'s 2025 Fourth Quarter Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded today, February 19, 2026. On behalf of the speakers that follow, listeners are cautioned that today's presentation and the responses to questions may contain forward-looking information and forward-looking statements within the meaning of applicable Canadian and U.S. securities laws. Forward-looking statements involve risks and uncertainties, and undue reliance should not be placed on such statements. Certain material factors or assumptions are implied in making forward-looking statements, and actual results may differ materially from those expressed or implied in such statements. For additional information about factors that may cause actual results to differ materially from expectations or material factors or assumptions applied in making forward-looking statements, please consult the MD&A for the quarter and Sprott's other filings with the Canadian and U.S. securities regulators. I will now turn the conference over to Mr. Whitney George. Please go ahead, Mr. George. W. George: Thank you, operator. Good morning, everyone, and thanks for joining us today. On the call with me today is our CFO, Kevin Hibbert; and John Ciampaglia, CEO of Sprott Asset Management. Our 2025 fourth quarter results were released this morning and are available on our website, where you can also find the financial statements and MD&A. I'll start on Slide 4. In short, it was a banner year for Sprott in 2025. Our core positioning in precious metals and critical materials investments allowed us to navigate volatile market conditions and deliver outstanding results for our clients and our shareholders. Our AUM increased by $10.5 billion during the fourth quarter and closed the year at $59.6 billion, up $28.1 billion from December 31, 2024. Subsequent to year-end, our AUM has continued to grow by another $10.5 billion to reach $70.1 billion as of February 13, 2026. Investor interest in multiple different metals contributed to strong net sales in 2025, primarily in our exchange-listed products. Our ETF business has been on a growth trajectory since 2021 and accounted for more than $4.6 billion of our total AUM as of year-end. This business is off to a strong start in 2026 with [indiscernible] AUM now approaching $7 billion. Our Managed Equity and Private Strategies segments also delivered excellent results in 2025, generating more than $54 million in gross performance and carried interest fees. With that, I'll pass it over to Kevin for a look at our financial results. Kevin? Kevin Hibbert: Thank you, Whitney, and good morning, everyone. I'll start on Slide 5, which provides a summary of our historical AUM. To Whitney's point, AUM finished the year at $59.6 billion, up 21% from $49.1 billion as at September 30, 2025, and was up 89% from $31.5 billion as at December 31, 2024. On a 3- and 12-month ended basis, we benefited from market value appreciation across the majority of our fund products and positive net inflows to our exchange-listed products. Subsequent to year-end, as at February 13, our AUM stood at $70.1 billion, up 18% from our December 31 AUM. Our performance subsequent to year-end was the result of $7.7 billion of market value appreciation and the $2.8 billion of net inflows primarily in our exchange-listed products. Slide 6 provides a brief look at our 3- and 12-month earnings. Net income this quarter was $28.7 million, up $17 million from $11.7 million over the same 3-month period last year. On a full year basis, our net income was $67.3 million, up $18.1 million from $49.3 million last year. Our net income performance was primarily due to market value appreciation and inflows to our precious metals physical trusts and carried interest and performance fee crystallizations in our Managed Equities and Private Strategies segment. These increases were partially offset by a change in accounting requirements brought on by our new cash-settled stock plan that took effect this year. As we mentioned in previous quarters, cash-settled stock plans like the one we implemented this year require the use of mark-to-market and graded vest accounting under IFRS 2, which creates the dual impact of accelerating the amount of vesting that occurs each period, and adding market volatility to each vesting amount. In our case, this nearly doubled the amount of RSUs, subject to the accounting expense methodology versus what will actually vest in the year. And at a time when our stock has appreciated 18% in the quarter and 132% on a full year basis. In contrast, in 2024, we had an equity-settled stock program that required each vest to be valued at the original grant date fair value on a constant basis over the amortization period. Moving forward, in 2026, there will be less amortization hitting our IFRS P&L relating to the 2025 3-year grants and less shares being added for our 2026 3-year grants. However, we do expect continued increases to our stock-based compensation expense on a comparative basis for at least the first half of 2026 since our stock did not begin the majority of its ascent until the summer of 2025. This means to the extent our stock price remains at current levels, the second half of 2026 should begin to produce lower period-over-period volatility as the trading range of SII in the second half of 2025 is a little closer to where we currently trade. Adjusted EBITDA, which excludes quarterly volatility from items like stock-based compensation and intermittent carried interest and performance fee crystallization, was $42 million for the quarter, up 88% from $22.4 million over the same 3-month period last year. And was $121 million on a full year basis, up 43% from $85.2 million earned last year. Adjusted EBITDA in the quarter and on a full year basis benefited from higher average AUM, on-market value appreciation I described previously and inflows to our precious metals physical trust and ETF. Finally, Slide 7 provides a few treasury and balance sheet management highlights. And as you can see, due to our improved earnings, our cash and liquidity profile strengthened this year and we raised our dividend by 33% in November. For more information on our revenues, expenses, net income, adjusted EBITDA and balance sheet metrics, you can refer to the supplemental information section of this presentation as well as our annual MD&A and financial statements filed earlier this morning. With that said, I'll pass things over to John. John Ciampaglia: Thanks, Kevin, and good morning, everybody. Now just turning to Slide 8. Sprott has held a bullish thesis on most metals and miners for the past few years. Over the past 5, we've invested heavily in our team, made timely acquisitions, developed a broad suite of differentiated offerings that incorporate our knowledge and expertise and develop new partnerships to broaden our distribution reach. We think it's fair to say that the world is catching up with our view that we are in a new metals-driven commodity super cycle and capital is finally on the move. Investors are looking for new investment ideas where long-term fundamentals appear durable and compelling. In 2025, our physical trust fund suite generated significant growth with a 97% gain in AUM to $47 billion. Momentum continues with another $7 billion added year-to-date. As we've mentioned in the past, growing AUM and liquidity begets AUM and liquidity as ever larger institutions allocate to the sector. And price signals are bullish of the 6 metals we offer in physical form. Gold, silver, platinum and copper have all recently reached all-time highs, while uranium touched a 2-year high. Moving to the next slide, which is net flows into our physical trusts. We saw a record sales year in 2025. Flows in Q4 were very strong, and they've continued into January. Our gold, silver and uranium trusts accounted for the bulk of the flows, but I'd like to highlight an emerging contributor, which is our Physical Copper Trust. While sales in 2025 were modest at only $4 million that Copper Trust has already generated $54 million year-to-date as copper, as I mentioned, recently hit a new high. We recently received approval by the SEC to cross-list the trust on the NYSE Arca Exchange and subject to unitholder approval, we expect the Copper Trust to begin trading there in early Q2. Once listed, this will be the first physical copper fund to trade in the United States. Investor interest in copper is growing as copper's strategic role in electrification is becoming better understood, along with our copper mining ETFs, assets in our copper suite of funds now stands at approximately $800 million and 2 years ago to yesterday, our assets in the category were only $6 million. Moving to the next slide, which is our ETF suite. 2025 was a breakout year with a 94% gain in AUM. Assets have gained another astonishing 45% year-to-date as growing scale creates a flywheel effect. A few items to highlight over the past year to February 18, Sprott has 6 ETFs in the top 25 in performance out of over 4,000 U.S. listed non-levered ETFs. The Sprott Physical Silver miners and Physical Silver ETFs, NYSE Arca ticker SLVR has been a huge win for our investors and shareholders. SLVR surpassed $1 billion in assets in its first year of trading. This has been our fastest-growing ETF launch to date and illustrates the value of our brand, expertise and relationships. Flows into our copper mining ETFs are accelerating, driven by superior performance to our competitors. And finally, our relationship with HANetf, which is our European distribution partner, continues to grow and assets now stand at $650 million. Moving to Slide 11. Sales were solid in 2025 despite some outflows from our uranium mining ETFs in the second half of the year. Since the year-end, we've seen a sharp pickup in sales momentum with flows matching cumulative sales in all of 2022, '23 and '24. A number of our ETFs just achieved 3-year track records and highlight to investors that not all indexes are created equal. Our index construction focuses on pure-play companies, and utilizes a dynamic universe approach to provide a differentiated offering that is translating into superior investment results. For example, our critical materials ETF ticker SETM and our copper mining ETFs have outperformed their closest competitors since their inception dates. I'll now pass it over to Whitney to talk about Managed Equities. W. George: Thank you, John. We'll move now to Slide 12 for a look at our Managed Equities segment. As I mentioned in my opening remarks, our managed equity strategies delivered strong performance in 2025 with AUM increasing by 97% during the year to $5.7 billion. Our flagship gold equity fund gained 18% in the fourth quarter and was up 148% on a full year basis, and some of our private partnerships did even better. Despite their strong performance, these strategies reported modest outflows in 2025. In the fourth quarter of '25, the sub-advisory agreement of our Silver Equities Fund was opportunistically terminated by our client despite being up 175% as of December 1. We continue to leverage our strengths in our investment team through our recently launched actively managed ETFs. The Sprott Active Gold and Silver Miners ETF and the Sprott Active Metals and Miners ETF continue to scale, with AUM reaching $202 million and $105 million, respectively. I'll turn now to our Private Strategies on Slide 13. There's not much we're allowed to say about Private Strategies. But what we can tell you is we continue to monitor and harvest investments in our second fund, lending fund. We're actively assessing new investment opportunities as we invest up our third lending fund, and we have a process of ongoing monitoring of portfolio investments in our streaming product. We're hopeful to be in a position sometime this year to be talking about our next one. Slide 14. I'll move to Slide 14 with some closing remarks. In summary, with our core strengths in precious metals and critical materials investments, well positioned for the current market conditions. For 2026, we expect more volatility in the markets, certainly, as we've seen recently. For example, in January, we experienced a very, very violent sell-off in precious metals following an exceptional run-up for gold and silver prices. In our view, this was a healthy and overdue technical correction triggered by speculative investors and algorithmic triggers while the fundamental drivers of the rally remain intact, I think it's an excellent opportunity for those who feel they've missed those rallies to have a better, more sensible reentry point. Demand for critical materials investments is growing. Governments are becoming increasingly involved in these markets to secure supply and reduce reliance on foreign sources, and we expect this trend to accelerate in 2026 which should drive even greater investor interest in our critical materials strategies. We're very pleased with what we've accomplished in 2025 and remain focused on executing on our growth opportunity -- the growth opportunities ahead of us. We will continue to drive scale in our physical trust while also explore new ETF launches. At this point, we hope to announce at least 1 new ETF in the first half and a continuing expansion of our product offerings through our partners on HANetf in Europe. We expect the rotation out of AI stocks to continue and investor allocations to natural resource investments to increase. It's early, but we are already seeing a definite pickup in interest in our Managed Equities funds and Private Strategies. We're optimistic this interest will translate into meaningful sales in 2026. That concludes our remarks for today's call. And I'll now turn it over to the operator for some Q&A. Operator? Operator: [Operator Instructions] Your first question comes from the line of Etienne Ricard at BMO Capital Markets. Etienne Ricard: So the improvement in margins this quarter was a highlight for me. Given your ETF platform still represents a relatively small but growing percentage of your assets, how should we think about incremental margins on your ETFs relative to the trust? John Ciampaglia: Yes, Etienne. It's John. Yes, the beauty of the ETF platform is obviously scale is really helpful in terms of putting funds on platforms and obviously raising larger amounts of capital. The way those funds work is they have unitary fees. Unitary fees are basically fixed fees that don't change for investors. So that's one of the benefits you have total predictability. The benefit for us is that as the assets scale we're able to capture additional margin because many of our service providers and partners have pricing arrangements with us that fall with assets. And it really helps the overall block of assets. But the other thing it really helps with is incremental new funds, which are very costly to launch. They are heavily subsidized, so to speak, with kind of our collective assets. So bringing new funds to market will become less and less expensive, and we're starting to see the benefit of that. Finally, I think we have almost every single fund in the lineup now above its breakeven AUM level, which is very important. It's very common to have to subsidize a fund in its early years. until it hits those breakeven levels. And I think we've got all but one still below breakeven. So that was a really important milestone. So the fund lineup is growing very quickly, and we expect that to fall to the bottom line. And every basis point kind of counts in ETFs. So it's all working nicely together. Kevin Hibbert: And I'll just probably add to that. That was a good summary, John. I'd also add to that, that generally speaking, Etienne, I think you made -- you're trying to make the connection between the ETFs and the physicals. The ETFs tend to have higher margin opportunities than the physicals, just given that the fixed cost structure there is a little bit lower than their physical counterparts in that segment. So everything John mentioned is correct and would actually add a little bit more torque to the bottom line to the extent it becomes an increasingly larger portion of the total AUM in that segment, if that helps. Etienne Ricard: Interesting. And where would be the breakeven level for the ETF? John Ciampaglia: So every ETF has a different breakeven level, but the primary driver is obviously, it's management fee. And then secondarily, you have to think a little bit about what market it's listed in, whether it's in the U.S. or Europe. Generally, our breakevens can range anywhere from about $25 million, upwards of $75 million. So that's kind of a wide range. But once you get through those breakeven AUMs, you start to actually generate net positive revenue. And that's why it's very important to get the ETFs up to breakeven to start and then scale from there. Etienne Ricard: Very helpful. And switching gears a little bit. Given precious metals had been out of favor for quite some time, are you now seeing greater competition from other asset managers coming to market with new products that are focused on your end markets? John Ciampaglia: Yes. Well, I think it's fair to say that the ETF market is mature in the precious metal space. There are a lot of offerings I think I would highlight that the later entrants that came into the market, say, 5, 6 years ago had to come in with a very low price point to compete and gain market share. And I'm talking about price points for, let's say, gold ETFs that are 15, 17, 18 basis points in comparison, we're at 35. So these late entrants had to heavily discount. We have never had to discount our pricing because we believe our product is a premium product given the attributes of it. We don't really see too many new competitors come in the ETF space in the precious metal segments. They're already pretty crowded. We do see new competitors coming in on the mining space, which has been less crowded. And I would say it's been a similar playbook where people tend to come in at lower price points. We also noticed that many of these entrants don't know anything about metals and mining and produce, I'd say, fairly unsophisticated offerings, which is starting to, I think, we noticed by investors because they're underperforming. So we're finding that we're in a good position to compete. And as I mentioned, even though we run a lot of passive rules-based index strategies, there are clear differences between the two. Our critical materials fund has handily outperformed all of the competitors that we track against our copper mining ETFs have outperformed between 10% and 14% the last 2 years per year. And so you say, well, if sooner or later, investors are going to notice that something is going on with the Sprott funds. Why are they performing differently. And that's just because we've taken a different approach to our index construction. And we think that's one of the reasons why we've been able to build market share in some of these categories very quickly. W. George: I'll throw one last thing on our active ETFs, both METL and GBUG, they are the first offerings of their kind to -- as an investor, I think the mining industry really offers an opportunity to manage risk actively and there is no other organization that I know of on the planet that has as deep a bench of analysts, portfolio managers, geologists, technicians that are covering this space. So I'm very excited about those launches and the progress we're making there. Operator: Your next question comes from the line of Matt Lee with CGS. Matthew Lee: Maybe I want to start on -- sorry, carried interest and performance fees, nice contributor this quarter, something we didn't model in. Can you maybe talk about what drives that? And if we do expect the funds to perform well in 2026, is it assumed that we should receive a similar benefit next year? Or is it more nuanced than that? Kevin Hibbert: Matt, can you just repeat that last part of your question? Matthew Lee: Yes. I mean, should we be thinking about a similar kind of performance fee and carried interest revenue line in 2026? Or is it... Kevin Hibbert: Yes. Okay. Got you. Well, it certainly is episodic and it's coming from really two areas. One is the carry, the other side is the performance. On a full year basis, I would say the large chunk of the carrying performance fee that you saw was coming from Managed Equities and specifically on the performance fee side, but there was another good chunk that was coming -- it came in at the second half of -- at the beginning of the second half of the year. from a legacy exploration LP that we had. So it's kind of difficult to look at this and try to get a sense of where things will be this year because a big chunk of it was legacy and we just harvested it. So that's not going to recur that much of that Q2 number. And then the rest of it is just largely based on how the markets are doing in the case of our active equities or when we get to a point where we're ready to harvest on our Private Strategies side. So I don't know what to tell you other than to gives you that type of background into just how episodic it can be, but I can't really give you a lot of insight from there, unfortunately. Matthew Lee: Okay. That's fair. And then maybe one on the Private Strategies side. I know the portfolio has a lot of fixed income like investments in it. But I'm surprised to see market value there, although only increased by about $5 million, just given how good the macro has been. So can you maybe dig into that a bit and help us understand if anything can drive value up other than net inflows in private? W. George: Okay. Those are private credit funds. And what you're seeing is a function of a strong market where the credits get paid back because the mining companies can raise capital is much cheaper than what they're paying. And so it's always a balance between deploying capital into new investments versus what you get back. As I mentioned, Lending Fund II is coming to the end of its life. So that's going to reduce AUM. But again, this is a -- it's a long cycle. They're 10-year lockup products. And so this is a transition year, I'd say, for the Private Strategies. Kevin Hibbert: And Matt, are you also asking about the -- were you asking about the gains on investments in that segment? Matthew Lee: Yes. I'm kind of thinking about that from the perspective of net inflows and market value chains, right? So I think you guys answered that in the net inflows question well. I just -- I'm wondering if there's any changes in the market value of those funds as well. Kevin Hibbert: Yes. So it's exactly as Whitney said, these are loans and so we have to use amortized cost accounting. So we wouldn't be marking them. So it's really just -- any increase you see there is probably from equity kicker enhancements, for example, offset by whatever gains we would get when we pay off the loan debt -- sorry, when the funds have the loans repaid, apologies to that. Operator: Your next question comes from the line of Mike Kozak from Cantor Fitzgerald. Michael Kozak: Congrats on the record quarter. Two questions from me. First, just at a high level, and I think Whitney, you kind of alluded to it a little bit. But I mean gold and silver prices, they set multiple new all-time highs in the quarter. They're consolidating now, which I agree is healthy. But obviously seem likely to reset here at like a much higher base. And my question is -- my first one is against that backdrop, like how do you guys think about special dividends or maybe even some sort of like dividend linked to a basket of metal prices? W. George: Okay. We have mixed investor opinions about special dividends. I've committed that we're not going to run a money market fund here. To the extent that we have nonrecurring sources of income, that's something we will consider. But I'd like to continue to grow the regular dividend along with our underlying growth. So dividends, buybacks, opportunistic buybacks. Obviously, our stock is very strong. And then ultimately, the special dividend if the first two don't get us where we want to be. Michael Kozak: Okay. And then second, maybe just given the extreme volatility in silver prices, both on the upside and the downside in January and February, I'd love if you could give me some color on what the physical market was like? Like where was it tight? Where were the metal flows jurisdictionally and how are these dynamics like now post correction versus, call it, a month ago during that parabolic move to the upside? John Ciampaglia: That's a fine question, Mike. It's John. Yes. I mean we've obviously seen a pretty extreme volatility in solar. We've never seen those kinds of moves. I think it's fair to say that the physical market was really the catalyst for the move, meaning we saw huge amounts of silver being purchased by investors in India in the fourth quarter. They continue to buy lots of silver. We've seen lots of silver buying a physical form in China in the last few months. And up until very recently, the flows into Western silver-based ETFs was quite strong. So physical buying kind of was driving the move. Obviously, in the last, I'd say, 3 weeks, that's flipped around. And the paper markets, i.e., options on ETFs and the futures markets have been pushing the price back the other way. So it has been a real tug of war between physical buyers who are thinking more long term. and have been waiting for this re-rating of silver for many, many years. And then other powers that are trying to smash the price down, we see some very abnormal selling behavior where people are dumping huge amounts of silver through paper products and derivatives and 2 minutes of trading or periods of time when markets are closed or on holiday or whatever. So there is some kind of funny business going on. But in terms of the physical our procurement, we bought a lot of silver. And we're finding there's enough silver to buy in North America. Silver is definitely more scarce in London, in India and China. China has also recently implemented export restrictions on silver, which I think is going to make the market more tight. So the physical market is definitely a little bit mismatched in terms of demand versus interest. And more recently, the large competitor, ETF -- Silver ETF that's listed in the United States has gone in, in the outflows in the last few weeks. So it's been very volatile. Silver is trying to find a footing here. But it's been very paper-driven versus physical-driven for sure, the last few weeks, but it's definitely moderating. Some regulators have stepped in to kind of rein in some of the speculative activity, namely in China, the CME has raised margin requirements on silver futures contracts multiple times, and that all seems to have some effect here. W. George: Yes. Ultimately, we think it will settle down. Ultimately, the inflation-adjusted all-time high for silver would be somewhere between $180 and $200 an ounce. It's a small market. It's been in supply deficit for 5 years, and it's critical. So I think what we're seeing now is a great opportunity somewhere in this neighborhood for new investors to get involved. Operator: Your next question comes from the line of Graham Ryding with TD Securities. Graham Ryding: Maybe you can just touch on those new ETF product launches. Will those be actively managed ETFs or passive strategies around your sort of proprietary indexes or a combination of both? How should we think about those? John Ciampaglia: Yes. The ones that are in the hopper are both proprietary passive-based indexes. One is a clone of an existing fund that we'd like to bring to Europe. The other one is a brand-new fund that I don't think we're allowed to talk about because we're in a quiet period, but it's on EDGAR. So it is in the public domain. And yes, so we're being very selective. Obviously, we've been pretty aggressive the last few years building out the suite and filling in gaps. And right now, our #1 objective is to scale what we have because that represents the best opportunity to attract assets. Graham Ryding: Understood. And is there any commodity that you would call out right now that you sort of feel is positioned to break out? Or are you sort of equally constructive across your main commodities? John Ciampaglia: Yes. I think our response to that has changed a lot because as I mentioned, multiple metals have all hit all-time highs all at once, which is very abnormal. We're pretty constructive on all of them. They're all taking a bit of a breather right now and consolidating the recent gains, but we think we're still in the early innings. And I think what's really highlighting the value of these metals is the fact that governments are now intervening and talking about strategic stockpiles and price floors and these kinds of mechanisms to basically reshore supply chain away from China. So it's hard to know how government policies and whatnot are going to affect commodity prices. But I think it's fair to say that most investors have little to no exposure to commodities and the commodities that we're most bullish about are in the mining -- are in the metal space as opposed to traditional energy and agriculture type commodities, which have obviously underperformed big time. Graham Ryding: Okay. Great. Maybe just jumping to your sort of the cash on your balance sheet. It's obviously built up quarter-over-quarter, year-over-year in a fairly healthy way. You also have some compensation payable sitting on the liability side. What's the timing around that piece? Should we expect your sort of cash balance to be coming down in Q1 as you pay out some of that or most of that comp payable? Kevin Hibbert: Well, basically, it wouldn't be the following month for the most part. Graham Ryding: Okay. And then capital allocation, any obvious uses for net cash build? Or are you sort of happy to keep your cash -- your powder dry and your balance sheet is strong? W. George: We're going to keep a strong balance sheet. That's one of our principles. What we're trying to do is deliver operating leverage without financial leverage to the parts of the world that we operate in. As I mentioned, we'd like to continue to grow the dividends, I'm the second largest shareholder, so I really appreciate that. And again, we will buy back stock depending and be opportunistic and depending on the value that we can get will depend on how much we can deploy there. And then we'll revisit where we are later this year. Graham Ryding: Okay. Great. And one more, if I could be greedy, just on the Private Strategies side. You talked about looking at doing some fundraising. Would that be to replace that LF2 fund? Or are you looking to add incremental AUM to that overall part of your business? W. George: Yes. We want to continue to cycle through our lending products, but we also have some very interesting Private Strategies that are starting to scale. One is in physical commodities that do not trade on any exchanges, run by Ryan McIntyre. We have introduced an evergreen version of our lending product, which I think is a concept that's gaining traction in the private credit world. And we continue to have people's attention now with our mining -- special metals and minings fund, given its performance, not just last year, but over 5 years. So there are lots of opportunities on the private part of our business, and we are increasingly heavily engaged with family offices and large high net worth investors. I didn't mentioned that our wealth management business more than doubled in assets last year, a lot on the back of performance. But again, we were getting calls and things like that, that we haven't seen in years and years from high net worth investors. So that part of our business, which has been sort of a rounding error, is starting to grow nicely as well. Graham Ryding: And then my last one, just on that Lending Fund II. You talked about sort of it's in a harvesting phase. Does that sort of imply that 2026 could generate some carried interest around that fund? W. George: We are not allowed to say anything. Operator: Your next question comes from the line of Bart Dziarski from RBC Capital Markets. Bart Dziarski: I wanted to ask around the net comp ratio. So it was about 45% last year, it's 40% this year, and it was lower than that in Q4. So just trying to get a sense what run rate should we assume for that ratio going forward? Kevin Hibbert: Bart, Kevin here. we don't provide forward-looking information, obviously, the kind of standard statement. But what I can say is the key drivers for us are, one, obviously, revenue growth, obviously, as the denominator, but also just keeping in mind that there's not an awful lot of torque to the cash comp side as it relates to our net revenue growth. And you can just see that when you look at the MD&A explanations that we give around compensation pre-stock based relative to the net revenue growth. So whatever you're seeing now, if you wanted to keep that and maybe kind of flat or a bit throughout the year and then maybe only toggle it down commensurate with any future net revenues we may or may not report then you're welcome to do that. And I can't imagine you'd be massively off, if you took that approach. But I can't actually specifically give you anything to rely on. Bart Dziarski: Okay. No, that's helpful, Kevin. And then John, in your prepared remarks, you talked about AUM and liquidity begets AUM and liquidity. And it's an interesting point that we probably underappreciate. So can you maybe elaborate a little bit on that? And then tying into that, you're saying on the back of it, you're seeing more and more institutions allocate. So just more color on what institutions, where, and the momentum you're seeing there? John Ciampaglia: Yes, sure. Bart. So yes, I guess I would view it from two perspectives. One is from a product shelf placement perspective. So for example, some distributors won't turn your ETF tickers on until you hit a threshold of AUM, sometimes it's $25 million, sometimes it can be even as high as $100 million. So that's thing one. You need to hit those milestones for distributors to turn them on. And then secondarily, institutional investors obviously have some limitations in terms of their comfort level in terms of owning a percentage of a fund. So as these funds get bigger, they trade more and institutions feel more comfortable putting on positions of size. So it does create a bit of a flywheel effect. You also tend to see bid-ask spreads tighten, which helps the trading. And you just have to be patient because you could have a fund that's sitting there at $10 million for months and months and then all of a sudden, somebody is interested in it, and it will jump up to $100 million in no time. And we've recently seen that with our nickel miners ETF and our lithium miners ETFs as well. And I think where we see the real big flywheel effect is obviously in the multibillion dollar funds, and that's where institutions that we talk to, pension funds, family offices, hedge funds, et cetera. That's where they can get materially positioned with large positions. So those are the kind of the workhorse funds for us. The uranium trust is a good example that has the highest percentage of institutional ownership amongst the physical products. And as that fund gets bigger, you get to talk to bigger and bigger institutions that can allocate to it. Operator: At this time, I will turn the call back to management for closing remarks. W. George: Thank you, everyone, for participating in this call. We appreciate your interest in Sprott and look forward to speaking to you again after our first quarter results. Until then, we will remain contrarian, innovative and aligned. Have a good day. Operator: Thank you. This does conclude today's conference call. We thank you for attending, and you may now disconnect your lines.
Operator: Good morning. My name is Rebecca, and I will be your conference operator today. At this time, I would like to welcome everyone to the Western Midstream Partners Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Daniel Jenkins, Director of Investor Relations. Please go ahead. Daniel Jenkins: Thank you. I'm glad you could join us today for Western Midstream's Fourth Quarter 2025 Conference Call. I'd like to remind you that today's call, the accompanying slide deck and last night's earnings release contain important disclosures regarding forward-looking statements and non-GAAP reconciliations. Please reference Western Midstream's most recent Form 10-K and other public filings for a description of risk factors that could cause actual results to differ materially from what we discuss today. Relevant reference materials are posted on our website. I'm pleased to inform you that the Western Midstream Partners K-1 will be available via our website beginning Wednesday, March 11. Hard copies will be mailed out the following week. With me today are Oscar Brown, our Chief Executive Officer; Danny Holderman, our Chief Operating Officer; and Kristen Shults, our Chief Financial Officer. I will now turn the call over to Oscar. Oscar Brown: Thank you, Daniel, and good morning, everyone. 2025 was another incredibly successful and strategically meaningful year for Western Midstream that can be defined by record adjusted EBITDA and free cash flow generation, primarily driven by throughput growth across all products and from the Delaware and DJ Basins while focusing on cost competitiveness to support our long-term growth plans. Throughout the year, the Delaware and DJ Basins set multiple quarterly throughput records, enabling WES to meet or exceed our annual throughput expectations and full year financial guidance ranges. Additionally, the Aris acquisition in late 2025 further enhanced our asset base by expanding our produced water solutions capabilities and establishing a more substantial presence in New Mexico. Taken together, our 2025 achievements, including successful organic growth projects, accretive M&A, efficiency gains and cost reduction successes as well as contract renegotiations, all strengthen our operating leverage and position us for sustainable growth while maintaining a strong balance sheet and low leverage profile. As we progress later into 2025 and now into 2026, macroeconomic and commodity price-driven volatility have increased. Kristen will provide more details on our 2026 guidance metrics shortly, but based on recent discussions with our producing customers and taking into account their updated forecast, it has become clear that many of our producers will reduce previously expected activity levels on acreage that we service, including portions of the Delaware Basin. This, in combination with lower adjusted gross margin per unit for our natural gas assets, driven by changes in contract mix and lower commodity prices are expected to result in more moderate rates of growth for overall throughput and adjusted EBITDA in 2026 relative to our initial expectations. While we had already anticipated and communicated lower activity levels and declining production in the DJ and Powder River Basins, Oxy has recently reallocated a portion of their activity from acreage that we service in the Delaware Basin. Based on Oxy's most recent forecast, we expect a portion of that activity to begin returning to our acreage starting in 2027, although scenarios are still being evaluated and will continue to maintain flexibility. This activity shift moderates our expected 2026 throughput growth in the Delaware Basin relative to earlier expectations, and we now expect partnership-wide natural gas throughput to be flat and crude oil and NGL throughput to decline by low to mid-single digits on average year-over-year. With that said, our long-term outlook of mid- to low single-digit adjusted EBITDA growth remains intact as evidenced by our 6% adjusted EBITDA growth reported in 2025 and our expectation of 5% adjusted EBITDA growth in 2026 at the midpoint of our guidance range. We remain confident in our producers' long-term development plans, especially when you consider the fact that the majority of undrilled inventory within Oxy's Delaware Basin portfolio remains located on acreage that we service. While 2026 is proving to be more of a transition year than we initially anticipated, our business remains underpinned by stable long-term contract structures, many of which include minimum volume commitments that support financial stability in a lower activity environment. As you can see from the reduction in our 2026 capital expenditure program from at least $1.1 billion in prior communications to $925 million at the midpoint of our updated guidance range, we are able to quickly modify our capital program to align our spending with revised producer activity levels. In short, our long-term growth strategy is unchanged. The Aris acquisition will contribute meaningfully to adjusted EBITDA in 2026. And by issuing equity for a portion of the Aris consideration, we preserve the financial flexibility necessary to continue pursuing value-accretive opportunities and commercially creative solutions such as the restructuring of our Oxy Delaware Basin natural gas gathering contract in exchange for WES units. Additionally, our cost reduction initiatives are making WES a leaner, more efficient organization, positioning us to better compete for new business and to benefit from operational leverage when activity levels recover, especially considering extremely bullish power-driven natural gas demand fundamentals expected in the coming years. Returning to our recent accomplishments and focusing specifically on the fourth quarter, we generated record adjusted EBITDA of $636 million, even after $29.5 million of negative noncash cumulative revenue recognition adjustments. Excluding these adjustments, we would have recorded adjusted EBITDA of $665 million, representing an approximate 5% sequential quarter increase. Our fourth quarter performance was primarily driven by increased crude oil and NGL throughput in the Delaware Basin, the contribution of 2.5 months of produced water volumes from the Aris acquisition and reduced operation and maintenance expense from legacy WES's assets, which excludes the impact of Aris. The Delaware Basin remained our primary growth engine during the quarter with crude oil and NGL volumes rebounding as more wells came online and produced water volumes increased driven by the Aris acquisition. However, this was mostly offset by lower natural gas volumes in the Delaware Basin, largely due to third-party curtailments tied to low Waha hub pricing throughout the quarter as well as expected volume declines in the Powder River Basin and lower crude oil and NGL volumes in the DJ Basin. Waha Hub pricing remains a persistent industry-wide challenge affecting producers and midstream providers. While WES's direct commodity price exposure to Waha is limited, some of our third-party producers are more directly tied to Waha pricing, which led to throughput curtailments throughout the fourth quarter. These curtailments have continued intermittently in the first quarter of this year and near-term Waha pricing remains volatile. We expect continued pricing pressure through at least the first half of 2026 which will likely impact Delaware Basin natural gas throughput over the next 2 quarters. However, we expect new egress coming into service in the second half of the year to begin alleviating some of this pricing pressure. With that said, our marketing team is actively working with our producing customers to identify more diversified near-term pricing exposure to maintain economic production as well as to secure longer-term solutions, including long-haul capacity to the Gulf Coast. For full year 2025, throughput increased across all 3 products and was driven by throughput records in both the Delaware and DJ Basins, which resulted in some of the highest levels of adjusted EBITDA and free cash flow in our partnership's history. Other key operational and financial milestones include the sanctioning of the Pathfinder Pipeline and the execution of long-term produced water gathering and disposal agreements, the completion of North Loving Train I, which was brought online ahead of schedule and under budget in the first quarter and expanded our West Texas complex processing capacity by 250 million cubic feet per day to approximately 2.2 billion cubic feet per day. The sanctioning of North Loving Train II, which is still expected to commence operations early in the second quarter of 2027, the acquisition of Aris Water Solutions, which materially increased our produced water solutions capabilities, established a more substantial presence in New Mexico and provided a much stronger foothold in the produced water gathering and disposal, recycling and treating for beneficial use businesses. A 4% year-over-year increase in the distribution, which allowed WES to maintain a strong capital return profile and leading total capital return yield and maintaining our strong balance sheet with net leverage around 3x throughout 2025, including the financing of the Aris acquisition. Focusing specifically on the Aris acquisition, integration has progressed exceptionally well and is ahead of schedule and mostly complete. The acquisition has strengthened our commercial organization, expanded our capabilities and increased direct engagement from our producing customers now that the platform has been fully brought under the WES umbrella. WES now has one of the largest and most integrated water footprints in the Delaware Basin with the ability to provide all of today's water solutions, including freshwater, recycling, gathering, long-haul transportation and disposal as well as a leading position in the emerging beneficial reuse treatment technology business. We have also achieved $40 million of targeted cost synergies and approximately 85% of those savings should be realized by the end of the first quarter, with the remainder by year-end 2026 as legacy contract and license terms expire. To date, we have completed several major integration milestones including the full consolidation of ERP and purchasing systems, the consolidation of operations and project management systems, vendor contract harmonization and the complete integration of IT and HR systems, which includes the migration to WES's payroll and benefit plans. I would like to extend my sincere appreciation to all teams across both WES and Aris. This was an extremely complex undertaking, and our teams rose to the challenge with tremendous professionalism and dedication. In addition to the successful integration of Aris and the associated cost savings, we made substantial progress enacting process efficiency improvements across the organization under our multiyear cost reduction initiatives. Kristen will provide more details later, but when excluding the Aris acquisition impact, we achieved 3 consecutive quarters of declining operations and maintenance expense in 2025. In fact, when excluding mostly reimbursable utility costs and the Aris acquisition impact, operations and maintenance expense decreased by more than $100 million when annualizing the first quarter of 2025 relative to the fourth quarter of 2025. Additionally, excluding acquisition-related expenses and noncash equity-based compensation, 2025 general and administrative expense would have been flat year-over-year even after strategically retaining select personnel and functions from Aris, like beneficial reuse and commercial operations and taking routine annual compensation growth into account. Our engineering and construction team has also reevaluated certain facility designs, which will lower a portion of our expansion capital outlay in 2026 and beyond. This demonstrates the continued commitment from all teams to lower costs while pursuing our growth mandate and maintaining operational excellence. You will continue to see the benefits of our cost reduction efforts throughout this year as our teams fully execute on already identified initiatives and advance the next set of opportunities. As the legacy WES and Aris operations, engineering and construction teams continue to integrate, we expect to unlock additional efficiencies beyond the previously communicated $40 million of targeted synergies. The teams have already identified several incremental opportunities across both produced water systems, and we will continue evaluating and prioritizing these throughout the first half of 2026. With that, I'll turn the call over to our Chief Operating Officer, Danny Holderman, to discuss our operational performance in the fourth quarter. Daniel Holderman: Thank you, Oscar, and good morning, everyone. Our fourth quarter natural gas throughput decreased by 4% on a sequential quarter basis as a result of lower volumes from the Delaware Basin due to certain customers curtailing volumes in response to low Waha Hub pricing and lower volumes from the Powder River Basin. These decreases were partially offset by record throughput from the DJ Basin. Our fourth quarter crude oil and NGLs throughput decreased slightly on a sequential quarter basis, primarily due to decreased throughput from the DJ Basin, which was mostly offset by increased throughput from the Delaware Basin as expected wells came online in the fourth quarter. Our fourth quarter produced water throughput increased 121% on a sequential quarter basis as a result of 2.5 months contribution from the Aris acquisition. Our fourth quarter per Mcf adjusted gross margin for our natural gas assets decreased by $0.01 compared to the prior quarter, mostly due to contract mix associated with Delaware Basin volumes and lower overall throughput from the basin. Going forward, we expect our first quarter per Mcf adjusted gross margin to decline modestly, and we now expect our average natural gas adjusted gross margin to be approximately $1.22 per Mcf in 2026, driven mostly by a change in contract mix in the Delaware Basin and lower overall commodity pricing. Our fourth quarter per barrel adjusted gross margin for our crude oil and NGLs assets decreased by $0.33 compared to the prior quarter, mostly due to an unfavorable revenue recognition cumulative adjustment recorded in the fourth quarter associated with lower cost of service rates at our DJ Basin oil system and South Texas system. Going forward, we expect our first quarter per barrel adjusted gross margin to range between $3.05 and $3.10 and our average crude oil and NGLs adjusted gross margin to range between $3.10 and $3.15 per barrel in 2026. Our fourth quarter per barrel adjusted gross margin for our produced water assets decreased $0.11 compared to the prior quarter, driven by 2.5 months contribution from the Aris acquisition. We expect our first quarter per barrel adjusted gross margin to increase slightly and our average produced water adjusted gross margin to be approximately $0.85 per barrel in 2026 due to increased throughput expectations and associated contract mix. Turning to our full year results. For the second consecutive year, average throughput across all 3 products increased year-over-year, adjusting for the sale of several noncore assets that closed in the first half of 2024. For full year 2025, natural gas throughput averaged 5.2 billion cubic feet per day, representing a 4% year-over-year increase, in line with our expectations of mid-single digits growth. For full year 2025, crude oil and NGLs throughput averaged 514,000 barrels per day, representing a 1% year-over-year increase, in line with our expectations of low single digits growth. Full year 2025 produced water throughput averaged 1.6 million barrels per day, an increase of 40% compared to full year 2024, driven by 2.5 months contribution from the Aris acquisition. Produced water throughput from WES' legacy assets averaged 1.2 million barrels per day, representing a 7% year-over-year increase and in line with our original expectations of mid-single-digit growth. Turning our attention to 2026. We expect that most of our throughput growth will occur in the Delaware Basin and will be driven by the Aris acquisition. As Oscar discussed, due to lower overall customer activity levels across our asset base, we now expect our growth rates for crude oil and NGLs and natural gas in the Delaware Basin to moderate to low to mid-single digit average year-over-year growth in 2026. Overall throughput decreases in the DJ and Powder River Basins are now expected to result in portfolio-wide average crude oil and NGLs throughput to decline by low to mid-single digits and natural gas throughput to remain relatively flat year-over-year. For produced water, we estimate that the throughput will increase by over 80% year-over-year, driven by the Aris acquisition. More specifically, in the Delaware Basin, even though we expect the number of rigs to decline year-over-year and the resulting number of wells that we expect to come to market to decrease by a little more than 1/3, we still anticipate throughput growth mostly due to drilling efficiencies that continue to be achieved by our producing customers. As we mentioned on our third quarter call, we expect a more challenging environment in the DJ Basin that should result in average year-over-year throughput declining for both natural gas and crude oil and NGLs in the mid- to high single digits range as we expect the overall number of wells that come to market to decline. With that said, we expect natural gas throughput to be supported by steady onload activity from Phillips 66. We also expect Oxy's Bronco CAP development to offset basin-wide crude oil and NGLs throughput declines with volumes that are expected to come to market in the second quarter of 2026. Once we begin to see results from the initial production of the Bronco CAP, we will be in a better position to provide a clearer view of year-over-year trends in the basin in 2026 relative to 2025. Also, as previously discussed, we expect average year-over-year throughput for natural gas in the Powder River Basin to decline in the range of 10% to 15% based on the most recent producer forecast. The Powder River Basin tends to be more commodity price sensitive, but several of our producing customers have indicated the return of rigs to the basin in 2027. We will remain in close contact with our producing customers and continue monitoring the commodity price environment before making any decisions to allocate additional growth capital back into the Powder River Basin. Finally, we expect average natural gas throughput for our other assets to increase in the mid-single digits range year-over-year. This is mostly due to a full year's contribution from Williams Mountain West Pipeline expansion, the tie-in of Kinder Morgan's Altamont pipeline into our Chipita processing plant in Utah in early 2025 and steady throughput levels at our Versad plant in South Texas. With that, I will turn the call over to Kristen to discuss our financial performance during the quarter. Kristen Shults: Thank you, Danny, and good morning, everyone. During the fourth quarter, we generated net income attributable to limited partners of $187 million and adjusted EBITDA of $636 million. Our net income was negatively impacted by $120 million of transaction costs from the Aris acquisition that were added back to adjusted EBITDA for comparability purposes and due to the onetime nature of those costs. Relative to the third quarter, our adjusted gross margin increased by $60 million. This was primarily driven by the incremental gross margin contributed from the Aris acquisition, which was partially offset by the recording of approximately $30 million of unfavorable noncash revenue recognition cumulative adjustments associated with redetermined cost of service rates on certain contracts associated with our assets in South Texas and at our DJ Basin oil system. In fact, without these fourth quarter adjustments, we would have recorded adjusted EBITDA of $665 million, a 5% increase relative to the prior quarter. Our operation and maintenance expense increased by $40 million or 19% sequentially, which was primarily driven by the inclusion of 2.5 months of Aris. When excluding Aris, our fourth quarter operation and maintenance expense decreased by 12% compared to the fourth quarter of the prior year, and our full year operation and maintenance expense decreased by 2% on average year-over-year, demonstrating the success of our cost reduction plan that we commenced in the second quarter of 2025. In fact, excluding Aris and utility costs, the majority of which are reimbursed through producer contracts, operation and maintenance expense decreased by more than $100 million from the first quarter to the fourth quarter of 2025 based on the difference between the first and fourth quarter annualized run rates. As we transition into 2026, we estimate further year-over-year reductions in operation and maintenance expense related to our legacy asset base, acknowledging the normal seasonality we typically see in quarterly spend. Going forward and including the full year's contribution from Aris, we expect our operation and maintenance expense to increase by approximately 10% to 15% on average year-over-year. This is significantly below the combined company's pro forma operation and maintenance expense, reflecting the realization of identified cost reductions and additional efficiencies we continue to capture. On a reported basis, our general and administrative expense increased quarter-over-quarter, primarily due to transaction costs associated with the Aris acquisition. When excluding those costs, the modest quarterly increase mostly pertained to higher personnel costs. Excluding acquisition-related costs, 2025 cash G&A expense would have been approximately $235 million, essentially flat compared to 2024, even after taking into account the increased size of the business and strategically retaining select personnel and functions from Aris, like beneficial reuse and commercial operations. Going forward, we expect our 2026 cash, general and administrative expense to again remain flat year-over-year due to continued cost reduction initiatives even after accounting for a full year of the retained functions from Aris and accounting for routine annual compensation increases. Turning to cash flow. Our fourth quarter cash flow from operating activities totaled $558 million, generating free cash flow of $341 million. Free cash flow after our third quarter 2025 distribution payment in November was a use of cash of approximately $39 million. Distributable cash flow in the fourth quarter was approximately $527 million compared to $547 million in the prior quarter. In January, we declared a distribution of $0.91 per unit, which is consistent with our prior quarter distribution that was paid on February 14 to unitholders of record as of February 3. Turning to our full year results. We recorded $1.15 billion of net income attributable to limited partners, generating record adjusted EBITDA of $2.48 billion, exceeding the midpoint of our 2025 adjusted EBITDA guidance range of $2.35 billion to $2.55 billion. Our record adjusted EBITDA performance was primarily driven by increased throughput across all 3 products, several quarters of record throughput from the Delaware and DJ Basins, successful cost reduction initiatives and 2.5 months of contribution from the Aris acquisition in the fourth quarter. This growth positioned WES to deliver record cash flow from operations of approximately $2.22 billion in 2025. Our capital expenditures totaled $722 million, within our 2025 guidance range of $625 million to $775 million and consisted of capital largely associated with the construction of both North Loving Train I and II, the Pathfinder produced water pipeline and associated systems and other expansion projects to support the growing needs of our customers, primarily in the Delaware Basin and in our other core operating basins, but to a lesser extent. We also generated record free cash flow that totaled $1.53 billion in 2025, exceeding the high end of our guidance range of $1.275 billion to $1.475 billion. This was primarily driven by our strong adjusted EBITDA performance, diligent working capital management and capital expenditures coming closer to the midpoint of the guidance range, less than our most recent expectations from the third quarter. Finally, WES declared distributions that totaled $3.64 per unit for 2025, including our recent fourth quarter distribution of $0.91 per unit. Distributions paid within calendar year 2025 were in line with our full year distribution guidance of $3.61 per unit. Turning to our 2026 financial guidance and taking producer forecast into account, we expect our adjusted EBITDA to range between $2.5 billion to $2.7 billion for the year, implying a midpoint of $2.6 billion, which represents growth of approximately 5% year-over-year at the midpoint. We expect that the Delaware Basin will remain the primary driver of throughput growth, especially considering the full year's contribution from the Aris acquisition and will help offset expected throughput declines in the DJ and Powder River Basins. Our range also includes continued cost reduction initiatives and first quarter winter storm impacts of approximately $10 million to $20 million. We now expect our 2026 capital expenditures to range between $850 million and $1 billion, implying a midpoint of $925 million, which is significantly less than our previous estimate from the third quarter of at least $1.1 billion. Due to the shifting commodity price environment and recent changes in producers' forecast, we have remained disciplined and reduced our expansion-oriented capital expectations for the year. Approximately half of our expected 2026 capital program is directed towards the construction of the Pathfinder produced water pipeline and associated systems and North Loving II, both of which are still expected to come online in the first and second quarters of 2027, respectively. Our actions also demonstrate our ability to materially reduce the remainder of our expansion-oriented capital expenditure program when needed, thereby limiting the impact on free cash flow. As we enter a year with elevated expansion capital spending, we are also providing distributable cash flow or DCF guidance, which we expect will range between $1.85 billion to $2.05 billion in 2026, implying a midpoint of $1.95 billion. On a per unit basis, we expect DCF to range between $4.59 and $5.08 per unit. While we continue to believe that free cash flow is a meaningful indicator of the partnership's financial strength, DCF also provides investors with an additional measure of our capacity to fund the distribution and a substantial portion of our expansion capital program. As such, we will continue to provide both metrics going forward, and we estimate that our 2026 free cash flow will range between $900 million and $1.1 billion, implying a midpoint of $1 billion. Turning to the distribution. We intend to recommend a distribution increase of $0.02 per unit starting with our first quarter distribution to be paid in May. And as such, we are guiding to a full year distribution of at least $3.70 per unit, which includes distributions to be paid within calendar year 2026. This represents an approximate 3% increase compared to our prior year's annual distribution of at least $3.61 per unit, and the distribution increase will equate to approximately $3.72 on an annualized basis. Going forward, we will continue to target mid- to low single-digits annual percentage adjusted EBITDA growth, but we will most likely pursue a rate of growth slightly less for the distribution in order to increase distribution coverage naturally over time. With that, I will now turn the call over to Oscar for closing comments. Oscar Brown: Thanks, Kristen. In closing, our 2025 achievements, which included organic growth, accretive M&A, meaningful efficiency gains and cost reductions and constructive contract renegotiations, all strengthen our operating leverage and reinforce the durability of our business. Our performance reflects the strength and resilience of our diversified asset base, the dedication of our teams, the execution of our strategic growth plan and our commitment to disciplined capital allocation and operational excellence. Despite near-term activity shifts, our long-term strategy of mid- to low single-digit growth remains firmly intact supported by producers' development plans and the depth of undrilled inventory on acreage that we service. In short, our strategy hasn't changed. The Aris acquisition will meaningfully contribute to 2026 results. Our reduced cost structure will inure to our benefit. Our balance sheet remains a source of strength and issuing equity for a portion of the Aris consideration preserve the flexibility needed to continue pursuing value-accretive opportunities and creative commercial solutions. With an expanded footprint in New Mexico, we now service some of the most economically attractive acreage in the Delaware Basin, and we will continue to see this basin grow within our portfolio, while the DJ Basin continues to generate strong free cash flow. Additionally, as natural gas demand rises, particularly to meet growing power generation and LNG demand, we expect to call on natural gas production from basins beyond the Permian and Haynesville, which should result in increased capital allocation and throughput growth in the Powder River Basin in the years ahead. WES's leading position as the #1 gatherer and processor in the basin, in combination with a large inventory of undrilled locations, all provide a strong foundation for future throughput growth and success. Combined with the progress we have made on cost reductions, WES is a leaner, more resilient organization and is well positioned to capture operational leverage as activity recovers. With that said, I am confident in our ability to deliver sustainable value for our stakeholders over time, and I look forward to another year of growth and operational success. I would also like to thank the entire WES workforce for all their continued hard work and dedication to our partnership, which enabled us to achieve landmark accomplishments in 2025. I look forward to seeing what we can achieve in 2026 and updating our stakeholders on our progress toward our goals on our first quarter call in May. With that, we will open up the line for questions. Operator: [Operator Instructions] Your first question comes from the line of Gabe Moreen with Mizuho. Gabriel Moreen: Just had a quick question, I guess, in terms of -- in light of the cost of service restructurings, the foray into water, your balance sheet and where it stands right now, just how you're thinking about M&A and inorganic growth as it stands currently? Oscar Brown: Thanks, Gabe. That's a shocking question. But I appreciate the query. So yes, I guess, number one, nothing's changed. As I said in our -- in the prepared remarks, our strategy is unchanged, and that goes for the way we think about M&A. So again, our capital deployment strategy is clear and it's tight. We only deploy capital, whether it's organic or inorganic to sustain or grow the distribution. We have demonstrated that discipline clearly last year. It is unchanged going forward. So I'm a little annoyed that people seem to be questioning that a little bit by virtue of what's happening in the marketplace. But second, the way we think about M&A, again, is really our preference is bolt-on M&A where we have opportunities for synergies. So it fits with our assets, our geographies. We have some way a reason and competency for owning the asset. So that's unchanged. And especially as a relatively new CEO, I guess I'm kind of popular. We have had -- I've met every CEO, private and public in this space. I'm pretty sure I haven't missed anybody. If somebody wants to buy me coffee and tell their story, they're welcome to do it. We'll listen. So we have an obvious strategy in terms of how we intend to grow the business. I hope you'll agree with the Aris acquisition, we did it in a very disciplined fashion. We took a little grief for issuing equity in that transaction given it was a bolt-on. But if you look at the big picture of the last 16 months, I hope you can see it all came together. We were able to claw back 15.3 million units of the 26.6 million we issued based on the Aris transaction relative to the contract renegotiations that gave us that flexibility. And so we'll continue to execute. If you step back a year, I'd also say we were super clear on updating and clarifying our strategy and providing for the first time long-term guidance on our growth. We are not NVIDIA. So we're not growing at crazy rates. We're just trying to post up around 5% every year, plus or minus over the long term. And I think hopefully, you can see how we're setting up for 2026, despite a few headwinds from some customers in terms of their drilling outlook this year and so forth, that the model holds. We'll be able to deliver something like that again this year. And then with our organic projects in terms of Pathfinder and North Loving II, we're setting up for a very strong 2027. The final comment I'll make on all of this is when you look at how we were setting up for sort of giving you the visibility of sort of that consistent growth rate over time, the 2 big organic projects sets up '27 pretty nicely. Aris really gave us at least a 2-, 3-year pretty clear visibility runway on supporting that growth as we believe the water part of the business is going to grow faster than gas. Gas will probably go faster than oil, et cetera. So we've got a pretty good runway. So there's nothing that we need to do to change our strategy in terms of how we deploy capital, and we're going to consistently continue to be disciplined about it. And my final comment is we're not going to take this call to be the opportunity to start participating in the silliness of the rumor mill. So I hope that helps, but happy to answer any questions in terms of anything specific about a shift in how we look at the world or the M&A market in general. Gabriel Moreen: Very comprehensive. And maybe if I can just pivot to 2 follow-ups around, one is Waha. I think you mentioned sort of trying to ameliorate some of the negative pricing impacts. Can you maybe just elaborate on that a little bit more? And would that also imply down the line that maybe you feel WES needs to participate in some of the egress solutions coming out of the basins for commercial reasons? And then just wondering if I can get an update in terms of further commercialization on Pathfinder with additional third-party interest. Oscar Brown: Yes. No, those are perfect. Thanks, Gabe. Yes, on the Waha situation, again, I think we're aligned with the market and believing that the egress that's coming in the second half and then beyond that should help immensely with sort of at least dampen down some of the volatility in Waha pricing. Again, the majority of our customers, we tend to serve very large and often public integrated oil types and large independents. Most of those folks have found solutions along the way in either bypassing or getting exposure to other pricing hubs, et cetera. So we do have some other companies that do have direct Waha exposure, and that's where you've seen some of the production sort of the shut-ins and the volatility. We do think the Waha solution, if this is it, in the second half, is going to be great for everybody in the basin. I think it just taps down uncertainty whether you have exposure there or not. And then in terms of what we're doing, we're -- we've been working with those customers that still have significant exposure and coming up with sort of commercial solutions where we can help them commit to downstream solutions where they might not be comfortable doing it themselves, if we can aggregate the right situation or bundle the right services for the right number of customers that WES is willing to sort of support them in commitments in aggregate that maybe they can't do on their own. So we're working on those kind of solutions to help our customers in the near term and ensure whether this egress is enough over the next 5 years that there's backup plans related to that for our customers. With respect to Pathfinder. Yes, it's been interesting, right? I think we had a little bit of post Aris, our customers and the conversations we've been having kind of changed a little bit because we just have a much larger footprint and now the complete full array of solutions to what you want to do with your water, whether it's recycling or long-haul transport disposal, whatever. And then in the longer run, right, we're a leader in solving the sort of water treatment and desalinization beneficial use opportunity, which is going to be massive, we think, in the coming years. So that all kind of that dynamic kind of changed the conversation. And then when you add in Pathfinder, which is the first long haul to be -- which will be the first one to be completed, the dynamic changed. I think what we're seeing here recently is a significant pickup in interest in both more integrated solutions depending on where you are in sort of New Mexico and Texas that may or may not include a long-haul piece of the solution, where producers want sort of the water to go is becoming more specific, where they want to disposed of, and we can sort of provide that visibility. And then ultimately, just straight up commitments to the pipe, whether it's our customers or even some of our peers, and we have to think through how we manage that. So interest is really high. We're also excited, Gabe, from a capital perspective on that project with the sort of commercial-related transaction that we did late last year, which gave us better access to some of the land opportunities and SWD opportunities. It allowed us to sort of adjust sort of the path of Pathfinder and optimize some of our well costs related to that. So the cost of Pathfinder is coming down meaningfully. So even with the MVCs we already have in place, we see the returns on that project going up. But indeed, we're seeing a lot more interest in that pipe than even in the last couple of months. Operator: Your next question comes from the line of Jeremy Tonet with JPMorgan. Jeremy Tonet: Just wanted to dive into the water side, maybe a little bit more, but thank you for all that color. I was wondering, you talked about for the business, low to mid-single-digit EBITDA growth. But if you parsed out the water side, what would that look like? Oscar Brown: Probably the lower end, right? So in terms of the core, like that part of the business, long-term growth, I mean, we're going to closely follow just general basin growth given our size and our footprint, and we're kind of in the core areas. So barring any sort of producer-specific movement, I would think the long-term growth when we sort of combine gas and oil assets is a couple of 2%, 3% sort of on average over time. We're going to have cyclicality and all that related to it. Again, gas will be higher than oil. But we do believe water is for at least the next several years is going to have a higher growth rate than both those businesses. The wildcard, of course, and I think what you're seeing in the general exuberance of the market for infrastructure here in the last few weeks is sort of the realization that the gas pull demand is going to be real. And so that may change the dynamic, especially as we have sort of solutions for Waha and things like that. So if gas demand really does pick up meaningfully, there will be a producer response. So you might see gas do a little better than even we think in that sort of blended hydrocarbon throughput growth rate. But water will follow that along as well because you're going to get lots of water with that production, too. I don't know if that's your question, but I hope it helps. Jeremy Tonet: That is helpful. And just pivoting here, looking at the industry as a whole, we've seen a lot of midstream consolidation over the years here. And I was just wondering, how do you feel WES stacks up given a lot of competitors have significant scale at this point? Would it make sense for WES to scale up more to be -- to compete more effectively with larger players? Or do you feel like you're at a good size? Oscar Brown: Yes. Sorry, I got you [indiscernible]. No, I think -- look I think we're at a good size. We can always grow. Given the consolidations on our customers, right, and then the consolidation in the midstream space, scale is going to continue to matter. I mean one reason we're going to continue to be the leader, for example, in the water business is we're an order of magnitude, 10x the size of our next meaningful competitor as an enterprise in the business, and it allows us to go after projects that would strain their systems in terms of size that they can't compete with. So there's an analogy across the streams that we compete in, in that. So scale matters for sure. But I think our enterprise value, it's not -- we're not going to get bigger just to get bigger. We're going to continue to execute sort of the strategy that we've laid out in terms of our growth. I think where we're constrained, we don't compete. We're a G&P company, so we're not competing in long-haul pipe and the like. So if you think about the kinds of projects that fall naturally in our wheelhouse in terms of gathering systems, new compression, gas processing plants, hopefully, we expand more into the business of CO2. We'll have a solution on power at some point, et cetera. Beneficial reuse, even all those projects that will sort of drive our growth just in what is in our competency today are all absolutely manageable at our current size. North Loving II is a great example, right? We told everybody last summer that we were leaning in a little bit on that plant. We weren't doing our usual way to build up a portfolio -- a plant size portfolio of offloads, then sanction a plant, then take 18 months to build it, et cetera, that we had enough view of our customers and sort of our processing stack that we could go ahead and start building that plant. And if we were on time, great, if we're a little early, fine, $200 million to $300 million project, which is what most of our projects are in the box. Even on the water side, the $25 billion enterprise can probably handle if we're a quarter or 2 early on some of those. Operator: Your next question comes from the line of Keith Stanley with Wolfe Research. Keith Stanley: First question, now that you've modified the Permian G&P cost of service contract with Oxy, are there other contracts that you're interested in amending at all in the near term? Or is that not a priority at this point? Oscar Brown: Yes. In terms of -- well, one, we don't have any left. As you'll recall, something like 8% or 9% of our revenues post that restructuring are cost of service contracts. So it's pretty small. Ironically, right, the cost of service revenue recognition noncash adjustment we had this year, 2025 of $29.5 million. When you compare that to $3.8 billion of revenues, it's about proportional sadly. So I think these are -- it would be nice that if those were simplified if we could find an economic way. But given it's pretty small now, and there's a lot of effort, as you can imagine, for all parties involved. It's not necessarily something that is high on the priority list. Then again, everybody likes to do forecasts to the last dollar, but these things are pretty small in the grand scheme, and they certainly don't impact sort of the important stuff. So a little bit low on the list. Keith Stanley: Got it. And then wanted to follow up on distribution coverage. So the strategic recontracting with Oxy cleaned up contracts and dealt with an overhang, but came with an upfront cash flow headwind. And now you're in a bit of a down cycle this year. So how are you thinking about distribution coverage right now? And how would you kind of characterize some of the levers you can use to improve upon your distribution coverage over time? Oscar Brown: Yes. No, that's a good point. So I mean, we talked about distribution coverage now for more than a year in terms of our plan to sort of grow our distribution a bit behind our EBITDA growth in particular. So I think the outlook that we're going to recommend to the Board, the go-forward outlook with the $0.08 increase kind of nails it in a way, right? So we're expecting 5% EBITDA growth this year. On a go-forward basis, sort of run rate to run rate, it's a bit over a 2% increase. So we got 300 basis points of spread. Normally, we probably wouldn't have that much spread necessarily. But as you say, it's a bit of an uncertain market. But I think that all of this sort of kind of proves the model works taken holistically, right? So we had -- growth was a little bit lighter than we thought. So our distribution growth, we pulled that back a little bit. We have low leverage. We're in good shape and a lot of confidence for the future so we can continue that forward. But we also, as you noted in your note, we pulled back in response to sort of the activity, we pulled back a bit on our capital where we were originally guiding for in excess or at least $1.1 billion. We're now at the midpoint of $925 million. And so it just underscores the flexibility of the model. So again, we're -- the levers you have, of course, are how you deploy capital, CapEx, et cetera, our success or not on the commercial side in terms of organic growth. And then if you can supplement that with other kind of growth, inorganic or otherwise that, again, can build up the distribution coverage, which is sustaining the distribution or even better grow the distribution, then we'll do that. So everything we did in 2025 set us up for a resilient model kind of going forward and really sort of was an attempt to give you the visibility that while we might hit a speed bump here and there, that we should be able to deliver this on average sort of kind of mid-ish single-digit growth rate. Operator: [Operator Instructions] Your next question comes from the line of Wade Suki with Capital One. Wade Suki: Just wondering if you might be able to comment on sort of the commodity price backdrop here. Obviously, budgets set in a lower price environment than where they are today. So maybe if you could help walk us through how that dynamic might play out this year, if you want to parse it out by basin or operator type, that would be great. Oscar Brown: Yes. Maybe I'll let Kristen just sort of reemphasize sort of the basin look in general. But I'd say I agree, right, the budget we've built and responding to are based on customer forecasts that we've got over the last many weeks. It does feel strange because it does feel like at least the sentiment at the moment, is more bullish than that. So there could be upside. But if you want to walk through sort of the basis in terms of. Kristen Shults: Yes. I think -- so when you kind of go basin by basin, PRB is obviously your most commodity price-sensitive basin. We talked in the script about thinking about a natural gas decline there from 10% to 15%. I think some of that just depends on -- if you see a little bit of a tick up in commodity prices, maybe you get a little bit more activity on that acreage, but you'd really see throughput coming in, in the back half or the back even quarter of the year, if that's the case. So DJ Basin, we talked about in the script the decrease there. I think the wildcard in the DJ is, as we've discussed previously, Oxy moving into their Bronco CAP area. That's a new area for them. And so whether or not actuals look like their expectations. That's what we're using in our forecasting is their expectations of that area. And so we'll just have to see how that plays out. In the Delaware Basin, specifically, as we mentioned in the prepared remarks, we've got some producers that are just more Waha price sensitive. And so even if you see an uptick in oil, it will really depend on what's going on at Waha and whether or not they curtail volumes, not if they push activity more and the privates are really the more wildcard in the Delaware Basin just because they can accelerate or pull back on capital more quickly. So I hope that helps. Wade Suki: No, that's great. Thanks So much, Kristen. Oscar, you mentioned, you made a couple of comments, I think in passing a couple of questions ago, maybe in Jeremy's question. But I heard you say something about expanding more into CO2. And I think I heard you also say you will have a solution for power at some point. I'm wondering if you could maybe elaborate on those 2 comments, if you don't mind. Oscar Brown: You bet. So a year ago, we set up a new ventures group to make sure we were thinking very long term. So we're trying to make sure, as we talked about, addressing the near term, the next several years in terms of visibility on the growth rate, but recognize the oil and gas business is pretty dynamic. And so while we think water is just a core piece of that for obvious reasons, we wanted to make sure we weren't missing other opportunities. So we've definitely been exploring, trying to understand the opportunity set around unconventional EOR. And if that is something that if it turns into kind of the next big thing for shale, so to speak, over the next however many years, are we well positioned to help support and build out that infrastructure. We also, with our obvious relationship with Oxy, who's a leader in CO2, we've always been very interested in figuring out how we could support them or others in terms of anything related to enhanced oil recovery. So it's something that we know how to handle molecules and turn valves and deal with pressure and all that stuff. So CO2 would be a clear core competency for us. So we're definitely encouraged by what we're seeing by Oxy and others in the unconventional EOR space and very hopeful that, that's something that will be a big thing in the Permian in coming years and other basins for that matter. So that's that. On the power side, of course, with all the -- I guess, a couple of things, right? So the Permian grid is notoriously unstable. You add in the dynamic around potential for data centers and other pulls on power. We certainly use a lot of power. We share wires with Oxy. We have competency in building transformers and the compressor, the turbine, they're all very similar. So again, we feel like the power sort of build, operate, generate business is something that we can certainly participate in. But we're going to -- with all these opportunities, we're going to -- just like with water, we waited for a long time on that to go from our legacy system to building up something new. The commercial models need to move in a direction that makes sense for us in the midstream space and as an MLP. So to the extent we get commercial contracts that support, again, sustained growth and distribution to sort of support our returns requirements and our business model, we'd look to participate in things like CO2 power, et cetera, and other ventures where, again, it's -- it will be clear to you all that it's right down the fairway of our competencies and what we know how to build and operate. But again, that last piece is really important, that commercial aspect that needs to make sense for us before we kind of go chase unicorns in general. The one place we are leaning in on that's still -- it's a scaling challenge, not a technology scale, not a challenge to speak, but scaling as hard as people in the tech business know is that beneficial reuse business. And that's one where, given our size, we can certainly have a real impact there and accelerate what Aris was trying to do. Operator: There are no further questions at this time. Mr. Oscar Brown, I turn the call back over to you. Oscar Brown: Great. I want to thank everybody for their interest. Thank our teams for really a great year in 2025, and we're really looking forward to continuing to deliver consistent results for our investors. So we look forward to seeing folks on our next call and on the investor conference service. Thanks again. Operator: This concludes today's conference call. You may now disconnect.
Elizabeth Wilkinson: Good morning, everyone. Thank you for joining us to discuss Mineros' fourth quarter and full year 2025 results. I am Ann Wilkinson, Vice President, Investor Relations, and I am joined today by Daniel Henao, President and CEO; Sergio Chavarria, Interim CFO; and Juan Obando, Director of Investor Relations. Before we begin, please note that today's presentation includes forward-looking statements based on management's estimates and assumptions. These involve inherent risks and uncertainties as detailed in our cautionary note. We encourage you to review our management's discussion and analysis and the 2025 year-end financial statements available on our website in order to understand the risks inherent. Following our formal remarks, we will hold a question-and-answer session. You may submit questions at any time through the webcast portal. Please be advised that this call is being recorded, and a replay will be available on our website within 24 hours. With that, I will turn the call over to Daniel Henao, President and CEO. Daniel Villamil: Thank you, Ann, and good morning, everyone. 2025 was a pivotal year for Mineros, defined by a disciplined approach to our mine plans and a focus on high-quality production. We are pleased to report that we exceeded our full year guidance, delivering 227 gold equivalent ounces. This achievement reflects the steady performance of our technical teams and continued commitment to maximizing the value of our existing ore bodies through operational excellence. Our operations in Nicaragua continued to deliver. In December alone, the asset reached a production milestone of 16 gold equivalent ounces, demonstrating the steady progress we are making in optimizing throughput, recoveries and grade management at the site. The combination of higher production volumes and a positive gold price environment resulted in exceptionally strong financial performance with revenue reaching $800 million, a 48% increase year-over-year. This operational outperformance generated a record adjusted EBITDA of $358 million, a 71% increase over 2024. That represents approximately $1 million in EBITDA for every single day of the year. We also delivered on our lengthy track record of returning capital to our shareholders through the payment of $30 million in dividends, $12 million through buybacks. And on top of that, we delivered an impressive 275% share price appreciation and received the TSX 30 designation. That means that Mineros outperformed 98% of all companies listed in the Toronto Stock Exchange in the last couple of years. We were also the top performing equity in the Colombian Stock Exchange for the second consecutive year. Beyond our record financial metrics, I am most proud of our team's commitment to delivering these results safely and reliably. In our view, there is nothing more important than keeping our people and our communities safe. And this year's performance reflects that core value across all of our operations. I will now turn the call over to Sergio to discuss in more detail our financial results. Sergio Chavarria Munera: Thank you, Daniel, and good morning, everyone. Turning to our financial results. 2025 was defined by record growth across every major metric. This growth was driven by a favorable gold price environment with the average realized price per ounce sold reaching $3,474 for the full year and $4,179 in the fourth quarter. This represents exceptional price realization. Our full year average surpassed the market benchmark, reflecting our disciplined approach to maximizing value in a constructive gold price environment. As per our financial results for the full year 2025, as Daniel mentioned it earlier, our annual revenues hit a record of $800 million with an increase of 48% compared with 2024. Our gross profit reached $326 million, up by 77% of our net profit amounted of $145 million, a 68% year-over-year improvement. I would also like to highlight that Mineros surpassed $145 million in net profit, representing a 68% increase over 2024, as mentioned before. We had adjusted EBITDA of $358 million for 2025, representing a 71% increase over fiscal year 2024. Also, our net free cash flow hit a record of $138 million for the year with $32 million of net free cash flow in the fourth quarter alone, as we previously highlighted. As per our quarterly results, the fourth quarter saw revenues of $261 million, a 74% increase compared with the same period in 2024. This growth influenced the entire income statement as our gross profit reached $106 million, up by 94% and our adjusted EBITDA doubled to $115 million, a 101% increase year-over-year. Net profit for the fourth quarter was $9.4 million. We generated free cash flow of $32 million in the quarter. These results for the quarter are particularly strong when you consider the strategic investments and legacy items we addressed. Even after accounting for the acquisition of an 80% interest in the La Pepa Project and the settlement of the Nicaraguan tax authority dispute, the business generated a record-breaking value. Moving to our cash position. Our balance sheet remained exceptionally strong. We ended the year with $108 million in cash and cash equivalents, a very strong net position of $93 million, composed of cash and cash equivalents of $108 million, as previously mentioned, and on top of that, account receivables from our refineries of $26.3 million, offset by credits and loans of only $15.4 million. It is important to highlight that this exceptional result was achieved after significant onetime outflows, including $40 million for the acquisition of the La Pepa Project, $49 million in payments to the Nicaraguan tax authority, $12 million allocated to our share buyback program. At this time, I'd like to turn the call back to Daniel to discuss our operations. Daniel Villamil: Thank you, Sergio. These financial results were, of course, propelled by a very positive gold price environment. As Sergio mentioned, the ounces we produced were sold at approximately $3,500 an ounce. But most importantly, we have delivered on the metrics that we can control. In the fourth quarter of 2025, we produced 61,000 gold equivalent ounces. The average price of the gold in the fourth quarter of 2025 was $4,179 per ounce, a 57% increase compared with the fourth quarter of 2024. While we benefited from these record gold prices, we were not immune to sector-wide rising cost environment. Our consolidated all-in sustaining cost for the quarter was $2,486 per ounce. This was primarily due to the Nicaragua operations, where the higher gold price directly correlates to increased payments with our Bonanza Mining Partners. In Colombia, the weaker U.S. dollar negatively impacted our local cost base as well. Turning to a breakdown of our mines. Our Colombian operations performed well with an all-in sustaining cost of $1,891 an ounce. Production remained steady at 23,000 ounces for the fourth quarter. Most importantly, we successfully saw the new Aurora Plant start production. The continued strong performance at the Aurora unit remain a highlight of our Colombian operations. Given the excellent results we're seeing, we believe that additional Aurora units will be the primary engines for long-term growth and operational success in Colombia. At our Nicaragua operation, we produced almost 36,000 ounces of gold in the fourth quarter. And while all-in sustaining costs here are higher at $2,828 per ounce, this is largely due to the high proportion of mining partner contributions, which are paid as a percentage of the spot gold price. Cost, volumes and efficiencies in Nicaragua will be a significant part of our focus in 2026, which I will talk about more shortly. Finally, in Mineros, safety is a core value. Our lost time injury frequency rate remains low at 0.9 in Colombia and an impressive 0.16 in Nicaragua. In practical terms, this means that for every 100 people working at Mineros over the course of the year, including both employees and contractors, there was less than 1 injury significant enough to prevent our colleague from returning to work the following day. This metric is a primary benchmark for how effectively we are protecting the safety and integrity of our workforce. Looking ahead, our strategy is focused on securing the future by removing historical bottlenecks, delivering growth and investing in exploration. For the coming year, we're projecting consolidated gold production between 213,000 and 233,000 ounces of gold. On average, we're guiding 10,000 more than in 2025. In Colombia, we're expecting our production to be between 83,000 and 93,000 ounces for 2026 with a margin of 11% from our contract mining partners. As for Nicaragua, we are expecting production within a range of 130,000 to 140,000 ounces of gold with a margin of 35% with our Bonanza Mining Partners. As for our 2026 capital investment program, we will be investing a total record of almost $114 million for CapEx and exploration. A significant portion of our growth CapEx will be focused on Nicaragua. We will be investing in the Hemco Plant expansion, which will take us from 1,800 tonnes per day to 2,500 tonnes per day. That's almost a 40% increase in processing capacity this year. We will also be investing in mine development to support this increased throughput. Additionally, we're also evaluating adding 1,000 tonnes per day mill to the Hemco Plant. In Nicaragua, we have significantly more mineral that we can process. This is a very big focus for us at the moment. We are also working hard on improving plant recoveries, which have gone up from 87% to above 90% in recent months. Finally, we will also be investing in technical studies at Porvenir, a deposit situated along strike and just southwest from our 2 operating underground mines. The Porvenir technical study will be released with the resource statement of our operations before the end of March 2026. In Colombia, capital expenditures will be focused on increasing recoveries and achieving operational effectiveness. Sustaining CapEx for Mineros will be focused on ensuring operational continuity. Regarding exploration, I am very excited to also announce the launch of the most aggressive exploration program in the history of our Nicaraguan asset. We will, of course, be working on resource-to-reserve conversion, near-mine follow-up drilling from the drilling completed in 2025. But for the first time in the history of the property, we will be exploring very exciting greenfield targets within our very prospective Nicaragua portfolio. We will also release a comprehensive resource and reserve update for Nicaragua in the first quarter of 2026. Finally, we'll be investing in the La Pepa Project in Chile with the objective of increasing the size of the deposit, as well as an overall derisk of the asset on multiple levels. 2025 has been a year of exceptional execution across the board, demonstrating the strength of our operating model and a proven track record of achieving our production guidance. We had a record-breaking financial year with $800 million in revenue, $360 million in adjusted EBITDA. This robust cash flow allowed us to maintain a very healthy cash position while at the same time, returning $42 million to our shareholders through dividends and buybacks. With the acquisition of La Pepa, we secured full control of a high-quality asset in the Maricunga Gold Belt in Chile, one of the most prolific gold districts in the world. With a clean balance sheet, a safe and productive workforce and the continued success of units like Aurora and the expansion of the Nicaragua processing facilities in Nicaragua, we're very well positioned to carry this momentum into 2026 and deliver long-term value for our shareholders. Thank you for your time, and thank you very much for your trust in Mineros. Elizabeth Wilkinson: Now with that, we'd like to open the floor to questions. And our first question this morning will come from Ben Pirie. Thanks, Ben, for joining us on this call. So what kind of cost pressures are you seeing for the 2026 guidance? Is much of this increase a result of the higher gold prices and the higher cost to purchase ore? Or are you seeing cost pressures elsewhere as well? Daniel Villamil: Thanks, Ben, for your question. The answer is yes. A big part of it is related to gold price. As you know, our Bonanza Mining Partners are paid a percentage of spot price. Therefore, as the gold price goes up, our cost basis on the Bonanza side goes up as well. However, we're also working in several other initiatives to increase volumes and recover our economies of scale in the mine -- in our mines. So as I described before, we're going to be investing a lot in our processing facilities. Processing right now is the main bottleneck of our Nicaraguan operations. We're constrained at 1,800 tonnes per day, so we're going to be going to 2,500 tonnes per day this year itself. And that will bring -- with that, we will bring tremendous economies of scale, particularly in our mines. Historically, the Bonanza Mining program has been very profitable for the operations. So what the company has done is to give -- it has given priority to that side of the business and our own mines have suffered because of that. So we have -- just to give you an example, in 2024, we produced close to 35,000 ounces in our industrial mines. And last year, we went down to around 22,000 ounces. So that makes no sense. That's the immediate priority. That's what we're working on. We're going to go full steam ahead with our own industrial mines, recover the economies of scale, and we're going to be achieving that through the increased throughput at our processing plant and investing in mine development. All of that is included in the capital program that we have for this year. As I mentioned before as well, we're working hard on recoveries. That is important because we have paid for the mining costs. We have paid for the processing cost. And this is -- it goes straight to the bottom line. This is extra profit that we make. So that 3% extra recoveries that we have already achieved translate into tens of millions of dollars of extra benefit for our Nicaragua operations. So that's on recoveries. And last but not least is grade. We are working very hard on increasing our grades, not only in our industrial mines, where we're putting a lot of attention now to things like dilution, having a very smart mine plan, but at the same time, incentivizing our Bonanza Mining Partners to deliver higher quality ores. We are already seeing that. We're removing historical bottlenecks in our operations, historical barriers for these high grades to be delivered to our plants. And we're starting to see grades denominated in ounces per tonnes, not grams per tonne, which is very exciting. It speaks to the quality of our portfolio in Nicaragua. And that's actually guiding our exploration efforts as well. This is a 150,000 hectare, very prolific district, and everything is to be done from an exploration perspective there. So just to mention or go back to your question on cost. The main goal is recovering our economies of scale, particularly in Nicaragua. In Colombia, we have suffered from a weakening dollar. Our costs are in pesos, so that's putting some pressure. The main drivers of increased costs on the Bonanza Mining side is higher gold prices, but we will recover economies of scale, and we will be working very, very hard on costs in 2026. That's the main agenda. Elizabeth Wilkinson: Moving forward. So Ben has a follow-up question. And also, we have a question from [ Nicolas Luiz Reyes ] that are related. So Ben and Nicolas asked, could you comment on the elevated taxes in Nicaragua in 2025? And what can investors expect in 2026? And a very related question, Nicolas asked, is that a onetime charge? Daniel Villamil: Perfect. Thank you very much for your question. So the size of it, the close to $50 million payment is a onetime event. This is a legacy issue. These were -- the claim was unpaid taxes from 2019 to 2024. As you noticed in the CapEx that we're guiding, we will be investing a lot in Nicaragua. We see a lot of growth opportunities in Nicaragua, and it is very important for us to have a constructive relationship with the governments that host us. So that was just not a positive situation. We wanted to focus in our operations. We wanted to focus in our mines, do what we do. So we thought it was best just to resolve that legacy issue, pay that money and go back to our mines. So that's what we're doing. It is a onetime event. However, there is going to be an impact in costs going forward. Sergio, what's going to be the impact? Sergio Chavarria Munera: Yes. For -- going forward, we're going to have an effect of additionally around $8 million in ad-valorem tax in Nicaragua. Elizabeth Wilkinson: Excellent. So moving on, [ Michael Matheson ] has a question, and I think that we probably partially answered this. All-in sustaining cost per ounce were up significantly in 2025. Much of that was just the increase in the price of gold reflected in the price you paid our mining partners. But there are some increases in labor costs. Do you think labor costs, specifically, will be stable in 2026? Or should we expect further increases? Daniel Villamil: Thanks, Mike, for your question. So okay -- so I mentioned the main agenda already, so volumes, recoveries, grades, those are going to be the main drivers of lower costs in the coming years. But you're right, there is significant cost pressure as well from a labor perspective. What we're doing there is that we are optimizing our teams. We already actually did that recently. But we're working more on being more productive, more efficient, so incorporating AI tools, automating parts of our processes, we are adopting technologies in our operations, so we become more competitive. So that is happening. The increased cost, particularly in Colombia is significant. But, as I mentioned, we already took measures to lower the impact of that going forward. Elizabeth Wilkinson: Okay. And Michael had a follow-up question. So we recently increased our stake in La Pepa to 100%. Do you have a forecast of when mining operations will begin at La Pepa? Daniel Villamil: Perfect. So La Pepa is an exciting new jurisdiction for Mineros. As you all saw, we acquired that last year from Pan American Silver. We're starting at a very good base with about 2 million ounces in resources, but it is an exploration stage asset in a very prolific gold district surrounded by producing mines, surrounded by advanced development assets. It's looking very interesting. We think there's a lot of growth potential there. But we have to do the work, we have to explore, and we have to derisk the project. Particularly from an environmental perspective, this is a sensitive part of the world, and we want to do -- we're doing all the work we can do right now to fast track this asset. This year, we're going to be working on producing the natural time line that -- one that we can deliver on. But right now, it's at the assessment stage from a time line perspective and from a production perspective. Elizabeth Wilkinson: Next question is from Justin Chan and he's talking -- he asked about, from a modeling perspective, when would you suggest modeling the ramp-up to 2,500 tonnes a day at Hemco? And how many months do you expect it to take to reach steady state of 2,500 tonnes a day? Daniel Villamil: Justin, thanks for your question. So already, we're working on that. So we are already at above 2,000 tonnes per day. So we -- the very fast adjustment that we could do to our processing facilities we've done. And we expect to be at 2,200 tonnes per day by June and then by December be at 2,500 tonnes per day. So that's -- it's going to be incremental increases. In parallel, we're going to be working on the engineering to add 1,000 tonnes per day mill to the Hemco Plant. We have an incredible situation in Nicaragua, where we have way more mineral than we can process at the moment. So as I mentioned before at the call and previous answers, that's our focus, debottlenecking that so we can take advantage of this abundance of mineral that we see all over our properties at Hemco. Elizabeth Wilkinson: So Justin has a follow-up question for Sergio on a cash flow basis. So on the $83 million income tax liability, should we assume this is paid equally quarterly? Or if not, could you provide some color on the timing of tax payments? Sergio Chavarria Munera: Yes. Actually, for timing on taxes, we are going to pay taxes during the first semester of 2026, expected to be major payment during February. And at the end of May, we're going to have the remaining balance to be paid to Colombian tax authorities. Elizabeth Wilkinson: And we have a follow-up question from Ben Pirie. 2025 was a strong year for shareholder returns, which speaks to a supremely healthy balance sheet. Do you expect this will continue into 2026? Or will capital allocation be focused on growth? Daniel Villamil: Thanks, Ben. And I think that connects with other questions that we have received. Return to our shareholders is a priority for us for sure. And Mineros has an impressive track record of delivering a lot of value to its shareholders for decades. So ideally speaking, we do want to continue with that, delivering strong dividends. Last year, we had our inaugural buyback program, which was also successful. So last year, we delivered about $42 million to our shareholders. And in Colombia, just to be clear, that is actually a shareholder decision. That's something that we will take to the shareholder assembly that is going to happen soon, and shareholders will decide on that. From a management perspective, we think we can do both. We can continue delivering good dividends. But we think shareholders and the company itself is -- should invest in its growth, should invest in its assets. We are already seeing what investment in our own operations can do. So that's the plan. I think -- personally, I think we can deliver good value to our shareholders, both in the form of dividends and buybacks. But at the same time, invest in our assets, and we're being rewarded by doing that. You saw the performance of our stock in the last 2 years. We've gone up above 1,000%. That's very impressive. So that's also capital return to our shareholders. And so that should be appreciated as well. So that's long story short, what we think we can do both. Elizabeth Wilkinson: So the next 2 questions kind of flow naturally into that. So [ Rahul Arora ] asked, does the company plan to acquire Tier 1 assets in exploration stage to further our global growth strategy? Daniel Villamil: Thanks, Rahul, for your question. The answer is, yes. But I'm going to give you some context. We are prioritizing ideally producing assets. But that -- it's become -- it's a very challenging environment from an M&A perspective. Assets are trading at very high valuations. So we're being very cautious, very disciplined as well. We want to preserve our per share metrics. So we don't want to dilute ourselves a lot and just grow because we want to grow. We want to be very cautious with the return to our shareholders on a per share basis. So our focus right now is producing assets. But as I mentioned, that it's looking challenging to find value in that segment. So we are now scouting for advanced development opportunities throughout the Americas, and in some cases even looking at some other parts of the world, good jurisdictions where we can grow. So advanced development opportunities, assets that we can take into production and take advantage of this very positive gold price environment are the second priority. But of course, we are opportunity driven. This is -- the new vision of Mineros is to take the good opportunities that present. So if a good high-quality exploration asset comes, we would love to take a look at it. And if it makes sense for Mineros, we would love to do it. We need a strong -- we are building a strong pipeline of assets as we move into a growth phase. Elizabeth Wilkinson: So next up, we have 2 kind of related questions, one from [ Jaime Alvarez ] and the second one from [ Andre Pulido ], and they relate to knowing more about Nicaragua, the initiatives that we have to augment our production there, the work that we're doing on exploration and a little bit more about Porvenir. And additionally, Andre has kind of expands on that, trying to understand the Bonanza model and the success there and how we may be working to reduce our reliance on our Bonanza Mining Partners to process more of our own tonnages from our underground mines. Daniel Villamil: Okay. Perfect. So I think I spoke enough about our main initiatives in Nicaragua, again, increasing volume, increasing recoveries, improving the grade that we feed to our plant that, of course, is the main driver. We don't want to be in the historical position that the company had. That we had to choose between A or B. We believe we can do A and B. We can mine our mines full steam ahead, and we can process our partner minerals. That's the main agenda. We don't want to have to take that decision. We want to take advantage of all the opportunities, both from our mines and from the Bonanza Mining Partners. Speaking about Porvenir, which is -- it's also an exciting opportunity that we are working on right now. The latest information that was published to the market was back in 2023. That was a pre-feasibility study. It was already looking attractive at $1,500 gold price. So after putting a lot of work into that asset, we've explored. We've been investing a lot in engineering, and we've been pushing hard on permitting as well. So hopefully, that becomes our -- one of our next mines. Just for everyone's context, this was an asset according to the pre-feasibility that we had published that was going to produce about 60,000 ounces of gold, 110,000 ounces of silver and then about 40 million pounds of zinc. And it had an all-in sustaining cost below $1,000 an ounce. Again, it was a project that was economic. It was looking good at $1,500 gold price. So at the current gold levels, it should be a very attractive asset. Things have changed a lot in Porvenir. We, as I mentioned, we've been exploring. We are doing a lot of engineering. The layout of the processing facility is going to change. We're designing it in a way that it can grow beyond the current -- beyond what we're seeing. And we're going to be adding very likely a copper gold flotation circuit at the beginning, which will produce a high-quality copper, gold concentrate and will simplify our metallurgy for the rest of the process. So this is the update on Porvenir is going to come out in the first quarter this year together with the resource update for our Nicaragua operations. So stay tuned for that. It should -- it's an exciting asset, and we want to push it forward as soon as possible as well. Elizabeth Wilkinson: So back to the balance sheet, and Justin Chan follows up. So the tax payments -- Sergio, the tax payments will be paid in Q1 and Q2 to just follow up on your answer? Sergio Chavarria Munera: Yes. To follow up on that question, yes, we will be paying that amount during the first semester. Daniel Villamil: Just to -- something very valuable, Justin, that we do in Colombia. We have this mechanism called [Foreign Language] that Mineros has pioneered. And basically, it's a regulation that allows Mineros to pay its taxes by delivering infrastructure projects. So we -- this year is going to be exciting from that perspective. We're going to start building a large school in El Bagre. So it's going to -- we're going to be covering about 1,000 students in our community by paying our taxes. It takes a lot of management bandwidth because it's building a large school, but it's totally worth it. We will be investing in our communities, and this is an amazing mechanism that we have in Colombia. So that's taxes, but it's also the kind of social work that we like to do at Mineros. Elizabeth Wilkinson: So we have some important questions coming in about Nechi, but I think we'll stay focused in Nicaragua just for the next minute or so. We have a question in from [ Walter Bacerra ] [Foreign Language] and Walter asks, he wants to dig in a little bit more comment about our objectives around about recovering silver. Daniel Villamil: Thank you. Thanks for the question. So that's actually quite exciting as well. We're seeing a lot of silver in our Hemco Plant. Before we were not paying attention to that in our efforts on the recovery side of things. So as we started taking a good handle of the processing side of things in Nicaragua, we said, well, there's a lot of silver coming through our plant. Silver is having record prices, trading at above $100 an ounce, so we started paying a lot of attention to silver. Silver became a significant portion of our revenues last year, and we expect that it will continue that way. We're investigating this a lot because to be totally honest with you, we do not know exactly where the silver is coming from. It's coming from our Bonanza Mining Partners for sure. But exactly from what part of our portfolio, we don't fully understand yet. So that connects to the whole exploration initiative and what we're doing from that side, which is also the most aggressive exploration program. So we're understanding the plant is becoming a very valuable tool for us to explore our district. Elizabeth Wilkinson: So I think we covered Nicaragua. And I think we can turn now to Nechi. And we have a question from [ Manuel Rodriguez ]. With respect to Nechi and with respect to gold grades and recovery rates in our operation, what are our expectations would be in relation to the new Aurora Plant and our scavengers? Daniel Villamil: [Foreign Language] Manuel. Perfect. So in Nechi, that's the focus, efficiencies, recoveries. We are adding more recovery circuits to our operations. We are not expecting -- right now, given the situation in Colombia, we're exercising a lot of caution. So very large investments in our Nechi operations are not expected yet. We would be happy to double down if we see a more constructive environment. So the focus right now is exactly what you mentioned, improving recoveries, being more efficient in our operations. We're evaluating multiple alternatives to improve our revenues and our profitability in Nechi. So initiatives, as you mentioned, like the scavenger, like the Aurora Plant, they're all being worked on. We're doing a lot of engineering, optimizing studies to improve the recoveries in Colombia as well. Elizabeth Wilkinson: And to follow up, and this is probably more broad-based with the 2 operations. Sergio Torres has a question about the -- about our efforts to increase the number of ounces of production in 2026. And asking about inorganic growth or will the focus be solely on technical improvements? Daniel Villamil: Thank you. So the answer is both. These 10,000 ounces are going to come from our own assets. But we have added a lot of muscle to our technical teams, and we're scouting for opportunities globally that make sense for Mineros. So if inorganic opportunities come at the right valuations, we would love to exercise those. Elizabeth Wilkinson: So moving to our newest asset, the 100% interest that we own in La Pepa in Chile. [ Jorge Pareja ] asks, how are the results for La Pepa going? When can we hope for production from La Pepa? Daniel Villamil: That's actually a very good question, one that we're trying to answer. But to be totally honest with you, as I mentioned, it's an advanced exploration asset. We need to explore more. We need to derisk the asset, and we need to understand better our time lines. We hope it becomes a mine in the near future. But at this point, we're working on the plan to bring that to our time line. So that it's a new asset. We have a new team, and they're working in producing that time line for us. Elizabeth Wilkinson: So just as a follow-up, Sebastien [indiscernible] asked, are there any additional studies for La Pepa Project, PFS, PEA, are they planned for this year? Daniel Villamil: So it connects to the previous question, not to this year. We're doing all the -- we are doing all the environmental studies. That's actually the starting point. And we're going to be drilling as well, understanding the landscape, understanding all the regulatory process there. We're going to start imagining how a mine would look like there. We have very clear benchmarks. The Phoenix deposit just north immediate to us, just went into production, and they're showing us how it can be done. So that's a good benchmark for us. But at this point, it's an advanced exploration asset for us. Elizabeth Wilkinson: So moving just kind of up to the company in general. There are a number of questions about our dividend policy going forward and our propensity to buy back our own shares, and this is just coming from 5 or 6 individuals. So I put that to you in a bulk question, Daniel. Daniel Villamil: Okay. Perfect. No surprise there, and thank you very much. Look, from a dividend perspective, as I mentioned before, that's actually a shareholder decision, not a management decision. The policy -- the current policy is to distribute about 15% of our net profit. That translates to an annual regular dividend of approximately $30 million with the latest financial results. That's just the policy from a management perspective. We think, as I mentioned earlier, that we can continue delivering dividends. We like the buyback mechanism. We think it's very efficient for -- especially for our North American shareholders, which are becoming increasingly important in our story. And then we will work very hard in continuing returning these impressive capital returns to our shareholders. So it's a package. And as we invest in our assets, as we invest in our company, we expect that, that will translate in more value to our shareholders as well. Elizabeth Wilkinson: Okay. So a much broader-based question from [ Sebastian Carvajal ]. Considering the volatility in the price of gold and the cost of our operations in a macroeconomic context, what is our strategy -- what is Mineros' strategy to protect shareholder value in the medium and longer term? Specifically, what do we intend to implement to increase our revenues and sustainable value for our shareholders? Daniel Villamil: [Foreign Language] Sebastien. So that's actually an important question. So when somebody started getting involved with Mineros, the mandate was actually to remove all hedging policies that the company had before. We were swimming against the current. We were swimming against a very strong bull market. So for the last couple of years, the company have been enjoying this impressive gold rally. As you said, that has translated into -- as you saw, that has translated into record economics for our operations. And so right now, we don't have any active hedging policies. We are enjoying the prices that we're seeing right now. But of course, at $5,000 gold, our Board is already evaluating hedging instruments as part of our broader risk management approach. So it's something that we're looking at cautiously. We're monitoring. We're talking to our finance teams, our advisers. But the market, in general, is guiding a very constructive gold price environment. So I think we are, generally speaking, in agreement with most large banks that are seeing a very positive gold price environment. Recently, we have been more active in the market with certain financial instruments to protect ourselves. But generally speaking, we're mostly exposed to the gold price. Elizabeth Wilkinson: So we have 2 related questions from Sergio, Daniel, Torres Otero and Walter Bacerra about, can you elaborate on our investigation of redomiciling the company and the investors would like to know a little bit more about that. Daniel Villamil: For sure. So look, the company has been pushing very hard on converting into an international story. We no longer want to be the company in Avenida El Poblado that is very well known to Medellin and to Colombians. We want to be a company that people recognize in the gold space internationally. So the company took the first step listing in TSX back in 2021. That was a very positive step that the company took. But still, we are mostly ignored by the market. We are -- we actually have a very aggressive marketing agenda this year to get the story out, to get our investors throughout the world to get to know the story of Mineros, which we are convinced is a great story. It's a great opportunity for them. So we expect to go to other markets, get -- hopefully get listed in other exchanges. And as part of that, we need to explore the redomiciliation initiatives, so we -- our company can be recognized in other exchanges. Elizabeth Wilkinson: So turning to [ Alina Islam ]. Can you clarify your comment on acquiring assets? Are you prepared to look outside America or... Daniel Villamil: Yes. Thanks, Alina. And this is something that we have changed. Look, we are not in a market where we can be very picky anymore. The reality is that we can -- we want to take the advantages -- the best advantages that the world has to offer for Mineros. So if it happens to be in Australia or in Europe, why not? If it's the right opportunity, at the right price, with high-quality asset in a decent jurisdiction, we're happy to go there, do the homework. And if it makes sense for Mineros, then do it. So we are no longer constrained by Latin American assets. We're looking globally for opportunities. Elizabeth Wilkinson: And there are 2 questions that came in that, in my mind, are opposite sides of the same coin. [ Gustavo Zapala ] asks, what are our investment plans for the year? And Sebastien [indiscernible] asks, are there any plans to reduce debt or to increase our leverage during the current fiscal year? Daniel Villamil: So reduce debt, like we've done that. We have negative debt at the moment. The debt that we have is debt that makes sense because of the -- just the tax benefits that we get. These are leasings and stuff like that. So we've paid all the debt that made sense to pay. We have a very healthy cash position. As Sergio mentioned, over $100 million. We have very significant account receivables from our buyers, from our refineries. So we have a very healthy liquidity situation. So there's no more debt payments coming. We paid what we can pay. From an investment perspective, as we have mentioned throughout the call, we are going to be investing over $100 million in our assets. A big portion of it is going to go to Nicaragua, where we're hopefully going to convert that into immediate ounces, immediate return. So we're prioritizing the investment that make most sense to our company from a capital allocation perspective. And that's the discipline that we have at Mineros. We're going to put our money where we will get the best return for it. Elizabeth Wilkinson: So -- and my mistake, I misread. So are there any plans to issue debt or to increase our leverage. My mistake. Daniel Villamil: Okay. Perfect. No problem. So yes, that's something -- we don't have a very efficient capital structure. We have no debt. So for the right opportunity, the answer is yes. As we grow, if there is an attractive project and that requires some leverage, some debt component, we would be happy to take some debt. Again, we have $360 million in EBITDA this year and virtually no debt. So the company can take some leverage for its growth initiatives. Elizabeth Wilkinson: So we left the trick question for last. What are our projections for revenues, profits and adjusted EBITDA for 2026? Daniel Villamil: So the answer to that is our guidance. We are guiding 10,000 ounces more this year. The math is going to be -- is going to address that depending on the gold price that we end up getting. But the cost is what we guided, the production is what we guided and the gold price is what the market delivers to us. What I can tell you is that from a gold price environment, we're seeing a very constructive situation that should translate into -- hopefully, another record year for Mineros, but we'll see what we get, but it's looking very positive. Elizabeth Wilkinson: And that's our last question for today. So we want to thank you very much for joining us on our year-end and fourth quarter conference call. I'm going to turn the call back over to Daniel, to you have any last words? Daniel Villamil: Perfect. No, thank you very much, everyone, for your interest, for your time, and thanks for your trust in Mineros. We're going to be working with our team to continue delivering impressive results to you. So thanks, everyone, for connecting.
Operator: Ladies and gentlemen, thank you for standing by. I am Gailey, your Chorus Call operator. Welcome, and thank you for joining the Arcadis conference call and live webcast to present and discuss the fourth quarter and full year 2025 financial results. [Operator Instructions] The conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Ms. Christine Disch, Investor Relations Director. Ms. Disch, you may now proceed. Christine Disch: Thank you. Good day, everyone, and welcome to our 2025 full year and fourth quarter results conference call. My name is Christine Disch, and I'm the Investor Relations Director at Arcadis. With me on this call are Alan Brookes, our CEO; Simon Crowe, CFO; and our CEO nominee, Heather Polinsky. As usual, we will start with the presentation followed by Q&A. We would like to draw your attention to the fact that in today's session, management may reiterate forward-looking statements, which were made in the press release. Please note the risks related to these statements are more fully described on the company's website. Now please, over to you, Alan. Alan Brookes: Thank you, Christine. Good morning and good afternoon, everyone, and welcome to our full year and fourth quarter results call. As Christine said, I'm joined by our CFO, Simon Crowe, who will outline the steps taken to address Arcadis' performance; and by Heather Polinsky, our CEO nominee, who will talk about her priorities for the future. Heather, who has been with Arcadis for 26 years and most recently run Resilience, the most profitable part of the business, assumes the role on March 1. Heather is an exceptional leader, and I am confident she will position Arcadis for success. Our end of year results are mixed and disappointing, reflecting what has been a challenging year. In light of those challenges, we have taken rightsizing and cost reduction actions to improve performance. We will continue these actions in 2026 with Simon -- sorry, with Simon commenting further shortly. Our net revenues totaled EUR 3.8 billion, supported by a strong resilience portfolio and pockets of success in mobility, offset by weaker places performance. In turn, we delivered record cash performance, generating EUR 288 million for the year, predominantly supported by a series of measures introduced in the fourth quarter to strengthen billing and collection discipline. The backlog was up 3% to EUR 3.6 billion, driven by Resilience and Places. When taking a closer look at our 2025 revenue performance, you can see that our total revenue declined by 0.5 percentage point, reflecting growth in Resilience and Mobility offset by weak Places performance. We will lay out the actions we have taken this year to address the underperformers and for the high-growth areas, the investments we have made to leverage our leading positions. Starting with the underperforming areas. First, environmental restoration, which makes up 13% of our total net revenues and is part of Resilience. This declined by 5% over the year. Excluding environmental restoration, our Resilience business grew 7%, and there are a few drivers for this underperformance. First, as a result of client restructuring impacting a substantial project, plus the successful completion of a large incident response project in North America, we saw revenues come down. In addition, shifts in the U.S. federal government policies, changing funding priorities and the longest government shutdown in history in Q4 caused delays to a portion of our pipeline for clients such as the Department of Defense. To address the underperformance, we have made senior management changes and replaced 25% of our account leads. We reduced headcount with 150 people leaving the business, while maintaining our margin performance levels year-on-year. Moreover, we are repositioning towards growth markets, including energy clients asset retirement obligations and critical minerals. Next, Property and Investment. This accounts for 8% of our total net revenues and is part of Places. Here, organic net revenue growth was down 17%. Our P&I solutions are mostly offered in Canada, China and the U.K. And in these areas, the residential real estate sector has been under considerable cyclical market pressure. During the fourth quarter, we did an extensive P&I portfolio review in Canada, which resulted in changes to revenue assumptions taken earlier in the year. Simon will provide you with the details in his section shortly. As a response to this, we have significantly rightsized the business with 400 people leaving corresponding to 4% of the places headcount, while we made leadership changes in places. We are taking further steps in the first quarter of 2026 with an additional reduction of 150 people. While we are moving away from residential real estate and increasingly now focusing on rental, student and senior housing markets where we see opportunities. The third underperforming area was mobility in the U.K. and Australia. This reflects 11% of total net revenues and declined 8% over the year. In the U.K. and Australia, the winding down of large projects such as HS2, Melbourne Metro and West Gate Tunnel, combined with large project award delays resulted in revenue pressure. To address this, we have rightsized our mobility workforce with a reduction of 350 people, corresponding to 5% of the mobility headcount. We have redeployed our excess U.K. resources to take advantage of emerging opportunities in other countries. And we have seen our order intake increase in the second half of the year, driving backlog growth as projects were awarded following the U.K. spending review last June. In Australia, with the market still constrained and lower infrastructure momentum, we are focused on pivoting towards new markets, particularly to energy and environment. Turning now to the high-growth areas. Starting with the solutions within our Resilience business, water optimization, energy transition and climate adaptation, which are part of Resilience and together delivered 12% organic net revenue growth. The performance of water optimization was driven by the strong U.S. market. Germany has seen successes in energy transition with the award of large multiyear contracts for grid expansion and maintenance. Central to this is the continued work for Amprion, performing route planning for a 500-kilometer long transmission line. Our growing project portfolio in power was underpinned by nuclear wins in the U.K. and the Netherlands. Our second growth area is technology, which accounted for 6% of net revenues and is part of Places. Our acquisition last year of KUA Group in Germany has expanded our capabilities in this area. Our data center performance was strong, whilst our semiconductor business faced pressure from the wind down of one large contract. Overall, the resulting technology growth was 3%. Arcadis reported over EUR 150 million of revenues in 2025 for its data center services, with an operating EBITDA margin of almost 20%. And we currently are involved in 280 data center projects. Finally, the third high-performing area is in mobility, specifically in North America, the Netherlands and Germany, which taken together delivered organic net revenue growth of 16%. Major awards in 2025 have underpinned that high performance. In British Columbia, our work on the design of the Fraser River Tunnel project has ramped up in 2025. Other large projects that supported our results were ProRail in the Netherlands and Deutsche Bahn in Germany, where we have further strengthened our position through the WSP Rail acquisition. We continue to see a strong pipeline of large multiyear project opportunities in North America. To summarize, we acknowledge our challenges and are actively addressing our underperforming areas through restructuring and cost measures. We are also focusing on those areas where we see opportunities to accelerate our growth. Heather will provide further details on this approach, looking ahead for this year and beyond. But first, I will now hand over to Simon, who will take you through our results and the steps taken to address performance. Simon Crowe: Thank you, Alan, and good day to you all. Let me start with our full year performance. As Alan outlined, Arcadis delivered mixed results, ending the year with EUR 3.8 billion of revenue. Excluding our Property and Investment performance, we delivered 1.3% organic growth. I'll provide more details around our P&I performance and actions taken shortly. Our operating margin was 11.1% with a significant negative impact from places, largely driven by P&I. This was offset by good margin expansion in both resilient and mobility. Excluding P&I, the margin would have been 11.6% for the year. Overall, we've taken significant rightsizing actions, which were accelerated towards the end of the year. We reduced our headcount by 1,100 people, which equates to roughly 3% of our total workforce, driving most of the EUR 77 million of nonoperating costs. Furthermore, we continue to invest in our strategic initiatives. Turning now to our fourth quarter results. These showed an organic net revenue decline, which was driven by Property and Investment. The operating margin was 13.5%, excluding P&I. Resilience performed well as we focused on high-margin areas such as our energy transition and mobility -- and mobility also performed well as we optimized our global workforce allocation, including increased utilization of the GECs. We recorded record free cash flow in the fourth quarter, and I'll come back to this later. Turning now to P&I. Part of our Places business, a number of issues went against us during last year. First, we experienced a weak market, particularly in Canadian residential real estate market with significant project delays, and we were unable to adjust quickly enough. In addition to that, the Oracle ERP system implementation in Canada caused some operational distraction. As a result, we took -- we undertook a comprehensive analysis of our project revenue positions in the fourth quarter for our P&I portfolio in Canada, which resulted in changes to revenue assumptions taken earlier in the year. This analysis resulted in a total revenue reduction of EUR 22 million taken in the fourth quarter, and that also impacted EBITDA by EUR 22 million. As well as working on the usual year-end audit with KPMG, we also conducted an independent review with another big 4 accounting firm. This portfolio assessment is now behind us. We rightsized the business in 2025 with a reduction of 400 people and have made changes to the senior management team. We're continuing to rightsize in Canada with an additional 150 people reduction in Q1 2026. We are rebalancing away from the depressed residential real estate market and focusing on the rental, student and senior housing markets as well as the hospitality and transit markets where we see faster growth. Let me spend a minute on the strategic progress we've made in the last quarter. Firstly, we stepped up our focus and discipline on cash and implemented various working capital measures, which resulted in a record cash in of EUR 344 million for the quarter. We've also reinvigorated our sales force, hiring new people to upgrade our teams, while we've introduced sales and performance-driven incentives, which are now being rolled out. We will continue to prioritize investment in our sales teams. And as part of our go-to-market strategy, we are reviewing our value-based pricing approach. We continue to invest in automation and AI for our core processes, particularly to strengthen the effectiveness of our pursuits, our workforce planning and our forecasting process. We aim to increase our win rates and free up billable time as well as foster a performance culture and more accountability within Arcadis. Finally, we continue to take rightsizing and cost reduction actions to strengthen performance, including a workforce reduction program addressing more than 600 people in the fourth quarter. Turning now to our rightsizing measures. In 2025, we acted to take cost out of the business, and this resulted in total nonoperating costs of EUR 77 million, including EUR 39 million in Q4. Total people-related costs represented EUR 53 million for over 1,100 people, comprising operating personnel of around 1,000 people and corporate overhead reduction of around 100 people with an expected 30 basis point impact on the 2026 margin from savings. Other nonoperating costs included integration and M&A costs as well as minor goodwill write-offs. For 2026, we will continue to rightsize the business and overhead staff. This will be in line with measures taken in 2025. So we could expect a similar number of people to leave the business in 2026. We are simplifying how we work and are refocusing on clients. Our cost reduction plan continues to focus on automation and removing unnecessary expenditures. Turning now to backlog performance. Good order intake in the fourth quarter ensured that we closed the year with organic backlog growth of 2.7% for the year. Throughout the year, we saw strong data center order intake. Our fourth quarter order intake was particularly strong for environmental restoration and pharmaceutical clients in the U.S. These multiyear large contract wins will be supportive to our revenue generation in the second half of 2026 as they take time to ramp up. This was offset by a weaker mobility market in the U.K. and Australia and challenges in our semiconductor business. Turning now to the GBAs and resilience. This delivered 3% organic growth following strong performance in the U.S., Germany and the Netherlands, driven by strong demand for our water, energy grid and climate solutions. Revenues were impacted by slower progression of secured AMP8 projects with start dates being pushed out. Margin was strong as we focused on our high-growth, high-value propositions, fully in line with our strategy of project selectivity. And order intake in the quarter was also strong, resulting in an 8% organic backlog growth, driven by U.S. water and environmental restoration in Brazil. Turning now to Places. Places is a tough market now, as we've outlined, including property and investment in particular, seeing low demand, which has been -- had a big impact on margin. Excluding this impact, organic growth was 1.3% for the year. As I mentioned, in response to this softness, we're continuing to reduce headcount in P&I and actively focusing on higher-growth markets, which drove strong order intake this quarter. This order intake included data centers as well as pharma in the U.S. and we're confident about our pharma awards, but it will take time before this converts into revenue. Looking now at Mobility. We continue to see stable results where strength in North America, the Netherlands and Germany are fully offsetting weaknesses in the U.K. and Australia. We showed solid margin progression driven by optimization of global workforce allocation, including the use of GECs, ultimately driving improved billability. The softer order intake in the second half was partly a result of changing dynamics in the U.S. industry, where we experienced slower procurement processes and regulatory reviews on the back of policy uncertainty. These effects resulted in project award delays and some challenge for near-term revenue delivery. Finally, Intelligence. This delivered strong growth in Q4 and despite a slower start to the year, achieved 6% organic growth overall. The business is increasingly supporting our largest projects across other global business areas, reinforcing its strategic value. As a result, we have decided to formally integrate Intelligence mostly into mobility, and it will no longer be reported as a separate segment going forward. Turning to cash. As I mentioned earlier, cash flow is at record levels. We have driven cash collection through relentless management focus, putting in place clear systems and personal billability dashboards, and this has paid off with net working capital at 8% this year. We expect to maintain healthy levels of net working capital in 2026, and we are likely to see net working capital close to 11% as a sustainable percentage over time. Growth and free cash flow remain key priorities for us going forward. Finally, turning to our balanced capital allocation framework. Last year, we continued to invest in the business and returned significant capital to shareholders. In September, we launched a EUR 175 million share buyback program with EUR 136 million spent through to the end of December, and we concluded the program in January. We returned EUR 89 million through our dividend, returning a total of around EUR 225 million to shareholders. Furthermore, we made 2 acquisitions in Germany, namely KUA and WSP Infrastructure Engineering, and we will continue to look at M&A opportunities where they make sense and fit into our strategic goals. For 2025, we're proposing a dividend of EUR 1.05 per share to our shareholders, an increase of 5% year-on-year and well within our 30% to 40% payout ratio range. Going forward, we will continue to evaluate strategic investment opportunities to grow the business and return capital to shareholders. In summary, 2025 was a tough year, and we expect the first half of this year to be challenging, especially in places. We are rightsizing the business, focusing on top line growth, especially in pharma, tech, energy, water and major infrastructure projects. We have the people, the knowledge, the drive, the determination and the client demand to make this business much more successful. I will now hand over to Heather to provide her thoughts for the future. Heather Polinsky: Thank you, Simon. Good afternoon and good morning to those joining from around the world. Before I share my perspective, I want to thank Alan for his leadership. He has guided Arcadis through both the good and challenging times with integrity and clarity, and we are grateful for his dedication to our people, our clients and the company. As Alan and Simon have said, 2025 has been a challenging year for Arcadis. We are under no illusion about the amount of work ahead of us. But as you have heard, we are taking action to return to growth. Having spent more than 26 years at Arcadis, I personally know the strength of this business, defined by deep expertise, global reach, local delivery and trusted client relationships. What gives me confidence is the platform we are building from and the scale of the opportunity ahead. Across Arcadis, we hold leadership positions in markets that matter from firsthand experience in leading both our resilience and mobility GBAs. These are sectors shaped by demand, long-term investment and increasing complexity for clients. These are not future bets. They are markets where we already lead, and we'll extend that leadership through disciplined execution. Let me spend a few minutes on some key areas. In Water, as a top 4 designer delivering double-digit organic growth and over a century of experience in water services, we lead in engineering, coastal resilience and emerging contaminants such as PFAS with flagship programs, including Sao Paulo's largest wastewater treatment plant and the $1.7 billion Lower Manhattan Coastal Resiliency program. In Energy & Resources, the U.S. requires up to $1.4 trillion in power investment by 2030, while Europe is accelerating its energy sovereignty and critical minerals development. Our strong market positions, #3 in transmission and distribution and a leading position in mining is reflected in recent wins, including 2 new nuclear plants in the Netherlands and Australia's first renewable energy zone. In Technology and Life Sciences, nearly 100 gigawatts of new data center capacity will be added by 2030, alongside major semiconductor and advanced manufacturing investment. Arcadis as #1 in life sciences and semiconductors and top 3 in data centers, we are well positioned to capitalize on these trends and grow our business in these areas. On major infrastructure projects, our clients increasingly demand certainty on cost, schedule and outcomes. Through integrity and integrated delivery, intelligent infrastructure and asset advisory, Arcadis is the partner that clients rely on. This is reflected in projects such as the redevelopment of Amsterdam's Central Station. Taken together, these positions give me real confidence. We are aligned to powerful market tailwinds. We are focused on where we have a clear right to win to drive growth. Looking ahead, leadership today is not just about where you compete. It's about how. We build on our market positions by partnering with clients and embedding human expertise with AI and digital solutions to help our clients plan smarter, move faster and deliver with confidence. Across water, energy, data centers and rail, we combine engineering with advanced analytics to optimize performance and drive faster evidence-based decisions for our clients. Our partnership with VODA.ai is supporting water clients to predict lead service lines before they become a problem, so they can prioritize capital expenditures and accelerate compliance. Climate Risk Nexus takes predictive climate analytics and combines them with asset-level insight guiding resilience planning. In just 1 year, it's grown from 2 pilots to 20 projects, including a statewide assessment across 64 campuses of SUNY, the State University of New York. In technology, our NVIDIA Omniverse partnership lets clients model and optimize data center assets before construction even begins, cutting risk, cost and delivery time. And in rail, our integrated EAM solution brings digital products, analytics and advisory together into one seamless offering, earning recognition from Verdantix as best-in-class. These digital capabilities aren't just tools, they're central to our strategy. They create higher value outcomes for our clients, strengthen our market leadership and define exactly how we compete in a changing world. The priority now is clear, converting these strengths into consistent, profitable growth. My focus is anchored in 3 priorities. First, refocus the business on high-growth markets. We are directing capital and talent to sectors where we have the right to win, water, energy and power, technology and large infrastructure projects where demand provides long-term visibility. One of our greatest growth engines sits within our existing client base. In recent months, our executive leadership team has met more than 50 key clients and the message was consistent. They value and want to do more with Arcadis. Deepening these relationships and expanding our wallet share provides a clear path to stronger organic growth. Second, simplify to accelerate performance. We are removing complexity, reducing layers in the business and enabling faster decisions closer to our clients. Alongside this, we are advancing automation and taking disciplined cost action to improve our competitiveness. The outcomes are straightforward: higher productivity, stronger margins and better backlog conversion. Third, we need to drive cultural change through a truly client-led model. We are sharpening sector focus, aligning ownership with accountability and ensuring incentives, reward, personal and team performance. We are expanding client coverage, including over 60 new account leaders appointed this week, and the scaling of GECs will enhance delivery while maintaining cost discipline. Execution is underway, but let me be candid. As you have heard, there is a lot more work to unlock the full potential of Arcadis. Turning to our outlook. We expect net revenue organic growth to be flat with a weak start to the year. This reflects the reality of repositioning the business for stronger performance. As I said, demand in water, climate and energy is robust. Environmental restoration is also showing recovery for us in the U.S. Key geographies continue to perform well, and our pipeline is healthy. However, uncertainty in places and the timing variability in large mobility programs means that demand will not fully translate into near-term revenue in these areas. We will also be very focused on the areas where we have control, namely productivity, efficiency, cost control, GEC contribution and disciplined project selection. As a result, we expect our operating EBITDA margin to reach 11.7% to 12%. Arcadis is stronger than our current trajectory suggests, but strength alone does not create value. Consistent delivery does. Let me close with this. We are resetting the foundations of our next phase of profitable growth. And we have already begun. We have reinstated cash discipline, strengthened our sales force in markets that matter most, aligned incentivization with performance and accelerated restructuring where change was required. Now in 2026, it is about execution. It is about performance and growth, a simpler and more agile business and greater accountability. We are sharpening client centricity and aligning rewards with outcomes. We will continue rightsizing underperforming areas, and we are simplifying how we will operate and deliver so we move faster, make better decisions and compete more effectively. There is work to do, and I want to be explicit about that. But the priorities are clear, the actions are defined and execution is underway. You should hold me and Simon accountable for delivering this change. That accountability is understood, and it is embraced. I am confident in the steps we are taking, confident in the markets we serve and fully committed to restoring Arcadis to sustainable and profitable growth. Looking ahead, we will host a Capital Markets Day in November 2026. There, we will set out our next 3-year strategy, including our strategic ambitions, go-to-market model, portfolio optimization, human and digital ambitions and strategy and medium-term financial and nonfinancial targets. 2026 is a reset year, but it is also a launch pad for us. We are strengthening the core, embedding agility in how we operate, raising expectations across the entire business and positioning Arcadis to deliver stronger and more profitable growth. With that, I'll hand over to the operator for the Q&A session. Operator: [Operator Instructions] The first question is from the line of David Kerstens with Jefferies. David Kerstens: I've got 2 questions, please. First of all, you talked about the underperformance and the high-growth areas in the business. I think combined around 2/3 of the total. Can you also explain what happened in the remaining 34% of the business, which I think saw an organic decline of around 5% to get to the organic revenue decline for the group of 0.5%? Then the second question -- can you explain the cut to your full year '26 guidance compared to what you indicated on October 30? I think you said then that you expected organic net revenues to gradually build up towards 5% in 2026. Now you're guiding for flat revenues. Does that also mean you expect it to build up gradually towards flat for the year? And also, I think last quarter, you still indicated you were on track to reach the 12.5% EBITDA margin target as your strategic objective. What drives that reduction to 11.7% to 12% now despite all the measures you have taken in terms of rightsizing, adding 30 basis points to margins and all the earlier investments in productivity and standardization improvements? Simon Crowe: Yes. David, it's Simon here. I'll take the first question, and then we'll take the other questions after that. So the other part of the business that we didn't talk about, I think has declined about 1.6% based on our internal calculations. And obviously, there's a mix of things going on there. So we've had some strength and some weakness. So I think it's -- we could dive into each of the pieces, but it's just part of the business that we didn't highlight in this conference call. So we've had some government clients in there, which have been affected by the U.S. slowdown. Obviously, the policies that flip flop with Trump. So we just haven't got the momentum in that part of the business that we'd like. Dave, do you want to talk about your -- the growth for 2026? Obviously, Heather and I have had a really good chance to do a lot of reviews and a lot of dives into where we are. And we feel that 2026 is a reset year. We think the first half based on some of the things we're seeing in mobility based on places will be slower than we expected, and we expect that to hopefully increase in the latter half of the year. So we're looking forward to a slow ramp-up during the year, but Heather and I felt it was right to take a really good look and reset expectations. And I hope we've been really clear with you. We've been really clear with what we're expecting for the year. We're expecting flat. That's our judgment at the moment. And we're expecting that margin at 11.7% to 12%. Obviously, we're taking more rightsizing measures. Obviously, we're looking for more growth. obviously looking to increase that margin over and above where we're guiding to you today. But we thought it was just sensible to give you some clear expectations. Operator: The next question is from the line of Sangita Jain with KeyBanc. Sangita Jain: Could you possibly elaborate on the go-to-market strategy that you're discussing on some of these end market pivots? I'm trying to understand how you think you're competitively placed versus your peers, especially since you're bringing in new businesses and sales teams at the same time? And then I have a follow-up. Heather Polinsky: So we talked specifically about our ability to grow in several key markets, water, energy and power, technology and semiconductors and life sciences as well as data centers and large infrastructure projects. And we've had success in doing this in the past. In fact, many of those businesses are already on a growth trajectory. So we know that we have the right to win. We have looked at and conducted a pricing review to look at strategic pricing so we can make sure that we are competitive, and we're bringing the innovation that I spoke about, whether it's the AI tools or it is our digital intelligence projects, combined with our human and technical expertise and asset knowledge to win in those sectors. Sangita Jain: Got it. And then I understand that the Capital Markets Day doesn't come until much later in the year. But in the meantime, can you help us understand if the strategy review could possibly include further reducing the number of geographies you're in or possibly cutting end markets to get back on a path of growth? Simon Crowe: Yes. Look, we will continue to review our strategy. We're not going to sit still. We're in a hurry. We continue to review our geographies, our sectors, our services and where we think it is appropriate, we'll make changes and where it is appropriate, we'll grow and where we have a right to win, we'll invest in heavily. So everything is up for review for us. Heather and I are looking very carefully at where we're strong, where we're not so strong, and we will obviously communicate with the market in due course. But we're very confident we have a right to win in the sectors that we outlined, and we're going to go and win there. Operator: The next question is from the line of Martijn Denreiver with ODDO ABN AMRO. Martijn den Drijver: I'll start off with a question for Simon, if I may. The 1,100 people charges of EUR 50 million, am I right in assuming roughly that you would pay 6 months salary severance, meaning that you could expect EUR 50 million saving in 2026 from that element. If you do another EUR 1,100 million in 2026, assuming that you're going to do that relatively early in the year from the same analogy, you would get another EUR 50 million in savings. All in all, back of an envelope that would add EUR 100 million in savings, which represents 2.3% on flat revenue. So I have a bit of a trouble getting to that 11.7% to 12.0% EBITA margin given these restructuring measures. Can you help me understand that? Simon Crowe: Yes. Obviously, I think your math is pretty reasonable. Obviously, it depends on the jurisdictions and the timing, as you say. But look, we've got wage inflation. We've got to give people a pay rise in certain jurisdictions throughout the year. We've got 35,000, 34,000 people. So we'll be doing that. We're obviously going to invest in the business in the top line growth in go-to-market, in pricing and all of those things that we talked about, we're going to invest in those markets. So yes, there's going to be some savings, and we're looking to protect our margin. We're looking to grow our margin, but also we've got to continue to back our people, attract talent and grow the top line. So there's going to be some investment there. Martijn den Drijver: Got it. My second question is on net working capital. The 8.3%, very strong. Even if you adjust for the factoring, it would end up at roughly 8.8%. So still well below the target that you set yourself of 11%. But did I understand you correctly that you were saying that around 11% would be a healthy level of net working capital going forward? Simon Crowe: Yes, that's right. That's sort of our typical trend over the last couple of years. Obviously, I've started to drive very hard there, as you've seen. I made the promise back in Q3. We've delivered on that promise. It was a record level of cash intake, but we'll drive hard to get that below 11%. But look, the business has some cyclicality around it, has seasonality. We will drive hard. We've started some new initiatives internally on the back of our success in the last quarter. So we'll continue to drive that down. And -- but I think 11% is a good thing for your model, yes. Operator: The next question is from the line of Chase Coughlan with Van Lanschot Kempen. Chase Coughlan: I just have 2 and maybe starting with the portfolio review. You mentioned you had the reductions in the P&I business in the fourth quarter. Are there any other areas of the portfolio in 2026 that, let's say, could be a risk of a further revenue reduction that you're looking at? Or how is that process being conducted? Simon Crowe: No. We -- as I said, we did a review of our Canadian business. We did the normal audit review with KPMG. We brought in a third party. I myself conducted daily calls over the last quarter to review that business, and we've drawn a line under that, and that's behind us. And there's no -- there's nothing to indicate anything else like that is happening in Arcadis. So no is the answer to your question. Chase Coughlan: Okay. Perfect. And then my second question, just going back again to the sort of organic sales growth guidance. I'm struggling to understand sort of why we imply a worsening in the first half. I mean a lot of the sort of commentary you provided about you're starting your sales incentivization changes in January, more salespeople in the business. The book-to-bill even in places looks decent. So could you please maybe just sort of help me understand exactly why you expect even a worsening environment at the beginning of the year at least? Heather Polinsky: Yes. And as you mentioned, we expect net revenue organic growth to be flat across the year with a weak start. This reflects the reality of us repositioning the business for stronger performance. And it also -- while you point out, we have strong backlog in Mobility and Places. Mobility has experienced some delays, and those are driven by some of the market dynamics as well as the lumpiness of the awards that we see. Places also remain strong, but those large projects take a little bit of time to ramp up from the permitting phase into the heavier design phases for us. So really looking at that phasing and the quality of our backlog, we expect to see the positive improvement through the year, but to have a weak start. Chase Coughlan: Okay. So it's really timing and then repositioning. All right. And if I may just squeeze in a third one on capital allocation. So of course, your balance sheet remains very healthy from a leverage standpoint. Could you give any indication on what your sort of capital allocation options are? I mean you're obviously repositioning the business yourself, as you said, I'm not sure if M&A is appropriate at this time, but even for sort of another buyback potential, what -- how are your thoughts about that from a management standpoint? Simon Crowe: Look, we'll look at all of that. Of course, we will continue to discuss M&A opportunities. We did a couple of small ones last year. It'd be great to think we could do some similar things this year. They were excellent additions to our business. Of course, we'll look at buybacks. Of course, we'll look at capital allocation across the piece. So it's just the normal course of what we discuss all the time in the business. So that's what we'll be doing. And I'm confident we, as you say, got a very strong balance sheet and good cash collection. So we have a lot of optionality. Operator: The next question is from the line of Natasha Brilliant with UBS. Natasha Brilliant: I've got a couple of questions. My first one is just thinking about more the midterm growth profile of Arcadis. I realize you'll do your Capital Markets Day in November. But once we get through this transition year, do you feel confident that Arcadis can get back to being a mid- to high single-digit growth business again? And then my second question is a broader question around AI, where we're seeing a lot of investor interest, but also market volatility. And you've talked about how you're using AI to drive efficiencies internally. Are you having any discussions with customers who might be pushing back on the use of AI or asking to share on some of those efficiencies with you? Just trying to understand how we should think about pricing and profitability for your business going forward given the sort of AI overlay. Heather Polinsky: Yes. First of all, let me take the first question on Capital Markets Day and our projections going forward. It is our intent to return to the same market level performance as our competitors. And we see no reason why with the strong technical capability and strong client relationships that we have when we take the other actions that we put in place that we won't get there. So we are confident we'll get to that same market performance. On the AI question, yes, AI is something that is continuing to be in the conversations with our clients. And in fact, we are already delivering projects with AI integrated in them. There's 3 parts to the AI discussion. One is our internal efficiencies, as you've talked about and Simon mentioned [Audio Gap] we do it in a way that is really reflective of the local markets and client needs as well as the transparency of where it's able to add value. And then we are engaging on discussions with our clients about new revenue lines and how we can help them in different ways and new ways. And in fact, I don't know if you have seen, but we launched an AI for water challenge, and we'll be also launching one on energy specifically going forward, where we're co-creating with our clients AI solutions to support them. Operator: The next question is from the line of Kristof Samoy with KBC Securities. Kristof Samoy: A lot of them have already been addressed. But press release mentioned that you're working on value. Operator: Samoy, I apologize for interrupting you. Can you please speak a little closer to your microphone because I'm not sure that management can hear you. Kristof Samoy: Okay. Is it better now? Operator: Yes. Please proceed. Kristof Samoy: I have one left. It's on value-based pricing. In the press release, you mentioned that you're working on that. And obviously, there's a lot to do on AI and the impact it has on the billable hours model. Can you give like a tangible example on how you want to go at implementing more value-based pricing? And secondly, can you give some insight into your breakdown of your revenues in terms of cost plus pricing time and material and lump sum and how you see this composition change over time? Heather Polinsky: Let me start with the last part of that discussion first. It's about 60% fixed price and the remaining time materials or cost plus. And as it relates to value-based pricing, we're already using value-based pricing with some of our clients and testing it out. And we've had some great success in co-creating solutions with our clients and then working through the value-based pricing approaches with them. And as Simon mentioned in the presentation, we have initiated a strategic pricing review and also working to support our teams and more effectively bidding so that we can win more with our clients. Simon Crowe: And just to say, we brought in an external pricing specialist to help us with that review. So we're not just relying on our own knowledge, but we're really excited about the initial findings, but we've got a lot more work to do there. Operator: The next question is from the line of Dirk Verbiesen with ING. Dirk Verbiesen: I have a question on the headcount reduction. The 1,100 roles that you took out, 100 of those are in overhead and your plans for 2026, you already announced 150 further reductions in the property and investments. And I am aware of the sensitivity, but can you share a bit more on what your further plans are? And is this, let's say, overhead versus billable people 1 in 10 like we've seen in '25. Is that the same magnitude as you foresee for 2026? Simon Crowe: Look, we're going to take a really good look at this and Heather and I have started to look at this. In fact, I shared a list with her the other day. It's nonbillable, nonclient-focused people that we're just trying to work out where can we find some efficiencies and where can we find automation. We are -- I think the ratio will be different this year than it was last year. As you said, it was 1 in 10. I'd expect to find more efficiencies from our nonbillable and non-client focused areas. That's not to say that these functions are not important. They are important. We've got some great people doing some great work, but I think it's just -- it's incumbent upon us to take a really really hard look at what we're doing. And obviously, we're going to leverage AI. We're really excited about the opportunities there with the efficiencies that AI can bring to us. And hopefully, we can divert a lot of these folks on to billable work. That's really the key here. We think the markets are really, really exciting and really strong for us in the areas that Heather mentioned. And if we can move people from nonbillable and nonclient-focused work into billable and client-facing work, then that's the real opportunity we have because these people understand and know how Arcadis works. So a lot to do, and we're going to do it quickly. Dirk Verbiesen: Following up on the previous questions also from Martijn on the impact of these headcount reductions. If you say, let's say, the 1,000 billable people, yes, you've lost around EUR 110 million potential revenues taking them out and maybe also a significant number in '26. I think we understand that, that flat revenues guidance comes largely from that and maybe some delays in projects. But let's say, a return also the remark from Heather to peer average organic growth, yes, I think most peers say 6%, maybe even 6% to 8%. Let's say, how long do you think you need to really recoup the momentum there towards that ambition? Simon Crowe: Look, I mean, Heather, your math may be right. It's -- and if you're modeling it out, obviously, we're taking some heads out. Some of those are billable, but we are looking at increasing the billability and looking to return to that growth. So I think, look, we're looking for second half. We're very excited. first half is slow as we've indicated. We've been very clear on our guidance. The markets are there for us. We're going to be very selective on how we take out cost, but it's all about focusing on billable and client-facing people who will drive that recovery into the second half. Heather Polinsky: And Simon, if I can add, we are going to be taking some restructuring costs associated with those reductions, but we are making investments. We are going to shift our portfolio towards those high-growth markets and make hires in those areas. So it's really about the shift and the rebalancing towards the growth markets in the areas we have the right to win. Operator: The next question comes from the line of Sabahat Khan with RBC Capital Management. Sabahat Khan: I guess just maybe just taking a lot of the questions from earlier around the cuts and the sort of commentary on outlook together. With these sort of restructuring initiatives, do you feel like you've gone deep enough to sort of position the company on the right path? And then secondly, just in terms of '26 being a transition year, is the confidence there really that it will be a matter of time to cycle through maybe some of the not so favorable projects? Or just -- what gives you the confidence that this will be sort of a transition year and that you sort of cut deep enough? Just more of a high-level perspective, not looking for sort of guidance or anything. Simon Crowe: No, I mean I'll start and Heather, I'm sure will add to that. We're not holding back. So look, we're going to do -- we're going to continue to do the reviews. We're going to continue to see what makes sense. We're going to continue to invest in the business where we see the growth and the value, but we won't hold back on those slow growth or no growth areas that potentially need looking at. Heather Polinsky: Yes. Some of the additional elements is the market is there for us. And so specifically, the market in these areas that we've identified the right to win, we believe that by making those strategic investments by changing our incentivization and improving and adding to our sales force that we'll be able to use that strategic pricing we talked about and even the automation of our pursuit process will start to come into play. So quite a few factors coming forward to help drive us towards that growth. Sabahat Khan: Great. And then just quickly a follow-up. I guess, as you put new leaders in place, put some new folks in place, restructured other things, how are you ensuring that the sales folks and the project managers during that transition are still sort of filling the backlog to ensure '27 and onwards gets to the right range that you want to get to? Simon Crowe: Look, we've -- Heather will comment as well, but we've incentivized a lot of people to really focus on driving sales now. It's about performance culture. We're really excited. We're shifting to that performance culture. Q1 and Q2 also a massive, massive focus for us, and we've been repeating that message and incentivizing people to drive the growth into Q1 and Q2. So the message is out there, and people are excited about it, and they're grabbing the opportunity. Heather Polinsky: Yes. And Arcadis' mission of improving quality of life is done through the delivery of our projects. and through the passion of our people. So our job as leadership is to mobilize and energize that passion. We also have a really high employee engagement score. So even though we've taken these cuts over the last year, our Net Promoter Score remains in the top 10% of professional services. So in addition to the expectations we've set for our people, we've got a great foundation to grow from. Operator: The next question comes from the line of Luuk Van Beek with Banque Degroof Petercam. Luuk Van Beek: First of all, a question about the -- your ability to predict the timing of when your backlog converts into revenues. It was an issue last year. Have you taken any measures to improve the process? And if so, what kind of measures? Simon Crowe: Yes. We've -- I've been looking at that amongst other things. And that's one of the key issues for us to ensure that we give the training, we show people how they can phase their backlog more easily, make sure the systems are easy to access. And that's certainly something in terms of the transformation. And I call it the sort of 10 commitments that we've got. One of those is to phase your backlog. And we're obviously monitoring it. I've got a dashboard that I can look at every day, and we are getting that message out there that phasing the backlog is really helpful for knowing who to put on a job and who we can put on another job and also forecasting as we go forward. But it's going to take time. We've got over 30,000 projects. We've got a lot of project managers out there. So the time -- it will take us some time. But yes, it's on the list. Luuk Van Beek: And you mentioned in the presentation that you target cost reduction to drive competitiveness. Does that mean that you have the impression that you sometimes lose projects against competitors because of your pricing? Simon Crowe: I'll let Heather add to this. But we think we -- obviously, we lose some bids because of pricing. But I don't think that's it. Obviously, we work with competitors. So we can see -- often can see what the pricing and we're in partnerships. We're in joint ventures, so we can see that. I think we're just so -- actually, we're so good at what we do. We bring that complete project sometimes. And often, the customer just maybe just want something slightly less. And that's part of our pricing review, part of the value pricing that we're working on. We're so good at delivering and so enthusiastic that sometimes I think we may get carried away. But Heather, maybe you want to talk to that. Heather Polinsky: Yes. Just on our cost base, I think that what's important for us to recognize is that efficiency isn't always just in the cost. It's in how quickly we're able to make decisions in the organization. So reducing layers within our, say, overhead structure or enabling function will allow us to be more responsive to our clients and allow us to win at a faster rate and allow our people more entrepreneurship and flexibility so that we can both protect Arcadis, but also deliver to our clients more effectively. Operator: The next question is from the line of Simon Van Oppen with Kepler Cheuvreux. Simon Van Oppen: I have one remaining question left, and you mentioned the independent auditor review. I was just wondering to what extent has impairment testing be done in Q4 on each of your individual divisions? And should we expect any further impairments in 2026? Simon Crowe: No. I mean we've done all the necessary reviews. No more -- no, you shouldn't expect anything like that. Operator: Ladies and gentlemen, with this question, we conclude our Q&A session. I will now turn the conference over to Mr. Brookes for any closing comments. Thank you. Alan Brookes: Thank you, and thank you, everybody, for your questions. As we said at the start, it has been a challenging year for Arcadis. But as I hand over to Heather as CEO, I do so with full confidence in her leadership. She has a clear mandate, as you've heard today, to strengthen performance, simplify the business and accelerate delivery. These actions are already underway, and the priorities are well defined. So thank you again for your time and engagement over the last 3 years and for indeed your continued support for Arcadis under Heather's leadership. Thank you all very much. Operator: Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for calling, and have a pleasant day.
Operator: Good day, and welcome to the Pool Corporation Fourth Quarter 2025 Conference Call. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference over to Melanie Hart, Senior Vice President and CFO. Please go ahead. Melanie M. Hart: Welcome, everyone, to our fourth quarter and year-end 2025 earnings conference call. During today's call, our discussion, comments and responses to questions may include forward-looking statements, including management's outlook for 2026 and future periods. Actual results may differ materially from those discussed today. Information regarding the factors and variables that could cause actual results to differ from projected results are discussed in our 10-K. In addition, we may make references to non-GAAP financial measures in our comments. A description and reconciliation of any non-GAAP financial measures included in our press release will be posted to our corporate website in the Investor Relations section. Additionally, we have provided a presentation summarizing key points from our press release and today's call, which can also be found on our Investor Relations website. Peter Arvan, our President and CEO, will begin our call today. Pete? Peter Arvan: Good morning, everyone, and thank you for joining us. Let me begin with a look back at 2025. This was a year of continued industry developments, shifting demand patterns, persistent customer uncertainty, and evolving customer expectations. We stay true to our long-term strategy, investing in new capabilities, expanding our exclusive brands and advancing our digital and distribution platforms. These efforts allowed us to address current market pressures while maintaining a strong foundation for future growth. One important industry theme this year was the ongoing decline in general construction activity, including new pool construction. It's important to note that this trend is not unique to our business, but is felt across the broader construction sector. In 2025, we estimate that just under 60,000 new pools were built in the U.S., a mid-single-digit decline from last year. This is about half of what we saw at the height of the pandemic and 40% lower than in 2022. Even in this environment, we maintained our position and gained share in several important areas, driven by our differentiated offering and commitment to service. While new pool construction remains down, maintenance spending proved resilient. Also see the likelihood of pent-up demand in the pool industry, although it's difficult to predict the timing, we do believe that as consumer confidence returns, deferred pool projects and upgrades will come back to the market. This opportunity encourages us even though it remains difficult to put a time line on it. Operationally, we took a disciplined approach to 2025. While the broader industry continued to add capacity, we slowed our own facility expansion and focused instead on driving more value from our existing network. While early, we are seeing measurable benefits from our strategic investments, including increased efficiency from our technology upgrades, improved customer experiences through digital platforms and enhanced profitability from our supply chain initiatives. The progress underscores the effectiveness of our approach, and we expect these gains to become even more significant in 2026 as our initiatives continue to scale and evolve. Moving to financial performance. Our annual revenue was $5.3 billion, holding steady year-over-year. This stability was supported by steady maintenance demand with early indications of improvements in some discretionary categories, even with lower new pool starts. In the fourth quarter, our sales totaled $982 million, just 1% below last year's level, a period that, as a reminder, benefited from significant hurricane-related repairs in Florida and thus was a particularly tough comparison. We delivered strong gross margin performance in 2025, reaching 29.7% for the year, up 20 basis points from the prior year when adjusted for onetime items. This reflects the strength of our market leadership, disciplined pricing strategies and operational excellence through our supply chain. In the fourth quarter, gross margins rose to 30.1%, an improvement of 70 basis points year-over-year. We delivered our commitment to shareholder returns, distributing $530 million in cash this year, a 10% increase over last year. This includes $341 million in share repurchases and a 4% increase in our quarterly dividend, underscoring our confidence in the business and our disciplined capital allocation. Inventory, as we have done successfully in the past, we acted opportunistically to secure pre-price increase purchases. This proactive investment positions us to protect and expand our gross margins, and we expect to sell through this inventory in the normal course of business. When we look at our performance by region, Florida sales declined 2% for the year and 9% in the fourth quarter, reflecting last year's post storm activity. However, on a 2-year basis, fourth quarter sales in Florida were still up 2%. Texas showed early signs of recovery late in the year. Sales grew 1% in the fourth quarter, which helped offset a 3% decline for the full year. California declined 3% for the full year and 4% for the fourth quarter. Arizona was flat for the full year and down slightly in the fourth quarter. Elsewhere, Horizon sales declined 2% for the year. In Europe, we posted local currency growth for the first time in 3 years, including a 4% increase in the fourth quarter. If we look at our results by product category, chemicals were down 1% for the year, mostly due to price and 3% in the fourth quarter driven by tough comps with post-hurricane cleanup. Building materials finished flat for the year and were up 4% in the fourth quarter, driven by demand for our national pool trend products and our differentiated customer experience. Equipment sales, excluding cleaners, were flat year-over-year and down 3% in the fourth quarter, cycling against prior year hurricane recovery comps. Commercial pool products rose 3% for the year. Now let me highlight performance in 2 important channels: independent retail and Pinch A Penny franchise network. Sales to our independent retail customers decreased 3% for the year and 4% in the fourth quarter. This reflects softer retail demand compared to hurricane-driven surge we saw in -- late in 2024, which created a high benchmark for year-over-year comparisons. Additionally, we did see pressure on chemical pricing, which is why the team is focused on proprietary product differentiation. For Pinch A Penny, sales from franchisees to their end customers declined 2% for the full year and 9% in the fourth quarter. It's important to remember most Pinch A Penny stores are in Florida, and last year's fourth quarter saw a 15% jump in franchise sales due to the hurricane activity. At year-end, our Pinch A Penny network grew to just over 300 locations after adding 10 new stores during the year, including 5 in Texas and 1 each in Arizona and North Carolina. Our franchisees continue to provide essential services to customers and remain a key growth driver for our business. Turning to the digital side, we continue to make investments in technology, the launch of POOL360 unlocked new artificial intelligence features, expanded customer access to our products and improved their experience across our network. Digital sales reached 13.5% of total revenue in the fourth quarter, up from 12.5% last year and peaked at a record 17% during the pool season. For the full year, we finished at 15% of sales, which is an all-time high, and we believe this will continue to grow. We also expanded our physical footprint, opening 8 new locations and acquiring 3, bringing our total to 456 sales centers at the end of the year. Between these investments in digital and our distribution network, we remain well positioned to support both the professional and the DIY end markets moving forward. Looking ahead to 2026, we anticipate net sales will grow in the low single-digit range. This outlook assumes new pool construction will stay close to the 60,000 units we saw in 2025. Maintenance revenues should remain resilient, and we expect to continue to capture share through exclusive brands, enhanced technology and differentiated services. We expect our work to drive greater efficiency, especially the network optimization and operational improvements launched at the end of 2025 will produce more meaningful gains in 2026 as those initiatives scale. We will continue our disciplined approach to capital allocation, focusing on investment -- focusing investments on opportunities with the highest returns. With all these factors in mind, our diluted EPS range for 2026 is $10.85 to $11.15. Melanie will provide further details on our financial outlook in just a moment. To summarize, our focus in 2026, we'll have 3 priorities that guide us as we move forward. First, delivering an unmatched customer experience through exceptional service, tailored solutions and the reliability our customers count on. By raising the bar on customer engagement and satisfaction, we reinforce our position as the partner of choice in the industry. Second, expanding our exclusive brands and deepening our OEM relationships to offer innovative, differentiated products that set us apart in the market. And third, fully leveraging our technology and network investments from POOL360 to our distribution platform, driving greater efficiency, reach and agility across our business. We will continue to exercise strict discipline in execution and investment, ensuring we generate strong returns and stay nimble as the market conditions evolve. Feedback on our new products and digital tools have been very encouraging. We look forward to providing more detail on our strategic road map and innovation plans at our upcoming Investor Day. Investing in our people remains fundamental to our long-term strategy and culture of excellence. We are relentless in attracting, developing and retaining top talent, empowering our team members to lead, innovate and drive meaningful results. Their expertise and commitment not only fuel our current success, but also ensure we are well positioned to seize future opportunities and shape the next phase of our growth. Before I conclude, I would like to thank our employees, our vendor partners and our customers for their ongoing commitment and trust. Through another demanding year, we delivered solid results and laid the groundwork for further progress. I am confident that together, we are well positioned to drive continued leadership and value creation in the years ahead. I will now turn the call over to Melanie Hart, our Senior Vice President and Chief Financial Officer for her commentary. Melanie M. Hart: Thank you, Pete, and thanks to everyone for joining us on today's call. I'll begin with a summary of our fourth quarter results, discuss our full year 2025 achievements and then look ahead to 2026 expectations. For the fourth quarter, sales decreased by 1% compared to the prior year. The prior year's fourth quarter included a 2% benefit from increased maintenance activity and weather from hurricane recovery efforts, primarily in the Florida market. We continue to see an effect from lower discretionary spending which had a drag on sales of 2% this quarter, including the results from Horizon. However, the impact has continued to moderate throughout the year as we have seen permit declines across most of our markets begin to improve. Net pricing benefit for the quarter was approximately 2%. Fourth quarter gross margin was 30.1% and reflects a 70 basis point improvement over the prior year's margin of 29.4%. The improvements to gross margin were a result of pricing, supply chain benefits, expanded private label sales activity and a favorable product mix. The favorable product mix includes the fact that the prior year's weather impact led to increased equipment sales, which generally have lower margins than our overall product mix. Operating expenses in the fourth quarter increased by $14 million or 6% compared to the prior year. This year-over-year expense increase is higher than the trend to date, primarily due to incremental technology investments made in the fourth quarter to ensure that POOL360 unlocked, as Pete outlined, was ready and available for use across the network. In addition, we have our new sales center openings and sales transformation expenses. We also saw self-insured medical costs continue to rise significantly outpacing general inflation rate. We reported operating income for the quarter of $52 million compared to $61 million in the prior year and diluted earnings per share of $0.85 as compared to $0.98 in the fourth quarter of 2024. For the full year of 2025, we maintained sales of $5.3 billion, consistent with the prior year despite having 1 less selling day. Discretionary activity related to remodels continue to make progress with the new pool construction remaining a challenge, resulting in approximately 2% to 3% lower sales for the full year. We have successfully implemented both pool season and mid-season price increases while effectively managing evolving market pricing for chemicals, resulting in a 2% net pricing benefit. Maintenance activity overall for the year was positive. In 2025, we estimate that maintenance items accounted for roughly 64% of our pool product sales, while renovation and remodel projects made up 22% and new pool construction contributed 14%. These are consistent with our 2024 estimate. Our sales of products primarily used in new pool construction and remodel finished the year flat, which was better than the overall new build market, we have estimated to be down 3% to 5%. Gross margin for 2025 was 29.7%, up 20 basis points compared to the prior year reported margin, which was also 29.7%, but included a 20 basis point benefit from import taxes. This improvement reflects effective supply chain management and disciplined pricing practices. These results were achieved through a consistent focus on operational execution and proactive engagement with customers. Regarding product mix, building materials accounted for 12% of sales in 2025 and 2024. Operating expenses increased $34 million, bringing the total to $992 million. Key investments this year included in the 3.5% expense increase are approximately 1% for incremental costs related to the 8 new greenfield locations and 1% in incremental technology spend. These increases were partially offset by ongoing improvement from our capacity creation efforts, which helped mitigate the impact of broader cost inflation. For the year, operating income reached $580 million compared to the $617 million in the previous year. Interest expense decreased by $3 million year-over-year benefiting from lower overall rates, including benefits from refinancings during the year. We have continued to benefit from our treasury management efforts and mix of fixed and variable rate debt. The effective tax rate was 23.8%, slightly higher than last year's 23.4% with ASU benefit. On a full year basis and excluding the impact of ASU, the tax rate was 24.7%. Diluted earnings per share of $10.85 compares to $11.30 in the previous year and includes an ASU benefit of $0.12 per diluted share for the full year versus $0.23 in 2024. Adjusted diluted EPS was $10.73 compared to $11.07 last year, representing a 3% decrease. The $11.07 includes the $0.25 import tax benefit. Moving to our balance sheet and cash flow. Inventory at year-end was $1.45 billion, an increase of $165 million or 13% from last year's balance of $1.29 billion. In anticipation of estimated cost increases for certain products for the 2026 season, we evaluated early buy opportunities and made strategic purchases. We expect normal inventory seasonality for 2026 with a peak in March ahead of the season and lower inventory levels by the end of the third quarter. This is an area where our team has proven to excel, and we are comfortable with the lift in the inventory that is focused on our faster-moving product line. Total debt increased $249 million to $1.2 billion at year-end. Debt balances were primarily used to fund incremental working capital and share repurchases. Our year-end leverage ratio was 1.67, consistent with our target range of 1.5 to 2x. As expected, our cash flow from operating activities was $366 million representing 90% of net income of $406 million. Cash flow in 2025 was reduced by the $69 million in deferred tax payments made in the first quarter of 2025 related to those impacted by the hurricanes in 2024. Cash flow from operating activities in 2025 would have been 107% of net income without the deferred tax payment. We finished 2025 with solid earnings performance. We continue to invest forward into the business with 8 new greenfield locations, 3 acquired sales centers, 10 new Pinch A Penny franchise stores, including 2 new states and enhanced capabilities within our POOL360 ecosystem. We have invested capital in inventory, dividends and increased share repurchases to benefit the business and the shareholders. Next, we'll move on to our discussion of 2026. Heading into 2025, we faced a challenging macro environment, including higher than historical interest rates, increased cost, continued inflation, impacts from tariffs and uncertainty around when consumers will return to more typical discretionary spending in the pool and irrigation market. While we saw some improvements in the comparative trends, we are still awaiting more positive consumer spending. Our focus has been on improving the business outside of the macro trend, and we accomplished that in 2025 as we were able to realize benefits from pricing and maintenance activity that offset the decline in discretionary spending. In 2026, we expect our maintenance business to remain resilient, supported by the addition of approximately 60,000 new pools built in 2025. We also anticipate vendor cost increases and corresponding pricing pass-throughs to result in a 1% to 2% pricing benefit. Given that we have not yet observed a positive inflection in discretionary spending trends, we will continue to monitor these dynamics before projecting the timing of any significant recovery. Overall, we expect 2026 to continue to be a challenging market. However, we anticipate our market position and execution will allow us to achieve low single-digit sales growth. In 2026, we will have the same number of selling days each quarter and for the full year compared to 2025. Our gross margin for 2026 is projected to be consistent with 2025. We expect ongoing positive contributions from the effective supply chain, pricing strategies and increased private label sales offsetting continued shift to larger customers. At this time, we do not anticipate a significant increase in new pool construction or remodel activity, so product mix is not expected to have a material positive impact on 2026 gross margin. For 2026, we estimate we will incur approximately $5 million in additional costs to open 5 to 8 new sales centers. As part of our commitment to being an employer of choice, we also plan to increase employee rewards in line with higher earnings. This means that assuming we achieve low single-digit growth revenue, incentive-based compensation expenses are projected to rise by $10 million to $15 million. As we have proven over the last several years, this incentive compensation reload only occurs in line with improved results and has not yet been normalized through 2025. The management team remains confident in our ability to generate returns from recent investments in technology and infrastructure. These investments have positioned us to proactively manage staffing and facility needs more efficiently across our network. With low single-digit sales growth, we expect operating margin to improve in 2026, although this improvement will be partially offset by the onetime increase in incentive compensation. We are also seeing positive momentum at the more than 50 new greenfield locations we've opened since 2021. The operating costs associated with new locations added in 2025 will result in higher year-over-year expenses in the first quarter. However, we expect expense growth to moderate as these sites reach scale and efficiency gains are realized throughout the year. Our continued focus on operational excellence and process optimization provides us with confidence that we can leverage our growing platform, drive productivity and achieve further cost efficiencies as the year progresses. We expect interest expense to approximate $50 million in 2026 based on current rate. Interest expense is typically higher in the first and second quarters due to inventory buildup for the swimming pool season. For depreciation and amortization, we have included estimates of $55 million to $57 million. In 2026, we do not anticipate any significant changes to our capital allocation. It would include reinvesting roughly 1% to 1.5% of net sales back into the business, and we plan to allocate between $25 million and $50 million toward acquisitions. Subject to approval, dividend payments are expected to use around $200 million in cash and we intend to continue repurchasing shares on an opportunistic basis. We project that cash flow for 2026 will be aligned with our goal of achieving 100% of net income. Annual tax rate is estimated to be approximately 25% excluding the impacts of ASU. This rate typically runs closer to 25.5% in the first, second and fourth quarters and lower in the third quarter. We do not expect to see a significant benefit from ASU in the first quarter when restricted shares, vest and stock options expire and, therefore, have no projected ASU benefit in our 2026 guidance. We estimate approximately 36.8 million weighted average shares outstanding at the end of the first quarter and 36.9 million for the remainder of the year. Our guidance for 2026 is a diluted EPS range of $10.85 to $11.15 with no ASU tax benefit. The improvement in earnings at the midpoint would be approximately 2% to 3%. Looking ahead, we remain confident in our strategy to drive performance through steady maintenance activity, disciplined pricing and ongoing operational improvements. While we continue to monitor broader macroeconomic conditions for signs of sustained recovery in discretionary markets, our strong balance sheet positions us well to capitalize on future opportunities. We remain committed to delivering exceptional cash returns to shareholders through a balanced and disciplined approach. We will now begin the Q&A portion of our call. Operator: [Operator Instructions]. Our first question comes from David Manthey with Baird. David Manthey: First question on SG&A. Melanie, you pointed out that the low single-digit growth rate that you're guiding to is enough to trigger the incentive comp reset. So I assume that, that -- whatever that is, 25 or 30 basis points of a drag is factored into your earnings guidance. The question is if revenue were to come in flat, let's say, unexpectedly what -- would that imply that you would not trigger the incentive comp reset? I'm trying to get an idea, is this a sliding scale? Is it binary? How should we think about how that layers in or doesn't layer in given various ranges of revenues? Melanie M. Hart: It's definitely a sliding scale. So within kind of that range of low single digits, we would expect different points of recovery. With flat sales, the way that our incentive programs are structured, we would not see any change to the overall incentive compensation from '25 to '26. Peter Arvan: And what I would say is that additionally, if sales -- aftermarket lags even more and sales do come in flat, then, frankly, from a cost perspective, we would do other things to be in line with the market. David Manthey: Okay. Yes. And then on gross margin, you're guiding that flat. I'm just -- as you're going through scenario planning and setting your budgets, what are some factors that you think about where that could come in above or below flat with 2025 some of the key things that you're considering? Peter Arvan: That's a good question. It's a broad topic, as you know. So when I think about the drivers of gross margin, certainly, customer mix and product mix are part of that. Our work in pricing optimization, which continues to improve factors into that. I was particularly encouraged with the fourth quarter gross margin expansion. And I think that was driven by a couple of things. It was driven by a great effort by our supply chain teams. I think it was partially driven by the pricing work that the field is doing. I look at product mix. Now on one hand, I would say if renovation and remodel, which continues to outpace new pool construction, frankly. If that continues on the same path that it's on, that will create some lift for us from a product mix perspective. And then I look at the proprietary or exclusive brands that we have been building over the years and our continued work in those areas as, I would say, tailwinds that would help drive the number. The other side of that is that in a market like we are in, there's always, I would say, competitive pressures, which, again, I don't really get too concerned about because we have them -- I don't expect the competitive pressures to be, frankly, any different in 2026 as they were in 2025. And as you can see by the numbers, I think, the business did a very good job of more than offsetting that. So yes, they're there, but does it really drive our behavior? No. I mean we did see some deflation on chemicals. But again, in my comment, I mentioned, that's why we're kind of focused on the chemical side that we have some products that are exclusive and proprietary where we don't see that type of headwind that we are also leaning into. So overall, when I look at gross margin, I think the team did a very good job in '25. And I also think we have the same levers plus more to pull in 2026, which will help us out in that area. Operator: Our next question comes from Ryan Merkel with William Blair. Ryan Merkel: Thanks for all the thoughts on '26. I also wanted to ask on SG&A. When I plug in some of the parameters that you gave, I'm coming up with like 1.5% SG&A growth for '26. Just given some of the things you talked about with the employee rewards and new sales centers. Is that -- am I in the right ballpark there? Melanie M. Hart: Yes. So I would say, if you're thinking about sales growth and expense growth and trying to match those, we would expect that the expense growth would come in slightly less than the sales growth to give us a similar operating income margin, maybe slight leverage for next year. So we're going to be looking to offset the -- some of that incentive comp recovery overall by looking at utilizing the capacity that we have put into the market. So the term that you made here for 2026 will be capacity absorption. As we've talked about the investments that we've made in technology and the investments that we've made in building out our footprint on the greenfield side, we feel very well positioned with what we've done to date. And so our actions in 2026 will primarily be focused on starting to further enhance the generation of returns that we have on those investments. Peter Arvan: Ryan, I'll give you a couple of thoughts in this area. So I think we are particularly focused on the SG&A of the business because I think in the last couple of years, rightfully so, we invested in order to make sure that we maintained our market leadership position in terms of capabilities and customer experience. At the same time, we also have opportunities from -- as Melanie mentioned, now from a capacity absorption perspective, we made some investments. We're starting to see positive traction on those investments. And I believe that the new facilities as they continue to mature with a great degree of focus from the management team that our operating leverage on those facilities will continue to improve. I mean if you look at our operating margins across the fleet, if you will, we have some -- most of our facilities, frankly, are in fantastic shape. They're doing well. We added new which mixes us down. But it's the same formula that propelled the fleet to a high average is now being applied to the 50-some-odd new facilities that we've added over the years, and a focus on our lower-performing locations, which you've been covering us for a long time, implies our focus list. They're getting a particularly high level of attention right now. So when I look at SG&A, and I say, will we be in line with the market from a top line perspective, if the market improves, then SG&A will be easier to deal with from a percentage basis. If the market doesn't improve, then we're going to have to do other things to make sure that we stay in line. But we're okay with that because we believe that the investments that we've made over the last couple of years don't need to be repeated and we should start to harvest the benefit. Ryan Merkel: Got it. Okay. That's very helpful. My second question is just on 1Q. Are you assuming the first quarter is also up low single digits like the full year? Just want to just see if there's any cadence things we should be thinking of and there is a bit of weather in 1Q, I'm not sure if that had an impact or not. And then could you also comment on chemical prices, will those be down in the first quarter? Peter Arvan: So I'll take the first one on how 1Q is performing. I think -- so as you know, 1Q is our least significant quarter. That's not to diminish that the contribution to the business. I mean when I look at first quarter, we're not -- we're basically halfway through it. But March is bigger than January, obviously. So at this point, I would tell you that I am encouraged with what we've seen. Too soon for me to tell you that hey, we're going to blow the doors off of first quarter. But what I will say is that if we have a normal weather pattern for March and the rest of this month, then I think our expectations for the first quarter will be in line. And then your second question about chemicals. A little too soon to tell because remember, in the first quarter, this is when there's some noise in the system with chemical pricing. I can tell you, I'm not particularly concerned about deflation at this point on chemicals. I think things are fairly steady. So I don't -- I'm not at this point spending a lot of time thinking that chem prices are going to get worse. But what we are focused on is getting customers introduced to and using the proprietary chemicals where we have a differentiated value proposition, which makes us less susceptible to swings in the market on anything but pure commodities. Operator: Our next question comes from David MacGregor with Longbow Research. David S. MacGregor: Yes. I guess just a question on store ops. And what's the opportunity? You made passing reference a moment ago to the focus list, but just what is the opportunity to improve the profitability of the bottom performing quintile stores? And what are some of the actions that you're taking there? Maybe you could talk about that? And I guess related to that, just given the near-term market outlook, does it make sense to begin consolidating some of these locations and just achieve better 4-wall economics? Peter Arvan: Yes. I'll take that, and then Melanie can chime in. So part of our work at the focus list level, which is our bottom-performing branches, and this is nothing new for POOLCORP, but the branches that fall into the focus list, which I would argue what is a focus list branch for us would be considered by most others to be a very well-performing branch, because our standard is pretty high on what we consider a focus branch. I mean the leverage that you have there are a couple. One, obviously, the biggest lever that you have is sales growth. Are you growing -- are we growing sales? Are we becoming more important, more relevant to the customers. And that's done with creating a best-in-class customer experience and frankly, customer engagement. So from a lever perspective, the biggest one we have for the focus branches is just that. Then there's the operational execution side of that. So the teams are focused on exactly what we do, how we do it, how efficient we are in doing that and making sure that we're utilizing all of the competitive advantages that we have to give us the most efficient cost to serve those customers. Your last comment as it relates to is there some opportunity for consolidation? And the answer is maybe. So when we look at each individual market, we look at our footprint, and there are a couple of markets where I would say, as we have expanded our capabilities in some areas, we may have opportunities to consolidate some of those, if we don't see the market, an individual particular market continuing to grow and expand, those would be ones where we look at how else can we most efficiently serve the market without letting down our customers and ceding any share. So I mean, you've known us for a while, so this is nothing new. This is what we do. We've been focused the last couple of years on continuing to build out the network and making sure we were where the pools were going to be built and where our customers needed us to be. We've added capabilities as it relates to technology and supply chain, which allow us to be, frankly, more efficient. And now we're starting to see the gains from that. To put an opportunity to size it, if you will. I mean, when I look at the -- our focus list branches, I would just say that when I look at the overall operating margin improvement, I think, there's plenty of opportunity to work there to achieve our goals, really kind of independent of the market improving. So when I look at our operating margin improvement and expansion, yes, would the industry growing make that easier, yes, but it still wouldn't mean that we wouldn't do what we're doing on focus list branches to make them more profitable and contribute more to the business. David S. MacGregor: Got it. My second question, really just with respect to kind of the longer-term growth algorithm, and you've included within that growth of 2% to 3% above the market, mostly through store openings and private label, I guess, a little bit of acquisitions. I guess how are you thinking about your ability to achieve that above market growth in 2026? Peter Arvan: Yes. I think part of it is there is still plenty of opportunity. When I look at our market share across the fleet, we have plenty of markets that are still below the median. So I think just improving our customer engagement, frankly, our customer experience and our operational efficiency helps. I also think that there is an opportunity from a demand creation perspective because, pragmatically, when I look at the market overall and the products that are still being sold into the market, there is still a more than significant opportunity to expand the TAM, if you will, by selling the more technologically advanced products, which are ultimately very, very good for the homeowner. And I think our job is to help expand the adoption of those. So you're going to see at the Investor Day presentation, something we call the [ Prozone ], which is designed to do just that. To teach the builders and the service professionals when they come into the branch to be able to see the full range of products, to be able to see the benefits from the more innovative and technologically advanced products that have more full-feature automation and are, frankly, more efficient for the homeowner. So rather than take a more passive approach on that, we're going to take a much more active approach on that in the showrooms to make sure our customers understand all of those new products and what benefits they provide either them as a servicer or for hopefully -- so that they can explain to the homeowner, I should say. Operator: Our next question comes from Susan Maklari with Goldman Sachs. Susan Maklari: My first question is on the gross margin. Just thinking about the path for that as we look over the year. Can you talk about what that inventory build that you made in the fourth quarter will mean for profitability? And how we should be thinking about that relative to the guide for the pricing to be up 1 to 2 points this year? Melanie M. Hart: Yes. So one thing, so we do expect that we will see some continued pricing benefits from the investments that we've made in inventory. We would expect that, certainly, we would see that in first quarter. As a reminder, when you look back from a comparable standpoint for 2025, we did have that mid-season price increase in 2025. So starting kind of May 4, there were some benefits from that mid-season price increase, which at this point in time, we wouldn't anticipate would occur again in 2026. So I would say that we would see slightly better margins in first quarter. The remaining of the quarters would be relatively comparable with fourth quarter because it's so -- is a smaller portion of the year, we may not see as many benefits. The only thing that we've seen to date is we have seen a second wave of price increases on certain products for salt cells. But when we look at it kind of consolidated wise, we don't think that will have a significant impact on margins overall. Peter Arvan: Susan, this is Pete. Let me add just a little bit to that, if I could. I think the team did a very good job of exercising good financial judgment with the investment in inventory. And I think they were very surgical about it. So when we allocate capital to something, one of the things that is a hallmark of the company is that we have been very judicious allocators of capital, whether that is investment in long term or whether that is investment in working capital. So I think the team did a very good job and was very surgical about making investments in areas that will help us through the 2026 season. Now obviously, given the amount of inventory that we have and what our COGS are on a full year basis, that we will burn through most of that benefit by mid-season, and then, of course, we will be reordering. But I think we feel very good about realizing benefits, but they'll be more weighted to the beginning of the year than the end of the year, subject to what happens in the industry from a pricing perspective. Susan Maklari: Yes. Okay. And then I wanted to go back to thinking about the growth for the business over time. Can you talk about how you're thinking of organic growth, given the investments that you've made in the last several years relative to the inorganic growth opportunity that's out there. Are we really sort of shifting now to this period where it's going to be driven by your initiative, a lot of these efforts that you've implemented in the business, whereas the inorganic piece will just inherently become just a smaller and smaller part of that algorithm. Just any thoughts around that and what that would mean for capital allocation? Peter Arvan: Sure. I would tell you that from an organic growth perspective and what gives us confidence in the long-term growth algorithm for the business is that -- we believe that the product that -- the industry that we serve and the product that we primarily sell either through new pool construction or remodel and renovation is still highly desirable. And we've been talking about -- we're kind of bumping along the bottom. There was a slight drop in new pool construction in 2025. I can't tell you that I think that, that was driven by any wild change in consumer sentiment. I think it's more a function of certain geographies and the housing market per se. So when I look at our opportunity to grow and I look at our market share, and I look at that on a market-by-market basis, I would tell you that we have opportunity to continue to grow even if the market continues to stay towards the bottom. I would also tell you that there's a couple of things that are going to -- we're going to start to see benefit from as it relates to equipment. So when the industry switched to -- from single-speed motors to variable speed motors, they inherently lasted longer. But now we're starting to get close to the period where when we started selling a lot of single-speed motors or single speed pumps to variable speed pumps that they will start coming into their replacement cycle, number one. Number two, I still believe that there is a significant opportunity to modernize the pad. If I looked across the -- we talked to many, many customers. We talk about what they're seeing in the backyard when they go into these backyards and they look, what we were seeing over and over again was ultramodern pads, fully adopted, everything that is available to the consumer, I would say, okay, so now we're more in a replacement cycle. But today, what I would say is there is still an outsized opportunity to modernize the pads with the new equipment. Now part of this demand creation is incumbent upon us, I believe, in order to teach the servicers, right, and get word out, so to speak, through marketing programs and demand creation in conjunction with our OEMs that says, "Hey, you can improve your customer experience in the backyard if you adopt and use these new products versus just replacing what's there." So I think there is still an opportunity. The installed base is going to continue to grow. I think that there is pent-up demand on renovation and remodel, and we're starting to see some of that realized as evidenced by the building material sales increasing and the fact that we have -- I believe we've taken share in the new construction area for those as well. And then lastly, your question on inorganic growth, I think that there are still opportunities for inorganic growth out there. And I think the team is very focused in that area as well as just one of our long-term growth levers. And I don't know that anybody in the industry is any better positioned to do that than POOLCORP. Operator: Our next question comes from Scott Schneeberger with Oppenheimer. Daniel Hultberg: It's Daniel on for Scott. Could you please discuss the key factors that would put you at the low end versus the high end of the EPS guidance range? Melanie M. Hart: Yes, the range is primarily going to vary depending upon overall market conditions and the resulting sales growth from that standpoint. Daniel Hultberg: Got it. And as far as the assumptions on new pool to be flat year-on-year as well as renovation and remodel flat to slightly up. Could you speak to the -- what you're hearing from your customers regarding backlog and how confident you are in those projections? Peter Arvan: Yes. I'll take that. So we've just come out of our show season. So January, there's a lot of shows. We spent a lot of time with dealers in January and frankly early February even as recent as this week. So I will tell you that the level of optimism from the customers right now is pretty good. I don't know that -- I've talked to many customers that say we're going to build just as many pools as we built last year and the phones are ringing. So we feel comfortable in that assessment. Is that as many pools as they built during the peak? Absolutely not. But I would tell you that the general sentiment on new pool construction is that based on the dealers we have spoken to, which is a sample size of the total, is actually pretty good. So it's not a doom and gloom. The phone is not ringing. It's basically, yes, I think we'll build at least as many pools as we built last year with many dealers saying that, hey, you know what, we're actually optimistic. But saying that they're optimistic in February and actually having those contracts come to realization, during the season are two different things. But I will tell you, it feels much better to me that the dealers are saying, "Hey, I'm going to build at least as many pools that I built last year," and there's many of them that are optimistic. And then like every sample, right, you have opposite ends of the spectrum. You have people at the high end that they would tell you, "Hey, business is great. I'm turning customers away. I have -- I'm going to build as many pools as I can this year, and I'm taking orders into next year." And at the low end, you have people that would be struggling. But by and large, I would say, the industry confidence level is more encouraging than not. Operator: Our next question comes from Trey Grooms with Stephens. Ethan Roberts: Melanie, this is Ethan on for Trey. I wanted to dive deeper, maybe digging into more of a market-by-market look. So directionally, what are you seeing on the new pool or broader discretionary side? From a market-by-market standpoint, some of these more challenged markets on the new residential construction side like Florida and Texas, maybe starting to show signs of a potential trend improvement? I know you called out in the prepared remarks, improving trends in Texas in the back half of 2025. Obviously, these are important markets on the new pool side. So any more color on market specifics would be really helpful. Peter Arvan: Sure. The information coming out of Florida right now is still encouraging. As I mentioned, even with the storm issues that we had in Florida, and housing prices and insurance and costs and everything else in Florida. If you do a 2-year stack on Florida, in the fourth quarter, they were still up 2%. So again, very encouraging for me. Builders in Florida, I really think it depends on where you are. So for instance, if you're in -- there's a lot of people moving into South Florida, into Miami. Miami is -- that market is very good. But it runs the spectrum, if you will. But overall, Florida is a cornerstone market for us. I think very soon, will be the largest market that we have in terms of the installed base, and it's still a destination for homeowners. So I'm encouraged with that. Texas is the one that was, I think, surprising for a lot of people. The slowdown that we saw in Texas, but it's also a bit bifurcated too, because it didn't -- it wasn't universal in let's call it, DFW in Austin, San Antonio and Houston. They all move kind of at different rates. We're starting to see the Dallas market improve, the Austin market improved. Houston lags a little bit, but the near-term commentary on Houston is that there is some optimism on the new build side. Arizona and California, Arizona is -- was encouraging. And if you remember during the -- when the [ pools ] really started to die out, Arizona was one of the first ones to drop. They have -- they seem to have firmed up. And California it's okay. I don't look for a big change in California. In my mind, California is much more of a renovation market than it is going to be a new pool construction market. Ethan Roberts: Got it. That's super helpful color. And second question, just putting a finer point on an earlier question on the top line cadence. It sounds like 1Q trending pretty well, but it's still early. But just wanted to clarify, was hurricane repair activity still a major contributor to the 1Q '25, perhaps to a lesser degree, than the 4Q, but perhaps still enough to call out because if 1Q is trending well in spite of this comp dynamic, obviously, that would be a positive. And then maybe any thoughts on first half versus second half weighted top line profile relative to broader new res expectations, which at this point, appear to be skewed more towards a modest second half uptick. Peter Arvan: Yes. We -- you're correct in your assumption that fourth quarter was a bigger lift, fourth quarter of '24 storm related. They were still working into first quarter. So there was still some work that most of which is repeat has been finished. The only exception to that would be the areas where the houses were completely destroyed and they had to get permitted and built to do house and the pools come last. So there's still some of that. But by and large, I would say, the storm work or anything, but complete destruction is certainly done by now. Most of it was done in the fourth quarter and some lagging. So when I look at first quarter, it's not like we had a huge comp to overcome. There are some. But again, that makes our results even more encouraging from a firmness of the market perspective. And then your comment on second half -- first half, second half, it's really -- frankly, it's just too early to say. There's so many factors in there that can affect the discretionary, so I'm talking about new pool construction and renovation and remodel. But rest assured that the majority of our business is driven from the maintenance and repair and I think that there is more than ample opportunity. And quite frankly, I think the business performs well in that area, and we've also added capabilities, which should allow us to continue to take share. Operator: Our next question comes from Garik Shmois with Loop Capital. Garik Shmois: I'm wondering if you could update us on what you're assuming for new sales center openings in 2026. And just given the more muted demand environment, have your expectations on the ROI on the new sales centers changed at all versus more normalized demand periods? Peter Arvan: Yes. So when I look at the number of locations, I mean, Melanie gave a range of 5 to 8. I would tell you, I don't know that it will be more than 8. I mean, it could be a scenario, I guess, where it could be, but it's highly unlikely at this point based on the capacity investments that we have already made and the footprint that we have. I think our focus is more about execution this year and driving growth in the facilities that we have. As you know, we have a very disciplined process that goes with every new facility open. There is a pro forma. There's a budget. That pro forma and budget are carried forward. So the facility that we've opened in the last couple of years, the operating expectations and budgets associated with them were not adjusted. I looked at some of the facilities that we would have opened in 2022 when things were -- when there was a lot more new pool construction. If I look at some of those, we had to go back and say, well, maybe our expectation on new pool construction growth was a little bit too aggressive. But basically anything in the last couple of years, the number is the number. So I think the team is really focused on execution and realizing what the commitments were in the pro formas that were submitted to fund those. And when I look at new ones, so I look at the anything that we may do this year. I mean we -- as I mentioned in my comments, I think we've kind of sharpened our expectations on return on investment and making sure that when we go out and do a branch, I mean we're going to open new branches again in 2026 without a doubt. Are we going to open as many? No, we're not going to open as many. Will there be a lot of attention paid to the ones that we opened for the last couple of years to make sure that we're realizing benefit on those? Absolutely. So the amount of attention and scrutiny on new locations right now is and should be pretty high. Garik Shmois: Okay. That makes sense. Thanks for helping with that. And follow-up question is just on Horizon. It's a smaller part of your business now, but just curious as to the deceleration in growth or the negative 5 in Q4? And also, what are you assuming for 2026? Peter Arvan: Yes. I mean the Horizon business is tied mostly to new construction. The biggest product line that we have in the Horizon business is irrigation, which, as you know, most of that goes in when the housing business or when the house is constructed. There's some that happens around big, large renovation and there's also a commercial portion of the business. When I look at the overall results for the full year, I would tell you that they're not terrible. I look at -- they didn't have the same benefit of price that we had in other parts of the business. I think we have a limited footprint. I think that we have an opportunity to continue to improve from an execution perspective with Horizon. We have a focus list for Horizon just like we do the rest of the business. So do I think that we're going to see outsized growth for Horizon? I do not, but my expectations were there, execution and return on capital for them, they don't get any break as compared to from an expectation perspective, and are under the same scrutiny as the rest of the business as it relates to performance. I mean the irrigation market is -- I would tell you, it's not booming. The maintenance business is good, similar to what you see -- what we see in the pool side. And I think the business has been over the last couple of years trying to focus more attention and gain a better foothold in the maintenance and less focus on just the new construction piece. Operator: This concludes our question-and-answer session. I would like to turn the call back over to Pete Arvan, President and CEO, for any closing remarks. Peter Arvan: Just like to thank you all for your interest in POOLCORP, and we look forward to updating you on April 23 when we will announce our first quarter 2026 results. Have a fantastic day. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. I am Gailey, your Chorus Call operator. Welcome, and thank you for joining the Arcadis conference call and live webcast to present and discuss the fourth quarter and full year 2025 financial results. [Operator Instructions] The conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Ms. Christine Disch, Investor Relations Director. Ms. Disch, you may now proceed. Christine Disch: Thank you. Good day, everyone, and welcome to our 2025 full year and fourth quarter results conference call. My name is Christine Disch, and I'm the Investor Relations Director at Arcadis. With me on this call are Alan Brookes, our CEO; Simon Crowe, CFO; and our CEO nominee, Heather Polinsky. As usual, we will start with the presentation followed by Q&A. We would like to draw your attention to the fact that in today's session, management may reiterate forward-looking statements, which were made in the press release. Please note the risks related to these statements are more fully described on the company's website. Now please, over to you, Alan. Alan Brookes: Thank you, Christine. Good morning and good afternoon, everyone, and welcome to our full year and fourth quarter results call. As Christine said, I'm joined by our CFO, Simon Crowe, who will outline the steps taken to address Arcadis' performance; and by Heather Polinsky, our CEO nominee, who will talk about her priorities for the future. Heather, who has been with Arcadis for 26 years and most recently run Resilience, the most profitable part of the business, assumes the role on March 1. Heather is an exceptional leader, and I am confident she will position Arcadis for success. Our end of year results are mixed and disappointing, reflecting what has been a challenging year. In light of those challenges, we have taken rightsizing and cost reduction actions to improve performance. We will continue these actions in 2026 with Simon -- sorry, with Simon commenting further shortly. Our net revenues totaled EUR 3.8 billion, supported by a strong resilience portfolio and pockets of success in mobility, offset by weaker places performance. In turn, we delivered record cash performance, generating EUR 288 million for the year, predominantly supported by a series of measures introduced in the fourth quarter to strengthen billing and collection discipline. The backlog was up 3% to EUR 3.6 billion, driven by Resilience and Places. When taking a closer look at our 2025 revenue performance, you can see that our total revenue declined by 0.5 percentage point, reflecting growth in Resilience and Mobility offset by weak Places performance. We will lay out the actions we have taken this year to address the underperformers and for the high-growth areas, the investments we have made to leverage our leading positions. Starting with the underperforming areas. First, environmental restoration, which makes up 13% of our total net revenues and is part of Resilience. This declined by 5% over the year. Excluding environmental restoration, our Resilience business grew 7%, and there are a few drivers for this underperformance. First, as a result of client restructuring impacting a substantial project, plus the successful completion of a large incident response project in North America, we saw revenues come down. In addition, shifts in the U.S. federal government policies, changing funding priorities and the longest government shutdown in history in Q4 caused delays to a portion of our pipeline for clients such as the Department of Defense. To address the underperformance, we have made senior management changes and replaced 25% of our account leads. We reduced headcount with 150 people leaving the business, while maintaining our margin performance levels year-on-year. Moreover, we are repositioning towards growth markets, including energy clients asset retirement obligations and critical minerals. Next, Property and Investment. This accounts for 8% of our total net revenues and is part of Places. Here, organic net revenue growth was down 17%. Our P&I solutions are mostly offered in Canada, China and the U.K. And in these areas, the residential real estate sector has been under considerable cyclical market pressure. During the fourth quarter, we did an extensive P&I portfolio review in Canada, which resulted in changes to revenue assumptions taken earlier in the year. Simon will provide you with the details in his section shortly. As a response to this, we have significantly rightsized the business with 400 people leaving corresponding to 4% of the places headcount, while we made leadership changes in places. We are taking further steps in the first quarter of 2026 with an additional reduction of 150 people. While we are moving away from residential real estate and increasingly now focusing on rental, student and senior housing markets where we see opportunities. The third underperforming area was mobility in the U.K. and Australia. This reflects 11% of total net revenues and declined 8% over the year. In the U.K. and Australia, the winding down of large projects such as HS2, Melbourne Metro and West Gate Tunnel, combined with large project award delays resulted in revenue pressure. To address this, we have rightsized our mobility workforce with a reduction of 350 people, corresponding to 5% of the mobility headcount. We have redeployed our excess U.K. resources to take advantage of emerging opportunities in other countries. And we have seen our order intake increase in the second half of the year, driving backlog growth as projects were awarded following the U.K. spending review last June. In Australia, with the market still constrained and lower infrastructure momentum, we are focused on pivoting towards new markets, particularly to energy and environment. Turning now to the high-growth areas. Starting with the solutions within our Resilience business, water optimization, energy transition and climate adaptation, which are part of Resilience and together delivered 12% organic net revenue growth. The performance of water optimization was driven by the strong U.S. market. Germany has seen successes in energy transition with the award of large multiyear contracts for grid expansion and maintenance. Central to this is the continued work for Amprion, performing route planning for a 500-kilometer long transmission line. Our growing project portfolio in power was underpinned by nuclear wins in the U.K. and the Netherlands. Our second growth area is technology, which accounted for 6% of net revenues and is part of Places. Our acquisition last year of KUA Group in Germany has expanded our capabilities in this area. Our data center performance was strong, whilst our semiconductor business faced pressure from the wind down of one large contract. Overall, the resulting technology growth was 3%. Arcadis reported over EUR 150 million of revenues in 2025 for its data center services, with an operating EBITDA margin of almost 20%. And we currently are involved in 280 data center projects. Finally, the third high-performing area is in mobility, specifically in North America, the Netherlands and Germany, which taken together delivered organic net revenue growth of 16%. Major awards in 2025 have underpinned that high performance. In British Columbia, our work on the design of the Fraser River Tunnel project has ramped up in 2025. Other large projects that supported our results were ProRail in the Netherlands and Deutsche Bahn in Germany, where we have further strengthened our position through the WSP Rail acquisition. We continue to see a strong pipeline of large multiyear project opportunities in North America. To summarize, we acknowledge our challenges and are actively addressing our underperforming areas through restructuring and cost measures. We are also focusing on those areas where we see opportunities to accelerate our growth. Heather will provide further details on this approach, looking ahead for this year and beyond. But first, I will now hand over to Simon, who will take you through our results and the steps taken to address performance. Simon Crowe: Thank you, Alan, and good day to you all. Let me start with our full year performance. As Alan outlined, Arcadis delivered mixed results, ending the year with EUR 3.8 billion of revenue. Excluding our Property and Investment performance, we delivered 1.3% organic growth. I'll provide more details around our P&I performance and actions taken shortly. Our operating margin was 11.1% with a significant negative impact from places, largely driven by P&I. This was offset by good margin expansion in both resilient and mobility. Excluding P&I, the margin would have been 11.6% for the year. Overall, we've taken significant rightsizing actions, which were accelerated towards the end of the year. We reduced our headcount by 1,100 people, which equates to roughly 3% of our total workforce, driving most of the EUR 77 million of nonoperating costs. Furthermore, we continue to invest in our strategic initiatives. Turning now to our fourth quarter results. These showed an organic net revenue decline, which was driven by Property and Investment. The operating margin was 13.5%, excluding P&I. Resilience performed well as we focused on high-margin areas such as our energy transition and mobility -- and mobility also performed well as we optimized our global workforce allocation, including increased utilization of the GECs. We recorded record free cash flow in the fourth quarter, and I'll come back to this later. Turning now to P&I. Part of our Places business, a number of issues went against us during last year. First, we experienced a weak market, particularly in Canadian residential real estate market with significant project delays, and we were unable to adjust quickly enough. In addition to that, the Oracle ERP system implementation in Canada caused some operational distraction. As a result, we took -- we undertook a comprehensive analysis of our project revenue positions in the fourth quarter for our P&I portfolio in Canada, which resulted in changes to revenue assumptions taken earlier in the year. This analysis resulted in a total revenue reduction of EUR 22 million taken in the fourth quarter, and that also impacted EBITDA by EUR 22 million. As well as working on the usual year-end audit with KPMG, we also conducted an independent review with another big 4 accounting firm. This portfolio assessment is now behind us. We rightsized the business in 2025 with a reduction of 400 people and have made changes to the senior management team. We're continuing to rightsize in Canada with an additional 150 people reduction in Q1 2026. We are rebalancing away from the depressed residential real estate market and focusing on the rental, student and senior housing markets as well as the hospitality and transit markets where we see faster growth. Let me spend a minute on the strategic progress we've made in the last quarter. Firstly, we stepped up our focus and discipline on cash and implemented various working capital measures, which resulted in a record cash in of EUR 344 million for the quarter. We've also reinvigorated our sales force, hiring new people to upgrade our teams, while we've introduced sales and performance-driven incentives, which are now being rolled out. We will continue to prioritize investment in our sales teams. And as part of our go-to-market strategy, we are reviewing our value-based pricing approach. We continue to invest in automation and AI for our core processes, particularly to strengthen the effectiveness of our pursuits, our workforce planning and our forecasting process. We aim to increase our win rates and free up billable time as well as foster a performance culture and more accountability within Arcadis. Finally, we continue to take rightsizing and cost reduction actions to strengthen performance, including a workforce reduction program addressing more than 600 people in the fourth quarter. Turning now to our rightsizing measures. In 2025, we acted to take cost out of the business, and this resulted in total nonoperating costs of EUR 77 million, including EUR 39 million in Q4. Total people-related costs represented EUR 53 million for over 1,100 people, comprising operating personnel of around 1,000 people and corporate overhead reduction of around 100 people with an expected 30 basis point impact on the 2026 margin from savings. Other nonoperating costs included integration and M&A costs as well as minor goodwill write-offs. For 2026, we will continue to rightsize the business and overhead staff. This will be in line with measures taken in 2025. So we could expect a similar number of people to leave the business in 2026. We are simplifying how we work and are refocusing on clients. Our cost reduction plan continues to focus on automation and removing unnecessary expenditures. Turning now to backlog performance. Good order intake in the fourth quarter ensured that we closed the year with organic backlog growth of 2.7% for the year. Throughout the year, we saw strong data center order intake. Our fourth quarter order intake was particularly strong for environmental restoration and pharmaceutical clients in the U.S. These multiyear large contract wins will be supportive to our revenue generation in the second half of 2026 as they take time to ramp up. This was offset by a weaker mobility market in the U.K. and Australia and challenges in our semiconductor business. Turning now to the GBAs and resilience. This delivered 3% organic growth following strong performance in the U.S., Germany and the Netherlands, driven by strong demand for our water, energy grid and climate solutions. Revenues were impacted by slower progression of secured AMP8 projects with start dates being pushed out. Margin was strong as we focused on our high-growth, high-value propositions, fully in line with our strategy of project selectivity. And order intake in the quarter was also strong, resulting in an 8% organic backlog growth, driven by U.S. water and environmental restoration in Brazil. Turning now to Places. Places is a tough market now, as we've outlined, including property and investment in particular, seeing low demand, which has been -- had a big impact on margin. Excluding this impact, organic growth was 1.3% for the year. As I mentioned, in response to this softness, we're continuing to reduce headcount in P&I and actively focusing on higher-growth markets, which drove strong order intake this quarter. This order intake included data centers as well as pharma in the U.S. and we're confident about our pharma awards, but it will take time before this converts into revenue. Looking now at Mobility. We continue to see stable results where strength in North America, the Netherlands and Germany are fully offsetting weaknesses in the U.K. and Australia. We showed solid margin progression driven by optimization of global workforce allocation, including the use of GECs, ultimately driving improved billability. The softer order intake in the second half was partly a result of changing dynamics in the U.S. industry, where we experienced slower procurement processes and regulatory reviews on the back of policy uncertainty. These effects resulted in project award delays and some challenge for near-term revenue delivery. Finally, Intelligence. This delivered strong growth in Q4 and despite a slower start to the year, achieved 6% organic growth overall. The business is increasingly supporting our largest projects across other global business areas, reinforcing its strategic value. As a result, we have decided to formally integrate Intelligence mostly into mobility, and it will no longer be reported as a separate segment going forward. Turning to cash. As I mentioned earlier, cash flow is at record levels. We have driven cash collection through relentless management focus, putting in place clear systems and personal billability dashboards, and this has paid off with net working capital at 8% this year. We expect to maintain healthy levels of net working capital in 2026, and we are likely to see net working capital close to 11% as a sustainable percentage over time. Growth and free cash flow remain key priorities for us going forward. Finally, turning to our balanced capital allocation framework. Last year, we continued to invest in the business and returned significant capital to shareholders. In September, we launched a EUR 175 million share buyback program with EUR 136 million spent through to the end of December, and we concluded the program in January. We returned EUR 89 million through our dividend, returning a total of around EUR 225 million to shareholders. Furthermore, we made 2 acquisitions in Germany, namely KUA and WSP Infrastructure Engineering, and we will continue to look at M&A opportunities where they make sense and fit into our strategic goals. For 2025, we're proposing a dividend of EUR 1.05 per share to our shareholders, an increase of 5% year-on-year and well within our 30% to 40% payout ratio range. Going forward, we will continue to evaluate strategic investment opportunities to grow the business and return capital to shareholders. In summary, 2025 was a tough year, and we expect the first half of this year to be challenging, especially in places. We are rightsizing the business, focusing on top line growth, especially in pharma, tech, energy, water and major infrastructure projects. We have the people, the knowledge, the drive, the determination and the client demand to make this business much more successful. I will now hand over to Heather to provide her thoughts for the future. Heather Polinsky: Thank you, Simon. Good afternoon and good morning to those joining from around the world. Before I share my perspective, I want to thank Alan for his leadership. He has guided Arcadis through both the good and challenging times with integrity and clarity, and we are grateful for his dedication to our people, our clients and the company. As Alan and Simon have said, 2025 has been a challenging year for Arcadis. We are under no illusion about the amount of work ahead of us. But as you have heard, we are taking action to return to growth. Having spent more than 26 years at Arcadis, I personally know the strength of this business, defined by deep expertise, global reach, local delivery and trusted client relationships. What gives me confidence is the platform we are building from and the scale of the opportunity ahead. Across Arcadis, we hold leadership positions in markets that matter from firsthand experience in leading both our resilience and mobility GBAs. These are sectors shaped by demand, long-term investment and increasing complexity for clients. These are not future bets. They are markets where we already lead, and we'll extend that leadership through disciplined execution. Let me spend a few minutes on some key areas. In Water, as a top 4 designer delivering double-digit organic growth and over a century of experience in water services, we lead in engineering, coastal resilience and emerging contaminants such as PFAS with flagship programs, including Sao Paulo's largest wastewater treatment plant and the $1.7 billion Lower Manhattan Coastal Resiliency program. In Energy & Resources, the U.S. requires up to $1.4 trillion in power investment by 2030, while Europe is accelerating its energy sovereignty and critical minerals development. Our strong market positions, #3 in transmission and distribution and a leading position in mining is reflected in recent wins, including 2 new nuclear plants in the Netherlands and Australia's first renewable energy zone. In Technology and Life Sciences, nearly 100 gigawatts of new data center capacity will be added by 2030, alongside major semiconductor and advanced manufacturing investment. Arcadis as #1 in life sciences and semiconductors and top 3 in data centers, we are well positioned to capitalize on these trends and grow our business in these areas. On major infrastructure projects, our clients increasingly demand certainty on cost, schedule and outcomes. Through integrity and integrated delivery, intelligent infrastructure and asset advisory, Arcadis is the partner that clients rely on. This is reflected in projects such as the redevelopment of Amsterdam's Central Station. Taken together, these positions give me real confidence. We are aligned to powerful market tailwinds. We are focused on where we have a clear right to win to drive growth. Looking ahead, leadership today is not just about where you compete. It's about how. We build on our market positions by partnering with clients and embedding human expertise with AI and digital solutions to help our clients plan smarter, move faster and deliver with confidence. Across water, energy, data centers and rail, we combine engineering with advanced analytics to optimize performance and drive faster evidence-based decisions for our clients. Our partnership with VODA.ai is supporting water clients to predict lead service lines before they become a problem, so they can prioritize capital expenditures and accelerate compliance. Climate Risk Nexus takes predictive climate analytics and combines them with asset-level insight guiding resilience planning. In just 1 year, it's grown from 2 pilots to 20 projects, including a statewide assessment across 64 campuses of SUNY, the State University of New York. In technology, our NVIDIA Omniverse partnership lets clients model and optimize data center assets before construction even begins, cutting risk, cost and delivery time. And in rail, our integrated EAM solution brings digital products, analytics and advisory together into one seamless offering, earning recognition from Verdantix as best-in-class. These digital capabilities aren't just tools, they're central to our strategy. They create higher value outcomes for our clients, strengthen our market leadership and define exactly how we compete in a changing world. The priority now is clear, converting these strengths into consistent, profitable growth. My focus is anchored in 3 priorities. First, refocus the business on high-growth markets. We are directing capital and talent to sectors where we have the right to win, water, energy and power, technology and large infrastructure projects where demand provides long-term visibility. One of our greatest growth engines sits within our existing client base. In recent months, our executive leadership team has met more than 50 key clients and the message was consistent. They value and want to do more with Arcadis. Deepening these relationships and expanding our wallet share provides a clear path to stronger organic growth. Second, simplify to accelerate performance. We are removing complexity, reducing layers in the business and enabling faster decisions closer to our clients. Alongside this, we are advancing automation and taking disciplined cost action to improve our competitiveness. The outcomes are straightforward: higher productivity, stronger margins and better backlog conversion. Third, we need to drive cultural change through a truly client-led model. We are sharpening sector focus, aligning ownership with accountability and ensuring incentives, reward, personal and team performance. We are expanding client coverage, including over 60 new account leaders appointed this week, and the scaling of GECs will enhance delivery while maintaining cost discipline. Execution is underway, but let me be candid. As you have heard, there is a lot more work to unlock the full potential of Arcadis. Turning to our outlook. We expect net revenue organic growth to be flat with a weak start to the year. This reflects the reality of repositioning the business for stronger performance. As I said, demand in water, climate and energy is robust. Environmental restoration is also showing recovery for us in the U.S. Key geographies continue to perform well, and our pipeline is healthy. However, uncertainty in places and the timing variability in large mobility programs means that demand will not fully translate into near-term revenue in these areas. We will also be very focused on the areas where we have control, namely productivity, efficiency, cost control, GEC contribution and disciplined project selection. As a result, we expect our operating EBITDA margin to reach 11.7% to 12%. Arcadis is stronger than our current trajectory suggests, but strength alone does not create value. Consistent delivery does. Let me close with this. We are resetting the foundations of our next phase of profitable growth. And we have already begun. We have reinstated cash discipline, strengthened our sales force in markets that matter most, aligned incentivization with performance and accelerated restructuring where change was required. Now in 2026, it is about execution. It is about performance and growth, a simpler and more agile business and greater accountability. We are sharpening client centricity and aligning rewards with outcomes. We will continue rightsizing underperforming areas, and we are simplifying how we will operate and deliver so we move faster, make better decisions and compete more effectively. There is work to do, and I want to be explicit about that. But the priorities are clear, the actions are defined and execution is underway. You should hold me and Simon accountable for delivering this change. That accountability is understood, and it is embraced. I am confident in the steps we are taking, confident in the markets we serve and fully committed to restoring Arcadis to sustainable and profitable growth. Looking ahead, we will host a Capital Markets Day in November 2026. There, we will set out our next 3-year strategy, including our strategic ambitions, go-to-market model, portfolio optimization, human and digital ambitions and strategy and medium-term financial and nonfinancial targets. 2026 is a reset year, but it is also a launch pad for us. We are strengthening the core, embedding agility in how we operate, raising expectations across the entire business and positioning Arcadis to deliver stronger and more profitable growth. With that, I'll hand over to the operator for the Q&A session. Operator: [Operator Instructions] The first question is from the line of David Kerstens with Jefferies. David Kerstens: I've got 2 questions, please. First of all, you talked about the underperformance and the high-growth areas in the business. I think combined around 2/3 of the total. Can you also explain what happened in the remaining 34% of the business, which I think saw an organic decline of around 5% to get to the organic revenue decline for the group of 0.5%? Then the second question -- can you explain the cut to your full year '26 guidance compared to what you indicated on October 30? I think you said then that you expected organic net revenues to gradually build up towards 5% in 2026. Now you're guiding for flat revenues. Does that also mean you expect it to build up gradually towards flat for the year? And also, I think last quarter, you still indicated you were on track to reach the 12.5% EBITDA margin target as your strategic objective. What drives that reduction to 11.7% to 12% now despite all the measures you have taken in terms of rightsizing, adding 30 basis points to margins and all the earlier investments in productivity and standardization improvements? Simon Crowe: Yes. David, it's Simon here. I'll take the first question, and then we'll take the other questions after that. So the other part of the business that we didn't talk about, I think has declined about 1.6% based on our internal calculations. And obviously, there's a mix of things going on there. So we've had some strength and some weakness. So I think it's -- we could dive into each of the pieces, but it's just part of the business that we didn't highlight in this conference call. So we've had some government clients in there, which have been affected by the U.S. slowdown. Obviously, the policies that flip flop with Trump. So we just haven't got the momentum in that part of the business that we'd like. Dave, do you want to talk about your -- the growth for 2026? Obviously, Heather and I have had a really good chance to do a lot of reviews and a lot of dives into where we are. And we feel that 2026 is a reset year. We think the first half based on some of the things we're seeing in mobility based on places will be slower than we expected, and we expect that to hopefully increase in the latter half of the year. So we're looking forward to a slow ramp-up during the year, but Heather and I felt it was right to take a really good look and reset expectations. And I hope we've been really clear with you. We've been really clear with what we're expecting for the year. We're expecting flat. That's our judgment at the moment. And we're expecting that margin at 11.7% to 12%. Obviously, we're taking more rightsizing measures. Obviously, we're looking for more growth. obviously looking to increase that margin over and above where we're guiding to you today. But we thought it was just sensible to give you some clear expectations. Operator: The next question is from the line of Sangita Jain with KeyBanc. Sangita Jain: Could you possibly elaborate on the go-to-market strategy that you're discussing on some of these end market pivots? I'm trying to understand how you think you're competitively placed versus your peers, especially since you're bringing in new businesses and sales teams at the same time? And then I have a follow-up. Heather Polinsky: So we talked specifically about our ability to grow in several key markets, water, energy and power, technology and semiconductors and life sciences as well as data centers and large infrastructure projects. And we've had success in doing this in the past. In fact, many of those businesses are already on a growth trajectory. So we know that we have the right to win. We have looked at and conducted a pricing review to look at strategic pricing so we can make sure that we are competitive, and we're bringing the innovation that I spoke about, whether it's the AI tools or it is our digital intelligence projects, combined with our human and technical expertise and asset knowledge to win in those sectors. Sangita Jain: Got it. And then I understand that the Capital Markets Day doesn't come until much later in the year. But in the meantime, can you help us understand if the strategy review could possibly include further reducing the number of geographies you're in or possibly cutting end markets to get back on a path of growth? Simon Crowe: Yes. Look, we will continue to review our strategy. We're not going to sit still. We're in a hurry. We continue to review our geographies, our sectors, our services and where we think it is appropriate, we'll make changes and where it is appropriate, we'll grow and where we have a right to win, we'll invest in heavily. So everything is up for review for us. Heather and I are looking very carefully at where we're strong, where we're not so strong, and we will obviously communicate with the market in due course. But we're very confident we have a right to win in the sectors that we outlined, and we're going to go and win there. Operator: The next question is from the line of Martijn Denreiver with ODDO ABN AMRO. Martijn den Drijver: I'll start off with a question for Simon, if I may. The 1,100 people charges of EUR 50 million, am I right in assuming roughly that you would pay 6 months salary severance, meaning that you could expect EUR 50 million saving in 2026 from that element. If you do another EUR 1,100 million in 2026, assuming that you're going to do that relatively early in the year from the same analogy, you would get another EUR 50 million in savings. All in all, back of an envelope that would add EUR 100 million in savings, which represents 2.3% on flat revenue. So I have a bit of a trouble getting to that 11.7% to 12.0% EBITA margin given these restructuring measures. Can you help me understand that? Simon Crowe: Yes. Obviously, I think your math is pretty reasonable. Obviously, it depends on the jurisdictions and the timing, as you say. But look, we've got wage inflation. We've got to give people a pay rise in certain jurisdictions throughout the year. We've got 35,000, 34,000 people. So we'll be doing that. We're obviously going to invest in the business in the top line growth in go-to-market, in pricing and all of those things that we talked about, we're going to invest in those markets. So yes, there's going to be some savings, and we're looking to protect our margin. We're looking to grow our margin, but also we've got to continue to back our people, attract talent and grow the top line. So there's going to be some investment there. Martijn den Drijver: Got it. My second question is on net working capital. The 8.3%, very strong. Even if you adjust for the factoring, it would end up at roughly 8.8%. So still well below the target that you set yourself of 11%. But did I understand you correctly that you were saying that around 11% would be a healthy level of net working capital going forward? Simon Crowe: Yes, that's right. That's sort of our typical trend over the last couple of years. Obviously, I've started to drive very hard there, as you've seen. I made the promise back in Q3. We've delivered on that promise. It was a record level of cash intake, but we'll drive hard to get that below 11%. But look, the business has some cyclicality around it, has seasonality. We will drive hard. We've started some new initiatives internally on the back of our success in the last quarter. So we'll continue to drive that down. And -- but I think 11% is a good thing for your model, yes. Operator: The next question is from the line of Chase Coughlan with Van Lanschot Kempen. Chase Coughlan: I just have 2 and maybe starting with the portfolio review. You mentioned you had the reductions in the P&I business in the fourth quarter. Are there any other areas of the portfolio in 2026 that, let's say, could be a risk of a further revenue reduction that you're looking at? Or how is that process being conducted? Simon Crowe: No. We -- as I said, we did a review of our Canadian business. We did the normal audit review with KPMG. We brought in a third party. I myself conducted daily calls over the last quarter to review that business, and we've drawn a line under that, and that's behind us. And there's no -- there's nothing to indicate anything else like that is happening in Arcadis. So no is the answer to your question. Chase Coughlan: Okay. Perfect. And then my second question, just going back again to the sort of organic sales growth guidance. I'm struggling to understand sort of why we imply a worsening in the first half. I mean a lot of the sort of commentary you provided about you're starting your sales incentivization changes in January, more salespeople in the business. The book-to-bill even in places looks decent. So could you please maybe just sort of help me understand exactly why you expect even a worsening environment at the beginning of the year at least? Heather Polinsky: Yes. And as you mentioned, we expect net revenue organic growth to be flat across the year with a weak start. This reflects the reality of us repositioning the business for stronger performance. And it also -- while you point out, we have strong backlog in Mobility and Places. Mobility has experienced some delays, and those are driven by some of the market dynamics as well as the lumpiness of the awards that we see. Places also remain strong, but those large projects take a little bit of time to ramp up from the permitting phase into the heavier design phases for us. So really looking at that phasing and the quality of our backlog, we expect to see the positive improvement through the year, but to have a weak start. Chase Coughlan: Okay. So it's really timing and then repositioning. All right. And if I may just squeeze in a third one on capital allocation. So of course, your balance sheet remains very healthy from a leverage standpoint. Could you give any indication on what your sort of capital allocation options are? I mean you're obviously repositioning the business yourself, as you said, I'm not sure if M&A is appropriate at this time, but even for sort of another buyback potential, what -- how are your thoughts about that from a management standpoint? Simon Crowe: Look, we'll look at all of that. Of course, we will continue to discuss M&A opportunities. We did a couple of small ones last year. It'd be great to think we could do some similar things this year. They were excellent additions to our business. Of course, we'll look at buybacks. Of course, we'll look at capital allocation across the piece. So it's just the normal course of what we discuss all the time in the business. So that's what we'll be doing. And I'm confident we, as you say, got a very strong balance sheet and good cash collection. So we have a lot of optionality. Operator: The next question is from the line of Natasha Brilliant with UBS. Natasha Brilliant: I've got a couple of questions. My first one is just thinking about more the midterm growth profile of Arcadis. I realize you'll do your Capital Markets Day in November. But once we get through this transition year, do you feel confident that Arcadis can get back to being a mid- to high single-digit growth business again? And then my second question is a broader question around AI, where we're seeing a lot of investor interest, but also market volatility. And you've talked about how you're using AI to drive efficiencies internally. Are you having any discussions with customers who might be pushing back on the use of AI or asking to share on some of those efficiencies with you? Just trying to understand how we should think about pricing and profitability for your business going forward given the sort of AI overlay. Heather Polinsky: Yes. First of all, let me take the first question on Capital Markets Day and our projections going forward. It is our intent to return to the same market level performance as our competitors. And we see no reason why with the strong technical capability and strong client relationships that we have when we take the other actions that we put in place that we won't get there. So we are confident we'll get to that same market performance. On the AI question, yes, AI is something that is continuing to be in the conversations with our clients. And in fact, we are already delivering projects with AI integrated in them. There's 3 parts to the AI discussion. One is our internal efficiencies, as you've talked about and Simon mentioned [Audio Gap] we do it in a way that is really reflective of the local markets and client needs as well as the transparency of where it's able to add value. And then we are engaging on discussions with our clients about new revenue lines and how we can help them in different ways and new ways. And in fact, I don't know if you have seen, but we launched an AI for water challenge, and we'll be also launching one on energy specifically going forward, where we're co-creating with our clients AI solutions to support them. Operator: The next question is from the line of Kristof Samoy with KBC Securities. Kristof Samoy: A lot of them have already been addressed. But press release mentioned that you're working on value. Operator: Samoy, I apologize for interrupting you. Can you please speak a little closer to your microphone because I'm not sure that management can hear you. Kristof Samoy: Okay. Is it better now? Operator: Yes. Please proceed. Kristof Samoy: I have one left. It's on value-based pricing. In the press release, you mentioned that you're working on that. And obviously, there's a lot to do on AI and the impact it has on the billable hours model. Can you give like a tangible example on how you want to go at implementing more value-based pricing? And secondly, can you give some insight into your breakdown of your revenues in terms of cost plus pricing time and material and lump sum and how you see this composition change over time? Heather Polinsky: Let me start with the last part of that discussion first. It's about 60% fixed price and the remaining time materials or cost plus. And as it relates to value-based pricing, we're already using value-based pricing with some of our clients and testing it out. And we've had some great success in co-creating solutions with our clients and then working through the value-based pricing approaches with them. And as Simon mentioned in the presentation, we have initiated a strategic pricing review and also working to support our teams and more effectively bidding so that we can win more with our clients. Simon Crowe: And just to say, we brought in an external pricing specialist to help us with that review. So we're not just relying on our own knowledge, but we're really excited about the initial findings, but we've got a lot more work to do there. Operator: The next question is from the line of Dirk Verbiesen with ING. Dirk Verbiesen: I have a question on the headcount reduction. The 1,100 roles that you took out, 100 of those are in overhead and your plans for 2026, you already announced 150 further reductions in the property and investments. And I am aware of the sensitivity, but can you share a bit more on what your further plans are? And is this, let's say, overhead versus billable people 1 in 10 like we've seen in '25. Is that the same magnitude as you foresee for 2026? Simon Crowe: Look, we're going to take a really good look at this and Heather and I have started to look at this. In fact, I shared a list with her the other day. It's nonbillable, nonclient-focused people that we're just trying to work out where can we find some efficiencies and where can we find automation. We are -- I think the ratio will be different this year than it was last year. As you said, it was 1 in 10. I'd expect to find more efficiencies from our nonbillable and non-client focused areas. That's not to say that these functions are not important. They are important. We've got some great people doing some great work, but I think it's just -- it's incumbent upon us to take a really really hard look at what we're doing. And obviously, we're going to leverage AI. We're really excited about the opportunities there with the efficiencies that AI can bring to us. And hopefully, we can divert a lot of these folks on to billable work. That's really the key here. We think the markets are really, really exciting and really strong for us in the areas that Heather mentioned. And if we can move people from nonbillable and nonclient-focused work into billable and client-facing work, then that's the real opportunity we have because these people understand and know how Arcadis works. So a lot to do, and we're going to do it quickly. Dirk Verbiesen: Following up on the previous questions also from Martijn on the impact of these headcount reductions. If you say, let's say, the 1,000 billable people, yes, you've lost around EUR 110 million potential revenues taking them out and maybe also a significant number in '26. I think we understand that, that flat revenues guidance comes largely from that and maybe some delays in projects. But let's say, a return also the remark from Heather to peer average organic growth, yes, I think most peers say 6%, maybe even 6% to 8%. Let's say, how long do you think you need to really recoup the momentum there towards that ambition? Simon Crowe: Look, I mean, Heather, your math may be right. It's -- and if you're modeling it out, obviously, we're taking some heads out. Some of those are billable, but we are looking at increasing the billability and looking to return to that growth. So I think, look, we're looking for second half. We're very excited. first half is slow as we've indicated. We've been very clear on our guidance. The markets are there for us. We're going to be very selective on how we take out cost, but it's all about focusing on billable and client-facing people who will drive that recovery into the second half. Heather Polinsky: And Simon, if I can add, we are going to be taking some restructuring costs associated with those reductions, but we are making investments. We are going to shift our portfolio towards those high-growth markets and make hires in those areas. So it's really about the shift and the rebalancing towards the growth markets in the areas we have the right to win. Operator: The next question comes from the line of Sabahat Khan with RBC Capital Management. Sabahat Khan: I guess just maybe just taking a lot of the questions from earlier around the cuts and the sort of commentary on outlook together. With these sort of restructuring initiatives, do you feel like you've gone deep enough to sort of position the company on the right path? And then secondly, just in terms of '26 being a transition year, is the confidence there really that it will be a matter of time to cycle through maybe some of the not so favorable projects? Or just -- what gives you the confidence that this will be sort of a transition year and that you sort of cut deep enough? Just more of a high-level perspective, not looking for sort of guidance or anything. Simon Crowe: No, I mean I'll start and Heather, I'm sure will add to that. We're not holding back. So look, we're going to do -- we're going to continue to do the reviews. We're going to continue to see what makes sense. We're going to continue to invest in the business where we see the growth and the value, but we won't hold back on those slow growth or no growth areas that potentially need looking at. Heather Polinsky: Yes. Some of the additional elements is the market is there for us. And so specifically, the market in these areas that we've identified the right to win, we believe that by making those strategic investments by changing our incentivization and improving and adding to our sales force that we'll be able to use that strategic pricing we talked about and even the automation of our pursuit process will start to come into play. So quite a few factors coming forward to help drive us towards that growth. Sabahat Khan: Great. And then just quickly a follow-up. I guess, as you put new leaders in place, put some new folks in place, restructured other things, how are you ensuring that the sales folks and the project managers during that transition are still sort of filling the backlog to ensure '27 and onwards gets to the right range that you want to get to? Simon Crowe: Look, we've -- Heather will comment as well, but we've incentivized a lot of people to really focus on driving sales now. It's about performance culture. We're really excited. We're shifting to that performance culture. Q1 and Q2 also a massive, massive focus for us, and we've been repeating that message and incentivizing people to drive the growth into Q1 and Q2. So the message is out there, and people are excited about it, and they're grabbing the opportunity. Heather Polinsky: Yes. And Arcadis' mission of improving quality of life is done through the delivery of our projects. and through the passion of our people. So our job as leadership is to mobilize and energize that passion. We also have a really high employee engagement score. So even though we've taken these cuts over the last year, our Net Promoter Score remains in the top 10% of professional services. So in addition to the expectations we've set for our people, we've got a great foundation to grow from. Operator: The next question comes from the line of Luuk Van Beek with Banque Degroof Petercam. Luuk Van Beek: First of all, a question about the -- your ability to predict the timing of when your backlog converts into revenues. It was an issue last year. Have you taken any measures to improve the process? And if so, what kind of measures? Simon Crowe: Yes. We've -- I've been looking at that amongst other things. And that's one of the key issues for us to ensure that we give the training, we show people how they can phase their backlog more easily, make sure the systems are easy to access. And that's certainly something in terms of the transformation. And I call it the sort of 10 commitments that we've got. One of those is to phase your backlog. And we're obviously monitoring it. I've got a dashboard that I can look at every day, and we are getting that message out there that phasing the backlog is really helpful for knowing who to put on a job and who we can put on another job and also forecasting as we go forward. But it's going to take time. We've got over 30,000 projects. We've got a lot of project managers out there. So the time -- it will take us some time. But yes, it's on the list. Luuk Van Beek: And you mentioned in the presentation that you target cost reduction to drive competitiveness. Does that mean that you have the impression that you sometimes lose projects against competitors because of your pricing? Simon Crowe: I'll let Heather add to this. But we think we -- obviously, we lose some bids because of pricing. But I don't think that's it. Obviously, we work with competitors. So we can see -- often can see what the pricing and we're in partnerships. We're in joint ventures, so we can see that. I think we're just so -- actually, we're so good at what we do. We bring that complete project sometimes. And often, the customer just maybe just want something slightly less. And that's part of our pricing review, part of the value pricing that we're working on. We're so good at delivering and so enthusiastic that sometimes I think we may get carried away. But Heather, maybe you want to talk to that. Heather Polinsky: Yes. Just on our cost base, I think that what's important for us to recognize is that efficiency isn't always just in the cost. It's in how quickly we're able to make decisions in the organization. So reducing layers within our, say, overhead structure or enabling function will allow us to be more responsive to our clients and allow us to win at a faster rate and allow our people more entrepreneurship and flexibility so that we can both protect Arcadis, but also deliver to our clients more effectively. Operator: The next question is from the line of Simon Van Oppen with Kepler Cheuvreux. Simon Van Oppen: I have one remaining question left, and you mentioned the independent auditor review. I was just wondering to what extent has impairment testing be done in Q4 on each of your individual divisions? And should we expect any further impairments in 2026? Simon Crowe: No. I mean we've done all the necessary reviews. No more -- no, you shouldn't expect anything like that. Operator: Ladies and gentlemen, with this question, we conclude our Q&A session. I will now turn the conference over to Mr. Brookes for any closing comments. Thank you. Alan Brookes: Thank you, and thank you, everybody, for your questions. As we said at the start, it has been a challenging year for Arcadis. But as I hand over to Heather as CEO, I do so with full confidence in her leadership. She has a clear mandate, as you've heard today, to strengthen performance, simplify the business and accelerate delivery. These actions are already underway, and the priorities are well defined. So thank you again for your time and engagement over the last 3 years and for indeed your continued support for Arcadis under Heather's leadership. Thank you all very much. Operator: Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for calling, and have a pleasant day.