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Operator: Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Rush Street Interactive Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] Please note that this conference call is being recorded today, February 17, 2026. I will now turn the call over to Kyle Sauers, President and Chief Financial Officer. Thank you. You may go ahead. Kyle Sauers: Thank you, operator, and good afternoon. By now, everyone should have access to our fourth quarter and full year 2025 earnings release. It can be found under the heading Financials, Quarterly Results in the Investors section of the RSI website at rushstreetinteractive.com. Some of our comments will be forward-looking statements within the meaning of the federal securities laws. Forward-looking statements are not statements of historical fact and are usually identified by the use of words such as will, expect, should or other similar phrases and are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. We assume no responsibility for updating any forward-looking statements. Therefore, you should exercise caution in interpreting and relying on them. We refer you to our SEC filings for a more detailed discussion of the risks that could impact our future operating results and financial condition. During the call, we will discuss our non-GAAP measures, which we believe can be useful in evaluating the company's operating performance. These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP. We will be discussing adjusted EBITDA, which we define as net income or loss before interest, income taxes, depreciation and amortization, share-based compensation, adjustments for certain onetime or nonrecurring items and other adjustments that are either noncash or not related to our underlying business performance. A reconciliation of these non-GAAP measures to the most directly comparable GAAP measure is available in our fourth quarter and full year 2025 earnings release and our investor deck, which is available in the Investors section of the RSI website at rushstreetinteractive.com. For purposes of today's call, unless noted otherwise, when discussing profitability, EBITDA or other income statement measures other than revenue, we're referring to those items on a non-GAAP adjusted EBITDA basis. With me on the call today, we have Richard Schwartz, Chief Executive Officer. We will first provide some opening remarks and then open the call to questions. And with that, I'll turn the call over to Richard. Richard Schwartz: Thanks, Kyle. Good afternoon, and welcome to our fourth quarter and full year 2025 earnings call. I want to begin by expressing my profound gratitude to the entire RSI team for delivering what can only be described as an extraordinary year. Their dedication, innovation and relentless focus on excellence in delivering exceptional results have been the driving force behind our success. I couldn't be more proud of what we've accomplished together. As I reflect on our performance in 2025, this has been a record year, hitting new highs across virtually every metric. We continue to set new records in revenue, profitability, cash flow and user counts as well as other core KPIs. In 2025, without the benefit of any new markets, we achieved record revenue of $1.13 billion, representing 23% year-over-year growth and exceeding the high end of our raised guidance range. Even more impressive, we grew adjusted EBITDA by 66% year-over-year to a record of $153.7 million, also exceeding the high end of our raised guidance and demonstrating the powerful operating leverage inherent in our business model. In 2025, we also materially grew the bottom line with net income of $74 million compared to $7.2 million in 2024. What makes these results particularly compelling is their consistency and breadth. This strong performance is evident across all geographies and product verticals. Our player engagement remains exceptionally strong as evidenced by record-setting monthly active users in 2025. In North America, our MAUs grew 37% year-over-year in the fourth quarter to over 278,000, including an impressive 51% in online casino markets. Not to be outdone, in Latin America, we grew MAUs 47% to over 493,000, demonstrating impressive growth and resilience amongst temporary tax headwinds. When discussing the strength of our 2025 results, we are frequently asked about the secret that is driving our accelerating growth and profitability. What is the magic bullet that's driving our success? The answer is there isn't one single factor that is responsible for our success. Our exceptional performance is a product of our intense focus on our customers and the cumulative improvements we've made across every aspect of our business. Over the past several years, we've systematically enhanced our capabilities throughout the entire customer journey. We've advanced our customer acquisition strategies, diversifying our marketing channels and optimizing each one to reach the right customers at the right time with the right message. We've reduced friction in our user experience, making it easier for players to discover, engage with and enjoy our platform. We've invested heavily in enhancements to our loyalty programs and retention strategies, creating more personalized experiences that we believe keep players coming back. These improvements span every touch point with our players, from the moment they first discover our brand to their ongoing relationship with us. We've also enhanced our data analytics capabilities, allowing us to make more informed decisions about player preferences and behaviors. We've improved our customer service operations, ensuring that every interaction reinforces our commitment to player satisfaction. And we've continuously innovated our product offerings to create unique differentiated experiences that players won't find elsewhere. Throughout 2025, we also continued to invest in the operational excellence and technological innovation that differentiate our platform. These innovations aren't only about technology. They're about understanding what our players want and delivering experiences that exceed their expectations. Our focus on customer centricity drives everything we do from product development to customer service to marketing strategy. The result of these cross-functional improvements is a virtuous cycle. Stronger customer acquisition brings in higher-quality players. Improved retention keeps players better engaged, and enhanced experiences drive increased player value. When you execute well across all these areas simultaneously, the cumulative impact is significant and yields sustainable growth. Our casino-first strategy continues to be a fundamental differentiator of our business. While we maintain a growing and profitable sports betting business, our focus on leading with online casino has positioned us uniquely in the market. This strategic focus has proven particularly valuable in 2025. Our North American online casino markets continue to drive exceptional growth, as stated earlier, with MAUs increasing 51% in the fourth quarter, representing our second highest quarterly growth rate during the past 4.5 years and impressively achieved on a much larger player base and without the benefit of new market launches. What's even more encouraging is that in each successive quarter of 2025, we saw the continued acceleration of year-over-year growth in monthly active users in our North American online casino markets. Our casino-first approach allows us to focus our resources and expertise where we believe that we can create the greatest value. Online casino players typically demonstrate higher lifetime values, better retention rates and more consistent engagement patterns compared to sports-only customers. By prioritizing these markets and continuously improving our casino experience, we've been able to drive both growth and profitability simultaneously. In fact, in 2026, in support of our casino-first strategy, we plan to increase our investments in developing differentiated casino content and online casino legalization efforts. Another significant accomplishment of 2025 was our successful navigation of the challenging tax environment in Colombia, one of our core Lat Am markets. I'm proud to report that not only did we successfully manage through this period, but we're confident that we gained market share from our competitors, setting ourselves up for continued success. Our approach in Colombia was measured and strategic. Rather than immediately passing the VAT tax cost on to our players, we absorbed much of the tax impact through adjusted bonusing strategies, which inherently reduced revenue. This allowed us to maintain player engagement and loyalty while still attracting a significant number of new customers. The results speak for themselves, but despite a temporary drop in net revenue last year, for the full year, we achieved annual GGR growth of 66% and increased MAUs by 34%. Looking ahead, the temporary VAT tax that was in place during 2025 has now expired. There was a new emergency decree issued in late December 2025, along with associated tax decrees that were issued for 2026. This structure has a more traditional but lesser impact on our business as a tax on revenue rather than tax on deposits, which we offset in 2025 through a higher bonusing. However, this emergency tax decree was suspended less than a month after it was issued in late January 2026 by the Constitutional Court and will be under further review in the months ahead. This is a positive step towards recalibrating to the previous and what we view as the more appropriate tax structure in Colombia. Our experience in Colombia demonstrates our ability to navigate regulatory changes while maintaining our focus on long-term player relationships and market leadership. Now I want to briefly address the topic of prediction markets, which has been highly topical in recent industry discussions. At RSI, we're constantly evaluating the evolving industry landscape. Prediction markets today are primarily benefiting from sports event contracts, which is not an area of high priority for us. We will continue to monitor developments in the event contract space and in the meanwhile, continue to focus on executing our proven casino-first strategy and delivering exceptional experiences in our current markets while capitalizing on significant growth opportunities ahead of us. As we look to 2026 and beyond, we have tremendous confidence in our growth trajectory and strategic positioning. We're particularly excited about our upcoming launch in Alberta, where the regulatory environment is progressing toward a launch time line that could occur in the coming quarters, sooner than we were anticipating during our last earnings call. This represents a significant opportunity for us to leverage our success in other North American online casino markets, particularly given our strong performance in Ontario and our established and growing brand recognition across Canada. Beyond Alberta, we continue to evaluate additional expansion opportunities in both North America and Latin America. The success of our selective disciplined approach to market entry has enabled us to achieve strong returns on our investments while building sustainable competitive positions. We will continue to prioritize markets where we can deploy our full suite of gaming offerings and create meaningful value for both players and shareholders. The 2026 calendar is also filled with marquee international sporting events, such as the current Winter Olympics and the upcoming World Cup. We are well positioned to capitalize on these multinational events across both our sports betting and online casino products. Overall, 2025 was a transformational year for RSI. We demonstrated the power of our business model, the effectiveness of our strategic approach and the dedication and execution abilities of our team. We've built a strong foundation for expected continued growth while maintaining the operational discipline that has driven our success. We're excited about the opportunities ahead and confident in our ability to continue delivering strong results for our shareholders while providing industry-leading experiences for our players. We have a clear path forward, strong financial resources and a team that is executing at the highest level. With that overview, let me turn the call over to Kyle to walk through our detailed financial results and provide guidance for 2026. Kyle Sauers: Thanks, Richard. I'm excited to walk you through what was truly an outstanding fourth quarter and full year 2025 with record-breaking performance. Fourth quarter revenue of $324.9 million, up 28% year-over-year, set another record high and marks our 11th consecutive quarter of sequential revenue growth. Full year 2025 revenue of $1.13 billion grew 23% compared to 2024, exceeding the high end of our raised guidance range. This strong top line performance was driven by exceptional user growth and engagement across our platform. Our gross margins during the fourth quarter were 34.4%, reflecting the continued shift we've made to higher-margin markets. For the full year, our gross margins were 34.6%, in line with the prior year. On the expense side, we continue to drive operating leverage through our disciplined approach. Marketing expenses in the quarter were $45.4 million, an increase of 5% year-over-year and 14% of total revenue. For the full year, marketing expenses were $158.4 million, representing a 2% year-over-year increase and 14% of total revenue. Compared to the full year 2024, marketing spend as a percentage of revenue decreased by 290 basis points. This demonstrates our team's ability to continue to optimize our acquisition channels and improve our player acquisition costs while simultaneously growing our player base and hitting new records for first-time depositors each of the last 3 quarters. G&A for the fourth quarter was $22.3 million or 6.9% of revenue compared to 7.5% in the prior year period. For the full year, G&A was $81 million or 7.1% of revenue compared to 8.1% in 2024. This reflects our continued investment in technology, personnel and infrastructure to support our growth while maintaining operational leverage. Fourth quarter adjusted EBITDA of $44.1 million set a new quarterly record and increased 44% year-over-year. Full year adjusted EBITDA reached $153.7 million, an impressive 66% increase year-over-year, above the high end of our raised estimates and reflects our disciplined approach to growth and operational efficiency. The foundation of our financial success continues to be our exceptional user acquisition and retention performance. In the fourth quarter, North American MAUs grew 37% year-over-year to 278,000 total users. What's particularly impressive is our performance in North American online casino markets, where MAUs grew 51% year-over-year in Q4, which represents our second highest quarterly growth rate during the past 4.5 years and again, achieved on a much larger base of players. In Latin America, we delivered equally strong results with MAU growth of 47% year-over-year in Q4, reaching 493,000 total users. This growth demonstrates the strength of our platform, operations and brand recognition across the region, even as we have navigated the challenging tax environment in Colombia. North American ARPMAU declined 5% year-over-year, which reflects the healthy and expected dilution that comes along with our exceptional growth in user volumes. When you're growing your player base at the rates we've achieved, some ARPMAU compression was not only expected but confirms that we're successfully attracting large volumes of new players to our platform, who initially have lower ARPMAU than established players. The key is that we're acquiring these players efficiently and retaining them effectively, which positions us for strong long-term value creation. In Q4, Latin America ARPMAU was down 21% year-over-year due largely to the extra bonusing in Colombia. However, Q4 player values in Colombia were at their highest point of the last 3 quarters, validating the continued strength in our user experience. ARPMAU should return to meaningful year-over-year growth in Lat Am with the removal of our VAT bonusing strategy as of the end of last year. Breaking down our performance by geography and product. We saw strength across all segments. North America and online casino continue to be our primary growth drivers, benefiting from our strategic focus on these higher-value markets. Our sports betting business also contributed meaningfully to our results, growing consistently throughout the year. In the fourth quarter, online casino revenues grew 30% and grew 28% for the full year. Online sports betting revenue grew 20% in the fourth quarter and grew 7% for the full year. Regionally, revenue in North America grew 29% in the fourth quarter and grew 25% for the full year. Revenue in Latin America grew 17% in the fourth quarter and grew 12% for the full year. Of note, all these growth rates include the burden of the extra Colombia bonusing that stopped at the end of 2025. As Richard previously mentioned, the tax situation in Colombia remains dynamic. Let me provide more detail and discuss the implications for 2026 in our guidance. The temporary 19% VAT tax on deposits that impacted us throughout much of 2025, which was implemented through an emergency decree, expired at the end of the year as we expected. Under a new emergency decree, a new tax was implemented for 2026 with a 19% VAT on revenue. Compared to the tax on deposits that we navigated in 2025, this tax on revenue will have less of a punitive impact on our business from a profitability perspective. However, the Constitutional Court of Colombia suspended the emergency decree and associated decreed taxes at the end of January. The results of this review should be concluded in the next few months, and we're optimistic that it will be resolved in our favor. In any event, we expect the additional tax to be paid for the month of January before the suspension occurred. And given the dynamic nature of this situation, for the purposes of our guidance, we assume that this new 19% tax on revenue will be in place for the full year 2026. This new tax environment, combined with the market share gains we achieved in 2025, positions us well for strong growth in Colombia and across Latin America. Our balance sheet remains strong with $336 million in cash on hand at the end of the year. Net of stock repurchases, we generated $142 million of cash during 2025. Our cash generation capabilities have improved dramatically, and we expect to continue building our cash position throughout 2026. During the fourth quarter, we did not repurchase any shares under our previously announced $50 million share repurchase program, which has approximately $42 million remaining. As we look ahead to 2026, our guidance philosophy reflects both confidence in our business momentum and prudent assumptions about market dynamics. There are some key growth drivers that influence our 2026 outlook. First, we expect continued strong performance in our North American online casino markets, which have shown consistent acceleration throughout 2025. Second, the incrementally improved tax environment in Colombia should allow us to capture more of the strong underlying growth in that market. And although not included in guidance, our anticipated launch in Alberta as well as other potential new markets provide additional upside. For 2026, we expect revenue in the range of $1.375 billion to $1.425 billion, representing growth of 21% to 26% year-over-year. We expect adjusted EBITDA in the range of $210 million to $230 million, representing growth of 37% to 50% year-over-year. When it comes to cadence throughout the year, we would generally expect both revenue and EBITDA to improve as the year progresses, similar to what we've seen in years past. Regarding other line items in our financials and where we'll see leverage, gross margins should improve modestly in 2026 compared to 2025. We continue to improve our cost structure, drive revenue growth faster in higher-margin markets but are absorbing the impact of some higher gaming taxes, including the 19% emergency decreed tax on revenue in Colombia. We have continued to get more efficient with marketing spend, which gives the opportunity to keep increasing investment in this area. So we expect meaningful increases in marketing spend in 2026 but at a rate slower than our expected revenue growth, driving leverage across that line item. Regarding G&A, we continue to see opportunities to improve the product, improve our player experience and explore new opportunities. So we expect G&A to grow more closely in line with our revenue growth. This guidance reflects our confidence in the underlying strength of our business while incorporating prudent assumptions about market maturation and competitive dynamics. We believe this positions us to continue delivering strong shareholder returns while investing appropriately in innovation and long-term growth opportunities. And with that, operator, please open the line for questions. Operator: [Operator Instructions] Our first question comes from the line of Dan Politzer with JPMorgan. Daniel Politzer: I wanted to touch on Colombia. You gave a lot of helpful commentary in the remarks about how this could play out in terms of the timing and the year. But is there any way to perhaps put some numbers around maybe what the impact was in 2025 in terms of revenue and EBITDA with the tax on deposits versus maybe what you're forecasting if it is, in fact, in place for the full year in '26? Is it the tax on revenue? Kyle Sauers: Yes, Dan, let me -- I'll try to help with a little bit more color. So you'll recall, in the third quarter, Colombia had more challenging sports sold and that cost us incrementally on the deposit bonusing and then that, in turn, reduces revenue. In Q4, we didn't have that same issue with challenging sports sold. So you saw that play out in our results as well. In total, for 2025, we had about $75 million of incremental bonusing that we did due to the VAT tax on the players, so that's a direct reduction of revenue. It probably cost us in the range of $25 million to $30 million in EBITDA on the year. I think despite the disruption, pretty good news, grew GGR at 66%, grew the user base by 34%, took some meaningful share in the market. And then that headwind, the deposit bonusing goes away in 2026 because we aren't making up for that VAT on the players. So as I shared earlier, this means that within our guidance for 2025, we no longer have -- or for 2026, I should say, we don't have that revenue headwind for the extra bonusing. And just to be clear, we are assuming the burden of the 19% tax on revenue for the full year of 2026. The impact of that probably is -- it's harder to give you a specific answer on that because we aren't guiding to a specific revenue number for Colombia alone. We do, at the very least, expect to have to pay that tax for January, but it is -- it's a 19% tax on revenue. That doesn't mean the exact impact is 19% because we do have a decent number of variable costs that are based on revenue after tax. So it is lower than 19%, but hopefully, that frames it a little bit for you. Daniel Politzer: No, that's helpful. And just in terms of Canada, obviously, you have the Alberta launch at some point. I don't know if there's any additional detail in terms of the expectation of when that might happen? And then also along those lines in terms of framing that expectation, Ontario, could you just remind us maybe ballpark of what your approximate iGaming and sports betting share is there? Richard Schwartz: Sure. Why don't I take the first one, Dan, on Alberta. Yes, the timing is looking like it could -- it will be end of Q2, early Q3, but we're hopeful and it looks like the regulators there are moving at a very determined pace, and it looks like a Q2 opportunity is within the possibility towards the end of that quarter. Kyle Sauers: Yes. And then maybe just other pieces around Alberta and related to Ontario, our casino share in Ontario is kind of mid- to low single digits. Sports is a little bit lower than that. We're very excited about Alberta. I'll tell you, we don't have it in guidance either for revenue or for incremental costs, so there -- when that comes around and we have clarity on the date, there'll be some marketing costs associated with that. We think we're set up really well to be successful there. The other thing I would just point out, and we've mentioned this before, but every North American online casino market that we've launched in, we've been profitable by the fourth quarter of operations. And we don't see a reason that, that should be different with Alberta. So we're very excited to have another iCasino market launching in the near future here. Operator: Our next question comes from the line of Bernie McTernan with Needham. Bernard McTernan: Maybe just a follow-up on that on the first question from Dan. If I just add back $75 million to your revenue for Lat Am in '25, I get to an ARPU that's in the mid-40s, let's say. And so that -- if we look at '22 to -- sorry, '22, '23, '24, ARPU is coming down slightly. And then I think if we add back $75 million and then it spiked up. So was there anything that you were seeing from a cohort level or just like maturity of users that caused such an increase in ARPU, again, if my math's right? Kyle Sauers: Yes. And you're trying to kind of triangulate around the trends of ARPU and the dip down. I think the thing that you probably need to work in there, Bernie, is what we're putting in our deck and obviously, we're reporting in U.S. dollars is there are currency fluctuations over these years. So you'd probably want to normalize for that. I would say -- I mean, we're highly confident that the -- that without this deposit tax bonusing that we're going to have a nice rebound in our ARPMAU in Colombia and therefore, for our total Lat Am. The other piece that, I guess, I would throw in just to think about how you do that analysis in Mexico is becoming more significant part of the business in Latin America. And for the company in total, we're having a lot of great results down there. And the player values are higher in Mexico than they are in Colombia. So that starts to impact what you'd see in those numbers and what you will see for the coming years here. Bernard McTernan: Understood. That's really helpful. And then for Richard, I just want to follow up on one of the comments you made earlier in the investment in content and legalization for -- that's going to go on in 2026. Maybe focusing on the content side and given the context of the G&A guide to be growing more closely to revenue, is that bringing on more engineers? Or how should we think about what's actually going to be coming to market with these investments? Richard Schwartz: Yes. Bernie, yes, so as you might know, I have a passion for the content side of the business, started years ago when I entered the industry for about 10 years working at a slot machine supplier. So I recognize the value of great content and the ability for us to differentiate further by having great libraries of games that are unique and proprietary to ourselves. Having said that, we obviously have included in guidance all the costs of -- and the revenue upside we expect to see for new content that we add throughout the rest of this year. We have been able to sort of build our studio and our technology road map, and we'll start to launch those games in the future during this year and try to grow our position as sort of a casino leader in the industry. I think it comes down to quality or quantity and making sure that when you prepare some content that it's really at a very competitive and high-quality level where players will enjoy engaging with that content, not because you're incentivizing them only to play it but because of the quality of the experience they have playing those games. On the legalization front, we are continuing to plan and put effort into taking advantage of the opportunity that exists in the markets right now where you have states that are having, in some cases, erosion of taxes or in other cases, going to lose some taxes from fewer -- less federal aid for things like Medicaid in the future after election later this year and really trying to mobilize and get additional states to open up in a way that will be very favorable for our company. Operator: Our next question comes from the line of Jordan Bender with Citizens. Jordan Bender: I want to start maybe on the tax increases, and maybe more specifically, in Illinois, I saw your minimum bet went from $1 up to $5. I guess question one is that -- was that more specific to the city tax that went in place? Or is there something in that market that changed that strategy? And then I guess, more broadly, I mean, did that -- is the strategy, the minimum bet, do you think that's something that we can expect if we do see other states whether it's this year or some point down the line, of you looking to implement that to kind of offset any of the future tax increases? Kyle Sauers: Yes. So Jordan, the minimum bet was not necessarily in response to the Chicago tax. So at this point, we're not passing through a transaction fee like some of our competitors are. We've chosen to use a minimum bet strategy. Could we use that in other markets in response to some sort of different tax structure? Absolutely. I think we want to make sure we're using all the levers we have that we think make the most sense both for us financially as a company and so that we're treating players as fairly as we can under a construct. I mean, certainly, when you look at Illinois, the activity levels have not shown that, that tax is probably good for the consumers. So we'll see how that plays out in other markets. Jordan Bender: Great. And then just on my follow-up, the North American entrance comment, was that related to Alberta specifically? Or is that more of a broader -- I don't know if it's changed the tone, but you're looking to markets you're not currently in now to basically launch a sports betting product. Kyle Sauers: So I'm actually not certain which comment you're referring to, but I think we can answer the question either way. It was -- it's more about Alberta or other potential North American online markets that might newly legalize and not so much about revisiting. I mean we definitely continue to monitor and look at all the different markets. But I think we've been pretty clear that most of the sportsbook-only markets that we've passed on, we've done for good reason and focusing on iCasino specifically in North America has been a real winner for us. Operator: Our next question comes from the line of David Katz with Jefferies. David Katz: Appreciate you taking my question. There's -- I know you addressed prediction markets in some of the prepared remarks, but we continue to hear about the prospects of more traditional gaming products being produced with prediction underlying math models. Is that something that you have looked at and explored because that seemingly might be more relevant for the core of your business? Richard Schwartz: David, thanks for asking the question. I think I could have predicted perhaps the predictions questions from you given that, I think, you've hit us with one every quarter so far this year. But it's a great question and obviously, a lot of discussion in this topic. So yes, so first of all, we have been monitoring it very, very closely, as we've repeatedly said. And monitoring means that we don't do things at a surface level of this company. We're very thorough in our ways that we monitor. So we have looked at every angle possible and I think -- or certainly most of them. I think that we are a very nimble organization. If we need to react in some way at some point, we are able to do so. But when it comes to your specific question, I think that it would be more challenging to justify a prediction market when the underlying event is being played for stakes, right? When you're betting on an underlying event, the underlying event -- game is being played for stakes, I think it's harder to justify that as being the type of market that's regulated there. So having said that, I think, obviously, a lot of courts are going back and forth. You'll continue to see that. I saw the Ninth Circuit came out with a ruling earlier this afternoon. And so we're going to continue monitoring the stakeholders' views, including regulators, legislators and anyone else involved here to kind of make sure that we're on top of the opportunities, but I certainly think that there's a lot more to come in this area. David Katz: Okay. And perhaps an easier one, and I hope you haven't touched on this already. Kyle, in your remarks, you mentioned that G&A grows in line with revenue. Did you -- or can you elaborate on what's in there? Are there some tech upgrades? Or why would that grow in line with revenue? Kyle Sauers: Yes. So I think it's notable that it will grow faster than it has the last couple of years. And I think we've been known to be a company that's prudent with our investments. Richard talked about it a little bit, but we do have -- we feel like we've got the real opportunity here to spend more on some differentiated casino content that we put out there, also increasing lobbying efforts in a moment in time here where we think there's a real opportunity to get some iCasino legalization across the finish line in the next couple of years. Obviously, we're always investing in our people, and we have our pay increases in -- just in terms of modeling, we've talked about this before, but our biggest incremental or sequential step-up in G&A is from Q4 to Q1. So we just -- we feel like this is a good time to be investing in those areas, and that's built into our guidance for '26. Operator: Our next question comes from the line of Ryan Sigdahl with Craig-Hallum. Ryan Sigdahl: Richard, Kyle, another really nice strong quarter and guidance. I want to start with the North America MAUs, grew 51% online casino. I mean I'd ask the generic question just how that's possible. I think, Richard, you gave some of that in the prepared remarks. But more specifically, are there specific acquisition channels that you're opening up or that you're leaning into? Or really, where is that acceleration coming from in a very competitive market? Kyle Sauers: Yes. It's really broad-based, Ryan. I think our team just keeps getting better and better. You're right, it's a very -- I don't remember what word you just used, but it's an impressive number. Our cost to acquire players are the -- they're the lowest they've been since before we went public, where we didn't necessarily have the funding to put the right money to work. So our teams are -- they're continuing to evaluate different channels, different creative. It is certainly helpful to have a product that people want to come back to over and over again because that number is not just about first-time depositors, although despite not launching in any new markets, we now have our third quarter in a row of record first-time deposit numbers, so that fills the top of the funnel, but you've got to keep those people coming back and you got to keep people reactivating that maybe have been away for a little while. So it's a combination of all kinds of things. But our teams are doing a fantastic job in bringing in new players, making sure they know what the product is about and then putting the great product in front of them when they show up. Richard Schwartz: I'll just add that... Ryan Sigdahl: Maine -- go ahead, Richard. Richard Schwartz: Sorry, Ryan. Just one quick thing. We have a focus on offering the best user experience, but high quality is great but also differentiated. And again, if you just differentiate something but you don't get the experience right, it doesn't matter if you're different, if players don't really find what you've done differently to be all that compelling. So for us, being better and different has been a goal, and everyone in the organization is working towards achieving those high-level goals. And through that, you then have all sorts of A/B testing and all kinds of technical tools that we're using to ensure that we're sort of delivering the right type of customers, the right type of experience that matches their interests. Kyle Sauers: And just I'll pile on one more, Ryan, just because it would be a shame if I didn't mention it. But I think another piece of the puzzle is customer service and the way we treat customers and making it easy and friendly for them to get through the first time they show up to easily getting a deposit on the platform, easily getting their money off the platform. And when they have any issues, that we're responsive and treat them the right way. So I think we focus a lot on that and do a really good job at it. Now I'll let you ask about Maine. Ryan Sigdahl: All very helpful color. Yes, Maine would be the follow-up question here, just legalizing iGaming. Is that a strategic state for RSI and then your confidence level that you could get a skin agreement with 1 of the 4 tribe licensees there? Richard Schwartz: Ryan, I think this is a -- Maine is an attractive market by virtue that online casino, which is our strength, will be available there. As you know, there's 4 tribal partners there -- tribes there that are -- that currently have the licenses. And so obviously, it's about trying to find the right fit and the right relationship and create the right proper value for the partnerships to work together well. Clearly, we are a great partner in other states, for other tribes and other lotteries, et cetera. We've proven ourselves to be very strong in smaller states, populations and be able to really generate large share in those opportunities. And so I think if someone who operated casino and has a poker platform that, I think, does add a lot of value to acquisition in a small state, we are a very attractive, appealing partner there. We are considering the options there to hopefully have a chance to be in that market someday. Operator: Our next question comes from the line of Mike Hickey with StoneX. Michael Hickey: Richard, Kyle, congrats, guys. Great quarter, great year, great guide. You're sort of a beacon of light here in a tough market. Just 2 questions, both, I think, on the prediction market. So forgive us, Richard. I don't think it's your favorite topic, but obviously, it's important here. I guess, first, it looks like there's some evidence now of some handle share loss to prediction market. So just curious your view, especially in concentrated markets like Delaware, where you're 100% share, if you're seeing anything there. The second piece would be the opportunity, also hearing sort [ guidance ], offering sort of incremental TAM or TAM expansion. So curious if you're also obviously seeing some level of that. And then I'm wondering, Richard, your ability, if you see it over time, still early days, but if you see a migration path from prediction market players to traditional products, where they're looking to sort of get a better value, better parlay, obviously, a better overall experience, if you see an opportunity there and in particular, if you see an opportunity on getting them on to your casino product. Obviously, the cross-sell is very strong. This wouldn't be a pure cross-sell. But given that you're the only casino offering in Delaware and other states, it seems like an opportunity for you guys. Kyle Sauers: All right, Mike, I'll jump in and Richard can follow on if he wants. There's a lot of questions in there. So hopefully, I'll get them all. I think the first is what we're seeing. I think the fact is it's hard to tell. It doesn't appear that it's hurting our OSB business and handle, but it's definitely hard to measure. I think when it comes to Delaware, I mean, if you just look at the last 4 months, and I'll include January, we're up over 50% year-over-year each of those months in revenue. So again, it's -- I think it's hard to measure, but that's -- those are pretty solid results. And when you get to TAM expansion, I think it does this -- all of this activity brings a lot of awareness to consumers. So there's certainly an element there that can draw more people in and more interest. I don't know, Richard, do you want to talk about just the product and kind of how it relates to what's out there for prediction markets today? Richard Schwartz: Yes, sure. I mean so on the technology side, a lot of the technology elements of the CFTC-approved platforms aren't as technically advanced as what we perhaps have in our industry. And so certainly, a lot of the platforms, the player account management systems that exist in our industry could be repurposed and leveraged for prediction markets. In terms of -- if you were to have a prediction market product, I can envision there being an ability to cross-sell between the different verticals and treating prediction markets like you might treat a poker, a third-party platform or even your own in-house poker platform, having the verticals across the different jurisdictions where an operator is operating. So I think there's certainly cross-sell opportunities. It comes down to the types of mechanics and products that you were referring to. Clearly, if you're having a product that has a skill involved, you're going to sort of appeal to maybe a player that has a skill interest in a different type of prediction market. And I think if there's elements of chance involved, which is still being worked through the courts, then certainly, I think that is a different type of cross-sell. So I think there's a lot of opportunity in that ability to sort of learn what works and doesn't work on the cross-sell. But certainly, from a core technology standpoint, there are a lot of similarities between for platforms that are being used today in the CFTC markets and real money gambling platforms. Michael Hickey: Just a quick follow-up. I guess maybe a couple of quarters ago, we asked you if you saw -- and I know you're a product guy. That's one of the reasons why you're so strong and have the market share you do. Looking at the prediction market platforms, are there certain qualities on the platform, whether it's ease of use or maybe the cash out piece being more visible, are there certain qualities that you think might resonate to one of your traditional gaming customers that you could look to do sort of product enhancements in the future? Richard Schwartz: Yes. I mean there's always innovation in all kinds of areas. I think one thing about prediction markets is that operators are self-certifying, which means a little bit of an easier process perhaps to try things out that maybe would be harder to do in a state-level regulatory environment. I think it's still too early to really appreciate all the different elements of what's going to be improved or not, but certainly, you're going to see improvements made in prediction market operators. And I think some are going to come from the approach of trying to replicate a sportsbook interface, and others are going to probably come up with approaches that are going to be novel and differentiated and bring a different element of experience to a user that may be different from what they can get in a more conventional sportsbook. So I think there's still a lot of the leading minds in our industry who historically have kind of moved from one vertical to next, are focused very heavily on prediction markets right now. So I think you'll start to see some of those types of innovations come to market. Operator: Our next question comes from the line of Jed Kelly with Oppenheimer. Jed Kelly: Just going back to the MAU growth, very healthy once again. Are you -- is it strength with that casino first -- that historically casino-first player? Or are you having success more with the first -- sports-first player? Would just love just some background on that. Kyle Sauers: Yes, Jed. So just to be clear, that 51%, I'm sorry, is the growth in North America in markets that have iCasino. If you look at just North America in total, which includes all of our sports-only markets, it grew 37%. So that strength is really coming from the online casino markets. I mean not coincidentally, that's where we're investing most of our marketing dollars and our efforts there from a marketing perspective, and we're seeing the returns. Jed Kelly: Got it. And then just as some of your larger competitors start to market the prediction market products, specifically into football, are you seeing any changes in the promotional environment where you may have an opportunity to take share? Kyle Sauers: I don't think we've seen -- you'll have different operators have different strategies and at different times, right? And some of them will lean in a little bit more. But I wouldn't suggest that there's been any significant change in the promotional intensity across the landscape. Richard Schwartz: I would just add that our strategy is really not to try to gain share through bonusing but by focusing when others are maybe distracted and by delivering innovative experiences that are unique and different for the player with the goal that players, when they find us, they stay with us. And so our focus really is about -- less about using incentives to encourage players to stay with us but more about having them stay with us for the reasons that we talked about earlier, that Kyle also mentioned with our customer service, making sure we reduce friction for the players and let them know that we're fair, honest and treating them well. Operator: Our next question comes from the line of Chad Beynon with Macquarie. Chad Beynon: I wanted to ask about the sports betting hold maybe for the year, for 2025. I know there was some nice improvement just from a parlay mix standpoint. But can you talk about the year-over-year hold growth that you had in the year? And then more importantly, for '26, are there still opportunities to increase that hold? And is that a part of the guidance? Kyle Sauers: Yes. So maybe I'll start with the last piece. Yes, I mean, obviously, we've got a guidance range that has ranges for -- of outcomes for various different things, but it is -- our expectations for hold are built into the guidance, probably not expectations that we're going to improve it dramatically on the sports side, but I think we do have the opportunity to continue to improve it. And to your point, we've continued to improve over the last several years the product. The depth of the markets has gotten so much better. Our percentage of parlays and prop bets has continued to increase. Even in Q3 last quarter, I think we pointed this out on the call, but when it was a bit tougher for sports hold, we had our highest sports hold in the U.S. in our history. And then we did that once again in the fourth quarter. We had a little bit better outcomes in Q4 in the industry, but we've continued to see improvements there. So we think that can continue to happen. There's -- the product will continue to get better, and we think there's continued shift that will happen to more parlay bets. Did I catch all your questions in there? Chad Beynon: Yes, that's perfect. And then just a follow-up. I know you have a slide in there, and you've talked about the poker opportunity and how that differentiates you versus some of the other competitors. Where are we on the poker journey either with -- from a Rush Street perspective or just from a North America consumer awareness perspective? Richard Schwartz: Sure. I think I'll take that one. Poker is sort of -- was expected to be a lot larger market years ago when New Jersey first regulated. But because, historically, it had been a national liquidity and it only opened in a single couple of states where it [ enjoyed ] liquidity, I think it was Nevada and New Jersey initially, you really didn't get the liquidity that you needed to kind of create sustainable table sizes, tournament sizes, variety of tables, different bet sizes. And what's been happening with our efforts is that we've now launched, in the last 12 months, poker in 4 states, tie them all together to share liquidity. There's no operator right now in the U.S. who has more than 4 states, and we're -- we've talked about our plans this year to add a fifth state, which will make us, I think, the first operator to be in 5 states in the United States. And we -- our view of poker has been really clear that it does appeal to a broad gambler, and poker players and enthusiasts like to play other casino games. And certainly, if we can attract a customer who likes to play poker and then win their business over to play casino games, it's a win for us. And the same thing happens if we can acquire a customer and have an active customer who then stays with us playing poker because they no longer have to leave us to go play with a competitor's brand for poker during a tournament time. So at the end of the day, we really feel that poker completes the ecosystem, and it really is a great retention tool for us to have. We do have a TV platform as well, Poker Night in America, nationally broadcast TV on CBS Sports for now many years. So it helps us with brand building, and it brings personality and engagement to the brand and brings it alive for betters. And ultimately, that's what's important for us, is to have a way to grow our brand and attract and retain customers. Operator: There are no further questions at this time. I would now like to pass the call back to Richard Schwartz for closing remarks. Richard Schwartz: Thank you for joining us today. We're excited about the road ahead and look forward to sharing our first quarter results in late April. Operator: That concludes today's call. Thank you for your participation, and enjoy the rest of your day.
Christoffer Stromback: Good morning, everyone, and welcome to this presentation of Castellum's Q4 report. From our side, it's myself, Christoffer Stromback, acting CFO; and Pal Ahlsen, CEO. There will be a Q&A session in the end of the webcast. [Operator Instructions] So let's start. Please go ahead, Pal. Pal Ahlsen: Thank you, Christoffer, and thank you to all that are phoning in. I would like to start with saying that I've been here for almost 6 months, and I've got a very warm welcome from all of our staff. I'm very thankful for that. But also from shareholders that have reached out with questions, challenging questions, and also very good advice. And I hope that will continue going forward because that's something that actually makes Castellum better being challenged by our shareholders. So I really appreciate that. And the focus for us the past 6 months has been back to basics, the sort of the new strategy of Castellum. And the focus is crystal clear. Our target is to deliver a 10% return on equity over the business cycle. So that's really been what we've been working on for the past 6 months. It's all about taking away things that are not relevant, that are unnecessary. And it's all about leasing, increasing our -- decreasing our vacancy rate, increasing our occupancy rate. And it's about cost control, reducing our costs, both in administration, but also in our operations. And we have also gone through our portfolio to see which properties are winners that we can keep in the long term and properties that are struggling a bit more, where we either have to change our business plan or we actually have to leave them to someone else who has other ideas or other visions for the future than we have. But that has been really the focus for the past 6 months, and we call that back to basics. So one of the things we've done, which I mentioned was decreasing costs. And unfortunately, we were in a situation where we had a bit of a too big of a costume, which led to staff reduction, unfortunately, during the autumn where 30 people had to leave Castellum and that costed us around SEK 40 million during the fourth quarter. We believe though that the savings will be roughly the same amount going forward due to that action. One of the key things for us is having room to maneuver when it comes to the portfolio, freedom to change the portfolio. Without that freedom or without that room to maneuver, it will practically be impossible for us to reach 10% return on equity. And we had some writings or conditions in our bond agreements, which we addressed in the end of last year. It's called cessation of business, which sort of limited our room to maneuver. So we asked the bondholders if we could change those conditions -- terms and conditions. And most of them agreed to that in December. But that also came in with a cost of roughly SEK 30 million, and that's also something that is in the fourth -- in the report we are talking about today. Property values are down SEK 2.5 billion last year and SEK 1 billion in the fourth quarter. And the main reason for the value changes are changes of expectations of future cash flow, which is mainly due to changes in long-term vacancy and rental prices or rental levels. And in the fourth quarter, SEK 1 billion in value changes, negative value changes with mainly Kista, SEK 0.5 billion. Kista is a small proportion of our portfolio, well known in Sweden, I would say. So it's often written about it in the newspaper, and we have roughly 130,000 square meters in Kista, and it's around 2% of our portfolio, but it's struggling a bit with vacancy. And that's one of the challenges we have within our portfolio. And Finland, we have also changed sort of the expected long-term vacancy, which has led to a reduction in property value of roughly SEK 200 million. Net leasing for the year was negative SEK 140 million. Most of the negative event was actually in the first quarter where net leasing was down SEK 184 million, and that was mainly 2 events. It was Boost in Malmo and the bankruptcy of Northvolt. Since then, the quarters 2, 3 and 4 has actually been positive, but not as positive as the negative events of the first quarter. So net leasing SEK 140 million negative. Many people obviously ask if we can see a turnaround. We obviously hope so, but our focus is leasing, leasing, leasing. Time will tell if there has been a turnaround or not. One of the things we've launched now actually in January is what we call Castellum Business School. We believe that we need to raise the awareness within the company on how to understand the strategy, for example, but also to increase efficiency in the property management, in project management and in leadership and things related to the Castellum business. So we launched the Castellum Business School in January. All staff will get relevant education given their occupation, but also 150 people have been selected to do the Castellum Business School MBA, including calculation, leadership training and so on and so forth. And we believe that, that will be positive contribution to our aim to reach 10% return on equity. And my final point here in the intro is the fact that the Board is proposing share buybacks instead of dividend, and that's in line with our new policy for capital distribution. And we think that is a wise thing to do today when the share price is where it is in relation to the net asset value. We can actually skip -- go to the next slide and just give you a background on Castellum. We are a listed company, obviously. We have property value of roughly SEK 137 billion, where most of it is in major cities in Sweden, Stockholm, Gothenburg and Malmo. But we also have a strong presence in regional cities, growing cities like Orebro, Linkoping and Vasteras. And we have a portfolio also in Helsinki in Finland, roughly SEK 6 billion and SEK 5 billion in Copenhagen. And then we have a pretty significant stake in a Norwegian company, office company listed where we have almost 38% of the shares, 5.3 million square meters and a yearly contracted rent of SEK 9.3 billion and high sustainability focus. Christoffer? Christoffer Stromback: Yes. Thank you. So summarizing the full year 2025 and comparing it with the same period last year, it is negatively affected by mainly divestments and higher vacancies that is shown in sort of all of the results figures on this page. In addition to that, and as Pal mentioned, negative value changes of the properties, SEK 2.5 billion for the full year and SEK 1.1 billion for the fourth quarter, minus 1.8% for the full year. This all summarizing gives a return on equity of 1.2%, which, of course, is much lower than our target of 10%. Net leasing, Pal also mentioned, minus SEK 140 million, very negative one in the first quarter and then 3 quarters after that positive ones in the fourth quarter, plus SEK 26 million. Occupancy fairly stable, 89.8%, roughly the same as last quarter. And we have, during the year, invested quite a lot, SEK 4.4 billion, a combination of investing in our properties is going to make most of it. And then in addition to that, we also made some acquisitions during 2025. Pal mentioned a few one-offs. We have a couple of one-offs in Q4 isolated, both positive ones and negative ones, and we will try to go through all of them during this call. So looking at it in more detail. In the like-for-like portfolio, income increased by SEK 26 million, that is 0.3%. Index contributed with SEK 140 million, but it's offset by higher vacancies of SEK 190 million. Then we have one of the first one-offs, which is SEK 58 million one-off relating to a reversal of accrued annuity for the Northvolt. That's a difficult one. We took the full net leasing -- negative net leasing in Q1. But then now in Q4, we sort of concluded the final parts of the rental agreement with the bankruptcy estate. And then we had no cash effect, but an accrued one that we reversed during Q4. So that was a positive SEK 58 million in Q4. Direct property costs like-for-like increased by SEK 58 million corresponding to 2.7%. We have a mild winter. Now we're talking Q4, not what we have seen after Q4, but in Q4, mild winter. The cost for heating and snow removal was actually decreased compared to last year. But then we have -- and that was offset by some higher rental losses. And we also during Q4 isolated took a couple of larger wasted projects or projects that we are not expecting to go through anymore. So one-offs of that one recorded under maintenance in Q4. Central administration and property administration in total increased by SEK 54 million. And here, we have another one-off, Pal Mentioned it. Approximately SEK 40 million of those SEK 54 million is one-off relating to the staff reduction and head office reorganization. We can go to the next slide, please. So looking at the leasing renegotiations of SEK 279 million, that is 11% of the total leased stock up for renegotiation, fairly the same rent as before, a decrease of 0.1%, so very flat. But as I said, quite low volume of the total stock up for renegotiation. And the very large -- bulk of it, 62% or SEK 1.6 billion is actually just prolonged at the same terms as before, that is something I think is very much worth mentioning. Net leasing, we have been talking about already. And here, you also have the figures in the graph up to the right, showing that, as mentioned, a very big part of it was a negative one in Q1 and the very big part of that was the Northvolt bankruptcy. And then we have 3 positive quarters, not big figures, of course, but at least positive. Property values, we have been through most of the figures already actually, so SEK 1.1 billion down in Q4. Stockholm stands for SEK 0.9 billion of that and Finland SEK 0.2 billion. And as Pal mentioned, of the Stockholm SEK 0.9 billion down, SEK 0.5 billion is related to Kista. Valuation yield fairly flat, 1 bps up from last quarter, 5.64%, fairly stable. I think we take the next slide out. Looking at the financial highlights and our funding situation. Overall, the funding markets where we are present, i.e., the banking market, the SEK bond market, the Eurobond market as well as the hybrid market are all very favorable at the moment, I would say. So very good market conditions, credit margins at good levels and very much liquidity in all of the markets. Current spreads in the domestic or SEK market is some 80 bps for 3-year money; some 110, 150 for 5-year money. Banks offer us typically 5-year money, 110 to 130 bps, also at good levels, good volumes. I would say that most of them are -- maybe all of them would like to increase their positions. So that's very good. And during Q4 isolated, we did not actually do that many funding actions. We made one bond, SEK 1 billion, 122 bps, 5.25 years, bought back some bonds at the same time. And then as Pal mentioned earlier, we made this constant solicitation. Overall, we got the results that we were expecting. So that's good. Average interest rate, 3.1%, stable compared to last year, actually down a little bit since the year before, and we see potential for actually reducing this a little bit going forward. Also on the financing side, we have a couple of one-offs. Together, they are approximately SEK 50 million. And as Pal mentioned, SEK 30 million of them are connected to this consent solicitation. And then we have an additional lease, approximately SEK 20 million for refinancing and early redemption, both coupled to loans and bonds. Quite large one-offs in the financial items as well. And on this slide, we have our financial key ratios. Very stable, I would say, small changes compared to last quarter. Loan-to-value of 36.5%, ICR 3.2%. Good headroom to our policy. We have LTV policy of 40%, ICR policy of 3x. So good headroom there. At the beginning of this year, S&P confirmed our BBB flat with stable outlook about what has happened on the rating side. Debt maturities still stable, 4.3 years. We are quite happy with our funding situation and our key ratios. And I hand over to you, Pal. Pal Ahlsen: Yes. One of the things which we are very good at, I would say, in Castellum, and it's the reduction of energy consumption within our properties. So last year, we actually reduced the energy consumption in our portfolio with almost 7%. And that's one of the things I really like about Castellum is this key focus on reducing costs for energy, but then also from a sustainability perspective. So that's something to be very proud of. 58% of our portfolio is sustainability certified, and we actually have 24% of our electricity generated. So a high level of sustainability within Castellum, something to be proud of. Christoffer Stromback: [Operator Instructions] And the first question comes from Jan Ihrfelt, Kepler. Jan Ihrfelt: Actually, I have 4 of them. And I'll start with the sentiment on the rental market, office market. Have you seen any change in Q1 compared to Q4? Pal Ahlsen: Reluctant to speculate, and it's very early actually in the quarter to say anything about that. When I speak with the staff in the offices, I can say they still say that it's a challenging market. So our only focus is to do whatever we can to reduce vacancy. Jan Ihrfelt: Okay. And next question, you had a net letting figure for the full year of minus SEK 140 million. And I'm just a little bit asking about the overhang into 2026. How much of this SEK 140 million has already hit the P&L? Christoffer Stromback: We actually don't have a specific figure on that one. I mean, typically, there is a lag, as you know. And in this case, it's very much so where we got -- a big portion, as you know, in Q1 was in Northvolt and we have actually paid rent for the full year 2025. Not all of the volume, but quite a lot of it, and that is coming in with full effect into '26, but we don't have that figure. Jan Ihrfelt: No, exactly. Okay. And bringing down vacancies 10% and I'm just looking at some kind of time frame here. When -- at what point in time would you get down to 5%? Have you any time frame there? Pal Ahlsen: That's an impossible question to answer. And it's -- we are not doing that type of forecast. But as -- I think I mentioned that in the Q3 report, but we know that it will probably be a bit worse before it becomes better in relating to the previous question. But we are not making any forecast when it comes to vacancy ratios. Jan Ihrfelt: Okay. And my last question regards the one-off, the SEK 40 million. And where is it recorded? Is it all in central administration? Or is it split to some other lines? Christoffer Stromback: It's a split between central administration and property administration. Jan Ihrfelt: Yes. And the ratio there between them? Christoffer Stromback: I don't have that ratio actually. I can come back on that. And the next question, Lars Norrby, SEB. Lars Norrby: Part of your Back to Basics strategy is to "divest noncore assets." So far, since you assumed the role as CEO, Pal, you haven't done that much. I think there was some SEK 300 million completed in Q4 and you announced through a press release an additional SEK 500 million, which in the context of a portfolio of SEK 137 billion is not that much. And then you also mentioned that you made some changes to your bond terms in the fourth quarter. My first question is, is there anything now holding you back from finding significant divestments? Pal Ahlsen: No, I wouldn't say so. The transaction market is quite good, I would say. Christoffer mentioned that the market for lending money is very favorable right now. So it's a huge interest actually in making transactions in the property world, and we see -- we have lots of discussion, people reaching out to see to find a deal. But nowadays, if I may, reminiscent of how it was 30 years ago, transactions went much faster than they do today. The due diligence phase in making transactions are so much more due diligence, so to say. So even if I wish that we had a higher pace, that's not how the business works nowadays. But I can assure you that we are doing everything we can to reach this target of a high transactions. Lars Norrby: Okay. And my second and final question is what is a noncore asset in your portfolio? Pal Ahlsen: To be quite honest, I never ever used the word core or noncore. So I never said that. Our core assets are the ones we have, I would say. Some of them are perhaps giving a too low rate of return given our expectations of the future. So our core assets are actually commercial real estate in Sweden. It might be hotels, it might be offices, it might be logistics or light warehouses and so on and so forth. So I never actually used the words core or noncore. So we are more, let's say, looking at what we believe that they can give us in return going forward. And those who are helping us in reaching our target, that's our core assets. That's not office, that's not that, that's not this. So that's how we're thinking about that. Christoffer Stromback: Thank you, Lars. Next question from Nadir at UBS. Nadir Rahman: I've got a few, and I'll ask them one by one, if that's okay. So firstly, you're saying on your capital distribution, you are now allocating your full distribution to buybacks rather than dividends. And I think, Pal, you mentioned "simple mathematics" in your presentation. So if there is a simple way to split it then, is your thinking that if you're trading at a discount, you then do buybacks. And if you're trading at a premium or closer to that, you're doing dividends? Or is there a more nuanced way that you're looking at this distribution policy going forward? Isn't really that simple? Pal Ahlsen: I would say it's really that simple, even if you can make it a bit more complicated. But now the discount is quite big, right? It's 32%, 33%, and then you don't have to think about it that much. But once and hopefully, when that gap closes, we have to have a deeper discussion when it's time to switch to dividend from share buyback. Nadir Rahman: Got it. Okay. And a quick follow-up to that as well. What is your exact execution plan on the buybacks through the year? So I know it's SEK 1.2 billion. It isn't a small proportion of your market cap. So how do you propose you perform the buybacks this year? Christoffer Stromback: Our thinking is that we should wait until after the AGM. We think that we should adopt the financial results for 2025, i.e., part of that results that we are distributing to our shareholders. So we will wait until AGM and we will come back with details after that. Nadir Rahman: Okay. Got it. Very clear. My second question is, I won't be using the word core and noncore, as Pal mentioned, but looking at some pain points in the portfolio such as Kista and Finland, where you've taken more substantial write-downs in values and also they have elevated vacancies. What is your thinking on these regions and generally, your focus on trying to become more Sweden-centric. I think that's something you mentioned in your Q3 report? Pal Ahlsen: More Sweden-centric, I wouldn't write that. I would say, continue -- we are already Swedish centric. So that's not a change, I would say. Well, Kista, it's a small proportion of our portfolio. It's very well known in Sweden. That's why we highlight it. It's struggling. It has been struggling for a long time. We are picking our brains, finding a way to reduce vacancy and make a turnaround in Kista. And I would be quite honest to say that that's not an easy nut to crack, but we are really working on that. Vacancy, 22% in our portfolio, probably in Kista, perhaps more than 30%. So it's a challenging market. But again, a small proportion of our portfolio. And again, we are really picking our brains, trying to figure out how to make a turnaround, at least for our properties in Kista. Finland, yes, it's also a challenging market just as been in Stockholm, Gothenburg and Malmo and Copenhagen and to some extent, also in Oslo. Again, we are also trying there to find ways to reduce vacancy and keeping rent level to minimal just as we do for Kista. Nadir Rahman: That's very clear. My third question is then moving to a different part of the Nordic region, Entra and your stake there. I think you mentioned that it's a fairly attractive market in Norway at the moment despite the swap rates being slightly higher, inflation is more elevated relative to, let's say, Sweden and Finland. So what is your thinking on the Entra stake going into this year? I know there was an increase in the stake in Q1 last year. So are there any thoughts on this? Pal Ahlsen: I really like Entra. Entra is a great company. I think Castellum can probably learn quite a bit from Entra. So I appreciate the cooperation we have with Entra. Obviously, it's not an optimum situation. I think where we have the stake we have, Balder has its stake has. It's a low free float for other shareholders. So perhaps it's not the best long-term solution. I don't have any answers to the long-term solution today, not at all. But what one should say is that Entra is performing quite well. So it's not hurting us in any way, having that stake in Entra because it's a good company. They have a nice portfolio, nice management. And so it's not something that is dragging us down, not at all. The contrary, actually. Nadir Rahman: Okay. Very clear. And my final question is on your recent leasing of the Infinity building in Hagastaden. I know there's been some talk in the press of who the tenant may be, but could you provide some more details potentially on the yields, the rent levels and more generally, the discussions you've been having on letting. Are they with larger tenants and public companies? Or are they increasingly with smaller companies and potentially SMEs? Pal Ahlsen: Actually, we cannot elaborate at all, regarding. We've sent out the information we can send out, and that's been requested from the tenant. But we will disclose more when they have either used or not used the option to reduce the number of square meters they will have. And then we will provide you with more information. But obviously, we're very happy that Ericsson has selected our building, Infinity. It will be a great building, and I think Ericsson will have a nice time sitting there in Hagastaden in our building. Nadir Rahman: Okay. Very clear. And just to follow up on the size of maybe the tenants that you're speaking to more generally in the market for lettings. Are they larger tenants and companies? Or do you think that the general size of this company is more skewed to SMEs? Pal Ahlsen: Our portfolio is a broad pallet of very different type of buildings. We just don't have office. We have other type of buildings as well. So we have everything from very small tenants making components to whatever, industrial. And we have office, small offices and big offices. So we are speaking to a very broad palette of Swedish businesses. Christoffer Stromback: Next question, [ Adrian ] from Deutsche Bank. Unknown Analyst: Basically, I had 2 questions. The first one is on the consent solicitation process for your bonds. As you mentioned, you got approval from majority of your bondholders. However, there is still one particular bond, the '29, which actually has even more constraining language compared to the other ones, which hasn't received consent. Hence, I was wondering what you intend to do with this particular bond because I guess the 2026 in any case is due in the very short term? Christoffer Stromback: Yes. So what we mean when we say that we have better flexibility now is, of course, that we -- the volume outstanding that is having this language is much lower. Should we, in the future some time have transactions on the table, then we will manage that at that point in time. Unknown Analyst: Okay. So you may, at some point, revisit the content vis-a-vis this bond when you sell the assets? Christoffer Stromback: Yes, exactly. I mean we will have a look at that, at that point in time. Unknown Analyst: Okay. And my second question is about the hybrid. I was wondering what and when you intend to do regarding the non-core '26? Christoffer Stromback: I mean we are -- first of all, we are very happy with our hybrid. It's, as you know, running with 3.125% coupon, which is, of course, very good level. So we are happy about that. And I mean, we like the instrument. We like the levels we have today and do not want to speculate about future actions regarding the hybrid. The next question, Pranava from Barclays. Pranava Boyidapu: I have a couple of follow-ups on what you just said regarding the consent solicitation. With the '26th and the '29th together, that's roughly 30% of all your bonds outstanding. So clearly, that is not giving you the amount of flexibility that you suggested. So if I could ask what was driving the timing of the consent solicitation that you did last year if you have not lined up any specific action immediately? And the second question is regarding your hybrid. The hybrid language, of course, doesn't have the same kind of constraints, but I was wondering if there's anything that would potentially require consent solicitation as well? Christoffer Stromback: To the first question, back to the transaction margin and the transaction, it's also that transactions take time. So going into transactions, it's very helpful with better visibility of our situation. So that is probably the answer to the first question. And now we think that we have that flexibility. We -- I mean the results were pretty spot on what we were expecting. So we are happy about that. '26, I mean that's very close. It's coming up now in September, I think it is. Pranava Boyidapu: And regarding the hybrid? Christoffer Stromback: Sorry, I didn't get the question? Pranava Boyidapu: And regarding the hybrids, is there any language in there that would accelerate or impede your future change in portfolio? Christoffer Stromback: No language in the hybrid what I'm aware of, no. So next question from John at Kempen. John Vuong: Just on the net letting, are you seeing any differences between geographies and asset classes in terms of terminations as well as leasing? Pal Ahlsen: I think in general, what one can say is that the market that has been struggling in the downturn that we have been experienced is, first of all, office and in major cities, in bigger cities. And then we have had a softer downturn in regional cities where it has perhaps not been a downturn. So offices in major cities like Stockholm and Gothenburg and Malmo and Copenhagen and Helsinki is struggling a bit more than we can see in regional cities. John Vuong: And the positive turn in Q3 and Q4, is that skewed to any specific asset class or geography? Pal Ahlsen: Could you repeat the question? John Vuong: So that net letting turning positive in Q3 and Q4, is that driven by any specific region or specific asset class? Pal Ahlsen: No. John Vuong: Clear. And you mentioned that you're looking into improving the occupancy in more challenging markets. So what ways are you seeing in your first look into that? And is it -- can it be easily solved with, say, CapEx? Or does it even make sense to invest CapEx into these more structurally challenging buildings? Pal Ahlsen: I think it's very difficult to answer generally what to do. It has to be case by case. In some cases, it makes sense to upgrade the unit and adapt it to the wishes of the tenant. In other cases, it might be giving a discount. In other cases, it's just answering faster than we've done historically. So it's very different and you have to look at on a case by case. But what we've said is that we have to be more flexible. We have to be faster and we have to really listen into what the clients are wishing for so that we can grab the clients that are out there before our competitors grab them. John Vuong: And just maybe to ask it differently, do you see the CapEx spend in, say, '26, '27 to be higher than '24, '25? Pal Ahlsen: Reluctant to speculate, but I would say it's probably will be around the same level as this year. Christoffer Stromback: Next question, Paul May, Barclays. Paul May: I got 3 questions, 2 are linked, so I'll ask those together. You've obviously mentioned focused on leasing, leasing, leasing. I just wondered what your view is on sort of rental value per square meter, i.e., are you focused purely on reducing vacancy, in which case you'll allow rent concessions, lower rents to come through? Or are you focused on rent per square meter, in which case you'll happily have a higher vacancy holding out for that higher rent. So just to get a sense there. And then linked to that, can you give us some color on where your current portfolio rental income sits versus market rent? If all your tenants left and you relet all of your assets today, would that be at a higher or lower rent than you've currently got in the portfolio, assuming that there were tenants available for that? And then I've got another question, but I'll ask in a second. Pal Ahlsen: Very good questions. If I may answer the second one first, it's a difficult one, but I appreciate the question. And it would be -- it has to be booked a bit on the speculation side from my side. But I would say that we probably would reach roughly the same level as we have today. If every one of our tenants left, we would have some premises that would be rented on a high level, some on a lower level, but on average, roughly about where we are today. And the first one, could you repeat that one? Paul May: Yes. It's just looking and thinking how you think about leasing, which is the focus. Is it just reducing vacancy and therefore, you get rent concessions? Or is it we're focused on the rental level in which we live with higher vacancy? Pal Ahlsen: It's completely dependent on actually the market and sort of the demand in the market. In some markets, you really have to give concessions, lower the rent to get a tenant in order to have cash flow and not having cash flow. But in other markets, it's better to wait because we know that there's demand there, and we write the lease contract over 5 or 7 years, and we don't want to lock in a too low rent level obviously. So again, a boring answer, I understand that, but it's really on case by case, depending actually on the particular building we are looking at, not dependent on the particular market or asset class. It's really on case by case. And that's one of the things we've really been talking about here since back to basics that we really need to have smart thinking about every premises we have within the portfolio. Paul May: Yes. I mean similar to what we're seeing in other markets. As you say, it's very asset specific, not necessarily market or submarket specific. Just a final one. You mentioned Entra is not hurting, but just looking at their reporting, vacancy has been increasing and its earnings yield is much lower than your earnings yield. So you could argue that capital would be better spent selling Entra and basically buying back your shares. You announced obviously the share buyback today. I just wondered how you think about that and where the comment around Entra is not hurting us, it's benefiting us when actually if you look at the numbers, you could argue the opposite that it would be better to rotate that capital elsewhere? Pal Ahlsen: I would agree to some extent to what you're saying that we could probably -- if we had the cash, use it wisely as well, not just having it in Entra. Entra is also in the market where demand has fallen a bit compared to as it was before, but not as much perhaps as in Stockholm or Copenhagen. So I was tilting more towards that when I said that Entra is not hurting us at least. Paul May: Okay. So the underlying market is a bit better positioned than some of your other markets? Pal Ahlsen: I would say so, yes. Christoffer Stromback: Next question, [ James ] from Green Street. Unknown Analyst: You mentioned some one-off costs associated with canceling projects. Would you possibly be able to let me know if the number of projects canceled was higher than usual, maybe what the nature of these projects was? How much CapEx was associated with this? And then maybe how or why you made the decision to cancel these projects? Christoffer Stromback: I mean that was early stage ones. That is, of course, something that is -- we are always doing sort of going through actually every quarter. But then, of course, sometimes you put it more on a spot, not any specific areas or more business as usual, a little bit higher than usual. Next question, Fredric Cyon, DNB. Fredric Cyon: I have 2 follow-ups on the transaction market comment you made earlier, Pal, where you alluded to a relatively strong market on the sort of back of cheap financing. So the first one is, are you able to call out any specific segments in your current portfolio, which might be up for sale and where you believe interest would be high in the market? And secondly, looking at the transaction market and the interest and your decision to do share buybacks today, do you believe it is possible to find sort of acquisitions of decent volume or size in the direct market, which are more attractive than your own share at this moment? Pal Ahlsen: Thank you. I think the transaction market, as I said, it's driven now by a lot of funding being available to low spreads. So that's the main driver. But also, I think there's been a couple of years where companies has not done that many transactions, and that's also driven up demand a bit. They see potential now for restructuring their portfolios. If there are any specific parts of our portfolio, which has extra interest from potential buyers, I can -- no, I can't really say that at this stage, actually. No, we have lots of discussions with people, and it's a broad palette of different types of discussions, I would say. And I have to ask you to repeat the other questions. Fredric Cyon: Yes, sure. So the second one is on the back of your decision to do share buybacks and the current discount to NAV and the transaction market today, do you believe it is possible to find acquisitions in the direct market, which is -- which are more attractive than your own share? Christoffer Stromback: Possible, but difficult. Thank you, Fredric, and that was actually the last question for today. So thank you all for listening, and have a great day.
Operator: Greetings, and welcome to the TPG RE Finance Trust, Inc. Fourth Quarter and Full Year 2025 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Press 0 on your telephone keypad. A reminder, this conference is being recorded. It is now my pleasure to pass it off to our host, Dan Cassell. Thank you. You may begin. Good morning, and welcome to the TPG RE Finance Trust, Inc. earnings call for 2025. Dan Cassell: Today's speakers are Doug Bouquard, Chief Executive Officer, and Brandon Fox, Interim Chief Financial Officer and Chief Accounting Officer. Doug and Brandon are joined by Ryan Roberto, Head of Capital Markets and Asset Management. Doug and Brandon will provide commentary regarding the company, its performance, and the general economy, and will answer questions from call participants. Yesterday afternoon, we filed our Form 10-K, issued a press release, and shared an earnings supplemental, all of which are available on the company's website in the Investor Relations section. This morning's call and webcast are being recorded. Information regarding the replay of this call is available in our earnings release and on the TRTX website. Recordings are the property of TRTX and any unauthorized broadcast or reproduction in any form is strictly prohibited. This morning's call will include forward-looking statements which are uncertain and outside of the company's control. Actual results may differ materially. For a comprehensive discussion of risks that could affect results, please see the Risk Factors section of the company's Form 10-K. The company does not undertake any duty to update our forward-looking statements or projections unless required by law. We will refer during today's call to certain non-GAAP financial measures which are reconciled to GAAP amounts in our earnings release and our earnings supplemental, both of which are available in the Investor Relations section of our website. Now I will turn the call over to Doug. Good morning, everyone, and thank you for joining the call. Doug Bouquard: The broader economic backdrop continues to provide a solid foundation for investment activity within the real estate sector. With dislocation in certain parts of the corporate credit market appearing, we are observing a marginal trend of capital allocation oriented towards real estate credit. As we have observed at the start of the year, the combination of increased dry powder, a 10-year Treasury hovering just above 4%, and favorable real estate fundamentals should be drivers of continued growth investment activity for TRTX. Increased transaction volume is the essential catalyst to price discovery; as more real estate assets trade, investors can more clearly triangulate where valuations have reset, replacing speculation with hard market-clearing data. While we are almost four years removed from when the Fed began hiking rates, this price transparency forms the backdrop for what is shaping up to be an incredibly active year for both borrowers and lenders. 2025 was an important turning point for TRTX. We closed $1,900,000,000 of new investments, drove 25% year-over-year growth in earning assets, and generated distributable earnings of $0.97 per share, which outearned our dividend for the year. Furthermore, we were able to achieve this while maintaining stable risk ratings, further diversifying our liability structure, and ending the year with a 100% performing loan portfolio. From a recent investment perspective, the fourth quarter was incredibly active with $927,000,000 of new loans closed consisting of 62% multifamily and 38% industrial collateral, two thematic sectors that we continue to target. As a testament to the strength of our franchise, this quarter's investment activity was not only one of the most active quarters we have had since the company's founding, but over 90% of our new originations were with repeat borrowers. This demonstrates our deep relationships within the real estate ecosystem, further enhanced by the depth and breadth of TPG's real estate debt and equity investment platform. Capital markets velocity remains healthy on our balance sheet, as we received just under $1,000,000,000 of repayments this past year. Driven by the robust volume of newly originated loans in 2025 and the repayment of older vintage loans, our balance sheet has undergone a substantial evolution. For context, at the beginning of 2022, 30% of our balance sheet was exposed to multifamily and industrial collateral, whereas today, we have increased our combined exposure to those sectors to over 72% of our current balance sheet. In recent years, we have been able to accomplish transformation toward newer vintage loans while generating consistent earnings and maintaining a steady credit profile. From a liability perspective, we continue to grow our lender relationships, optimize our existing capital structure, and are fortunate to have recently issued two CRE CLOs in 2025, which afford the company ample reinvestment capacity over the next two years at an attractive cost of funds. While we are proud that 2025 was a year where we delivered on our strategic goals, we remain laser-focused on continuing to build on the success in 2026. With the insights of TPG's real estate investment platform, combined with a stable balance sheet and an attractive opportunity set, we are confident in our ability to deliver continued strong performance. Tactically, we plan to continue to pull the many levers for growth at our disposal, which include continued net asset growth through prudent investment and risk management, increasing our leverage ratio towards our target of full investment, and utilizing untapped liquidity. In summary, the offensive posture we were able to embrace this year is a direct result of the strategic approach we laid out years ago. Our performance in 2025 has set a high bar, and we enter 2026 with the capital, the team, and the momentum to continue to drive value for our shareholders. With that, I will turn the call over to Brandon to discuss our financial results in more detail. Thank you, Doug, and good morning. Brandon Fox: For 2025, TRTX reported GAAP net income Doug Bouquard: of $200,000. Distributable earnings for the quarter was $18,500,000 or $0.24 per common share. For the full year ending 12/31/2025, TRTX reported GAAP net income of $45,500,000 or $0.57 per share Christopher Muller: and distributable earnings of $76,800,000 or $0.97 per common share, a 1.01 times coverage ratio of our annual dividend of $0.96 per share. We have covered our common stock dividend for each of the last two years. Book value per common share decreased quarter over quarter to $11.07 from $11.25. Our net asset growth during 2025 continues to reflect our focus on allocating capital to new loan investments and actively managing our portfolio. For the full year 2025, we originated 20 loans with total commitments of $1,900,000,000 at a weighted average credit spread of 2.82% and received loan repayments of $987,900,000, including full loan repayments of $931,500,000 on 15 loans where the underlying collateral was 64% multifamily, 20% hotel, 14% office, and 2% industrial. Year over year, we grew our net assets from $3,300,000,000 to $4,100,000,000, or 25%. At year end, our loan portfolio was 100% performing. Our weighted average risk rating for the loan portfolio is unchanged at 3.0. During the quarter, we upgraded two multifamily loans from a risk rating of 3 to 2 based on their continued strong operating performance and downgraded one multifamily loan from a risk rating of 3 to 4 due to operational challenges in the quarter. This loan represents approximately 1% of our total loan commitments at year end. Our CECL reserves slightly increased quarter over quarter to 180 basis points compared to 176 basis points at September 30. We ended the quarter with near-term liquidity of $143,000,000 consisting of $72,600,000 of cash on hand available for investment net of $15,000,000 held to satisfy liquidity covenants, undrawn capacity under secured financing arrangements of $51,400,000, and CRE CLO reinvestment proceeds of $4,000,000. Additionally, we held unencumbered loan investments with an aggregate unpaid principal balance of $127,100,000 that are eligible to pledge under our existing financing arrangements. The company's liability structure is 82% non-mark-to-market, an increase of 6% from 77% at 12/31/2024. Year over year, our cost of funds declined 18 basis points, or 9%, from 2.00% to 1.82%. The continued improvements to our liability structure in 2025 are primarily due to the issuance of our two CRE CLOs, TRTX FL6 and FL7, totaling $2,200,000,000. Total leverage increased quarter over quarter to 3.02 times from 2.64 times as a result of our substantial loan origination volume in the current quarter. At year end, we had $1,600,000,000 of financing capacity available to support loan investment activity and we were in compliance with all of our financial covenants. With that, we welcome your questions. Operator: Thank you. We will now conduct a question-and-answer session. If you would like to ask a question, please press 1 on your telephone keypad. You may press 2 to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before the star keys. Once again, that is 1 to ask a question at this time. First question comes from Christopher Muller with Citizens Capital. Please proceed. Christopher Muller: Congrats on a really strong quarter here. Dan Cassell: So it looks like only one close, one loan Gabe Poggi: closed so far in the first quarter. Do you guys expect origination to slow a little bit in the first quarter? Or will it be more just like later closing past February? And how are you guys thinking about the pace of originations in 2026 Doug Bouquard: or of the quarter rather. And frankly, a lot that did actually occur as well within Q4 for us where we had the bulk of our payoffs in Q4 happen, frankly, closer to the first month of the quarter, and then the bulk of our new fundings occurred really in the last month of the quarter. So we do see that trend continuing. Secondly, as it relates to pipeline, look, our pipeline is incredibly robust. We are seeing a lot of activity across all property types, all regions; a number of our borrowers, including repeat borrowers, have been very active. So I think that from a pacing and investment perspective, I do feel really positive about this year. I mentioned in my remarks that there are a lot of components that are driving that. I would say we are still seeing a lot of those kind of peak-of-the-market purchases from 2021 and 2022; many of those five-year loans are now in some stage of either coming due. When you combine that with the fact that a number of borrowers have generally not sold those assets yet, they are generally coming to us for typically a new financing, in some cases requiring cash in. So I think it is really a combination of a lot of those five-year loans coming due from when there was tremendously high activity. Then I think this year, what has been happening is, if you just look from a macro perspective, there is a little bit more clarity around the path of rates. You have got a 10-year hovering around 4%. And, all in all, credit spreads are relatively accommodative. So I do feel like that is pretty much a recipe for a very active year for us. Gabe Poggi: Got it. So it sounds like the origination volumes in April are not really showing up in interest income yet, which is really good to hear. I guess the other question I have here is it looks like spreads on new loans are about 50 basis points below the portfolio average. Do you expect that type of drop-off on spreads for new loans to continue? And is that due to market competition or more so the type of assets you guys are originating? Doug Bouquard: Yeah. I think it is a combination of really a few things. I would say, first, we have been very concentrated within multifamily and industrial and we have been keeping our LTVs in that sub-65% loan-to-value range. I would say, second, although loan spreads, particularly in the fourth quarter, were a touch tighter than prior quarters, we have seen our cost of funds really rapidly move in line, and that has really been the story the entire year, which is although loan spreads have come tighter, the demand and competition to provide us back leverage continues to be incredibly robust. We saw that both in the closing of our series CLO in Q4 with a weighted average cost of funds of about 1.67%, but then also what is maybe less obvious is the number of bank relationships that we have across the broader TPG franchise that are, I would say, incredibly aggressive right now in terms of leaning into providing us back leverage. So I think all of that has resulted in, despite loan spreads being a touch tighter, our ROE generated is generally static relative to prior quarters. Gabe Poggi: Got it. Appreciate you guys taking the questions, and congrats again on a really solid quarter. Doug Bouquard: Absolutely. Thanks a lot. Operator: The next question comes from Gabe Poggi with Raymond James. Please proceed. Dan Cassell: Hey, good morning, guys. Thanks for taking the question. Can you just talk about target leverage again? I know you are at 3x Gabe Poggi: right now. Just remind us of kind of the ballpark comfort zone you would like to be as we go through the course of 2026. And then just a follow-up, I will give it to you now, is Operator: I know that Doug Bouquard: for an REO is not a lever you need to pull. You have optionality there. But any color you can provide on the REO assets at TRTX at the asset level and how you are thinking about Gabe Poggi: those assets as the year progresses, especially if transaction volume picks up. Operator: Thanks. Doug Bouquard: Yes, sure. Absolutely. So I think first from a leverage perspective, I would say, right now, we are really targeting that 3.5 to 3.75 to 1 range as a target. I think that once we get to that point is where we will, likely, pause, but I feel like that gets us to what I would describe as close to fully invested. Operator: And then Doug Bouquard: secondly, from an REO perspective, last year, we sold two office assets. We do have some REO remaining. Gabe Poggi: But I think you said it well, which is that Doug Bouquard: when we think about levers to growth, we Christopher Muller: I would say, Doug Bouquard: prioritized getting fully invested given the opportunity set, and you are seeing us do that quarter by quarter. In terms of the REO, we do feel like this year is going to be a relatively attractive year to be continuing to sell down that REO. So you will see further progress out of us on our REO portfolio throughout the year. Operator: Thanks, guys. Thank you. The next question comes from Richard Barry Shane with JPMorgan. Please proceed. Doug Bouquard: Hey, guys. Thanks for taking my questions this morning. I have two actually. First is actually, I am going to have to get this right after REO. On ROE, your returns right now are about Operator: call it, Doug Bouquard: SOFR plus 5%. I am curious when you think about the business model Operator: long term, Doug Bouquard: what do you think the appropriate ROE target is as a function of a spread to SOFR. Yeah. Look. I mean, I think that we have generally been able to achieve an ROE in excess of that. And I think that Dan Cassell: when Doug Bouquard: we look at the ROE for a, frankly, lending business that does require some amount of back leverage, I think that really as the health of the back leverage market continues, frankly, it makes our business model incredibly relevant in the market. And so when I think about the longer-term trends, I mean, I think, again, that that 500 number is not too far off from what I would think these businesses, frankly, should look like. I think that when you zoom out more broadly, and obviously, you are hitting on a pretty kind Operator: topical area. Doug Bouquard: You know, real estate credit has been going through a pretty interesting evolution, frankly, over the last decade or two. And that evolution has been a combination of banks pulling back, agencies growing in the space, and then also all the nonbank lenders. We, of course, being one of those nonbank lenders and having a large platform. So when we think about the evolution of real estate lending and real estate credit, we as a platform are very much on the tip of the spear in terms of where that market evolves here. But, again, when I think about what is really driving a lot of the nonbank lending activity, I think that the sort of inside baseball does relate to the regulatory capital regime that is orienting banks towards back leverage. And I think that, again, is something that we are very focused on. And, again, that seems to be a trend that continues to grow. Got it. Okay. And then second question, and it is related. Obviously, there has been a significant transaction in the space with Apollo planning to sell their assets. You guys are ex—well, I would describe that in terms of sort of the continuum of recovery, you guys are very much on the front end of that or leading edge of that, I should say. And your stock is still trading at a, call it, 20% discount to book. I am curious how you think you can close that value gap or does it, you know, is the ARI transaction an indication that at least one sophisticated player in the space is not convinced that that is going to happen for the sector. Look, I mean, I think, you know, first thing, we have set a very clear record around maximizing shareholder value and have been incredibly clear about our strategic goals, and we look back about what we achieved last year and seek to achieve this year. I think that we are well on our way of closing that gap, and that is a big focus for us. I think, too, when I think about the ARI transaction and just other flows in the market, I can say that TPG broadly as a platform is constantly evaluating opportunities, and we are always looking for ways to maximize shareholder value to be creative. Obviously, the firm has a multiple-decade background in platform acquisition and being thoughtful around organic and inorganic growth. I can tell you that we are always thinking about it, and we are going to continue to be searching for opportunities to basically scale and grow. Got it. Look, I realize that is a tricky question, and I appreciate the answer very much. Thanks, Doug. Operator: Yep. Thank you. Thank you. The next question comes from John Nickodemus with BTIG. Please proceed. Doug Bouquard: Hi. Good morning, everyone. Most of my questions have been asked already, but I have one more for the team here. Industrial exposure. Notice that that has gone up a bunch, highlighted it in the prepared remarks. I believe you mentioned, 72% of the book is now in either multifamily or industrial. How are you thinking about target levels for industrial; should we expect to see that continue to rise, just sort of that trend over the course of 2026? Any details you could provide there would be great. Thank you. Yeah. Sure. I am happy to cover that. Obviously, we have mainly grown our industrial exposure from a few years back, frankly, less than 5% generally, and now we are just under 20%. One thing about an appropriate target level: it is probably somewhere in that 25% to 30% range would be an area where I think that perhaps we touch the brakes a little bit. But right now, what we are seeing is, again, as I mentioned, there are many transactions that were done over the last three to five years where there is some amount of recapitalization needed. So we still look at multi and industrial together as sectors that we think we can—you know, we have a particular edge in. Specific to industrial, across our platform we have been an owner of industrial assets. We have a lot of intelligence across the entire market around valuation, leasing activity, and otherwise. So we do feel like we as a platform have a bit of an edge relative to most of the lenders, given the depth and breadth of our franchise. But, again, I think you will see marginally more growth with industrial over time. And, I think as we get to that 25% range, we will, of course, assess and take our views of the market at that juncture. Dan Cassell: Great. Doug Bouquard: Appreciate the color, Doug. That is all for me. Operator: Thank you. There are no further questions in queue at this time. I would like to turn the floor back to management for closing comments. Doug Bouquard: Yes. Just want to thank everyone for joining the call today, and we look forward to keeping you updated on our progress. Have a great day. Operator: Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.
Operator: The Charles River Laboratories International, Inc. Fourth Quarter and Full Year 2025 Earnings Conference Call. This call is being recorded. After the speakers' presentation, there will be a question and answer session. To ask a question during this period, you will need to press star 1 on your telephone keypad. If you want to remove yourself from the queue, please press star 2. Lastly, if you require operator assistance, please press 0. I would now like to turn the conference over to your host, Todd Spencer, Vice President of Investor Relations. Please go ahead. Todd Spencer: Good morning, and welcome to Charles River Laboratories International, Inc. Fourth Quarter and Full Year 2025 Earnings and 2026 Guidance Conference Call and Webcast. This morning, I am joined by James C. Foster, Chair, President and Chief Executive Officer; Birgit H. Gershick, Executive Vice President and Chief Operating Officer; and Michael “Mike” Nau, Senior Vice President, Interim Chief Financial Officer, and Chief Accounting Officer. They will comment on our results for 2025, as well as our financial guidance for 2026. Following the presentation, they will respond to questions. There is a slide presentation associated with today's remarks we posted on the Investor Relations section of our website at ir.criver.com. A webcast replay of this call will be available beginning approximately two hours after the call today and can also be accessed on our Investor Relations website. The replay will be available through next quarter's conference call. I would like to remind you of our safe harbor. All remarks that we make about future expectations, plans, and prospects for the company constitute forward-looking statements under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated. During the call, we will primarily discuss non-GAAP financial measures which we believe help investors gain a meaningful understanding of our core operating results and guidance. The non-GAAP financial measures are not meant to be considered superior to or a substitute for results of operations prepared in accordance with GAAP. In accordance with Regulation G, you can find the comparable GAAP measures and reconciliations on our Investor Relations section of our website. I will now turn the call over to James C. Foster. Thank you, and good morning. As Todd mentioned, I am pleased to be joined today by Birgit H. Gershick, who will become our next CEO when I retire in May, as well as our Interim CFO, Mike Nau. Birgit will provide an overview of our 2026 guidance and the key drivers behind our outlook. But before I hand the call over to her, I will provide details on fourth quarter and full year 2025 financial results, as well as an update on our latest developments and market trends. James C. Foster: We were pleased that our 2025 financial results were at the upper ends of the revenue and non-GAAP earnings per share ranges that we provided in November. Beyond our financial results, the fourth quarter capped a year that was marked by the stabilization of the biopharma demand environment, including substantial improvements in DSA net bookings, particularly during the first and fourth quarters. We also advanced several strategic initiatives that will enable the company to better capitalize on future growth opportunities and renewed our focus on scientific innovation that will reinforce our position as the leader in preclinical drug development. At different points during 2025, demand from both global biopharmaceutical clients and small and mid-sized biotechnology clients showed signs of improvement. Many of our global biopharma clients progressed through their pipeline reprioritization activities and, after holding back spending in 2024, moved their programs forward with more urgency when new budgets were released in early 2025, which led to strong DSA bookings at the start of last year. The biotech funding environment slowed in 2025, and we subsequently experienced softer demand trends from our small and mid-sized biotech clients during the summer months. However, with a reinvigorated funding environment in the second half of the year, including a record level of $28,000,000,000 in the fourth quarter, biotech clients were the primary driver behind a steady sequential increase in the DSA net book-to-bill in each month during the second half of the year. As we disclosed at an investor conference last month, the DSA net book-to-bill improved to 1.1 times in the fourth quarter. Taking these factors into account, we are cautiously optimistic that the favorable DSA demand trends will continue in 2026, resulting in a return to organic revenue growth in the second half of the year for both the DSA segment and the overall company. We have also made substantial progress on the strategic actions that we outlined in November to unlock long-term shareholder value, including strengthening and refining our portfolio, driving greater efficiency, and maintaining a balanced yet disciplined approach to capital deployment. Strengthening our portfolio, in January, we announced the planned acquisitions of the assets of KF Cambodia and PathoQuest. Both of these acquisitions are squarely aligned with our core competencies and are the result of lengthy, successful partnerships. KF, the acquisition of which has already closed, has been a long-time NHP supplier in Cambodia and will further strengthen and secure our DSA supply chain. We expect it will generate meaningful operating margin improvement starting later this year through significant cost savings on NHP sourcing. Between KF and NovoPrim, we expect to own and internally source most of our future annual NHP supply requirements for the DSA segment. We continued to advance our NAMS capabilities with the planned acquisition of PathoQuest, which is expected to close within the next month. The company has been a partner of our biologics testing business since 2016 and provides an in vitro approach to manufacturing quality control testing for biologics. The KF and PathoQuest acquisitions are excellent examples of capital deployment in core areas that will enhance our financial profile and advance our scientific capabilities as we endeavor to capture greater share of wallet from our clients. We will continue to evaluate additional M&A, including in the areas of bioanalysis and geographic expansion, in order to support our clients as they seek to drive greater efficiency and success in their drug development programs. We are also focused on continuing to build our NAMS portfolio, or new approach methodologies, in areas that are most relevant to clients and scientific needs. We believe we have already established a solid foundation of NAMS capabilities, including our Retrogenix cell microarray platform for off-target screening and toxicity, our development of virtual control groups for safety assessment studies that utilize machine learning and other techniques, and most recently, PathoQuest’s innovative next-gen sequencing platform. We are excited about current and future applications for NAMS and related innovations, including AI, and we view these as enabling technologies to support the work that we do and as complementary to it. NAMS, including AI, has promise, but it still has challenges with data availability and proof of concept. So it will be a gradual longer-term evolution led by science and the validation of new capabilities over time, particularly in a regulated safety assessment environment where patient safety is paramount. Since we began to discuss NAMS in more detail last spring, there have not been any significant technological changes in drug development, and we have not experienced any notable changes in client behavior, other than more frequent conversations about NAMS. We also continue to make progress on our plan to divest businesses totaling approximately 7% of 2025 annual revenue. These processes and negotiations with potential buyers are ongoing, and we continue to expect the planned divestitures will be completed by 2026. Assuming all transactions are completed, the expected non-GAAP earnings per share accretion of $0.30 on an annualized basis from the planned divestitures will be less for the partial year 2026, or closer to $0.10 per share, because of expected improvements in the operating performance of these businesses throughout the year. Now I will recap our fourth quarter and full year consolidated performance. We reported revenue of $994,200,000 in the fourth quarter of 2025, a 2.6% decline on an organic basis from the previous year, with revenue declines in all three business segments. For the full year, we reported revenue of $4,020,000,000 with an organic revenue decrease of 1.6% driven primarily by lower revenue in the DSA and Manufacturing segment. By client segments, sales to both the global biopharma and small and mid-sized biotech client segments declined modestly for the full year. In the fourth quarter, sales to global biopharma clients rebounded meaningfully versus the prior year, as these clients got back to work after pulling back on spending in 2024. Sales to small and mid-sized biotech clients decreased modestly in the fourth quarter, largely reflecting softer DSA bookings during the summer months. As a reminder, there is a natural lag between when DSA studies are booked and when they start and begin to generate revenue. Therefore, it will take one to two quarters to see the benefit of the stronger fourth quarter bookings. The operating margin decreased 180 basis points year over year to 18.1% in the fourth quarter, principally driven by three anticipated factors: lower revenue; higher staffing and NHP sourcing costs in the DSA segment; and the timing of NHP shipments in the RMS segment. For the full year, the operating margin declined by just 10 basis points to 19.8%, as the cost savings from restructuring and efficiency initiatives helped to protect the operating margin, which has been our stated goal. Earnings per share were $2.39 in the fourth quarter, a decrease of 10.2% from $2.66 in the fourth quarter of 2024. In addition to the lower operating margin, the tax rate was also a meaningful year-over-year headwind in the fourth quarter. For 2025, earnings per share were nearly flat at $10.28 compared to $10.32 in 2024, as lower revenue was largely offset by the benefit of the cost-saving initiatives. Below-the-line items largely netted out, with the higher tax rate in 2025 primarily offset by lower interest expense and a lower share count from stock repurchases earlier in the year. I will now provide additional details on the segment performance. DSA revenue in the fourth quarter was $591,600,000, a decrease of 3.3% on an organic basis. The decline reflected lower study volume, particularly for discovery services, while DSA pricing and mix were relatively stable. For the year, DSA revenue decreased 2.6% on an organic basis. As a result of client demand, we experienced a meaningful increase in revenue from NHP studies, resulting in an increase in the number of NHPs used in these studies in 2025, for which additional information can be found in the appendix of our slide presentation. These trends reflect our clients' continued reliance on traditional in vivo methods to help ensure drug safety, even as we and our broader industry continue to evaluate uses for NAMS and further expand our capabilities. We experienced a higher number of NHP study starts in the fourth quarter, and this trend is expected to continue into the first quarter. As we mentioned in November, the higher-than-expected NHP study demand led to increased NHP sourcing costs in the fourth quarter and will again in the first quarter. However, due in part to the acquisition of KF, we expect NHP sourcing costs will normalize over the course of the year. As we previously disclosed, DSA demand KPIs improved in the fourth quarter, led by net book-to-bill of 1.12x on net bookings of $665,000,000, representing a meaningful increase from 0.82x in the third quarter. The sequential improvement was principally driven by small and mid-sized biotech clients, while global biopharma clients also contributed with both sequential and year-over-year bookings increases. Proposal value continued to be stable to improved in the fourth quarter as it was for most of the year, and cancellations remained at lower levels consistent with the third quarter. At year end, the DSA backlog modestly improved to $1,860,000,000 from $1,800,000,000 at the end of the third quarter. Collectively, these trends lead us to believe that the favorable DSA demand environment will continue in 2026. However, it is important to note that this improvement may not be linear, as demonstrated in 2025, and also that fourth quarter and more recent bookings activity will not more fully benefit DSA revenue growth until the second quarter, due to the normal lag between booking and study start. The DSA operating margin was 20.1% in the fourth quarter, a 460 basis point decrease from 2024, and was 24.2% for the full year, representing a 150 basis point decline year over year. Both the fourth quarter and full year declines were driven by lower revenue and higher costs related to increased NHP sourcing costs and study starts in the fourth quarter, as well as higher staffing costs as we had previously anticipated. RMS revenue in the fourth quarter was $206,300,000, a decrease of 0.9% on an organic basis. For the year, RMS revenue increased 1.2% on an organic basis. The fourth quarter decline was primarily driven by two factors: lower NHP revenue and lower sales volume from small models in North America. NHP revenue was impacted by the timing of certain shipments which, as previously noted, had been accelerated to earlier in the year. In the small research models business, lower sales volume in North America reflected that in-house research activity by large pharma and mid-sized biotech clients has not fully recovered. Revenue from academic and government accounts remained very stable, but the growth rate has slowed compared to prior year due in part to the uncertainty with NIH budgets. Small model pricing in North America and Europe continued to be a positive contributor to RMS revenue and in Europe is offsetting the expected volume declines. In China, small model unit volume continued to grow nicely. Revenue from research model services increased in the fourth quarter, but occupancy for our CRADL sites remained impacted by the early-stage biotech market environment. The RMS operating margin decreased by 90 basis points year over year to 21.9% in the fourth quarter, but increased by 110 basis points to 24.8% for the full year. The fourth quarter margin was primarily impacted by lower revenue for small models in North America and an unfavorable revenue mix due to the timing of NHP shipments. For the year, the operating margin improvement was primarily due to a favorable mix related to higher NHP revenue as well as cost savings related to our restructuring initiatives. Manufacturing Solutions revenue was $196,400,000 for the fourth quarter, a decrease of 2.1% on an organic basis, and full year revenue declined 1.6% organically. The lower fourth quarter and full year growth rates were primarily driven by lower CDMO revenue, principally the result of the loss of one commercial cell therapy client whose revenue declined by nearly $25,000,000 in 2025. Microbial Solutions had a strong year, with growth across all three testing platforms, EndoSafe, Celsis, and Accugenix. However, year-end client ordering patterns were not quite as robust as last year, which caused the fourth quarter growth rate to slow. We were pleased to see the performance of the biologics testing business modestly improve and return to growth in the fourth quarter after a year that was impacted by lower sample volumes from several large clients due to project delays or regulatory challenges. The Manufacturing segment's operating margin increased by 340 basis points to 32.1% in the fourth quarter and by 140 basis points to 28.8% for the full year. We were pleased that the segment's operating margin continued to improve and move closer to the 30% level in 2025, driven principally by a solid performance from the Microbial Solutions business as well as restructuring actions to generate incremental cost savings including in the CDMO business. Before I hand the call over to Birgit to discuss our 2026 guidance, I would like to take a moment to reflect on my long and fulfilling career at Charles River Laboratories International, Inc. As many of you know, in January, I announced my planned retirement effective at the conclusion of our annual meeting of shareholders on May 5, but I am pleased to remain on our Board. Leading the extraordinary team at Charles River Laboratories International, Inc. as CEO for more than thirty years has been a profound experience and one of the greatest privileges of my life. Together, we built an industry leader with a culture shaped by our remarkable people, a strong and supportive workplace, and world-class science, all of which has enabled us to deliver meaningful outcomes for our clients and patients who rely on us. While I am proud of our accomplishments from taking the company public on the New York Stock Exchange to transforming Charles River Laboratories International, Inc. into a global leader in preclinical drug development, then becoming a respected member of the S&P 500, I am most proud and appreciative of the relationships that I have built over the last five decades with my colleagues, our clients, and all of you, our shareholders and analysts. I sincerely thank you. We have made tremendous progress over the last twelve months, ranging from NAMS and NHP supply to the biopharma demand environment and our strategic review, making this the right time to transition the company into its next chapter. I am delighted that Birgit H. Gershick will become our next CEO, and it will be in her capable hands to drive forward Charles River Laboratories International, Inc.’s strategic direction, future growth, and operational excellence for many years to come. Birgit has played an instrumental role as COO for nearly five years, leading our global businesses, guiding our digital evolution, and most recently, driving our strategic vision. I have worked closely with Birgit for many years and have the utmost confidence in her leadership abilities. I will continue to work closely with her in the coming months to ensure a seamless transition. As I sign off on my final earnings call, I would like to thank our employees profoundly for their exceptional work and commitment. It is their dedication to exquisite science and exceptional client service that has distinguished us as the preeminent provider of preclinical services. And always, I thank our clients and shareholders for their support over the years. Now I will introduce our next CEO, Birgit H. Gershick, who will provide details on our 2026 financial guidance. Operator: Good morning, everyone. First, I want to sincerely thank you, Jim, Birgit H. Gershick: for the tremendous mentorship and close partnership you have provided over the years to prepare me for this incredible opportunity and also for your significant contributions to build the company into the industry leader that we are today. I also want to thank and acknowledge our Board of Directors for the trust that they have placed in me. I am deeply honored to become Charles River Laboratories International, Inc.’s next CEO and am committed to building upon the solid foundation that Jim has established. With a talented team at Charles River Laboratories International, Inc., we will continue to work tirelessly to lead the industry, to accelerate the progress we have made in scientific innovation, to advance drug development through our best-in-class science and client service, and by continuing to focus on ensuring the company remains leading edge with world-class processes, a client-centric service offering, and technology enablement. I am very excited to be leading Charles River Laboratories International, Inc.’s next phase of growth. I will now provide details on our 2026 financial guidance and the improving trends that we expect. Organic revenue in 2026 is expected to range from down 1% to at least flat, compared to a 1.6% decline in 2025. We expect the operating margin will improve by 20 to 50 basis points from 19.8% in 2025, driven principally by the benefit from the acquisition of the assets of KF Cambodia. This is expected to translate into non-GAAP earnings per share in a range from $10.70 to $11.20, representing growth of approximately 4% to 9%. We continue to expect that the acquisition will add approximately $0.25 to earnings per share this year, which has been embedded in this guidance. By segment, we expect RMS revenue to decline at a low- to mid-single-digit rate on an organic basis in 2026. There are two primary factors driving the decline. First, NHP revenue is expected to be below 2025 levels and represents an approximate 200 basis point headwind to the RMS growth rate. This is primarily due to the timing of shipments, which favored 2025 and will have a particularly significant impact on the year-over-year comparison in 2026. A reduction in NHP volume commitments to certain third-party clients will also affect the growth rate. The other meaningful RMS headwind in 2026 will be CRADL occupancy levels, which are expected to continue to be constrained as demand from early-stage biotech clients remains subdued. Global revenue for small research models is expected to be flat to slightly higher in 2026, as unit volume declines, particularly in North America, will continue to be offset by favorable pricing. We expect DSA revenue will be in a range between slightly positive and a low single-digit decrease on an organic basis in 2026. As Jim discussed, we are cautiously optimistic that the favorable DSA demand trends will continue in 2026, supported by the recent improvement in biotech funding. We believe the strong bookings performance at the end of 2025 and a continuation of favorable trends this year will result in a return to DSA organic revenue growth in 2026. In order to achieve the top end of our DSA revenue outlook for the year, it would require continued momentum in the bookings environment, resulting in the net book-to-bill averaging above one times for the year. This does not mean that every quarter will be above one times, as our business is not linear, and factors like backlog conversion and the timing of bookings or study starts also heavily influence the DSA growth potential. For the Manufacturing segment, we expect the organic revenue growth rate will rebound to a low single-digit increase this year. This favorable outlook compared to a 1.6% organic decline last year principally reflects the anniversary of the loss of a commercial cell therapy client whose program generated about $20,000,000 in CDMO revenue during 2025. Microbial Solutions is expected to report a growth rate in the mid-single digits similar to its 2025 levels, and we expect that some of the client-specific challenges that impacted the biologics testing growth rate last year will be alleviated, resulting in a slightly better performance in 2026. Moving on to operating margin. We expect that the DSA segment will be the primary driver of the 20 to 50 basis points consolidated margin improvement in 2026. As previously mentioned, the margin expansion will largely be driven by the acquisition of KF, as lower sourcing costs to procure NHPs to support DSA studies will generate meaningful margin improvement in the second half of the year once the models sourced post-acquisition begin to be placed on studies. For the year, we expect KF acquisition will benefit the operating margin by more than 50 basis points on a consolidated basis and by more than 100 basis points in the DSA segment. We expect the RMS and Manufacturing operating margins will be stable in 2026. From an earnings perspective, we expect most of the earnings per share improvement in 2026 will be generated from operations, driven by margin expansion. We expect to generate at least $100,000,000 in incremental cost savings above the 2025 level to help protect the operating margin because revenue growth will not offset the level of annual cost inflation this year. As we discussed in November, the incremental savings will be primarily driven by initiatives designed to drive greater operating efficiencies through process improvement, procurement synergies, and implementation of an integrated global business services approach. As a reminder, we now expect to generate a cumulative total of over $300,000,000 in cost savings on an annualized basis based on actions that we implemented over the last three years. I have personally led many of the company's efforts to reduce costs through restructuring and efficiency initiatives designed to keep our cost structure aligned with the pace of demand and to drive process improvement. I will continue to focus on streamlining our processes and ensuring we operate a nimble, responsive, and technology-enabled organization going forward. In addition to significant cost savings and the $0.25 per share benefit from the KF acquisition this year, below-the-line items are expected to contribute more than a $0.30 benefit at midpoint to 2026 earnings per share, principally driven by a lower tax rate. We expect the first quarter operating margin will be in the mid-teens pressured by a few discrete factors, including an unfavorable mix from the timing of NHP shipments in the RMS segment, the acceleration of stock compensation expense due to the CEO transition, and higher DSA costs primarily related to NHP sourcing and staffing. These factors are not expected to be a meaningful headwind beyond the first quarter, and we expect the operating margin will improve Operator: significantly thereafter. Birgit H. Gershick: Mike will provide additional details on our first quarter outlook as well as the below-the-line items shortly. Before I conclude, I am pleased to announce that we will be adding two experienced senior leaders to our team this spring. Glenn Coleman will join us on April 6 as Executive Vice President and Chief Financial Officer. Glenn is a seasoned financial leader and operationally oriented CFO with over a decade of experience in the healthcare industry. Glenn has over thirty years of strong financial and operational management experience and has been CFO for multiple public companies as well as a Chief Operating Officer with experience managing clinical, R&D, and manufacturing teams. I also would like to thank Mike Nau for his leadership of our finance organization during the CFO search. Mike will continue in his current position as Senior Vice President and Chief Accounting Officer and will play an instrumental role in the success of our organization. I am grateful for his dedication and commitment to Charles River Laboratories International, Inc. We are also pleased to have Carrie Daley join us on March 30 as Senior Vice President and Chief Legal Officer. Carrie brings twenty-five years of sophisticated legal experience to Charles River Laboratories International, Inc., and is an experienced leader that has been focused on advising multinational life science companies across complex regulatory environments. We are pleased that she will enable us to proactively manage our highly regulated, science-led organization by combining our legal, compliance, communications, government relations, security, and ESG initiatives under one leader. I look forward to welcoming and partnering with both Glenn and Carrie in the coming months. I would also like to reiterate my appreciation for being named Charles River Laboratories International, Inc.’s next CEO. It is an honor that I am proud to accept. I am firm in my commitment to drive forward the company's strategic direction and growth imperatives, including the actions that we outlined in November to enhance long-term shareholder value. Over the past five years and more, I have had the pleasure of meeting many of you at various investor conferences and related events. These interactions have provided valuable opportunities to exchange ideas and insights, which I look forward to continuing. I am eager to reconnect with those of you I have met previously, and for those whom I have not yet had the chance to meet, I look forward to doing so in the coming months. I am committed to maintaining open and transparent communication with our investor community and welcome the opportunity to introduce myself and discuss our vision for the future of Charles River Laboratories International, Inc. Now I will turn the call over to our Interim CFO, Mike Nau. Thank you. James C. Foster: Good morning, and thank you, Birgit. Michael “Mike” Nau: It has been an honor to lead our talented finance team for the last several months. I look forward to continuing to work closely with them and our new CFO to drive our future success. I would also like to thank you, Jim, and the Board for the opportunity to be Interim CFO. Before I begin, may I remind you that I will be speaking primarily to non-GAAP results, which exclude amortization and other acquisition-related adjustments, impairments, costs related primarily to restructuring initiatives, gains or losses from certain venture capital and other strategic investments, and certain other items. Many of my comments will also refer to organic revenue growth, which excludes the impact of acquisitions, divestitures, and foreign currency translation. Let me start by providing some additional details on our 2026 guidance. Birgit highlighted our organic revenue growth and non-GAAP earnings per share outlook. On a reported basis, we expect revenue will be between at least flat and 1.5% growth. FX is expected to be a tailwind as the US dollar has continued to weaken and is expected to benefit reported revenue by 1% to 1.5%. We also expect a small revenue benefit from PathoQuest once the acquisition closes later this quarter. We have provided additional information on FX rates and our current exposure in the appendix of our slide presentation. On slide 31, we have also provided the segment outlook for 2026, which includes reported and organic revenue expectations. As Birgit mentioned, we expect several headwinds to impact the first quarter operating margin and earnings per share. Our outlook for 2026 assumes revenue will be essentially flat to slightly negative on a reported basis and will decline at a low single-digit rate on an organic basis. By segment, the RMS growth rate will be negatively impacted by lower NHP revenue due primarily to the timing of shipments, which will have a nearly $10,000,000 impact on first quarter RMS revenue. The Manufacturing segment's growth rate will reflect the difficult year-over-year comparison with regard to commercial revenue in the CDMO business, which also has an approximately $10,000,000 impact on first quarter Manufacturing revenue. We expect the DSA rate of decline will improve slightly from second half 2025 levels, but as a reminder, the benefit from strong bookings activity in the fourth quarter will not yet be evident in DSA revenue in the first quarter. From a first quarter earnings perspective, we expect non-GAAP earnings per share will decline at a high-teens rate year over year. As Birgit mentioned, there are several discrete factors that will impact the operating margin in the first quarter, resulting in an operating margin in the mid-teens. The two primary factors are the timing of NHP shipments and higher stock compensation costs, due largely to an acceleration of the expense related to the CEO transition. Stock compensation is expected to approximate a $0.15 headwind to EPS in the first quarter. In addition, the DSA margin will continue to be pressured in the first quarter, as it was in the fourth quarter, by higher NHP sourcing costs due to higher-than-anticipated demand for these studies, as well as increased staffing costs. But these DSA headwinds are expected to dissipate after the first quarter. Normalizing NHP study-related costs due in part to the KF acquisition, improving demand trends, and the strong year-end bookings are expected to benefit revenue and generate sequential improvement in the DSA operating margin as the year progresses. I will now provide details on nonoperating items. Unallocated corporate costs in 2026 are expected to be similar to the 5.5% of total revenue reported in 2025. We expect unallocated corporate costs in the first quarter to be elevated due to the timing of stock compensation expense related to the CEO transition, but this does not have a meaningful impact on the full year. For the remainder of the year, we expect unallocated corporate costs to trend favorably because of the benefit from prior cost-saving initiatives, and performance-based bonus accruals are expected to be lower as targets are reset for the new year. The non-GAAP tax rate for 2026 is expected to be in the range of 22% to 23%, a decrease from 24.6% in 2025. The anticipated decrease in the tax rate is primarily driven by the 2026 tax rate benefits related to the enactment of the One Big Beautiful Bill Act, or OB3, and a favorable geographic mix. In 2025, we lowered our net interest expense by shifting debt to lower interest rate geographies and by repaying debt borrowed for stock repurchases earlier in the year. At the end of the fourth quarter, we had outstanding debt of $2,100,000,000 with approximately 70% at a fixed interest rate, compared to $2,200,000,000 at the end of 2024. This equated to a gross leverage ratio of 2.1 times and a net leverage ratio of 2.0 times at the end of the fourth quarter. We expect gross and net leverage ratios will remain below three times after funding the KF and PathoQuest acquisitions. Total adjusted net interest expense in 2026 is expected to be in a range of $95,000,000 to $100,000,000, compared to $102,100,000 last year. We expect higher average debt balances in 2026 as a result of the KF and PathoQuest acquisitions, but the decrease in net interest expense reflects the full-year benefit of 2025 interest rate reductions and the favorable geographic interest rate mix. As we discussed in November, we will continue to take a disciplined approach to capital deployment and plan to regularly evaluate the optimal balance between acquisitions, debt repayment, stock repurchases, and other uses of cash. For 2026, with the deployment of over $500,000,000 in capital for the KF and PathoQuest acquisitions, we currently intend to focus more on debt repayment and maintaining dry powder as we continue to evaluate potential M&A opportunities. We will also continue to regularly evaluate all uses of capital throughout the year, including stock repurchases. However, we currently expect the average diluted share count will be slightly higher in 2026. For 2026, we expect free cash flow will be in a range of $375,000,000 to $400,000,000, representing a decrease from $518,500,000 in 2025. The decrease primarily reflects two main drivers: higher performance-based cash bonus payments due to the 2025 outperformance, which are paid in the first quarter 2026, and deferred compensation payments related to the planned CEO retirement. Capital expenditures for 2026 are expected to be approximately $200,000,000, or approximately 5% of total revenue, and a slight reduction from the 2025 level of $219,200,000. This outlook reflects our disciplined approach to managing capital investments while continuing to invest strategically in areas to support client demand. A summary of our 2026 financial guidance can be found on slide 39. In conclusion, we remain encouraged by the recent demand trends and by the potential to return to organic revenue growth in the second half of the year. We are laser focused on driving our strategy forward, including through selective and strategic M&A that aligns with our core competencies, taking decisive actions to deliver continued benefits to drive efficiency and process improvements that will strengthen our organization and enhance our flexibility as demand rebounds, and through maintaining a disciplined capital allocation approach. These actions position us well to drive long-term shareholder value creation. Finally, I want to thank Jim for his tremendous leadership and many contributions during my time at Charles River Laboratories International, Inc. and throughout his career. We look forward to continuing to execute on our strategy under Birgit’s leadership. Thank you. Todd Spencer: That concludes our comments. We will now take your questions. Operator: Thank you. If you would like to ask a question, press 1 on your keypad. To leave the queue at any time, press 2. We do ask that you please limit yourself to one question. Once again, that is 1 to ask a question. And we will go first to Eric White Coldwell with Baird. Your line is open. Please go ahead. Eric White Coldwell: Thanks very much. I wanted to dig into the broader topic of NHPs. Birgit H. Gershick: Seem to be some, I do not know, dichotomy in the outlook and results here between RMS and DSA. Hoping you can just walk us through this and help clear it up. So RMS is facing a material headwind from lower NHP volume. We have also heard lower sales from one of your competitors, but at the same time, DSA is facing a material headwind from higher NHP sourcing costs and strong demand for NHP studies. So I am just hoping you can walk us through some of these dynamics, the nuances between what is happening in RMS and what is happening in DSA, and then talk about some of the drivers of the higher sourcing costs that are impacting you in the near term. Thanks very much. James C. Foster: You guys want to take that? Birgit H. Gershick: Yeah. Happy to take it. Hi, Eric. Eric White Coldwell: So Birgit H. Gershick: let me start with the RMS volume. So the RMS volumes and the impact in Q4 is primarily timing. So looking for the full year, the shipments have shifted, and with that, Q4 was lighter than the year before. Looking forward, we talked about RMS volumes being a driver of less revenue in Q1. That is both timing as well as a little bit lower volumes. For our DSA business, we talked about higher sourcing cost, particularly in Q4, having some impact in Q1. We had more NHP studies coming in than we had expected in 2025 and early 2026. With that, we had to go to the open market and buy some NHPs at a higher price, which will have an impact on ROI. Part of the disconnect that you are seeing here is also the fact that we have always had two sources, so an Asian source as well as a Mauritian source. And they do not always connect perfectly with what we have available and internally our own farms versus what we have to buy on the open market. So it is really mostly timing as well as timing between the RMS business shipments when they are coming in, but also what kind of source we are needing, how quickly we are needing them, and that we had to source from the open market. If that makes sense. Eric White Coldwell: It does. And if I could just ask a follow-up. What is the, you provide in your appendix the NHP utilization for 2024, and you gave an update for 2025 which was a pretty notable growth. Is it too early, or would you care to share your thoughts on the full year for internal demand compared to that point provided in 2025. Birgit H. Gershick: For 2026? Yeah, it is a little bit too early. We are really just starting the year. But for 2025 compared to 2024, what you are seeing here is a higher number of NHP studies coming through. It is a little bit of mix, but also substantiates the need for this very important research model and that this research model is here to stay for a long time, which also required us to ascertain our supply chain and therefore the KF Cambodia acquisition. Eric White Coldwell: Very much. James C. Foster: Thanks, Eric. Operator: Thank you. We will go next to Luke Sergott with Barclays. Your line is open. Please go ahead. Luke Sergott: Great. Thanks for the question, guys. So I just kind of wanted to talk about the backlog here, and the DSA bookings are starting to ramp, continued strength there. But you guys also hired ahead of what was expected to be that demand. So as bookings environment baked within your guide continue to improve, can you talk about your hiring needs as you continue to ramp whatever you are going to do on the DSA to exit the year? Do you guys have enough, or should we expect some type of pickup there? Just trying to right-size with cost outs plus the capacity utilization and your hiring needs of what is going forward. James C. Foster: We, from a capacity point of view, we have sort of two issues. We have physical capacity, which is in pretty good shape right now. So we are not optimally using our facilities, which obviously that is a goal of ours, but still as the, hopefully, the demand increases, we will be able to utilize space that is already built and be able to fill that. We have been really careful for years actually, but really careful the last two or three years to get our headcount in sync with demand and with our revenue. Obviously, this is a people business, and it is more than half of our costs. And last year, in 2025, we added some incremental people in our lab sciences building business and to fill vacant spots. So I think we are in good shape. Senior scientific staff and study directors and people like that are in particularly good shape. And principally, we are looking at direct labor. We need to bring direct labor on probably a quarter before we actually need them because there is some training associated with that. But we are quite confident we will be able to do that in a measured fashion to both accommodate the work and not be a drag on our operating margin. Luke Sergott: Got it. And kind of related to that, and this kind of the overall with the AI fears based within the market and particularly within your business. Eric White Coldwell: You kind of gave the number there from a FTE Luke Sergott: perspective of percentage of cost, but, you know, as you guys continue to restructure, get more efficient, talk about James C. Foster: you know, I do not think that there is AI risk, but clearly, the market does not agree with me. So kind of walk us through the bull case on why you are not going to be impacted by any AI coming through considering how much wet lab work you guys need to do? James C. Foster: Yeah. So thanks for that. So we were frankly surprised at the sort of violent share price reaction to the AI conversation that has been going on across multiple industries actually for the last couple of weeks. So it is what it is. We got caught up in that. And so, you know, there are several things that we would like to say about that. AI is a NAMS, and we are focused on NAMS to the extent that the science is beneficial. The science is additive. And we view AI as an enabling technology to support our work over a long term and to complement it, but we do not see it as a disruptor. AI in discovery has been around for a while by many of our large clients, so that is not new. The conversations really have not changed at all. And so, you know, for us, AI and NAMS is sort of a broader, longer-term evolution rather than something that is immediate. We continue to see ourselves as an essential and logical partner to help validate NAMS, including AI, if and when they become beneficial and additive as I said. And we hope to be able to run interference in a positive way for both our clients and the regulatory agencies to validate these technologies, if beneficial. So the NAMS are basically crude right now. AI is really early. But, you know, it is a promise of AI that we see could be beneficial to discovery, and we do not quite see it in safety. We have had some investments in AI into virtual control groups, which we talked about in our prepared remarks, some of our scientific report writing, our sales effectiveness. We have data scientists that are on this. So we are embracing, I guess the bottom line for us is we are embracing alternative technologies sort of strategically, but the science will prevail. So to the extent to which these technologies are beneficial, great. We will use them. We think we will use them more, we, the whole industry, in discovery, to help our clients get to a lead compound faster. Hopefully that will have more molecules moving through preclinical tox, and molecules moving into the clinic, and, hopefully, more molecules being approved. So we acknowledge it. We embrace it. We are participating in it. We actually do not see this as a threat to the company. And if these technologies are better in any way, besides just being augmentative, they will be embraced by the whole industry. Definitely nothing is imminent. Operator: Great. Thanks. Thank you. We will go next to Maxwell Andrew Smock with William Blair. Please go ahead. Hi. It is Christine Raines on for Max. Congratulations to both Jim and Birgit on what lies ahead. Christine Raines: And for our questions, just hoping you can give some context on DSA cancellations in the quarter. I think you said they were consistent with last quarter levels, but curious if they were within your normal range, and if you could remind us what your normal range of cancellations is and also if the distribution of cancellations due to client funding versus clinical and other competitive reasons were in line with expectations in the quarter? Thanks. James C. Foster: So cancellations and slippage, as we call it, are elements of our business. Slippage is when studies do not start when we anticipated they would start or when the clients initially anticipate, and things just cancel because, I do not know, priorities change, therapeutic area focus changes, or the drug just is not performing well. Before we even get ahold of it, the client just cannot get it to a dosage that will not be harmful to patients. So we have cancellations all the time and always will. We have penalties for cancellations with insufficient notice, which tends to cover whatever cost we have been impacted by up to that point. And with a decent backlog, we manage this really well. There is very little variability with either slippage or cancellation. So we have never given the percentage or dollar amount or whatever, nor will we, but we are definitely back to normal expected, anticipated cancellations, and we can manage that really well again, without the volatility in our business model and to be able to accommodate clients across the board, both large pharma and biotech. And just to go back to the sort of nine months backlog, we like that. It gives us a really great line of sight. If a study cancels or slips, we can almost always, not always, but almost always, be able to slot something in the queue into real-time revenue-generating work to replace whatever has slipped and canceled. So, as you know because you asked the question, cancellations had gotten, a couple of years ago, much higher than we would have liked to historically, improved last year, and is now back to normal levels. Impossible to predict, but we would not anticipate, given the sort of market dynamics—cash coming into biotech, pharma companies finishing sort of skimming down their portfolios—that it would increase again in any significant way. Great. Thank you. Yeah. Thank you. We will go next to David Howard Windley with Jefferies. Please go ahead. David Howard Windley: Hi, good morning. Thanks for taking my questions. Congrats, Jim. It has been a nice ride. I looked back at my initiation. I think this is 100 conference calls with you. So thanks for the ride. James C. Foster: It has been a pleasure. It has been a pleasure, Dave. David Howard Windley: My question for you is basically a Todd Spencer: temperature check on David Howard Windley: demand or urgency of clients. Last year you entered into 2025 with some clients kind of booking some fast-burn, wanted-to-start-quickly type studies. Your demand book-to-bill in the fourth quarter certainly was strong. It sounds like month to month continued to improve. Just interested in any color you can provide about how that has continued into the early part of 2026, knowing that you often remind us that it is not linear, and January sometimes gets off to a slow start. But just kind of comparisons to maybe this time last year and continuation out of the fourth quarter would be great. Thank you. James C. Foster: So I will, maybe Birgit would want to elaborate. Demand is improving from a whole host of factors. So significant inflows of cash into biotech coffers, pharma companies sort of finishing some of their bloodletting and shrinking down their infrastructures, and just tariff stuff being sort of over, and whatever pricing situation is going on between Washington and the pharma companies. So we think that that is sort of past them. So demand seems to be improving. We, as I said a moment ago, like the backlog situation. You will recall, Dave, two or three years ago, the backlog got to about eighteen months, and we loved it until we hated it. It was just way too long. And clients got to the point of canceling studies because they just booked slots without a study. So last couple of years, we have seen a lot of post-IND work. We will always have both, both pre and post. We are seeing more sort of general tox now, earlier than the post-IND. So that is good. We are moving towards a greater balance. So that would indicate clients are anxious to start their studies and would want to do that earlier, which obviously is a good thing for us. And while we do get some late-stage work, sometimes we do not do the early-stage work, that is typically, we like both and get both. So if we get the early work and the drug is progressing nicely, we will typically get post-IND work as well. So sort of a balanced demand quotient right now. Maybe Birgit wants to add to that. Birgit H. Gershick: Yep. Happy to. Hi, Dave. So maybe just to add that the environment feels a lot more stable than last year. So discussions with global biopharma is all about how they can increase the number of candidates for the upcoming year and upcoming years. So they are ready. They are definitely ready, back to work. They have their programs lined up. From a small and mid-sized biotech, a lot more positivity in the marketplace that we are hearing about. Certainly, there is still some uncertainty in pockets. Certainly, we are happy about our net book-to-bill of above one in Q4. And so we are hoping that the demand trends will continue to get us back to growth in the second half of the year. So David Howard Windley: Great. If I could follow up real quickly. Relative to that better environment, continuing improvement, the book-to-bill that you just posted in the fourth quarter, your comments about achieving the higher end of your revenue guidance, caveat that things are not linear, requires a 1.0 book-to-bill, again, with, but that strikes me as a relatively conservative bar compared to what you just did. Perhaps add some perspective to that, please? Birgit H. Gershick: Yeah. I am happy to start, and then Jim, certainly come in. Yeah. So as you outlined, we need a book-to-bill of one, and it is not going to be linear. So the quarters are not all going to be above one most likely. And the reason for our outlook and looking at H2 for growth on the top end is really that there are other factors in there. Start times, so bookings are still one to two quarters out before they can actually start. Conversion of the backlog, the timing for that, and just then overall, the study starts from the booking, when we are getting the booking to when we actually can start starting and get it done in there. So just a lot of different factors that are playing into it. But certainly very positive of those trends continuing. James C. Foster: Okay. Thank you. Operator: Thank you. We will go next to Charles Rhyee with TD Cowen. Please go ahead. Charles Rhyee: Yeah. Thanks for taking the question. Operator: Hey. Maybe, first off, you know, Jim and Birgit, congratulations David Howard Windley: to the both of you, and Jim, good luck for the future. Charles Rhyee: And, Birgit, looking forward to meeting you soon. Maybe if I could just ask about the guide for coming up here, understanding the headwinds that you kind of laid out, particularly for the first quarter. And when you talk about this material improvement in margins going forward, it sounds like you are saying that, obviously, these kind of reverse as we exit the quarter. Can you kind of lay out which ones fully exit or which ones might carry through? Or should we really kind of assume sort of a big step function in margins into the second quarter and then it kind of flattens out there? Or should we be modeling more of a gradual ramp back in margins as we think through the course of the year. James C. Foster: Mike, why do you take that? Michael “Mike” Nau: Yeah. Hey, Charles. Thank you. So when I think about the sequential improvement in the operating margin, there are really three main drivers of that. The first one, we are going to get continued benefit from the cost savings and our efficiency initiatives as we go throughout the year. And then second one is the lower sourcing related to the KF acquisition. So we are going to, you know, we solidified that supply chain, David Howard Windley: and I think James C. Foster: the Michael “Mike” Nau: headwind that we are seeing in Q1 of having more bookings and having to go out to the open market to purchase those is really dissipated by the fact that we have such a majority-owned portion of that supply chain. So that will go away. And then our cautious optimism that the demand is going to continue to improve over the course of the year. So that strong book-to-bill that you saw in Q4, that is going to materialize into revenue as we progress into 2026. Charles Rhyee: And just maybe to follow up then, the extra sourcing cost where you kind of had because of the greater-than-normal number of study starts, so you had to kind of go outside. Is it more demand than the supplies you had? Is it that you expect that kind of level of sourcing required and that KF then offsets that? Or is it that you expect sort of that kind of bolus of study starts to abate and so you do not need to tap the market outside of your existing supply. James C. Foster: Thanks. Michael “Mike” Nau: Yeah. It is, like, it is a little bit of both. Right? You are going to get the impact of the KF in the second half of the year. We have had, obviously, more time to plan for the increased demand in the second quarter. The other pieces of Q1, right, are the NHP timing. So that is just a function of when the models are ready to be used and shipped and when the demand is, and that is simply timing in Q1. And then, of course, in Q1, you have the stock comp. Right? That is just the accounting rules of how you have to accelerate the expense over the service period. So with the retirement and the succession, we are going to get a James C. Foster: you know, a pretty heavy headwind in Q1 on the stock comp. That is Michael “Mike” Nau: improved throughout the year too. It is not a headwind on the year. Charles Rhyee: Alright. Great. I really appreciate the comments. Thank you, guys. James C. Foster: Yeah. You Operator: Thank you. We will go next to Elizabeth Hammell Anderson with Evercore. Your line is open. Please go ahead. Hi, guys. Good morning, and thanks for the question. Congrats Jim and Birgit on your new roles. I think that will be a good transition. Maybe just digging into the outlook here. Can you talk about the demand environment in Elizabeth Hammell Anderson: China right now, particularly in regards to RMS, but anything else you are seeing there? And then anything you would chalk up the improvement in biologics to that you mentioned for the fourth quarter? Thank you. James C. Foster: So our China business continues to perform well. You know, it is all RMS, as you know. And it is an important market for us, and, you know, we feel that we have elevated the craft of producing really high-quality pristine animals and sort of taught the industry the benefit of utilizing those in terms of the quality of the work that they do. And China is becoming a more sophisticated, innovative locale for sure. A lot of investment by the government. And you did not specifically ask this, but I am just going to throw this in there that, you know, we are looking closely at China with regard to what additionally we can do there besides RMS, given that it is obviously a big patient population. Drugs developed in China have to be tested in China. And so, except for the research model part, which we are thrilled with, you know, we are not accessing any of the service revenue associated with that. So China may become a bigger part of our own portfolio going forward. Biologics has been a really good business for us for a long time. It had a sort of complicated 2025 due to some lower sample volumes from a couple of large clients due principally to project delays and regulatory challenges. But this has returned to growth in the fourth quarter, due to higher demand principally from Europe, and we would expect some of those client-specific challenges—those are behind us as we move into 2026. So an important business obviously, testing large molecules. At least half of the drugs that are approved are large molecules going forward. A business that we think we have a strong position in. It has had years of very nice growth and escalating operating margins. So it is beginning to sort of come back. That was a business that was very much benefited by COVID, and things sort of slowed down, and now we are beginning to see them ramp up again. Operator: Thank you. We will take our next question from Michael Leonidovich Ryskin with Bank of America. Please go ahead. Todd Spencer: Great. Thanks for taking the question. Michael Leonidovich Ryskin: I will just do one, given time. Just following up on your earlier comments on DSA demand environment, what you saw in 4Q, expectations for the coming year. I kind of want to go back to 2025. You had a pretty strong start to the year, then a little bit of a lull over summer months in terms of demand, and then a pickup again in the recent months. Just wondering, that volatility, that uncertainty, those fluctuations, would you attribute that more to the macro environment, the geopolitical environment, rates environment? What I am getting at is what gives you confidence that we would not see something similar this year, or the 4Q, the strength you saw in 4Q 2025, is a little bit of a red herring if we take a step back? Just what makes you think that last year was an outlier in that regard? Todd Spencer: Thanks. James C. Foster: I mean, the big impact for us was overall soft demand from our client base, both large and small companies, both new and old companies, who were really concerned about access to capital, whether they had enough funding to work on a whole range of drugs. So it is quite clear to us that they paused some drugs before they got filed their INDs, so we think we are going to get back to that. And big pharma is facing another patent cliff, which, you know, we saw this, I do not know, twelve, thirteen, fourteen years ago. They begin to pull back on their cost structure. By the way, one of the things we do is help them alleviate or reduce some of their internal costs because the work that we do in safety assessment is as fast, if not faster, lower price point, and probably in most cases, better science. So we are being cautious. We said that. We are trying not to overcall it because it is not linear, and one quarter does not necessarily portend the next. But what is beginning to change is the mass amount of funding that went into biotech companies—$28,000,000,000 in the fourth quarter—was quite significant. And so if that continues—January was a good month as well—but if that continues, that should generate incremental demand going forward. There is usually a lag time between cash coming in and then booking studies. So, you know, we are going to see that in the second quarter, but more pronounced in the back half of the year. The fact that book-to-bill was above one times and much higher than that in Todd Spencer: December. James C. Foster: is obviously a very important point, and that is also going to benefit the second quarter and the second half of the year. So we are trying not to overcall it, but what we have been looking for and what we have been hearing from our clients just in terms of funding and access to continued funding is beginning to happen. And since the preponderance of our revenue—we have really big market shares in big pharma—but the preponderance of our revenue and the growth rate for the last decade has been principally from hundreds and hundreds and hundreds of biotech companies, none of whom have the internal capacity to do anything that we do for them. So they must outsource, do not have to outsource to Charles River Laboratories International, Inc., but most of them do. So they must outsource. And so just given the number and diversity of new modalities to treat or cure diseases, these folks have to get back to work, and that should generate additional volume for us. We are obviously comfortable with the guidance we have just given today. Michael “Mike” Nau: And, again, we are being, I think, our James C. Foster: cautiously optimistic is really a good way to put it. Michael Leonidovich Ryskin: Appreciate all that, Jim. Thank you. Well, congrats on Operator: Sure. Thank you. We will go next to Casey Rene Woodring with JPMorgan. Please go ahead. Casey Rene Woodring: Great. Thank you for taking my questions. And, yeah, Jim, again, Michael “Mike” Nau: on retirement, and Birgit, looking forward to working with you in the new role. Yeah. Maybe just sticking to one. On the capital deployment comments, so Casey Rene Woodring: you talked about maintaining dry powder for M&A. How should we think about that in relation to some of the comments you made about the opportunity in China? James C. Foster: And then how do we balance that versus repos this year? You know, you mentioned the violent share price move of late. And then also curious if you are looking at other deals like KF that could potentially alleviate some NHP sourcing costs, you know, some of the headwinds that you have seen in DSA to start the year? Thank you. Todd Spencer: Yes. So our NHP James C. Foster: sourcing volume is in really good shape now given that NovoPrim and the deal that we just did with KF. So it is highly unlikely that we will need to source anything further or buy anything further. We already had plans to increase the operation. And if the demand continues, we can increase both of them. So we feel that just in terms of quality of the NHPs, price point, just the quality of the farms that they are bred on, we are really, really comfortable in that. Capital deployment for us is pretty straightforward. We like to keep our leverage below three turns, and we have been able to buy many, many businesses over the years. And, you know, we lever up to high twos, occasionally over three, and we usually delever within twelve months. So we feel really good about that. Our balance sheet is in really strong shape pre these deals. And even after these deals, our leverage is just in the high twos, and we will continue to work it down. We have a committee of the Board that I sit on, and we objectively look at uses of capital every single quarter, in tandem with our Board meetings. And paying down debt, share buybacks, M&A is always on the table. So we are certainly continuing to look at M&A in some of the areas that we have talked about—bioanalysis is probably top of our list—and as I said, we are beginning to look closely at China, way too early to predict that. Buying back stock is totally dependent on what else do we have a better use, what does the share price look like. And we continue to pay down our debt. So I think we have a lot of flexibility right now. We just had a Board meeting last week where we talked about all of these things, have another one in May, and we will continue to stay on it. But there are definitely some areas that we would like to add. And every once in a while, we may continue to fill in the portfolio from M&A and come across one of our businesses where we do not think it has long-term value for us. And so we would take a look at divesting those as well. Birgit H. Gershick: Great. Thank you. James C. Foster: Sure. Christine Raines: Our next question Operator: comes from Justin Bowers with Deutsche Bank. Please go ahead. James C. Foster: Hi, good morning everyone and congratulations Jim and Birgit. So I want to sort of follow up on Luke’s earlier question, and hopefully, you can educate us a little bit more on NAMS. Michael “Mike” Nau: If I recall, it is about 20% of DSA revenue. Can you provide us with a sense of how the client base is using these methods? And the gist of the question is, are these technologies being platformed by a high-end full of clients or more concentrated? Or is adoption and uptake fairly diverse across a large number of clients that are using these technologies, perhaps to validate existing in vivo methods. Eric White Coldwell: So we are seeing, you know, we are James C. Foster: seeing NAMS across a big swath of our client base. We would say that, you know, big pharma has been looking at utilizing in vitro or non-animal technologies sort of forever. Lots of that is proprietary to each company, and some of it is just sort of standard stuff. It is definitely more pronounced in discovery as we have been saying now, as we have been talking about this multiple last year. And everybody hopes that some of these technologies, albeit somewhat anecdotal, help the process of accelerating our clients getting to a lead compound and spending less time on drugs with a low probability of getting into the clinic and more time on drugs that have a higher probability. Of course, we get paid either way, the drug advances to the clinic or not, so we are there to help them, and if the technology helps us make a determination with and for the client, we are happy to do that. As we have said before, PathoQuest that we just talked about on this call is a non-animal technology—next generation sequencing—that literally is replacing some of the animal-based work that we do in our biologics business. And that serves our clients. That is a really good NAMS that we are happy to provide that our clients are demanding, and it gives better answers faster. We also have another business we talked about on the call, Retrogenix. We are looking at off-target effects of drugs; it is really, really important. So there are some NAMS now that are beneficial and utilizable. There are some that are, sort of, hopeful but still early days, and we believe we are only going to see it in safety in a sort of narrow monoclonal antibody swath that the FDA has talked about, and too much of a safety risk to be focusing on these as replacements, but likely to be augmentative to some of the wet lab work, particularly in the early phase. Michael Leonidovich Ryskin: So James C. Foster: we will continue to license in technologies and periodically buy something that we think is really beneficial for our clients, and we generate decent revenue and margin. We will work with our clients in validation. But this is a long-term marathon and not something that is going to be done quickly or overnight. Since this is so Christine Raines: Thank you. And if I may, with just a quick follow-up. Michael “Mike” Nau: Topical, I was speaking with a top 10 pharma last week, and we were talking about AI and how that would potentially impact early stage. And they said, well, maybe we could see a scenario where we start with, you know, 20,000 targets instead of 10 at the top of the funnel. Can you help us understand how that would sort of flow through James C. Foster: your business? Michael “Mike” Nau: And if that would be accretive, dilutive, neutral, James C. Foster: Yeah. If you can screen through more targets at the same pace or faster, that is obviously really beneficial for our clients and should be beneficial for us as well. As I said, if they can go—just using your numbers—if they can screen through 20,000 potential drugs that hit the target, and then they can focus on the ones that have the highest probability of actually working and being tolerated by patients who get into the clinic, that should generate incremental work for us, and it should also have a higher hit rate for the drug companies. It is sort of shocking, I would say, that all of the US pharmaceutical and biotech companies in the aggregate, we only have between 40 and 50 new drugs a year, right? If that could be 100 or 200 or 500, obviously it would be better for society, that obviously would be better for human health, but definitely would be better for Charles River Laboratories International, Inc., and would be better for our clients. So to the extent to which AI can get its arms—you know, speaking to it as if it is a person—get its arms around more data earlier, and have a bigger funnel, I think that would be beneficial for all of us. Operator: Thank you. Thank you. We will go next to Patrick Bernard Donnelly with Citi. Your line is open. Please go ahead. Patrick Bernard Donnelly: Hey, guys. Thanks for the questions. This one, I think, covered a lot of ground here. Maybe the divestiture process, Jim, can you just update us where we are there? It sounds like negotiations are still going with the buyers. What hurdles are left? And it sounds like it will be done by midyear. That capital comes in the door. Is that deployed relatively quickly? Just a quick update on that process would be helpful. James C. Foster: I mean, the process is ongoing. You know, we have sophisticated investment banks working on these divestitures. We have interested parties. The comment that we made on our last quarter call still seems reasonable, and we hope to close these divestitures sometime in the first half of this year. And perhaps, hopefully, we can sign something sooner, but it is difficult to tell. I mean, these deals are not signed until they are signed, and they are not closed until they are done. So we are very committed to finalizing the process. We think we have some interested folks and it should be a good result. In terms of what we do with the proceeds, again, it is sort of what we do with any of our proceeds, what we do with any of our cash, as we look at M&A, debt repayment, share repurchases, all of the above or just one of the above. And it is always contextual and depends on what is going on with market demand, what the rest of our M&A portfolio looks like, what the share price looks like, and we do that, I think, very well, very objectively, very thoughtfully. Every quarter, we do not have any sort of preordained Michael “Mike” Nau: feelings about that. So James C. Foster: when we bring these deals to closure, we will see what the world looks like at that time in terms of what we do with the assets. Patrick Bernard Donnelly: Okay. And then maybe one last quick one on the NHPs. You know, obviously, KF is a nice impact this year. You look out, you know, beyond this year, is it almost a compounding effect on the NHP side where, you know, you benefit more on the savings as you insource more from, in 2027, from NovoPrim and KF both being onboard there? James C. Foster: You want to take that, Mike? Michael “Mike” Nau: Yeah. Absolutely. So, yeah, we said that there would be a $0.25 benefit this year. And then even next year would be even further. You know, we think that there is approximately $0.60 accretion from KF as we go into 2027. Casey Rene Woodring: Thank you. Operator: We have no further questions in queue. I will now turn the conference back to Todd Spencer for closing remarks. Todd Spencer: Great. Thank you for joining us on the conference call this morning. We look forward to seeing you at upcoming investor conferences in March. This concludes the call. Thanks again. Operator: Thank you. That does conclude today's Charles River Laboratories International, Inc. fourth quarter and full year 2025 earnings call. Thank you for your participation, and you may now disconnect.
Chanda E. Brashears: Thank you. You may begin. Good morning, everyone, and thank you for joining us today to discuss our fourth quarter and full year 2025 results. Our earnings release, executive commentary, as well as our Form 10-Ks were issued earlier this morning and are available on our website at ir.cinemark.com. Today's call is being webcast with a replay and transcript available on the website after the call. Before I begin, I would like to remind everyone that during this conference call, we will make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may include, but are not necessarily limited to, financial projections or other statements of the company's plans, objectives, expectations, or intentions. Forward-looking statements are subject to risks and uncertainties that could cause the company's actual results to materially differ from those expressed or implied. The factors that could cause results to differ materially are detailed in our most recent annual report on Form 10-Ks as filed with the SEC and available on our website. Also, today's call will include non-GAAP financial measures. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures can be found in the website's most recently filed earnings release, 10-Ks, and on the company's website at ir.cinemark.com. Joining me this morning are Sean Gamble, President and CEO, and Melissa Thomas, CFO. Beginning with today's call, we are shifting our earnings format to provide adequate time for your questions. Following brief introductory remarks from Sean, we will open up the lines for Q&A. With that, I will turn the call over to Sean. Sean Gamble: Thank you, Chanda, and good morning, everyone. Before we dive into Q&A, I would like to briefly reflect on our 2025 results as well as the advancements we have made over the past few years. Driven by further market share expansion and a series of all-time record achievements in 2025, we delivered a post-pandemic high in worldwide revenue of $3,100,000,000. This strong top-line result, combined with effective cost management and incremental productivity gains, resulted in $578,000,000 of adjusted EBITDA with a healthy 18.6% adjusted EBITDA margin. Through a relentless focus on initiatives that are aimed at expanding our audiences, activating new sources of revenue growth, optimizing our circuit, and continuously improving our processes and capabilities, we have taken the experiences we create for our guests and our operating agility to new levels. Furthermore, we have developed a distinctive set of competitive advantages, including a differentiated position of strength. Over the past three years, we generated nearly $1,800,000,000 of adjusted EBITDA with over $1,300,000,000 of operating cash flow. We increased customer loyalty to Cinemark, meaningfully expanded our market share, and grew our concession revenues and per caps to all-time highs. We fortified our balance sheet, extinguishing over $700,000,000 of COVID-related debt while at the same time reinvesting over $5,000,000,000 in capital expenditures to advance our company for the future and returning $315,000,000 to shareholders through dividends and share buybacks. Achieving these results has required extraordinary dedication, ingenuity, and perseverance throughout our entire company, and I would like to commend our sensational global team for the significant impact they have made setting up Cinemark Holdings, Inc. for ongoing success in the current environment and beyond. As we look ahead, we remain focused on effectively navigating an evolving media and entertainment landscape, continuing to diligently operate our business and delight our guests week after week, and effectuating a multitude of strategic initiatives to further strengthen our company and market position. 2026 appears set to benefit from a robust lineup of compelling films and a volume of wide releases that looks poised to reach pre-pandemic levels. We are excited about the prospects of this year's slate, and we remain highly encouraged by the sustained consumer enthusiasm we continue to see for the types of larger-than-life cinematic entertainment we provide at Cinemark Holdings, Inc., as well as the multitude of opportunities before us that are fully within our control to create incremental value for our customers, partners, and shareholders. Operator, we would now like to open up the line for questions. Operator: Thank you. The floor is now open for questions. Operator: Our first question is coming from Eric Owen Handler of ROTH MKM. Please go ahead. Sean Gamble: Yes. Good morning. Thank you for the question. Sean, given how well premium has been performing for you guys, I am curious Eric Owen Handler: how many of your theaters have two XD screens? Are there plans to add more theaters with multiple XD screens? And what do you think ultimately that could be? Sean Gamble: Sure. Thanks for the question, Eric. Definitely premium amenities, we are seeing a growing interest from a section of our audiences who really enjoy the added enhancement that they provide. Specific to your question, we have got about 10% of our domestic circuit that has two XDs. There are others that have a combination of an IMAX and XD, a ScreenX and an XD, but that is where the overlap. Part of the governor on that is just having enough significant screens to add an extra XD to. We are very particular about making sure that if we are selling an enhanced experience that it fully delivers on that, and that is beyond just the sound, the environment, it goes to the scale of the screen. So if it is an existing theater, it needs to be a second auditorium that can do that. We are in the process of rolling out additional screens over the next few years. So we are going to be continuing to do that. We have still a nice runway of opportunity, but I am just flagging that there are some limits to it. We also are just focused on how many of those we have in a theater. Premium enhanced formats still only represent about 15% of overall box office. So while there is a group of moviegoers who do like to pay for that additional enhanced experience, the bulk of moviegoing still is on all the other screens, and our focus is to continue to make sure all of our screens are a premier experience regardless of whether you choose XD or something else. Eric Owen Handler: That is helpful. And then I wonder if you have any type of updates on new build activity, be it in the U.S. or Latin America? Sean Gamble: Sure. Our new build pipeline was slowed during the pandemic, obviously, and then we have reactivated our real estate efforts in exploring opportunities out there. We have a number of things that are in motion, but these projects can take two to three years to get off the ground. So we opened a new site in El Paso in 2025. We have plans to open an additional site in Greenville, Texas in 2026. We have broken ground in Omaha, Nebraska on another site for 2027, and then we have a range of other projects, as I mentioned, that are in motion. So we reactivated that. It just takes a little bit of time to fully get up to speed because you have to make sure you get the right site and you go through all the exercises of finding the locations, negotiating the deals, working through all the regulatory processes. It can just take a little bit. Melissa Thomas: And, Eric, you do see that increase in our pipeline coming through as well in the step-up in capital expenditures that we are expecting from 2025 to 2026. So that is reflected there, as well as to your point on XDs and how many opportunities there are for expansion in XDs, ScreenX, and D-BOX as well. Sean Gamble: Thank you very much. Thanks, Eric. Operator: Thank you. Our next question is coming from David Karnovsky of JPMorgan. Please go ahead. David Karnovsky: Hey, thanks. Sean, in your executive commentary, you noted a softer-than-anticipated slate last year. So I wanted to see, with some hindsight, if you could walk through the factors that you think drove this. Is this primarily about quality and film mix? Or are there any kind of structural Benjamin Daniel Swinburne: impacts to consider like windows? Thanks. Sean Gamble: Sure. Thanks for the question, David. At a high level, I would say we view it more as just the normal ebb and flow of the industry. I think perhaps some of the expectations for 2025 got a little bit overinflated coming in. We had some pretty lofty targets for select films. When we look at the aggregate of the slate, there was a bit more of a mixed bag of the ones that overperformed and some of those that did not fully resonate. The year lacked a mega blockbuster that exceeded half $1,000,000,000, and there really was no major summer animated film. So I think if we had had one $300,000,000 animated film this summer, which we traditionally do, I think everybody would be viewing 2025 much differently. So I do not view that as a real structural issue. I think it is just more the way sometimes the strength and quality of films play out and how well they resonate with audiences. Windows is something we do continue to evaluate. It is a big topic for the industry. There are indications that awareness of highly shortened windows is having some effect on smaller movies and more casual moviegoers, which could be providing some headwinds to overall recovery in the industry. There is a factor, but I do not look at the softness versus expectations in 2025 necessarily because of that. It is just more based on some of the really high expectations we had. David Karnovsky: And Benjamin Daniel Swinburne: okay. And then, just with margins, when we look at 2025, obviously, attendance was a headwind, but assuming a recovery this year, how should investors think about room for operating leverage? And Melissa, any help in thinking about kind of cost of goods, staffing, or G&A? Thank you. Melissa Thomas: Sure. From a margin standpoint, we would expect, given we do expect a stronger box office and higher attendance year over year, that would support leverage in our operating model as well as margin expansion. As you know, our EBITDA margins are most heavily influenced by those two factors of box office and attendance. That said, there are a number of variables beyond that that influence our margin: market share, average ticket prices, and food and beverage per cap, and then, in addition to that, incremental value that we expect to capture from our strategic initiatives and our ability to manage cost pressures. And then for international segments, our performance will depend on, we are talking about film slate, so how film slate resonates with their audiences as well as inflationary and FX dynamics. And then to your question on expenses, particularly on a go-forward basis, from a G&A perspective, we do expect our G&A to continue to reflect merit increases and rising benefits costs. We are making targeted strategic investments in talent and capabilities, including cloud-based software, to continue to advance our strategic priorities and position the company for long-term success. But we remain disciplined in our approach to expense management, ensuring that our spend is closely aligned with long-term objectives. And then broadly, as you think about our variable costs, those are going to flex with attendance, albeit not at the same rate. David Karnovsky: Thank you. Sean Gamble: Thanks, David. Thank you. The next Operator: question is coming from Eric Wold of Texas Capital Securities. Please go ahead. Eric Wold: I guess, a question on kind of moviegoer monetization. Can you talk about, with the strength you had in concessions in Q4 and then broadly throughout last year, what strategies have been driving the most success that you have put into place with the various ones that you have used? Any way to parse out how much of the increase was film mix influenced versus just basket and incidence? And then lastly, do you think the opportunity is going to push ticket price and the concessions higher this year given the environment that we are in economically? Thanks. Melissa Thomas: I will take that one from a per cap standpoint. Our per caps domestically were up 5% year over year, and there are three primary drivers to that. First, our strategic pricing actions; second, higher incidence rates; and then third, a shift in product mix given the growth in merchandise sales as well as enhanced foods. As you think about the breakout, I would call it probably around three points strategic pricing, a point incidence, and a point driven by shift in product mix. In terms of the key catalysts, as we have said before, food and beverage is a game of singles and doubles. We have a variety of initiatives that we have been executing upon and others that we will be executing on to really drive growth on an ongoing basis, and that includes increasing the throughput of our concession stands, leveraging planograms to improve the monetization of our space, we continue to introduce new concepts, new flavors, expanding our enhanced food offerings—we still think there is runway there—as well as growth in movie-themed merchandise, and that is just to name a few. As we think about the go-forward looking ahead to 2026, we do remain optimistic about our ability to deliver another year of moderate year-over-year growth in concession per cap, supported by the broad range of initiatives that I just mentioned. And we do think that growth can come from both incidence as well as further opportunities to optimize our pricing. Bear in mind, from quarter to quarter, our per caps will fluctuate with film mix. And then in our international markets, we do expect concession per cap to be impacted by inflationary as well as FX dynamics in the region, while shifts in country mix also can play a factor. Overarchingly, our focus is on delivering sustainable per cap growth and ensuring that our strategies are supporting both profitability and long-term value creation. Eric Wold: Perfect. Thanks, Melissa. Sean Gamble: Mhmm. Thanks, Eric. Operator: Thank you. The next question is coming from Chad C. Beynon of Macquarie Asset Management. Please go ahead. Chad C. Beynon: Hi, good morning, Sean and Melissa. Thanks for taking my question. Andrew Edward Crum: Wanted to ask about international attendance. It fell in 2025, and I believe a lot of that decline was really just kind of a product of what was out there in terms of Robert S. Fishman: the movie slate. But as you look at 2026, Sean, I know you talked about your optimism, maybe domestically or globally. But what about internationally? Do you think this could be an inflection point and maybe we could see attendance even exceed what we are expecting in the U.S. in 2026? Thanks. Sean Gamble: Sure. Thanks for the question, Chad. Yes, I mean, I think you are right. When we look at overall 2025 for Latin America in particular, the profile of the slate in terms of what worked and what did not work, it skewed a little bit lower for that region relative to the U.S. When we look at it, that is just nothing more than the product, and we see how that fluctuates year to year. 2026, specific to that region, we are optimistic about a better balance relative to the U.S. We think that the overall slate looks set to resonate stronger with Latin audiences than 2025 did. So you have got titles like Michael, The Super Mario Galaxy, Spider-Man: Brand New Day, Minions, Avengers: Doomsday. These are all movies that really will resonate. There is another Insidious title in that particular type of genre of horror, and that franchise in particular has done really well there. Certain films like The Odyssey, Star Wars, Supergirl, Cat and Hell—some of those sci-fi oriented—Dune—those do tend to skew down. But on the whole, we definitely are more optimistic about 2026 in LatAm. And in general, attendance throughout that region has recovered, in certain pockets more so than in the U.S. And with everything, I mean, a great example we always like to point to is Argentina. With all the hyperinflation and the economic and political turmoil that has happened within that country over recent years, attendance is neck and neck with pre-pandemic levels. So they have recovered exceptionally well. So when the content is there and it connects, that region in particular can really show some upside. Andrew Edward Crum: Okay. Great. Thank you. Robert S. Fishman: Then as we think more broadly just in terms of the loyalty product, I think you said 60% domestically, 30% internationally. Are there any changes that we should expect in the near term that could either help that loyalty, increase moviegoing? Just anything on the product side that could be different in the near term for consumers. Andrew Edward Crum: Thank you. Sean Gamble: I would say, I do not know if there is anything materially different. I think that the core value and the core benefits that are inherent to these programs continue to resonate with existing members and continue to attract growth in our overall membership. We have continued to see growth year after year in these programs. Movie Club, in particular in the U.S., is up over 50% from where we were in 2019. We do expect that that will start to level off a bit more as the program continues to mature. But thus far we have continued to see terrific growth. So what we are doing is, in addition to those core benefits, we do keep adding additional elements to it just to keep it fresh and enrich it. There are all kinds of surprise-and-delight events we do for our loyalty members throughout the year where they get invited to special programming and things of that sort. I mentioned that we just added a new premium tier to Movie Club, which we are hopeful will attract those audiences who are more inclined to upgrade on a regular basis. We have introduced badges. So there is a whole slew of things like that that we continue to add to the program to make it attractive from a retention standpoint as well as attracting new guests. So I think that is really it. We do other promotional events sometimes tied to films, sometimes tied to just engaging types of incentives also to stimulate growth. But those are the things that we are continuing to lean into to sustain growth and sustain our existing membership. Robert S. Fishman: Okay. Thank you very much. Sean Gamble: Thanks, Jeff. Operator: Thank you. Our next question is coming from Andrew Edward Crum of B. Riley Securities. Please go ahead. Andrew Edward Crum: Hey, thanks. Hey, guys. Good morning. So, solid ATP growth has accelerated over the last few years. How do you foresee the rate of change for ATP trending going forward? Given the ongoing shift towards and success with PLF across your circuit amongst other factors, is the mid-single-digit increase the business delivered in 2025 a new normal? Or was last year more of a one-off and not sustainable? Melissa Thomas: Thanks for the question, Drew. We were pleased we have delivered a 4% CAGR in our domestic average ticket price over the past three years. As we look ahead to 2026, we expect average ticket prices will increase modestly year over year in the full year, and that is really twofold. One, we do believe that there are further strategic pricing opportunities, as well as opportunities related to our continued expansion of premium offerings—so as we mentioned, XD, D-BOX, IMAX, and ScreenX. So we do think it is twofold, but not to the same extent that we saw in 2025, given some of the outsized mixed benefits. But keep in mind, average ticket prices will fluctuate quarter to quarter depending upon the film mix. And then on the international side, inflationary and FX dynamics in the region could play a factor as well as country mix. We do continue to approach our pricing decisions thoughtfully and are leveraging data to identify those optimal price points that maximize attendance as well as box office performance. Benjamin Daniel Swinburne: Got it. Okay. Thanks. And then maybe one follow-up. Can you address Andrew Edward Crum: the planned splits between U.S. and international in terms of CapEx spend? And is the $50,000,000 number you are planning for this year a good annual run rate for the business? Or is 2026 a peak? Thanks. Melissa Thomas: Yeah. So in terms of splits between international and the U.S., typically, around $50 to $60,000,000 of our CapEx is dedicated on the international side. The remainder is towards the U.S. And then in terms of our capital expenditures in 2026, those are ramping up to $250,000,000, and that is based on not only our expectations for cash flow generation but also the ROI-generating opportunities in front of us that we are looking to pursue. As we look forward beyond 2026, the extent of our spending and whether we stay at that $250,000,000 level will again be predicated on the ROI-generating opportunities we see in front of us. And then the other point I would call out is, as the new build pipeline ramps, that can cause variability from year to year with temporary upticks and then coming back down, just depending upon where we are at within that new build pipeline timeline. So there could be some fluctuations, but by and large, I would say it is too early to tell at this stage. Andrew Edward Crum: Okay. Thank you. Sean Gamble: Mhmm. Thanks, Drew. Operator: Thank you. The next question is coming from Patrick William Sholl of Barrington Research. Please go ahead. Patrick William Sholl: Hi, good morning. I just had a quick Sean Gamble: follow-up on some of your CapEx comments. Just on the new builds, are these expanding into additional markets? Or are they more replacing older theaters within those markets? And I guess similarly, is that the path that you are taking to increase the recliner penetration, or are you still finding opportunities within existing theaters to renovate those and increase the competitiveness and attractiveness of those amenities? Melissa Thomas: So in terms of the new build pipeline, most of the locations that we are looking at are new locations. So that would be in new markets where we see that there is underpenetration and there is opportunity for us to go in and have a high-confidence return. So that is really the genesis of what we are doing on the new build side. Sean Gamble: And I would add on the recliners, we do still see recliner opportunities. With 72% of our circuit reclined in the U.S., those are fewer than they once were, but we are still finding opportunities beyond our new builds to have attractive returns with some of our theaters that strengthen the overall competitiveness as well as provide a good lift in performance. Patrick William Sholl: Okay. And then on just the film slate for 2026 and Sean Gamble: maybe even 2027 as well. I guess, how are you seeing the cadence of releases? And Benjamin Daniel Swinburne: are you seeing it kind of create Patrick William Sholl: more stability in box office in the coming years? Yes, this is how we Sean Gamble: It is a great question. The good news is volume continues to grow. We saw that 2025 got to within 5% or so of pre-pandemic levels. 2026 looks to at least match that, potentially go beyond that. And the benefit of that is, obviously, our industry tends to be a bit of a momentum type of business where people come to the theater, they see what is coming up, they get excited, they have a good experience, and they come back because of that. And when you get these kinds of lulls in terms of things being released, you are winding up having to reboot the engine over and over again, and that is the type of cycle that we have been in. So I think the good news is with further recovery in volume coming forward, there should be fewer of those instances of having to reboot. I will say what we have still yet to see—and these are conversations we continue to have with our studio partners—is for a long while prior to the pandemic, we would see more of the films getting bunched in the summer and at year end. And then in time, everybody learned it is a twelve-month calendar. Movies can do huge business any time of the year: first quarter, late summer, not just in those peak when-kids-are-off-from-school months. I would say the industry has gravitated a little bit back to this old norm, and we see a bit of a more crowded summer in 2026 and a crowded year end. So that is one of the things that we are still looking for to fully resolve itself so we can truly have a fluid cadence of movies every month throughout the year and just sustain that momentum. So that is something that still is being sorted out, but the good news is it is moving in the right direction. Patrick William Sholl: Okay. Thank you. Melissa Thomas: Thanks, Patrick. Operator: Thank you. The next question is coming from Robert S. Fishman of MoffettNathanson. Please go ahead. Robert S. Fishman: Good morning. Two for you. When you look at 2026 and beyond, how do you balance leaning into your organic growth Sean Gamble: led by the sustainability of market share gains Chad C. Beynon: compared to positioning the company for other opportunities like M&A that has not really been in focus for a while? And then, if we could get any update on where things stand with any conversations you have had on the Warner Brothers acquisition, both with either Netflix or Paramount/Skydance? Thank you so much. Melissa Thomas: Thanks, Robert. I will take the first part of your question. In terms of our strategy for investing in growth, we have a balanced and disciplined approach to capital allocation, and we intend to invest in growth opportunities, including new builds, existing theater enhancements, and M&A to the extent attractive opportunities present themselves. When you think about M&A, we evaluate all transactions that come to market and we target high-quality assets with minimal deferred maintenance needs. Consistent with our disciplined approach, we are looking for accretive M&A opportunities at attractive multiples. We prefer to deepen our penetration in markets where we already have a presence to leverage established infrastructure, relationships, and market knowledge to drive growth and create value. Naturally, there are other factors we also look at: scale, strategic importance, competitive positioning, and margin profile. And then in terms of new builds and theater enhancements, we again remain disciplined with our capital expenditures. We are looking for ROI-generating opportunities that are high confidence and that position the company well for the long term and enhance the guest experience. But overarchingly, we are looking to balance among the three, but that is something that we are evaluating on an ongoing basis to try to create value for all shareholders. Sean Gamble: And on that last point for Warner Brothers, I would just add too, they are not mutually exclusive. The good news is with the strength that we have recovered on our balance sheet, we have the opportunity to pursue multiple attractive accretive types of deals, whether they be new build or M&A, to the extent they are there. But as Melissa said, we are going to continue to be disciplined in that approach. Specific to the Warner Brothers deal, I do not know if there is a tremendous amount to update on that. Clearly, the overall transaction remains pretty active and fluid in terms of what direction this may go going forward. Our focus, along with our trade organization, CinemaCon United, has just been to engage directly with all the respective parties as well as the regulators to ultimately pursue an outcome that we believe is in the best interest of our industry, of the creative community, of consumers, and of the local economies that benefit from healthy theaters in their towns. And that is a focus on sustained volume of output with whichever direction this transaction plays out, sustained exclusive theatrical windows in a meaningful way that support the industry, as well as sustained levels of comprehensive marketing campaigns to get that message out. Those are the things that have driven value. They have been moving in a positive direction with new entrants coming in and growth from different players in terms of volume. And we just want to make sure that things continue to progress that way versus any type of risk that might ensue from consolidation of a significant studio like Warner Brothers that has been a strong partner of theatrical exhibition for many, many years and just had a record-breaking performance in 2025. Chad C. Beynon: Sounds good. Thank you, guys. Thanks, Robert. Operator: Thank you. The next question is coming from Omar Mejias Santiago of Wells Fargo. Please go ahead. Omar Mejias Santiago: Good morning and thanks for the question. Sean, market share has been a key driver of Cinemark's outperformance and we were encouraged by the 4Q results despite softer box office. I understand that for the box office to recover there might be some capacity constraints, but how have you guys been able to gain share, and how do you plan to manage your footprint with the busier slate in 2026? Sean Gamble: Sure. Thanks for the question, Omar. It has been a variety of things we pursue. As we unpack 2025, first, we were thrilled with our overall results of 2025. We continue to see the benefits of the varied initiatives that we have been pursuing to build our audiences—everything from our showtime programming to our marketing actions to our pricing strategies to our loyalty programs, which we spoke about earlier. All of those things have helped support increasing our structural market share. 2025 in particular, while we had, at the beginning of the year, expected our market share might moderate a little bit, it actually continued to benefit from a high concentration of family and horror films, as well as what played out to be more of a balanced cadence of releases throughout the year, which limited the amount of capacity constraints we hit and enabled us to fully optimize our screens. So we benefited from that throughout the year. I will flag that obviously our share year to year will fluctuate based on that content mix and how well individual films resonate with our audiences as well as those capacity constraints. So when we look at 2026 in particular, again, we see a highly compelling, diverse profile of films on paper as we look at the composition. There is a little bit more crowding that we do see during the summer and year end, as alluded to a moment ago. You have some pretty substantial films in that pocket, which could lead to more capacity constraints where we are just fully utilized and do not have the benefit of expanding further like we were able to do in 2025, which could create a little bit of a headwind and cause our market share to normalize a bit. Ultimately, it is just going to depend on how the actual results film by film play out and the extent to which any of those dating decisions spread a bit more from the way they are organized right now. Omar Mejias Santiago: Great. And on alternative content, you guys have seen some notable success recently. Just curious how Cinemark is leaning into this category and what untapped opportunity you see within this vertical? Thanks. Sean Gamble: Absolutely. Alternative content is definitely one of the real positive signs we are seeing with nice growth, similar to younger moviegoers—we are seeing nice growth in younger moviegoers—but specific to alternative content, we have had multiple consecutive years now where alternative programming has been more than 10% of our box office. And that is not just because of the overall box office; the pure proceeds from alternative content, as an example, in 2025 are up more than double what they were in 2019. So audiences continue to be attracted by this content. And it is a range of different areas—everything from faith-based films to anime to other foreign films, content creator concerts. There is a whole slew of things: repertory films—they just continue to grow in their scale and magnitude. And to your specific question on what we are doing, we have a team that is dedicated to finding these kinds of opportunities, pursuing them, and then trying to really understand what the potential is so we can optimize how we are programming that throughout our circuit. And it has been really successful, and we expect, or at least we are optimistic about, continued growth in this area as we move forward. Omar Mejias Santiago: Great. Thank you, guys. Operator: Thank you. Operator: Our next question is coming from Mike Hickey of Stonex. Please go ahead. Mike Hickey: Hey, Sean, Melissa, Chanda, congrats, guys, on 2025, and I appreciate this new format as well. It is very helpful. First question from us is just, Sean, the impact on AI. We have obviously seen AI sort of, you know, pun intended, rewrite the script here of a lot of companies and be, I guess, destructive. But it seems like out-of-home entertainment is in a really sweet spot in terms of not being negatively impacted. I guess the flip side, the positive impact, although delicate, I am sure, but on film development, it seems like there is a lot to reduce expense and time and ultimately increase volume. So I am just curious overall your view on AI and how helpful it can be to your business? And I have a follow-up. Sean Gamble: Sure. You captured some of the points nicely there, Mike. I would say broadly, we are optimistic and enthused about the potential AI has in a number of areas. Specific to things we are doing within our company, the ability to both drive efficiencies as well as support our revenue growth objectives, we see lots of opportunity. We are already incorporating it into pricing optimization, some of the showtime optimization efforts I mentioned, our app development work in terms of how we are doing our software development. We have even got it going in our hiring activities within HR and our guest services. So there is a whole range of things that we are looking to utilize this for within our own company. And then on the content creation side of things, as you just mentioned, we see lots of potential for AI to unlock new types of capabilities, whether that is in visual effects, previs, and efficiencies in terms of moviemaking with timelines and things of that sort, which could lead to an increased volume of movies being made as well as new quality enhancements along the way. So we see a lot of potential for that. Just as every filmmaker has his or her own unique way of bringing stories to life, it would appear that AI is another tool that can enable select filmmakers to use it effectively and do new things that we have not seen before. Obviously, there is quite a bit of risk regarding IP and copyright infringement, and we very much support filmmakers and creatives and our studio partners in their efforts to protect their IP as AI evolves. But it seems like if that balance can be struck appropriately and the right measures and safeguards are in place, there is just a tremendous amount of potential that AI provides for our business specifically and broadly for the industry. Mike Hickey: Nice. Thanks, Sean. The next question on the Warner Brothers deal, and I guess specifically focusing on Netflix here. Definitely not asking you to bless anything, but just holistically your view on a couple of things. One, Netflix was originally thinking of a 17-day window, and I think they shocked and awed a few of us here and went to a 45-day window, and maybe that is in front of streaming, so that is a consideration. But just thinking about a new partner here with the 45-day window, whether that is workable or not. And then, just your own view, Sean, in terms of Netflix being sincere or maybe if you believe—obviously, you have conversations with them that are ongoing as part of your business—if you believe they can be a real theatrical partner for you, not just with the Warner Brothers asset, but maybe the core asset as well. Thank you. Chad C. Beynon: Sure. Sean Gamble: Thanks, Mike. I would say we have said this before for a long while. We have been optimistic that in time Netflix would recognize the opportunity that theatrical exhibition provides their platform and their content, much like all their other peers are doing, whether it is traditional studios, Amazon, even Apple getting a bit into the space. We have seen through data and we have heard from the conversations that theatrical exhibition provides a real meaningful lift to engagement and retention and interest in those platforms. So we thought for a long while there is just value that was being ignored by not taking advantage of that opportunity. We obviously look at the recent comments as providing some element of encouragement. I would say that we, much like our industry at large, are a bit apprehensive in placing too much stock into those comments just given how contradictory they now are to many of the other disparaging remarks that have been made over the recent years, even as recently as the middle of last year when there were references to the industry being outmoded as an idea. So I think there is going to need to be more action versus comments and firmer assurances to give everybody comfort that what is being said is real. A 45-day window, I think, generally speaking, we all view that as a good target point that strikes the right balance of giving studios more flexibility with getting content into the home and capitalizing on the marketing campaigns that have been spent in the theatrical space without creating too much adverse risk to theatrical performance. As mentioned earlier, in some cases, things have kind of overshot that a bit, and it is causing some concern about what that might mean on select films. It is a good starting point, but it also begs the question of 45 days to what? Forty-five days to a transactional type of offering in home, like a premium video on demand, is one thing where there is a price point there. Forty-five days to an SVOD, which consumers generally view as free, is a different type of construct. So there is a lot still to clarify with what exactly is being referenced, and again, I think we are all looking for much firmer assurances that are long-standing for not only a window but levels of continued investment and also sustained marketing, which is a critical component of this too, versus just verbal comments and promises. Mike Hickey: Nice. Thank you, guys. Operator: All right. Thanks, Mike. Thank you. Our next Operator: question is coming from Stephen Neild Laszczyk of Goldman Sachs. Please go ahead. Stephen Neild Laszczyk: Hey, great. Thanks for taking the questions. Sean, would love to get your latest thoughts on what you are expecting to see on the competitive front this year, and if you are seeing anything as you make your way out of 2025 into 2026 that might make you more confident that some of the recent gains in market share are perhaps more structural or could become structural Andrew Edward Crum: with how you position the brand as you look ahead into this next year? Sean Gamble: Sure. I think from a broad competitive landscape, competition just continues to grow. We see the industry at large improving marketing capabilities and continuing to lean into amenities and upgrades. I think that is a good thing on the whole because it creates an overall lift for everybody. We too, obviously, are continuing to ratchet up our competitiveness, pursuing ongoing initiatives in the different areas we have talked about before, to try to push our share even further. I think the structural gains we have talked about we are very pleased about. We do our best to tease out how much is content mix and capacity constraints relative to structural things, but we believe at least 100 basis points—growing beyond that, over 100 basis points—of our gains since pre-pandemic levels are sustainable, and we continue to push that further. So I think we feel good about the direction we are heading in and our ability to continue to compete as overall competition grows. Andrew Edward Crum: Great. Thanks for that. And then, Melissa, maybe just a follow-up on margin. Curious if there is any more help you could perhaps Stephen Neild Laszczyk: provide investors just on the magnitude of margin expansion you would Alicia Reese: expect to see in 2026 if box performed in line with expectations, and some of the puts and takes you called out on the expense side a bit earlier? Stephen Neild Laszczyk: Thank you. Melissa Thomas: Yes. From a margin perspective, again, as I mentioned earlier, really box office and attendance are going to be the primary drivers, and given anticipated growth, we do believe that supports margin expansion. But there are a number of other variables at play. We have talked about, on the average ticket price side and per cap side, that we do expect to continue to grow those top-line measures. We talked about market share a bit. We will have to see how the film slate, how individual films, shake out to see where market share trends. And then from a big-picture expense standpoint, as I was alluding to earlier, we do expect to gain some leverage over our fixed costs, and that is particularly in the U.S., where we have a higher fixed-cost structure. On the variable expense side—film rental and advertising, salary and wages, concession supplies, and then in the case of international, facility lease expense—those will fluctuate based on attendance and box office performance, although not necessarily at the same rate. Other factors from a modeling standpoint to consider would be ongoing inflation impacts on wage rates and certain concession categories. Also, from a film rental standpoint, just keep in mind that that is going to vary depending upon Operator: the Melissa Thomas: mix of blockbuster content. And then utilities and other expenses, I would just call out there. We expect them to remain elevated as we continue to address deferred maintenance needs across the circuit, albeit from a year-over-year standpoint, I do not expect that to be a meaningful headwind given that we started those efforts in 2025. Also on utilities and other, just keep in mind electricity costs, which continue to be impacted by rising market rates. Outside of that, we continue, as always, to pursue productivity initiatives and cost mitigation strategies to maximize our profitability and margin potential. Alicia Reese: Great. Thank you both. Stephen Neild Laszczyk: Thanks, Steven. Thank you. At this Operator: time, I would like to turn the floor back over to Mr. Gamble for closing comments. Sean Gamble: Okay. Thank you, Donna, for your help, and thank you to everyone for joining us this morning. We really appreciate the time and all your questions, and we look forward to reconnecting in a few months to share and discuss our first quarter 2026 results. Have a great day. Operator: Ladies and gentlemen, this concludes today's event. You may disconnect your lines or log off the website at this time and enjoy the rest of your day.
Operator: Hello, and welcome to The Vita Coco Company, Inc.'s Fourth Quarter and Full Year 2025 Earnings Conference Call. My name is Liz. I will be coordinating your call today. Following prepared remarks, we will open the call for your questions and instructions will be given at that time. I would now hand the call over to John Mills with ICR. John Mills: Thank you, and welcome to The Vita Coco Company, Inc. fourth quarter 2025 and full year earnings results conference call. Today's call is being recorded. With us are Mr. Michael Kirban, Executive Chairman; Martin F. Roper, Chief Executive Officer; and Corey Baker, Chief Financial Officer. By now, everyone should have access to the company's fourth quarter earnings release issued earlier today. This information is available on the Investor Relations section of The Vita Coco Company, Inc.'s website at investors.thevitacococompany.com. Also on the website, there is an accompanying presentation of our commercial and financial performance results. Certain comments made on this call include forward-looking statements, which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management's current expectations and beliefs concerning future events and are subject to several risks and uncertainties that could cause actual results to differ materially from those described in these forward-looking statements. Please refer to today's press release and other filings with the SEC for more detailed discussion of the risk factors that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today. Also during the call, we will use some non-GAAP financial measures as we describe our business performance. Our SEC filings as well as the earnings press release and supplementary earnings presentation provide reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures and are available on the website as well. And with that, it is my pleasure to now turn the call over to Michael Kirban, our Co-Founder and Executive Chairman. Thanks, John, and good morning, everyone. Thank you for joining us today to discuss our fourth quarter and full year 2025 financial results and our expectations for our performance in 2026. I want to start by thanking all of our colleagues across the globe for our continued strong performance overcoming the unusual challenges of 2025 to deliver a record year while also staying committed to The Vita Coco Company, Inc. and advancing our mission of creating ethical, sustainable, better-for-you beverages that uplift our communities and do right by our planet. I am incredibly pleased with our 2025 full year performance and yet even more excited about the opportunities for our category, our current momentum, and our ability to deliver very high execution levels which all bodes well for our future. Coconut water remains one of the fastest growing categories in the beverage aisle according to our retail data for 2025, growing 22% in the U.S., 32% in the U.K., over 100% in Germany. For the full year, Vita Coco coconut water, excluding our coconut milk products like Treats, grew 21% in retail dollars in the U.S., 32% in the U.K., and over 200% in Germany. This helped drive our strong full year growth in global net sales, gross profit, net income, and adjusted EBITDA. Our international business is accelerating, driven by strong performance in Europe. Our increased investment in the U.K., Germany, and other select European markets is paying off with healthy growth and brand share wins such that the international segment growth contributed 29% of the 2025 total company net sales growth. We will continue to invest in these core markets while exploring opportunities in additional international markets where we are well positioned to enter or drive profitable growth long term. Our recent appointment of Charles Van Asch as Chief Commercial Officer with global responsibility is indicative of our focus on international business, and our commitment to strategically invest in this long term opportunity. Charles has been with Vita Coco almost ten years, most recently leading our U.S. sales team, and has delivered years of strong growth as he built our sales and category management capabilities. Michael Kirban: I am excited that he is taking on this larger role as I believe that our international business could eventually be as large as our U.S. business is today. In 2026, we will continue to double down on active hydration across markets as a driver of consumer growth, positioning Vita Coco as the natural choice for performance-minded consumers. Building on our strong occasion-based marketing framework, we will be expanding more deliberately into sport and recovery. We will endeavor to leverage professional athletes and partnerships to authentically demonstrate the role Vita Coco plays in real performance and recovery moments. With three and a half times the electrolytes of the leading sports drinks and clean ingredients, we believe that Vita Coco is uniquely positioned to recruit new consumers, increase usage frequency, and even further unlock the next phase of sustained consumer growth. The acceleration of the category that we saw in late 2024 continued through 2025, which combined with improved inventory and strong execution produced our excellent full year results. Looking forward, we expect to maintain strong growth trends as we invest in and develop the coconut water category in our priority markets and develop and nurture new markets. Operator: Our asset light model, Michael Kirban: leading market share, and strong cash generation positions us well to take advantage of the opportunities ahead. As I have said before, I believe that the coconut water category is in the very early stages of gaining mainstream appeal on a global level. Coconut water appears to be transitioning from niche to mainstream, and we are at the forefront of that trend. If we continue the household penetration and consumption gains that we are seeing, I am confident that coconut water will one day be as large as some of the major categories across the beverage aisle. And now I will turn the call over to our Chief Executive Officer, Martin F. Roper. Martin F. Roper: Thanks, Michael, and good morning, everyone. I am pleased to report Vita Coco's record performance in 2025. We finished with net sales up 18% driven by full year growth of Vita Coco Coconut Water of 26%. Our brand trends are very healthy and driving the company growth. Our recent private label trends represent the previously discussed net effects of lost and gained business Michael Kirban: with some business wins expected to start in 2026 which will improve these trends. Martin F. Roper: Our Q4 branded scan results in the United States continue to be very strong, with a small benefit at the end of the quarter from the Walmart reset that took place mid-November, in which we recovered most of the distribution loss at the 2024 end and improved our total distribution and space allocation from 2024 levels, now in what we believe is a higher traffic aisle. We show some photos of a range of the sets in Walmart in our investor deck to demonstrate the improvement. Our U.S. Vita Coco branded business is benefiting from strong volume growth and also the net impact of the two price increases taken in the U.S. last year. In November, it was announced that going forward, most coconut water products would be exempt from the tariffs announced Michael Kirban: earlier in 2025. Martin F. Roper: These changes are applicable to most of our products sold in the U.S. but do not materially affect our fourth quarter results Michael Kirban: as we continue to sell inventory which has been imported subject to tariffs in place before these changes. We expect Martin F. Roper: cost of goods in 2026 to benefit from the tariff exemption for coconut water, and from lower full year average ocean freight costs, with those benefits partially offset by increased finished goods costs driven by normal inflationary pressures and some weakness in the U.S. dollar and increased domestic logistics costs. We believe average ocean freight rates during the quarter were still slightly elevated relative to historical levels, even as we saw rates soften through the quarter. We operated the quarter primarily on spot rates, with some fixed price arrangements on certain lanes to secure capacity. At the end of the quarter, we started exploring medium term fixed price commitments as we received offers closer to spot. We have made some commitments as of today that would cover approximately 25% of our expected 2026 ocean shipping requirements. Michael Kirban: This will allow us to reduce volatility in 2026 from potential fluctuations in ocean freight rates. Martin F. Roper: As we look to 2026 we expect healthy brand growth in our focus markets and positive growth in private label after the first quarter, benefiting from the new and regained business referenced earlier. We have secured capacity to support our expected growth and are well positioned with inventory and supply capability. We are excited by our start to the year, particularly the Circana U.S. trends of 24% growth for both the coconut water Operator: category Martin F. Roper: and Vita Coco Coconut Water through 02/08/2026, where we have benefited from some favorable timing of promotional activity earlier in the year Michael Kirban: and the impact of the improved distribution at Walmart which we estimate is adding approximately 6% to the year-to-date brand trends. Martin F. Roper: While we expect to hold most of our pricing taken in 2025 to cover our inflationary cost of goods pressures, Michael Kirban: we do anticipate some increase Martin F. Roper: in promotional initiatives so that we remain competitive. We still have the residual impact of the 2025 tariff on our inventory which means we will not see the long-term cost of goods representative of our ongoing business until Q2. From an investment perspective, we are endeavoring to deliver leverage on our SG&A spend even as, with the strong momentum for the category and our brand, Michael Kirban: we plan to increase investments in marketing and sales to secure long-term brand growth opportunities. Martin F. Roper: To summarize, our category is very healthy, our brand is performing well, and we are turning around our private label trends. We expect our international business to continue to grow at strong rates off a larger revenue base, which should contribute more meaningfully to our total growth. Our supply chain is performing well and capable of supporting continued strong growth. We are confident in our team's ability to execute and deliver on our plans for 2026, and our confidence in the category and Vita Coco brand trends remains very high. With that, I will turn the call over to Corey Baker, our Chief Financial Officer. Corey Baker: Thanks, Martin, and good morning, everyone. Corey Baker: I will now provide you with some additional details on the full year 2025 financial results and our outlook for 2026. For 2025, net sales increased $94,000,000, or 18% year over year, to $610,000,000, driven by strong Vita Coco coconut water net sales growth of 26%, partially offset by private label declines of 19%. On a segment basis, within the Americas, net sales grew 15% to $509,000,000 led by Vita Coco Coconut Water that grew net sales by 24% to $424,000,000. That was partially offset by private label which decreased 30% to $63,000,000. Vita Coco coconut water saw a 19% volume increase and a 4% net price mix benefit. Our Q4 shipments benefited from stronger than expected shipments at the end of the year, which resulted in higher distributor inventory than we had anticipated. We estimate that this inflated our fourth quarter net sales by approximately $7,000,000. Private label sales decreased 30% driven by a 26% decrease in volume, and price mix decrease of 5%. The weakness in private label Americas shipments was due to the loss of regions at key retailers that started early in Q2. Our international net sales were up 37% where we saw continued strong net sales growth across branded and private label coconut water. Vita Coco Coconut Water net sales grew 43%, and private label increased 34%. Consolidated gross profit was $223,000,000, an increase of $24,000,000 versus prior year. On a percentage basis, gross margins finished at 37% for the year. This was down approximately 200 basis points from the 39% reported in 2024. The decrease in gross margins resulted from higher product cost and the impact of tariffs, partially offset by branded coconut water pricing and favorable product mix. Within the year, we expensed $14,000,000 of the $16,000,000 in tariffs we paid, representing about two points of gross margin impact on the year. The remaining $2,000,000 of tariffs capitalized in inventory will flow through our P&L in early 2026. Moving on to operating expenses. SG&A costs increased to $140,000,000 driven by increased investments in people resources focused on driving future growth, and adding supply capacity in addition to increased marketing spend. Net income attributable to shareholders was $71,000,000, or $1.19 per diluted share, compared to $56,000,000, or $0.94 per diluted share. The 27% increase in net income was primarily driven by the increase in gross profit, and a gain on the fair value adjustments to FX derivatives in the current year versus a loss in the prior year, partially offset by higher SG&A investment and increased income tax expenses. Our effective tax rate for 2025 was 23%, versus 21% last year. The increase in the effective tax rate is largely driven by the mix of discrete tax items recognized during the year which were less favorable than in the prior year. Adjusted EBITDA was $98,000,000 or 16% of net sales, up from $84,000,000 or 16% of net sales in 2024. The increase was primarily due to the increased gross profit partially offset by higher year-on-year SG&A expenses. Turning to our balance sheet and cash flow. As of 12/31/2025, our balance sheet remained very strong, with total cash on hand of $197,000,000 and no debt under our revolving credit facility. For the full year, we generated $32,000,000 of cash driven by strong net income, partially offset by increase in working capital, mostly due to our $27,000,000 investment in inventory to support service levels and expected growth in 2026, share repurchases of $11,000,000, and $8,000,000 of capital investments primarily related to our new office spaces, which is significantly above our normal CapEx levels. We started 2026 with very strong category trends in our major markets, healthy inventory levels, and confidence in our team and our Vita Coco brand. We are excited about our ability to continue to deliver strong results. We expect net sales between $680,000,000 and $700,000,000 with expected gross margins for the full year of approximately 38%, delivering adjusted EBITDA of $122,000,000 to $128,000,000. We are planning strong net sales growth based on the U.S. category growing mid-teens and our international business, led by the U.K. and Germany, maintaining their healthy growth rates. We expect consolidated growth of Vita Coco Coconut Water of low to mid-teens with our U.S. Vita Coco net sales slightly lagging the category due to the impact from the strong year-end 2025 shipments to our DSD partners mentioned above, as well as investments in distributor incentives to deliver growth and the anticipated impact from the launch of private label at a large U.S. retailer. We expect strong private label net sales growth of 20% to 25% in the U.S. as we regain some geographic regions at multiple retailers and launch a new one as previously discussed. From a phasing perspective, we expect a Vita Coco promotion at a major U.S. retailer to move forward by one month. While this will result in consistent major promotions over the first half, we expect a shift of proportion of our net sales from Q2 to Q1 for Vita Coco Coconut Water. Michael Kirban: We expect Corey Baker: 2026 gross margins to improve from 2025 levels as we benefit from the branded pricing taken in 2025, the removal of tariffs, and favorable ocean freight rates, offset by the aforementioned promotional and incentive impact. We expect to invest a portion of the pricing we took in 2025 into incremental U.S. branded promotions. We expect that this will result in full year branded pricing increases of low single digits, with a higher mix of private label resulting in consolidated net price realization growing slightly. The phasing of branded pricing actions implemented in Q2 2025 will result in stronger net pricing early in the year and potentially declining net pricing starting in Q3 due to the promotional investments. We expect SG&A to increase mid- to high-single digits as a percentage of net sales as we increase investments in marketing and key personnel areas to deliver the expected 2026 results and invest for long-term growth. These investments will be partially offset by a planned reduction in incentive compensation. We expect to deliver SG&A leverage of about one point over 2025 as we continue to deliver strong growth with disciplined investments. And with that, I would like to turn the call back to Martin for his closing remarks. Martin F. Roper: Thank you, Corey. To close, I would like to reiterate our confidence in the long-term potential of The Vita Coco Company, Inc., our ability to build a better beverage platform, and the strength of our Vita Coco brand and the coconut water category. We have strong brands and a solid balance sheet and believe that we are well positioned to drive category and brand growth, both domestically and internationally. We are confident in our ability and are excited about our key initiatives to drive long-term growth. Thank you for joining us today, and thank you for your interest in The Vita Coco Company, Inc. That concludes our fourth quarter 2025 prepared remarks. We will now open for questions. Operator: Star 11 on your telephone, and wait for your name to be announced. To withdraw your question, please press Star 11 again. Our first question comes from Eric Des Lauriers with Craig-Hallum. Your line is now open. Eric Des Lauriers: Great. Thank you for taking my questions and congrats on another very strong quarter. My first question is on private label. So there has certainly been a lot of movement Michael Kirban: in recent years. Nice to see the regained regions and some new additional wins. Eric Des Lauriers: Can you give us a bit more of a sense of the cadence of growth expected throughout the year? I think you said you expect it to improve after Q1. And then just in general, with all the movement in recent years, how should we think about the white space opportunity in private label in the Americas? Michael Kirban: Just from here on out. Eric Des Lauriers: Thank you. Corey Baker: So, Eric, as we talked about, the phasing of the private label is quite hard. We have a difficult lap in Q1 as we still retain many regions, and then post Q1 we should start to see that new business impact the P&L. What is still hard to call because of the way we account for it is when new customers will come on board. So you should see that full year growth 20 to 25 in Americas starting in Q2, but somewhat of a ramp towards the back half. Eric Des Lauriers: Okay. That is helpful. And then And I would just add that the amount of white Michael Kirban: the private label business is much more diversified than it would have been in the past, both new retailers that have been added or being added in the U.S., also internationally. Eric Des Lauriers: Okay. Great. Michael Kirban: Then this Eric Des Lauriers: in terms of the white space opportunity in private label, should we think of there as being, you know, considerable more opportunities for you guys to win Michael Kirban: in Eric Des Lauriers: the Americas, or, you know, are you sort of, you know, like you mentioned, you are diversified, you have a solid chunk. Should we not look for that as being a major growth driver in the U.S. going forward? Again, just trying to get a better sense of the white space opportunity after you have, you know, won all these new regions? Yeah. In the U.S., you know, private label is a little bit dominated by one major club player. Corey Baker: And just putting that player aside for a bit, in the remaining private label universe in the U.S., Martin F. Roper: we are not supplying at all. There are still some retailers there that we would look at that business and say it was Michael Kirban: attractive Martin F. Roper: and so there are still opportunities to win that business or parts of that business with some retailers that we currently do not service. As it relates to the major player, we have serviced that player sort of pretty consistently but reduced regions over time, and we remain open to adding more regions or, you know, I suppose, could take regions away. It is the nature of the business. Right? We have described it as lumpy. But given their size, you know, their decisions are significant decisions to our business. Yeah. No. That all makes sense. And then just last for me. Just looking to drill down a little bit more into international. Certainly very encouraging Eric Des Lauriers: results there. I think we have talked previously about I think this was Martin F. Roper: sort of specific to Germany about, you know, the need to sort of get in via private label first, and it is sort of, you know, a crawl, walk, run Eric Des Lauriers: you know, type ramping. Just wondering if you could provide a bit more kind of Martin F. Roper: qualitative assessment of the international as we kind of look at it right now. Are we sort of poised to see, you know, continued Eric Des Lauriers: acceleration in growth here? Are we still in Martin F. Roper: the sort of building out phase? Just a bit more color on the international opportunity would be great. Thank you. Michael Kirban: Sure. I think, you know, you can see in our reported numbers Martin F. Roper: international sales, I think, grew 37%, which is an acceleration on the growth the prior year, and now off a larger base. Right? And so I think we have said all along that over time, international will become a large part of our business. So it should grow faster than our overall business, and as it does so, will add more incremental growth to our business over our base domestic business. We still look at Europe as a developing market. Obviously, within that, there are different countries that are different developed. If you look at our investor deck from June, you will see some per capita consumption numbers by country, which give you a sense for at least where those countries were. I think that data is 2024. Where those countries were in their development. And so I think we have talked about how the U.K. is five to ten years behind the U.S. in development. And then you have got our next largest market we talked about is Germany, which is at least five to ten years behind the U.K. So there is a long ramp there. I think if you imagine that Europe could have the same per capita consumption as the U.S., then there is no reason to believe that, you know, Europe and therefore international markets can be as large as our American business today. But, you know, our American business today is still growing sort of double digits. Right? So that is a moving target. And so we aim to close that gap in market development, but we know it will take time and we are doing it one market at a time as we see the opportunities, as we put people into that market to sort of seed it and then get it going, and then make sure we can ramp it up from a supply perspective. It is going really well. The European team is doing a great job and we look forward to, you know, hopefully many years of ongoing growth. Obviously, as the base gets larger, the growth rates will come down. But our plan is for international to continue to provide a significant part of our total growth, you know, for the foreseeable future. Very helpful, great to hear. Congrats again on the strong results, guys. Michael Kirban: Thanks, Eric. Operator: Our next question comes from James Ronald Salera with Stephens. Michael, Martin, Corey, good morning, guys. Thanks for taking our question. Martin F. Roper: Good morning, Jim. Hey, Jim. I wanted to Michael Kirban: to start off if maybe you can give us some detail around Martin F. Roper: the Walmart placement, given the stepped-up visibility there. Is there any characteristics Martin F. Roper: of the consumers Michael Kirban: that are coming to the product via that channel that you might be able to share? Martin F. Roper: Primarily new to the brand? If there is any Michael Kirban: like I said, age or kind of demographic characteristics you could share given the significant increase in visibility being in that new set? Martin F. Roper: So I think it is too early for any information on that buyer or change in buyer or the impact of new set to show up in our consumer data. Right? It is two, three months old. I think what we would say is we are very happy with the outcome of the set process. We have had an opportunity to go into Walmart. Depending on the type of Walmart you are in, you will see a slightly different set ranging from absolutely huge, and I would refer you to slide 10 in our investor deck on the right-hand side where you have got an example of one of the really large ones, to more normal, which will probably be the left-hand side, and then the smaller ones is sort of the central photo. Right? All of them are significant improvements over where we were before in terms of SKUs that we have in store and also shelf space and visibility. And that is showing up in our data on Walmart as growth. I think we said in the remarks, Walmart is adding 5% to 6% to our total scans right now, which is very cool. And, you know, given that growth rate, Walmart is gaining share of the coconut water category as a retailer. So that is really good. So I think that shows that the consumer is there. Obviously, this set, while it is in the same aisle, now it is a little bigger and maybe it moved a few feet. So people need to find it. But the actual consumer data will not show up if the data sets are not locked up or, you know, quite a few months or maybe even twelve. What we would say is the Walmart consumer is showing that they are willing to buy coconut water. We do not see any reason why Walmart should not be as a strong coconut water destination, and certainly that was our pitch to them. And they seem to have bought off on that in how they have used coconut water to anchor that part of the set on the juice aisle. And so, you know, we are excited. But, you know, in the big scheme of things, Walmart is a certain percentage of the business and this growth helps, but it does not necessarily significantly move the top line. But it is certainly very helpful. And I think we look at it and we think it is more likely that other retailers will follow Walmart in allocating space because people follow Walmart and they want to be competitive. So for us, it is a very positive leading indicator for what might happen this year or next year in the rest of the market. Great. And then Michael, I wanted to follow up on Michael Kirban: some of the commentary you had around the hydration use occasion, particularly Martin F. Roper: kind of more active Corey Baker: users as a sports drink replacement. Martin F. Roper: I know there is a lot of opportunity in these different Michael Kirban: for these different use cases, but sometimes consumers Corey Baker: do not really know what use occasion coconut water fills. Martin F. Roper: Do you have anything, whether it is on advertising campaign or in-store activations, packaging, Michael Kirban: planned for this year? Martin F. Roper: That will really drive home that Michael Kirban: particular kind of active hydration use occasion? And if so, any thoughts of kind of how that should layer in for the year and when we should expect to see that really driving that visibility to that use occasion? Yeah. Well, it is being built more into our overall communication in general, the three and a half times the electrolytes of the leading sports drinks, and being all natural from a tree, not a lab. So it has become a bigger part of our communication. We are activating in youth sports in a big way. I do not know if you have seen our partnership with Rush Soccer and getting into other youth sports programs. We have a program around some of the U.S. World Cup soccer players for World Cup activation. And so we are really focused on these types of activities. But all in all, it is, and we are also, we have actually been testing some media, which some of you might have seen. TV specifically. So all in all, it is a big focus, but it is the underlying reason that coconut water has been and is becoming so successful and the category is continuing to grow. The main functionality, whether the product is used in a smoothie or in a cocktail or all the other usage occasions, the hydration aspect, the electrolytes, I think, is the underlying reason and the functionality that is working so well. James Ronald Salera: Great. Great. I appreciate the thoughts. I will hop back in the queue. Yep. Operator: A reminder, if you would like to ask a question at this time, please press. Our next question comes from Michael Scott Lavery with Piper Sandler. Michael Scott Lavery: Hi, guys. Good morning. This is Corey Baker: on for Michael. Thanks for taking our question. Michael Scott Lavery: Just want to ask what your just want to ask what your expectation for cash is. You are sitting on about $195,000,000 of cash. I know you guys have always had M&A on your to-do list, but Martin F. Roper: there has not really been something interesting or at the right price. But how do we think about what cash is meant to go for? Martin F. Roper: Thanks. So Corey Baker: Michael, you are right. You know, the priority is to continue to grow the core brand and grow the category. And as we said, we do believe M&A will play a role at some point. It has not yet, and we remain active but disciplined. We have returned some cash to shareholders through repurchases. So at this point, we will continue to look for opportunities and continue to work with our board and subsets of our board on repurchases as we move along. So really no overall change in our approach at this point. Michael Scott Lavery: Okay. That is great. Thanks. And Corey Baker: can I just ask about innovation for 2026? Is there anything in the pipeline Michael Kirban: and separately then, what are your expectations for marketing spend in 2026? Martin F. Roper: Did not hear the second part. The marketing spend. Oh, okay. On the innovation side, you know, we are continuing to push things we were pushing last year. Treats has performed nicely, getting additional distribution. And we expect at some point in time to add an additional flavor, and I do not think we are quite ready to announce that on these airwaves right now. But that is our expectation, and it looks pretty promising. And then we obviously are continuing to push the multi-packs and, you know, the different pack formats. Innovation is playing a role by driving new news and sort of building our shelf space. When you look at the Walmart shelves, it is obvious that we are going to need a pipeline of pack innovation to maintain that as fresh longer term. So we are working on that. And then as it relates to marketing, we are increasing marketing. We want to increase marketing maybe a little faster than net sales of the branded side, partly because we believe that those opportunities, as we have talked about, in pushing the hydration method, and we are excited by some of the programs that Michael talked about coming this summer. Partly also to protect the brand versus private label. The private label price gaps that are currently there may widen as the private label vendors sort of pass tariff savings back, and we are prepared to try and hold our price where it is and see what happens, but reserving sort of price promotional investment, which is obviously part of how we think about marketing, as a way to potentially react. And that is how we are thinking about the planned increase, you know, pricing that we investment that we think for the rest of the year. So we are going to watch that closely, and we will balance increased marketing versus pricing actions to try and maintain our position relative to the competitors in the marketplace as they adjust pricing or not through the year. Michael Scott Lavery: Great. Thanks, guys. Operator: That concludes today's question and answer session. I would like to turn the call back to Martin F. Roper for closing remarks. Martin F. Roper: Thanks, Liz. Thanks, everybody. We know a lot of folks are down at CAGNY, and we are looking forward to sharing a coconut water-based cocktail with folks Thursday night or Friday. So hope everyone has a good week, and thank you for your interest in The Vita Coco Company, Inc., and we look forward to talking to everybody when we announce our Q1 results in late April. Thank you. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Alfonso Ianniello: Good morning, and welcome to Codan's H1 FY '26 Results Presentation. I'm Alf Ianniello, Managing Director and CEO. And joining me today is our CFO and Company Secretary, Michael Barton. As announced this morning, after more than 22 years with Codan, Michael has informed us of his decision to retire at the end of August following our FY '26 full year results. Over that time, Michael has played a pivotal role in shaping Codan's financial discipline, capital allocation framework and acquisition strategy. On behalf of the Board and the broader team, I'd like to sincerely thank him for his contribution. I'm also pleased to confirm that Kayi Li, currently our Deputy CFO, will succeed Michael as our Chief Financial Officer. With nearly 19 years at the business, including senior finance roles at Codan since 2013, Kayi has played an integral role in our financial strategy and operational execution. We are confident her experience will support a smooth and seamless transition. In addition, Daniel Widera, our General Counsel and Joint Company Secretary, will become Codan's sole Company Secretary upon Michael's retirement. Michael will remain with the business for a structured 12-month transition period from August to ensure continuity and stability. Before we begin, please take a moment to review our standard notice and disclaimer. Today, we'll begin with our H1 FY '26 performance highlights, followed by a detailed review of each of our segments being Communications and Metal Detection. We also highlight 2 products that contributed meaningfully during the half, demonstrating how our engineering investment is translating into commercial outcomes. We'll then revisit our strategy and near-term priorities before closing with our outlook for the remainder of FY '26. Following our remarks, we'll move on to a live Q&A session, which will be hosted by Sam Wells from NWR. While Michael and I are working through the slides, you are welcome to submit written questions at any time [Operator Instructions] For those newer to Codan, we're a global group of technology businesses focused on critical communications and detection. Our technologies are designed for mission-critical environments, keeping people connected, informed and safe in demanding and often remote conditions. We operate across defense, public safety, gold detection and recreational markets, supported by a global footprint and strong engineering capability. At our core, we focus on reliability, performance and long-term customer relationships, particularly in environments where failure is not an option. Our strategy to build a stronger Codan remains consistent and disciplined. It is underpinned by sustainable organic growth, targeted and accretive acquisitions and continued engineering investment and strong operational execution. Diversification remains a key strength with Minelab delivering a strong cyclical performance and Communications positioned for structural long-term expansion driven by defense and public safety demands. Over time, this approach is building a more resilient and diversified earnings base with improved visibility and quality. At a high level, our H1 results reflect consistent delivery against our strategic plan, underpinned by disciplined execution and favorable market conditions in several key regions. Communications delivered another period of consistent and high-quality growth, supported by strong defense demand and the integration of Kagwerks. Metal Detection delivered exceptional performance, particularly in Africa, where elevated gold prices supported demand. Importantly, this performance was achieved while continuing to invest in engineering, systems and people, ensuring that our growth remains sustainable and repeatable over the longer term. Turning to the numbers. Group revenue increased by 29% to $394 million, reflecting strong organic growth and a full first half contribution from Kagwerks. EBIT increased by 52% and NPAT increased by 55% to $71 million, demonstrating strong operating leverage across the group. This reflects both revenue growth and improved product mix, particularly within Minelab. The Board declared a fully franked interim dividend of $0.195 per share, up 56% on the prior corresponding period, consistent with our disciplined capital management approach. I will now hand over to Michael to step through the financial detail. Michael Barton: Thanks, Alf, and thanks for the kind words at the start of your presentation. Also, I'd just like to thank you for your support of the succession plan to Kayi and Daniel, much appreciated. And thank you for making the time under your leadership so enjoyable and so successful. On to the numbers. So as highlighted, group revenue increased 29% during the half and pleasingly, the growth came from both our Communications and Metal Detection businesses. Our gross margins increased 58% and all profitability metrics were increased. Operating expenses increased primarily due to a targeted investment in shared services, higher performance-linked expenses, which are reflective of our strong results, product launch costs and the integration of Kagwerks for the full period. Tax expense was slightly higher at 25% with more of our increased Metal Detection profits taxed here in Australia. NPAT margin improved to over 18%, reflecting improved profitability and operating leverage. We continue to actively manage our foreign exchange exposure through our hedging program with contracts in place to mitigate approximately half of the expected USD exposure in the second half. Overall, the financial result reflects both strong performance and continued investment in capability. We closed the half with net debt of $88 million, an increase of $10 million compared to June, largely reflecting working capital investment to support growth and our increased activity levels. Leverage remains conservative at 0.4x EBITDA. With an undrawn debt facility of $140 million as well as an additional $150 million accordion capacity, we retain significant financial flexibility to pursue inorganic growth opportunities. This slide illustrates the key drivers of our net debt movement during the half, including the investment in operating cash flow into working capital to drive growth, our dividend payments and continued investment in our engineering programs. Engineering investment during the half was $36 million, representing approximately 9% of Group revenue. This level of investment is consistent with our long-term approach and supports product development pipelines across both Communications and Metal Detection. In Communications, investment is focused on advanced tactical platforms, next-generation waveforms and public safety applications. In Minelab, investment continues to support our product refresh cycles and our technology leadership. This sustained commitment to innovation underpins our organic growth trajectory. And back to you, Alf, to take a closer look at our business units. Alfonso Ianniello: Thanks, Michael. We'll now move on to the business units. Communications revenue increased by 19% to $222 million. Segment profit increased 17% to $58 million, with margins broadly stable at 26% as we integrate Kagwerks and manage the challenging trading period in Zetron Americas. The orderbook increased by 19% to $294 million at the 31st of December, providing strong revenue visibility into H2 and beyond. We remain focused on progressing Communications margins towards our 30% target by FY '27 as integration benefits and scale efficiencies materialize. DTC delivered strong growth, supported by defense demand and increased adoption of our unmanned system solutions. Revenue from unmanned systems increased 68% to $73 million. Approximately half of this unmanned revenue during the period related to operational defense application in conflict zones with the balance being driven by adoption of our technologies across non-conflict defense and security programs in Asia, the U.S. and Europe. Importantly, growth rates across both conflict and non-conflict markets were broadly consistent, reinforcing the structural expansion of the unmanned systems market. Kagwerks contributed in-line with expectations and continues to integrate effectively, enhancing our position within U.S. military programs and strengthening our ecosystem offering. Our presence across the U.K., U.S. and Australia positions us well to capture long-term defense program across allied markets. The BluSDR contributed meaningfully during the half and represents a strong example of our engineering capability translating into commercial success. It is an ultra-lightweight, high-performance software-defined radio platform designed for long-range, secure connectivity across unmanned and mobile applications and has proven particularly well suited for drone-based deployments. Its technical characteristics, including high output power, mesh networking capability and low size, weight and power reinforces DTC's competitive positioning in mission-critical communications. Trading conditions for Zetron Americas were temporarily impacted by slower procurement cycles across the state and local agencies that we serve, which extended sales cycles and deferred order timing during the half. Early indications in the second half of the year are encouraging with trading conditions showing signs of improvement as funding approvals progress. Outside the Americas, EMEA and APAC markets delivered stable performance. We continue to invest in next-generation 911 capability and the SALUS platform to enhance recurring revenue streams and strengthen long-term customer retention. Minelab's first half results were exceptional, with revenue up 46% versus prior corresponding period to $168 million. Segment margin expanded to 45%, reflecting a higher mix of gold detector sales and improved operating leverage. Africa delivered exceptional performance, supported by elevated gold prices and strong demand across West Africa. Rest of the world delivered high teens growth, which is an excellent result, reflecting continued strength across key recreational markets. Rest of world performance was supported by product innovation, retail expansion and the ongoing development of our direct-to-consumer platforms. This performance highlights both cyclical tailwinds and structural improvements in the business model. During H1, we launched the Gold Monster 2000. It delivers enhanced sensitivity to ultrafine gold and improved depth and accuracy in mineralized ground, critical attributes in many of our core gold markets. Early customer feedback has been positive, supporting continued momentum as distribution scales up. Now I'd like to move on to the strategy update section of today's presentation. Our strategy remains anchored in 3 core pillars: first, investing in ourselves, strengthening systems, process, people and product innovation; secondly, strengthening our core businesses, which means expanding addressable markets, improving revenue quality and increasing reoccurring revenue components; and thirdly, disciplined capital allocation, where we pursue strategically aligned and accretive acquisitions that enhance capability, scale and market penetration. Together, these pillars support sustainable, diversified earnings growth. In DTC, we are expanding towards a full system solution provider model, continuing investment in the next generation of waveforms and ecosystem integrations. In Zetron, we are focused on increasing reoccurring service revenue and expanding support contracts and also advancing next-generation command and control platforms. And in Minelab, we continue product innovation, retail footprint expansion and channel development with another new detector scheduled for release shortly. These initiatives support both near-term performance and long-term structural improvement. Now turning to our summary and outlook on Slide 23. Tying today's presentation together, market conditions remain positive in both Communications and Metal Detection, reflecting the diversified nature of the Group's portfolio and the quality of our business. Codan's strategy is to continue to invest in engineering programs to maintain product and technology leadership and to underpin long-term growth. In Communications, elevated defense spending and ongoing geopolitical tensions globally continue to generate strong demand for our unmanned systems products. Communications is on track to deliver FY '26 revenue growth within a 15% to 20% target range, supported by strong underlying demand and the full year contribution from Kagwerks. Minelab revenue in the second half of FY '26 to date is tracking in line with the strong first half performance. Based on Minelab's current trading conditions, we expect the second half performance to be at least in line with the first half, supported by favorable gold market conditions and a full 6-month contribution from recent product releases. With balance sheet capacity and a disciplined approach to capital allocation, Codan remains well-positioned to continue investment in the business and pursue future acquisitions that fit our product and technology road maps, which enhance the quality, resilience and the diversification of our earnings. The company will continue to keep shareholders updated as FY '26 progresses. Back to you, Sam. Sam Wells: As a reminder, the audience may ask questions to the management team. [Operator Instructions] There are a few pre-submitted questions, so I'll kick off with those before getting to the analysts. Firstly, just on Communications margins. You've talked about the moderating pace of margin expansion within Communications. Can you elaborate on the path from current margins to the 30% target by the end of FY '26? Michael Barton: Yes. Thanks, Sam. Yes, remain -- we've been very consistent that we remain focused on margin expansion. We did improve organically in the half, which was good. And we've been really consistent also on our revenue expectations for Communications, the 15% to 20% range remains the focus. As we deliver that and we see further revenue growth to be within that range in the second half, we would expect to see more improvement at the margin line as well. Sam Wells: And on Zetron, can you elaborate on the early encouraging signs in trading conditions in the Americas business? And are there any meaningful near-term opportunities specifically in the U.S.? Michael Barton: Yes. I think we posted a really pleasing increase in our order book at the half. So quite -- I think we're up 16% versus June, 19% versus last December. So we do go into the second half of this year with a stronger order book than what we entered the first half. So that's pleasing and sets us up to be within that 15% to 20% range that I mentioned. And I think we're also seeing -- while not yet in the order book, we are seeing some increased activity in the pipeline also in the U.S. market, public safety market for us. Sam Wells: And on Minelab Africa, an exceptional set of numbers within the Minelab business. How should we think about the sustainability of this performance, particularly in the context of 45% segment profit? Alfonso Ianniello: I think when you're looking at Minelab, I don't want to make it just an African discussion. We had a rest of the world high teens growth rate, really reflecting great execution from the Minelab team at a distribution, e-com level and direct-to-customer approach and new releases of great product. And then when you look at Africa, obviously, the gold price has been a tailwind for Minelab and then our great products have been a tailwind for Minelab. So the 45% is an exceptional number in its own right, and we believe it's maintainable in the future. Sam Wells: And just moving to unmanned. You printed some extraordinary numbers within the unmanned business. Can you help us understand how sustainable these opportunities are, particularly within the defense landscape? Alfonso Ianniello: Yes, it's really interesting. If you wind back 12 months, 18 months throughout these calls, we've referred to an unmanned market growing at 30% per annum globally. This is just increasing. The environment and the ecosystems in defense are very different today than they were previously. Our solutions back right into those unmanned platforms. And our ability to perform in conflicted environments well has really created a halo effect into other markets, hence, highlighting the success of the BluSDR-90, which was really born over the last 18 months through very high exposure to very conflicted environments. So we think the unmanned space over time will continue to be a significant tailwind for Codan. Sam Wells: Got you. And just shifting to some of those non-conflict opportunities you referenced in the presentation. Can you just elaborate on those? And where are the bulk of the revenues coming from in terms of specific applications? Alfonso Ianniello: Yes. So I won't talk about the specific applications. I'll talk more about the market -- the geographic markets that we are looking at. So if you look at, we did call out, we've started to see some positive work in the U.S., positive work in APAC, positive work in Europe. So if they're not in a conflicted environment at the moment, they're probably preparing for pre-conflict, I would say. So -- and again, let's take a step back and just reflect on the technology that we put in market, and that technology fundamentally is selling itself in these other markets at the moment. Sam Wells: Great. We'll move across to some of the analysts. First question comes from Josh Kannourakis at Barrenjoey. Josh Kannourakis: First, congrats, Michael, and wishing you all the best on the transition of your new steps and congrats to Kayi as well on the step-change in role. Good to see. Just jumping on to the first question just around regional exposure. So you did mention a bit of a step-up in terms of activity in the U.S. I know there's a lot of hoops to jump through in terms of getting into those programs and historically comms being dominated by a couple of those big local players. Is that a new incremental thing? Can you just give us some more detail on how recent that is? And maybe just specifically around the U.S., what you think the opportunity is across the broader comms space? And then obviously, specifically, unmanned as well? Alfonso Ianniello: Yes. I think when we look at comms in the U.S., we probably look at the dismounted soldier solution within the Kagwerks acquisitions and the unmanned solution giving us some good dialogue with potential U.S. customers. So there's a lot of -- as always, with these platforms, they're not plug-and-play. They are plug significant testing and evaluation and then you get an order. So we are comfortable that we're having the right dialogue with the right organizations, either at a defense department level or Tier 1s into the defense department. So that is positive. The other areas that we're actually having positive traction is APAC, and I won't go into the specific countries, but also there's been an uptick in European defense spend, and there's been some sort of shadowing of that application of that funding into unmanned systems and the DTC product category itself. Josh Kannourakis: Got it. That's really helpful, Alf. And just in terms of -- so just to understand it within the U.S. specifically because I guess my understanding was more that a lot of your volumes and things historically have been outside of that region. So you're sort of from a military perspective, within the sort of evaluation phase at the moment for that. So that's probably in terms of potential upside, that's significant if you can get through that. And -- but then on the other side, you're seeing traction in some of the nonmilitary sort of settings also. Is that the way to sort of read it through? Alfonso Ianniello: Yes, that's right. If you look at what we've seen over the last couple of months, we've been heavily involved in the border with our communications. So that's with government departments, not defense related. We are also heavily working with other sort of peripheral government departments in the U.S. that require our solution that in some ways, isn't defense related, it's more public safety related in theory, keeping the American public safe. So yes, and that's a great thing with the product categories. We can actually put it into dismounted soldier solutions, unmanned solutions, public safety solutions. Josh Kannourakis: Great. And just in terms -- I know you don't want to go into specific countries for obvious regions, but there's been some very large funding packages allocated to areas like Taiwan and in that sort of region. There's also a lot more flagged in terms of progressive step-up. How early in the journey do you think you are? Are you sort of -- do you have the right connectivity in place to capture what will obviously be a significant step-up in this broader region? Alfonso Ianniello: I would suggest, as we've said in the U.S., we are all part of the right conversations happening in APAC and EMEA being Europe. So yes, we're definitely having the right discussions with the right levels of people. Josh Kannourakis: Awesome. Final one from me. Just on M&A. I mean, obviously, it's been a pretty tumultuous environment across the software space. Defense on the other side has obviously has been a lot more favorable in terms of all the trends you've talked about. Can you maybe just talk about when you're thinking about it now the lens, how you're sort of seeing that in terms of the opportunities within both maybe comms and -- within comms within the tactical side, but also Zetron, especially with some of the potential in software, the AI-related disruption as well. Alfonso Ianniello: Yes. I think when you look at Codan and you look at our comms, the good thing we make products with software on it. So the -- any AI application is just an enhancements to the product and the end user, and that's how we actually see that. But we have pipelines of M&A targets. As you clearly mentioned, in the defense world, it's pretty hot at the moment. Multiples are far higher than we've seen in the past. People on the line would clearly know that we are very prudent when it comes to acquisitions about multiple and accretion levels. So we've been involved in processes. Some have worked. And then as in the past and the ones that we've been unfortunate on has been really the fact that we didn't believe we could extract the right value for it. But the process continues. We've invested heavily in structure at Codan. So we've got the right people working on it. We're looking heavily on how to enhance our technology road maps and our market positioning. So it's definitely a space where you just need to continue to be active in and ensure that you buy well and you can extract value for the future. So that's where we're at, Josh. Sam Wells: Next question comes from Mitch Sonogan at Macquarie. Mitchell Sonogan: And yes, congratulations to you, Michael and also Kayi as well. Just echoing Josh's comments. Just the first one, just on the outlook for Metal Detection or Minelab second half revenue to be at least in line with the strong first half. Just trying to get a little bit more color on that because obviously, you had pretty strong sequential growth. You've got, as you said, good gold conditions in that market and also still benefiting from new product releases. So just trying to understand what sort of visibility you have at the moment, how we should think about the second half potential upside risks. Alfonso Ianniello: Yes. Well, it's interesting if we talk about Minelab, that's probably the first time we've actually ever given a forward-looking number in Minelab. So yes, we've had a strong first half, right? We've got a lot of tailwinds either from a gold perspective -- gold price perspective, new product introduction, great performance in recreational. We sit here today, and we never comment on seasonality in Africa because we don't know. So we're not going to be a fact-based about that. But we do sit here today that we're saying there's the same tailwinds that existed in H1 exist in H2. And so I guess that's what our commentary was about, so okay? Mitchell Sonogan: Yes. And just in terms of -- obviously, you called out Africa being quite strong. But do you mind just giving a bit more color on other regions where you might have seen some big outperformance and other areas that you are more positive on the next 6 to 12 months as well? Alfonso Ianniello: Yes. I think I'll call out Australia. I think our work we've done in Australia has been exceptional on repositioning the way we go to market, big tick, some great work in APAC, big tick, LatAm, big tick. And then you've got Africa and Europe. We have been consistent in our approach either at a recreational level with e-comm, the marketplaces, the distribution point increases and new product introductions. So when I look at Minelab, it's very hard to fault anything they're doing in any market at the moment. And the most important thing is I'm as excited as with the gold detection and the gold sales as I am with the rest of the world sales because that high teens growth in a fairly flat consumer market is fantastic. So it just shows that where we're spending our money away from product development, it's working. Sam Wells: Next question comes from Evan Karatzas at UBS. Evan Karatzas: Just can we dive into Zetron a bit here. One of your larger competitors, Motorola, I mean they've been delivering some pretty consistent strong growth over recent quarters to their command center business. Can you maybe just speak to why you think there's such a discrepancy there to what you've seen in the U.S.? And anything you can, I guess, elaborate on around that order book for Zetron explicitly and how that's changed relative to 6 months ago, how you entered the year as well? Alfonso Ianniello: Yes. Good question. I think when you look at Motorola in the command and control space and you look at us, I don't think we're comparing apples-to-apples consistently on product offering. There's probably a bit more rolled up in that space of Motorola. And secondly, they're a Tier 1, Tier 2 player. We're a Tier 3, Tier 4 player. The way the funding and the grants work for Tier 3, Tier 4 are slightly different than they are in Tier 1, Tier 2. So -- and I think we also need to analyze Zetron over the last 4 years of Codan ownership, it's been well above market growth rate. So it's been an amazing acquisition for Codan. And so looking forward, what are we seeing in January, Feb when you -- just going further to what Michael said, yes, orders are being unlocked, so that they're pushing into the order book. There's far more activity in the pipeline. So the activity levels have come up from H1. It's a financial year. I think let's have a chat at the end of H2 and where these orders have rolled through. And let's not get away from the fact that we have entered H2 with an order book that is higher than most times. So that's the marketplace that public safety, it is. Also, let's not -- also let's understand the fact that we've been doing well in APAC and EMEA as well from a Zetron perspective, so. Evan Karatzas: Yes. Okay. No, all fair points. And just sort of coming back around to the DTC, the tactical comms, just around those investments you've been making, especially for contested environment, some of those new product releases, have they now been released into market? And then you can talk to about how early take-up or reception has been? And then also how that helps when you spoke about from a strategic sense with that expansion into your other growth regions like North America, Europe, Asia as well? Alfonso Ianniello: Yes. From a product perspective, I think the DTC product category is quite set. The feature content involves from market feedback. And that's the sort of the strength that we've had. We've been able to feed back those technical requirements from the field back into our product really quickly, either enhancing current product or creating new product like the SDR-90. So at the moment, we're heavily focused on feature content for the SDR range. And also we're heavily focused on feature content for the Kagwerks range as well. So probably less form factor changes, but more on feature content for the environment that these products work in. Sam Wells: We might just move on to the next question, please, from Tom Tweedie at Moelis. Tom Tweedie: Just the first one on Kagwerks. Are you able to give us a sense of the revenue contribution for the half for that business? And also just the color on the pipeline for program of record RFPs? Michael Barton: Yes. If I'd just give you the revenue range when we acquired that business, I think we were expecting high $40s million revenues into the low 50s. And I think we've commented, Tom, that it's been -- it's met our expectations. So it's been in that range over its first, what, 13 months of ownership. And Alf, do you want to talk about pipeline? Alfonso Ianniello: Yes. So when you look at, we've been heavily invested in supplying the Nett Warrior program, doing some international BD on other Army opportunities that we're looking at. I think what I've seen, which is very pleasing for us from a Kagwerks perspective is there's an evolution of movement from the standard DOCK Lite product, which is the base version to the DOCK Ultra product, which is the version with the radio and the AI technology and the edge computing technology. So that's what we're seeing happening in the Nett Warrior program itself. So that is significantly positive for us. And then like everything, we'll just keep doing the BD efforts with the other defense opportunities in the U.S. and internationally. Tom Tweedie: Very helpful. Just on Minelab and that side of the business, you called out detector launches. In the release, you've also mentioned one new detector to launch shortly. Just stepping back, can you remind us what the expectations are in the pipeline there over, say, the next 12-18 months for further models to come to market? Alfonso Ianniello: Yes. So we've released already an upgraded recreational detector, a new countermine detector and obviously, the Gold Monster 2000, great launches, great tech, keep moving forward. We've got a high, high-end gold detector coming out in the next couple of weeks, which is the GPZ, GPX range updates first time in almost a decade. So it will be -- it's probably anxiously being awaited by the users globally. Post that, the Minelab team has a road map on enhancing detection out 12 to 18-24 months. So -- and that's across recreational and gold and countermine, which is really the key areas. So there's no shortage of ideas from our Minelab. They are very good at creating products that exceptionally -- work exceptionally well in market. So like we always say, our ability to move that IP from an idea to a product is really the Codan superpower. Tom Tweedie: Awesome. And then one final one. You made a comment earlier around the distribution for Gold Monster 2000 still expanding. Are you able to give us a sense of -- is that in terms of key markets that you've still yet to properly launch the detector in? Or is there still more distribution to go in the second half? Can you give us a sense of what that comment related to? Alfonso Ianniello: Yes. I think that comment relates to launching a product. When you launch a product, we launched at the back probably in middle of Q2. So you're just ramping up supply chains, you're ramping up product to get into market. So at the moment, we're just in the ramp-up stage of Gold Monster 2000. So the scale up is to -- you just scale up production over time and you get into the supply chain into your customer base as more markets. And that's what that comment is about. So we are well on the way now, and that will continue over the next 12 to 18 months, I would suggest. Sam Wells: Next live question comes from Cam Bell at Canaccord. Cameron Bell: Just a couple of quick questions. So the Metal Detection comments you gave in the second half, flat revenue. Is it fair to say that with flat revenue, we can expect similar margins in the second half? Michael Barton: I think, Sam (sic) [ Cam ], we used the words at least rather than flat. So yes, in terms of the commentary on H2. At these revenue levels, we think 45% contribution margin out of Minelab is outstanding. We don't -- at these revenue levels, that would remain our expectation. I think it's fair to say at this level of revenue and that level of profitability, we are looking to reinvest in that business to continue the revenue growth that we've seen. So 45%, if that's what the contribution margin is in H2, that would be a fantastic result. Cameron Bell: Yes. Okay. I might stick with just 2 quick ones for you, Michael, to continue off on those. You might not miss these style of questions in a few months' time. Last half, you had a bunch of M&A costs unallocated. Is it fair to say there were some of those semi potentially nonrecurring M&A costs in this half? Michael Barton: Yes, probably not to the same extent. But yes, we did have M&A activity and ongoing integration costs across the business. We don't really call them out as one-off, Cam, because the business continues to evolve, and we continue to invest in different areas of the business to improve what we do. So the costs we've incurred in the first half is a fair representation of that cost base going forward. Cameron Bell: Okay. Sure. And then just last one for me. Is 25% tax rate the new norm? Michael Barton: Yes. I think with this mix of product, then yes, we're going to be in the mid-20s, whether it's 24%, 25%. But yes, I think we're in that range. Our Minelab business performing at this level, highly profitable. All that IP is generated here in Australia. We pay all of our -- majority of our Minelab taxes here in Australia at $0.30. So that caused that rate just to go up a percentage point or 2. Cameron Bell: Okay. Great. And congratulations, Michael, on everything you've achieved over the last 22 years. Michael Barton: 22 years, yes. Thanks, Cam. Sam Wells: And maybe just one last question here from James Lennon at Petra. Can we expect Codan's typical seasonal movement in working capital to repeat in FY '26, i.e., a wind down of working capital as the financial year progresses? Michael Barton: Yes. Historically, that has been the case, Sam. Look, we have had an increase in working capital over the first half. A lot of that was just activity related and the timing of that activity. So -- and we've had a really strong start to the year, the second half, a really strong start from a cash collection point of view. So some of that has unwound to start the second half. So yes. Sam Wells: And just one final question. What is DTC and Zetron revenue for the half? And would you consider disclosing DTC and Zetron revenue going forward? Alfonso Ianniello: I think we get asked that question a lot. And I think when we did the full year presentation for '25, we started talking about public safety ecosystems, defense ecosystems, unmanned, how it all comes together. If you see here today as Codan compared to 4 years ago, our Comms divisions are converging with the products that we have and how they work in market, right? So I guess a short answer to that is that we probably won't because a lot of our thinking is around public safety, which is heavily linked to Zetron, but there is creeping in on DTC products for that as that ecosystem evolves and not dissimilar to the defense ecosystem where you have unmanned systems, you have dismounted soldier solutions and you've got our standard core products in HF. So I guess the answer is that I see more converging rather than diverging today than I did probably 4 years ago. Sam Wells: Okay. Great. Thank you. We're just going through the hour. So I think that's all the time we have for live Q&A. If there are any follow-ups or unanswered questions, please feel free to reach out to us directly. And maybe with that, I'll just pass it back to you, Alf and Michael, for any closing comments. Alfonso Ianniello: Yes. Thanks, Sam. First, I'd just like to thank everyone for joining us today and the continued support you have for Codan as an organization. I think today, it just continually demonstrates our consistent approach in running Codan, our consistent strategy, our investment in product development, our investment in people and processes. We've actually steered into very good markets through M&A. So we sit here today, highly confident in our strategy, highly confident on our skills and execution and delivery and above all, that consistent approach. So I'd just like to thank everybody and we'll provide updates as we see fit for the rest of H2. Sam Wells: Great. Thank you very much for joining today's Codan's First Half FY '26 Results Call. Enjoy the rest of your day. Thank you, and good-bye.
Operator: Good day, and thank you for standing by. Welcome to the Fourth Quarter 2025 Grand Canyon Education Earnings Conference Call. [Operator Instructions] Please be advised that today's call is being recorded. I would now like to hand over to your speaker, Sarah Collins, General Counsel. Please go ahead. Sarah Collins: Joining me on today's call is our Chairman and CEO, Brian Mueller; and our CFO, Dan Bachus. Please note that many of our comments today will contain forward-looking statements that involve risks and uncertainties. Various factors could cause our actual results to be materially different from any future results expressed or implied by such statements. These factors are discussed in our SEC filings, including our annual report on Form 10-K quarterly reports on Form 10-Q and current reports on Form 8-K. We undertake no obligation to provide updates with regard to the forward-looking statements made during this call, and we recommend that all investors review these reports thoroughly before taking a financial position in GCE. With that, I'll turn the call over to Brian. Brian Mueller: Good afternoon, and thank you for joining Grand Canyon Education's Fourth Quarter 2025 Conference Call. GCE had another strong quarter, producing online enrollment growth of 8.7% and hybrid growth, excluding the closed sites and those in teach-out of 18.7%. Grand Canyon Education, Grand Canyon University and now 19 additional partners have produced remarkably consistent positive results over the last 17 years in spite of significant changes in the macro environments of education and the workplace. Most significantly, GCU has gone from the brink of bankruptcy to now being the largest private university in America. In addition to over 107,000 students studying online, GCU now has 25,000 students in an on-campus environment and has more students living in university-owned housing on its campus than any other university in the country. Recently, GCE and its partners have built 47 hybrid campuses throughout the country to address severe shortages in the health care fields. More recently, GCE has assisted GCU in building a Workforce Development Center to produce professionals in the rapidly growing construction and manufacturing fields where there are also severe shortages. The growth and success that has taken place is because GCE and its partners have built a model that is extremely flexible, is able to respond with great speed and has used advanced technologies to produce tremendous scale. The current dissatisfaction with higher education is because faculty governance models at many universities are very inflexible, move very slowly and can't scale to meet demands. There's a lot of talk about how AI will produce winners and losers by industry type. The real discussion should be about winners and losers within industries. Higher education as an industry will continue to exist. Institutions that are flexible, fast and that can scale will be able to use AI to flourish to even greater levels in the next 10 years. Higher education will be more important than ever if it can educate the next generation of workers to use AI in three important ways: one, to use AI products to increase levels of human productivity; two, to quickly allow workers whose jobs have been eliminated to re-career; and three, to educate a generation of workers for jobs that don't exist today, but will exist in the near future. It is important that universities don't just teach AI, but are able to model it in the way it runs its business. GCE and GCU have dozens of AI products and products in development across 10 colleges, over 350 academic programs and across every operational area. Students are learning with increased levels of excellence and efficiency. Scores currently produced by students in exit and licensure exams in the areas of health care, education, accounting, et cetera, are reaching all-time highs while scaling to huge numbers. This is especially important for GCU since it has rapidly expanded into academic areas requiring licensure. Programmatic areas like nursing, education, social work, counseling, et cetera, will benefit from AI implementation, but employment in those areas will always require higher education and licensure. Project work produced by business engineering and technology students are at increasing levels of sophistication. GCU's innovation center is producing new student businesses that are thriving. To succeed in the future, universities must produce those real-world opportunities for students, and they must graduate in less time for less money and for lower debt levels. Our AI products are making curriculum more targeted, faculty more effective and efficient and allowing operators to produce greater levels of student support. I believe AI will make our current advantages even greater, which makes me even more confident we will continue to meet or exceed our long-term objectives. With that, I would like to review the fourth quarter results. First, the online campus at Grand Canyon University. New starts were up in the mid-single digits in the fourth quarter of 2025, which was in line with our expectations and total enrollment growth was 8.7%, which significantly exceeds GCU's long-term objectives. In the past, I've highlighted four reasons for the growth. They include continuing to roll out 20-plus new programs on an annual basis, working with over 5,500 employers directly to address workforce shortages, strong retention levels and holding the line on tuition to maintain GCU's competitive pricing position. New start comps are extremely challenging in the first half of 2026 as new starts were up in the teens in the first and second quarters of 2025 compared to 2024 due primarily to the success of programs such as the prerequisite nursing and teacher education. Although we believe those programs have a lot of runway to continue growing, the year-over-year percentage growth is slowing due to the large numbers. But we are rolling out some new programs in the second quarter of this year that we are very excited about that we believe will allow us to continue to grow total enrollment at or slightly above our long-term objectives. Second, the GCU ground campus for traditional students. New traditional campus enrollments were up in the high single digits and total traditional campus enrollments were down slightly year-over-year in the fall of 2025, while total GCU ground enrollment was flat year-over-year. The slight decline year-over-year in total traditional enrollments was in line with our expectations given last year's decline in new enrollments caused primarily by the FAFSA site issues and the higher-than-expected summer graduations. Spring, new and total enrollments were in line with our expectations. Spring new enrollments is a small percentage of overall new enrollments as they are mostly made up of transfers or students that defer a semester, and total enrollment is impacted by the growing number of students that are graduating in less than 4 years. We believe GCU will continue to experience new student growth on the ground campus because of its significant advantages, including very low price point, very low average debt levels, percentage of students completing in less than 4 years, the relevancy of GCU's academic programs to a fast-changing and modern economy and having the 20th ranked campus in the country. As we move forward, there are three trends that are impacting traditional college campuses throughout the country. One, the number of high school graduates on an annual basis continues to decline; two, the percent of high school graduates that are choosing a 4- or 5-year baccalaureate path continues to go down, while the number of students choosing shorter certificate or trade programs is going up. Three, the number of high school graduates choosing a baccalaureate path but doing it fully online also continues to go up. We are in a very strong position given these trends. We have a high-quality affordable offering on the GCU ground campus but have even greater program choices for students that want to go fully online or to move back and forth between ground and online. As we discussed on last year's earnings call, we have made some changes to our marketing and recruitment strategy for GCU's traditional campus, which accelerated some spend into 2025 in the first half of '26. Although it is still very early in the cycle, those changes to date are producing positive results as registrations for fall 2026 remain significantly ahead of last year. Even with the macro trends I discussed earlier and the tougher year-over-year comps, we believe we can continue to grow new enrollments significantly year-over-year, which could get residential students back to growth. Third, Grand Canyon Education's hybrid campus had an increase in enrollment year-over-year of 16.6% in the fourth quarter. Excluding the closed sites and those that are on teach-out, enrollment increased 18.7% year-over-year. There were no hybrid campus new starts in the fourth quarter, but we did have a higher-than-expected number of new students starting in the fall. There are two main reasons for this continued growth. Number one, almost all of our active ABSN partners have responded to the younger students interested in ABSN programs by admitting advanced standing students or are in the process of making that change. Students with partially completed degrees haven't accumulated a great deal of debt and are very interested in nursing careers but didn't have an efficient way to earn the prerequisite science coursework. GCU created the science courses and some other gen ed courses that could be delivered online in 8 weeks. Students can access these courses from anywhere in the world. There are start opportunities almost every week. These courses have been made very affordable, are taught by experienced faculty, class sizes are low, and there is a tremendous amount of academic support, including an artificial intelligence project, which provides students 24/7 access to tutoring. Since implementing these courses, we have already enrolled 20,536 students. In the summer of 2025 term, 66% of all matriculated hybrid students at non-GCU sites took at least one of these courses and one of the -- and of these students, they took five courses on average. We have a waterfall report that allows us to know how students are progressing through their prerequisite courses and when they will be eligible to start at one of our ABSN sites. The graduation rate of students who successfully entered the ABSN programs is in the mid-80s and the first-time pass rate on NCLEX exams is approximately 90%. Nearly all our partners have responded positively to the change needed to serve the advanced standing students. Our goal is still to have 80 locations with our partners with 40 locations being GCU locations. In 2025, we opened up a total of five additional sites, including a second location in the Boston area in the fall, another site in New York City and three GCU sites in 2025. One in Albuquerque, New Mexico, which was opened in the first quarter of 2025; one in Lake Mary, Florida near Orlando, which was opened in the second quarter of 2025 and one in Englewood, Colorado, South of Denver, which was opened in the third quarter. The addition of GCU's three new site openings brought in ABSN -- brought its ABSN location total to 11. It is likely that we will only open one additional site in 2026 in the Miami, Florida area. A couple of sites that were planned to open in the fall of 2026 are more likely to open in early 2027. And as we have discussed previously, we are being more selective on new site openings with a focus on the scalability of the market. We are also expanding our programmatic offerings with our hybrid partners by adding a graduate nursing program with seven specializations with Northeastern University, which started this past fall. A hybrid occupational therapy bridge to master's program to the already successful St. Cate Occupational Therapy Assistant hybrid program will begin in the fall of 2026. An online health science degree with Utica University and GCU launched a BS in occupational therapy assistance program and a speech language pathology program in 2025 at its Phoenix West Valley location. GCU also plans to add a BS and medical laboratory sciences program in 2026. Adding additional programs at our hybrid locations is an important component to our business plan. We anticipate this momentum will continue, although with the lower number of new site openings and more of our locations getting to capacity, hybrid enrollment growth will slow a bit while the profitability of this pillar will continue to improve. Fourth, Center for Workforce Development at Grand Canyon University. GCU now has four programs in the Center for Workforce Development, which including the electrician's pre-apprenticeship program, the CNC Machinist Pathway program, the Manufacturing Specialist Intensive pathway and the Construction General pathway, and we'll be rolling out a fifth program, the Manufacturing General pathway in fall 2026. These programs are all built in partnership with companies that are experiencing labor shortages in that area and are excited about hiring GCU's graduates. These programs are either one semester or two semesters. 212 students successfully completed the electrician's pre-apprenticeship program in 2024-'25, including 11 in the Austin, Texas hybrid location. 33 students completed the Manufacturing CNC Machinist pathway programs in the 2024-'25 fiscal year. These students attend school for 20 hours a week and then work in the facility as a paid employee for 20 hours. At the end of the semester, they receive a manufacturing certificate and become eligible for employment in Arizona's fast-growing manufacturing industry. Students in GCU's growing engineering college are getting experience in this manufacturing facility, which is adding to their engineering education. I started out talking about the relevant programs and creative delivery models that GCE has implemented with its 20 partner institutions. In the 7-plus years since GCE has become a service provider, it has helped its partners accomplish the following: in that time, GCE has helped Grand Canyon University graduate 215,851 students, 58,497 in education, including 27,527 first-time teachers at a time when teacher shortages have created a national crisis; 55,963 in nursing and health care professions, including 3,723 in pre-licensure nurses at a time when there's a huge shortage of nurses; 44,976 in the College of Humanities and Social Sciences, including thousands in counseling and social work, where there are also huge shortages. College of Business has become one of the largest business schools in America and has produced 37,834 graduates. The College of Science, Engineering and Technology has grown by 220% and provided 9,512 graduates. The Doctoral College, Honors College and College of Theology also continue to grow. In addition, GCE has helped its other partner institutions graduate over 15,000 pre-licensure nurses and occupational therapist assistants. The numbers that I have just cited have all happened in the past 7 years since the GCU/GCE transaction and since GCE has become an education services provider. This is a great example of a futuristic educational model that is flexible, moves very fast and is capable of great scale. All of this has occurred while GCE paid $619 million in federal and state taxes. While state universities and community colleges continue to pull money out of the tax system. GCE has helped produce over 230,000 graduates while pouring millions of dollars into the system. Service revenue was $308.1 million for the fourth quarter of 2025, an increase of $15.5 million or 5.3% as compared to $292.6 million for the fourth quarter of 2024. The increase year-over-year in service revenue was primarily due to an increase in university partner enrollments of 7.1%, including an increase in GCU online enrollments of 8.7% and university partner enrollments at the off-campus classroom and laboratory sites of 16.6%, partially offset by one less day of ground traditional revenue at GCU of $0.9 million in the quarter as a result of the shift of 1 day of revenue from the fourth quarter to the third quarter as compared to last year's fall start date, and a decrease in revenue per student year-over-year primarily due to contract modifications with some of our university partners in which our revenue share percentage was reduced in exchange for us no longer reimbursing the partner for certain faculty costs, which had the effect of reducing revenue per student and a slight decline year-over-year in the revenue per student for online students due to the continued mix shift to students that have a slightly lower net tuition rate. Operating income and operating margin for the 3 months ended December 31, 2025, was $108.1 million and 35.1%, respectively, as compared to $100 million and 34.2%, respectively, for the same period in 2024. Net income was $86.7 million for the fourth quarter of 2025. GAAP diluted income per share for the 3 months ended December 31, 2025, is $3.14. As adjusted, non-GAAP diluted income per share for the 3 months ended December 31, 2025, is $3.21, which is $0.02 above consensus estimates. With that, I would like to turn it over to Dan Bachus, our CFO, to give a little more color on our 2025 fourth quarter, talk about changes in the income statements, balance sheet and other items as well as to discuss the 2026 guidance. Daniel Bachus: Thanks, Brian. Included in our Form 8-K filed with the SEC, we have included non-GAAP net income and non-GAAP diluted income per share for the 3 months ended December 31, 2025 and 2024. We believe the non-GAAP financial information allows investors to develop a more meaningful understanding of the company's performance over time. As adjusted, non-GAAP diluted income per share for the 3 months ended December 31, 2025 and 2024 is $3.21 and $2.95, respectively. Service revenue was higher than our expectations in the fourth quarter of 2025, primarily due to higher-than-expected enrollments and revenue per student, partially offset by the impact of the government shutdown. The fourth quarter operating margin was positively impacted on a year-over-year basis by the higher revenue and the contract modifications, partially offset by additional spend for 2026 partner initiatives. Our effective tax rate for the fourth quarter of 2025 was 22.4% compared to 21.2% in the fourth quarter of 2024 and our guidance of 22.8%. The lower-than-expected effective tax rate is primarily due to state income taxes. We repurchased 605,730 shares of our common stock in the fourth quarter of 2025 at a cost of approximately $100 million and another 352,051 shares were repurchased since December 31, 2025. We have $284.6 million remaining available as of today under our share repurchase authorization. The Board and the company intend to continue using a significant portion of its cash flow from operations to repurchase its shares. Turning to the balance sheet and cash flows. Total unrestricted cash and cash equivalents and investments as of December 31, 2025, were $300.1 million. GCE CapEx in the fourth quarter of 2025, including CapEx for new off-campus classroom and laboratory sites was approximately $7.6 million or 2.5% of service revenue. We anticipate CapEx for 2026 will be between $30 million and $35 million. Last, I'd like to provide color on the guidance we have provided in our 8-K filed today. As a reminder, the guidance that we have provided in the outlook section of our 8-K filed today is GAAP net income and diluted income per share with the components to adjust the GAAP amounts to non-GAAP as adjusted net income and non-GAAP as adjusted diluted income per share. 2025's financial performance significantly exceeded our original estimates, beating the midpoint of the non-GAAP as adjusted diluted net income per share guidance we put out at this time last year by $0.46. In putting together our guidance for this year, I am amazed with how consistent our assumptions are to what we predicted at this time last year. Our comps are no doubt more challenging, but as Brian discussed, the trends remain strong in all three pillars. Consistent with prior years, we have provided ranges for revenue, operating margin and earnings per share for each of the 4 quarters of 2026. We do this because our financial results are seasonal, and the start and end dates of our partners' semesters change year-to-year. As you have probably noticed, the midpoint of the EPS guidance is above consensus estimates, primarily due to a lower projected share count. The midpoint of the revenue and operating income guidance are generally in line with consensus estimates. Revenue will be slightly impacted in 2026 due to the modification of the contract for one university of partner effective January 1, 2026, in which we will no longer be reimbursing the partner for their faculty costs and due to the teach-out of partner's three locations. As I will discuss in a minute, this slightly lowers revenue in 2026, but both of these changes are long-term positive for the company and will positively impact margins in 2026. The year-over-year changes in the start and end dates of the semesters for GCU's ground traditional campus will move $1 million in revenue from Q2 to the first quarter and $8.3 million in revenue from the third quarter to the fourth quarter in comparison to last year. The change between the third quarter and the fourth quarter is more significant this year than in past years as GCU's fall semester for its ground traditional campus begins and ends 6 days later this year than last year. We anticipate that new online enrollments will be up year-over-year in the mid- to high single digits during 2026. As Brian discussed, new enrollment growth in the first 2 quarters of 2025 were up in the teens over the prior year and thus mid-single-digit growth in the first 2 quarters would be strong growth. We do anticipate total online enrollment growth continuing to be pressured by increasing graduations and a continued decline in reentries, which is students returning to school after a break due to the high retention rates. The high end of guidance assumes total enrollment growth will end 2026 up in the high single digits year-over-year, whereas the low end assumes a mid-single-digit year-over-year growth rate. And thus, the midpoint of our range assumes a year-over-year growth rate that is near the high end of our stated long-term objective of 5% to 7% annual growth. The revenue range assumes that GCU ground enrollment will be 21,900 in the spring, will range from 8,500 to 8,800 in the summer and be between 24,900 and 25,600 in the fall. The high end of the range assumes a low teens new start year-over-year growth rate for the ground campus, while the low end of the range assumes mid-single-digit new start growth. Thus, the midpoint assumes a high single-digit increase in new ground enrollments year-over-year. As we're currently well ahead of last year in registrations, this estimate may prove to be conservative, but we believe it is prudent given where we are at in the recruitment cycle. The reported ground number continues to include GCU hybrid, which continues to grow and professional study students, which we expect to be flat on a year-over-year basis. Total ground enrollment continues to be impacted by the lower fall 2024 new start and the growing number of graduates year-over-year as a significant number of ground traditional students continue to graduate in less than 4 years. The new and total enrollment growth rate for hybrid pillar is predicted to grow on a year-over-year basis in the high single digits to mid-teens during each of the 4 quarters of 2026. As has been previously -- as discussed previously, the hybrid growth rate is being impacted by the fact that we now have 14 locations that are at or near capacity, and thus, we will have little to no growth year-over-year in total enrollments at those locations. And from a new enrollment perspective, 22 locations will not have year-over-year growth in new enrollments on a year-over-year basis in the fall as although 8 locations are not at state authorized capacity, we started the maximum number of students allowed during the fall of 2025. We remain hopeful that some of these locations will get local regulatory approval to grow in the future as they currently have waitlist, and we still have a lot of opportunity at the other locations. We will be opening one new location in 2026, in fall 2026, but should be opening a number of locations in early 2027. Revenue growth rates for the hybrid pillar will be impacted by changes made to the contract of one university partner that beginning in January 2026 is no longer being reimbursed for faculty costs and both enrollments and revenue will be impacted by the teach-out of one partner's three locations in 2026. We estimate that these changes will reduce revenue by $4.2 million in 2026, but will positively impact operating income as the three locations that will be in teach-out were incurring significant losses. Excluding these impacts, we anticipate a slight increase in revenue per student year-over-year, primarily due to the hybrid pillar growing at a faster rate than online or ground. Online revenue per student will be flat to slightly down year-over-year due to the mix shift to programs that have slightly lower net tuition rates. Revenue per student is also negatively impacted in the first half of the year by the slight decline year-over-year in ground traditional students. On the expense side, we continue to make investments to support our university partners' growth goals, but do anticipate margin expansion in 2026. As has been previously discussed, the online programs primarily that lead to licensure in which GCU is growing at an accelerated rate, either cost us more to service than the traditional online programs or at lower net tuition rates, which is putting some pressure on margins. We also continue to absorb significant increases in technology services and benefit costs. We will also have some pressure on margins in the first 6 months of the year as ground traditional enrollment is down year-over-year and in the third quarter as the GCU traditional campus start and end date moves back this year. As it relates to the hybrid pillar, we will incur additional costs for the new hybrid locations that have opened in the last year or will open in 2026 or early 2027, but we are experiencing increased site level profitability due to the increasing enrollments. So to summarize, at midpoint, our revenue guidance would be slightly above consensus estimates, if not for the contract modification and teach-out, and we are hopeful given current registrations that ground enrollment exceeds the midpoint. We should see slightly lower margins in the first half of 2026, but are optimistic that margins will expand in the second half, especially if revenue is in the top half of our revenue range due to the leverage in our business model and full year margins will be up year-over-year. We are estimating that interest income will decline year-over-year in 2026 due to declining cash balances due to more aggressive stock buybacks and a declining interest rate environment. We believe the effective tax rate for the 4 quarters of 2026 will be 23.4%, 24.9%, 24.9% and 24.3% with a full year tax rate of 24.3%. The effective tax rate continues to be impacted by higher state taxes as we continue to add sites in states outside of Arizona, which have higher state tax rates and other factors, including an estimated decrease year-over-year in the excess tax benefit deduction due to a decline in our stock price. These estimates do not assume a contribution in lieu of state income taxes, but if one is made, that will increase G&A expense in the third quarter and decrease the effective tax rate in the second half of the year. Our weighted average shares guidance takes into account the significant amount of stock we repurchased in the last few months. We anticipate continuing to use our excess cash to repurchase shares as the Board believes the stock is materially undervalued based on the metrics it uses to evaluate this, including the ratio of enterprise value to adjusted EBITDA and free cash flow yield in comparison to other S&P 500 companies. I will now turn the call over to the moderator so we can answer questions. Operator: [Operator Instructions] Our first question will come from the line of Alex Paris from Barrington Research. Alexander Paris: First question related to fourth quarter results. Revenue of $308.1 million was above our estimate and consensus, up 5.3% year-over-year. You had talked or kind of telegraphed some impact from the government shutdown on military tuition assistance of about $3 million. Is that where it landed? Was that the impact, about $3 million? Or is it different than that? Daniel Bachus: I think it was a little bit lower than that, but that's still probably a fairly good estimate. It probably was in the $2.5 million to $3 million range. Alexander Paris: Got you. And then on operating income and operating margin in the fourth quarter, at the low end of the guided range, but still within the range. I just wonder what additional color you could provide there. Daniel Bachus: Yes. Brian can expand on it a little bit, but we did make some significant investments primarily related to the ground campus in the fourth quarter -- kind of the end of the third quarter and all of the fourth quarter. Brian Mueller: Yes, we -- if you look at what we've done to grow this ground campus from 900 students to 25,000 students, there was a heavy investment in people that work in high schools all over the country. And that's a pretty typical way that universities go about recruiting students under their college campus. We didn't spend nearly as much advertising, especially in the social media areas as we have done from an online standpoint. We experimented in the fall in September and October, spending a significant amount of money and got great results. Students are -- they're watching our videos, and they're watching our videos to completion, and they're making a decision that they're interested apart from somebody's impact in their high school. And they're raising their hand and the conversion rate of those students into registrations is up significantly over where it was at the same time last year. And so we have -- we absolutely believe that we are -- that the awareness levels of the value proposition that this ground campus offers is hugely under -- it's just not known to the level that it should be. We're going to make a major investment -- another investment in -- that won't be material in terms of its impact upon the financials, but in the growth of our Honors College. Our Honors College at the ground campus has really taken off. It's up to 3,000 students now. The average incoming GPAs are above 4.0 from a weighted perspective, which is higher than most honors colleges in the country. And so we're forming a council, we're rebuilding a building, and we're going to make a huge effort to recruit the very best high school students throughout the country to come to our Honors College in Phoenix, Arizona. And a lot of it, the experience they're going to have is tied to the incredible economic boom that's happening in Arizona. We're getting those students involved in internships in their sophomore year for very significant companies. Many of them are getting hired by those companies. And so the brand of the institution and leading with the excellence of that Honors College and having everything draft behind that is something that we're working with our partners on because we think that we are -- we've got the capability of growing our ground campus from 25,000 to 50,000 students. We believe that the value is there. And so we invested some additional dollars in January and February, and we expect that we're going to get the same return. And so as the hybrid campus is accelerating now, both in terms of enrollment growth, revenue growth and margin expansion and profitability, we are expecting something similar to happen with the ground campus. And we think we're on to something and we'll see. But it's a long time. We got until August that we see the whites of their eyes in the classroom. But right now, we're excited both about the quantity of registrations and the quality of those students and how many of them want to be housed. And so that was probably more than you wanted, but I hope that helps a little bit. Alexander Paris: No, it helps a lot, and I appreciate you spending a lot of time on it. So you did talk about this on the third quarter, the experiment that you were conducting, you did forecast that you might spend more in January and February. Are you going to continue to spend more there? And then you also mentioned on the Q3 call that it's not a significant impact on the P&L because it's really just shifting dollars from salaries of high school reps to marketing. Brian Mueller: Yes. It's interesting because we've got the other process that's very unique to us is what we call Discover GCU. We will probably bring north of 13,000 to 14,000 very highly qualified high school graduates to GCU to visit. And so connecting with students via social media with extremely engaging, informative videos, having them raise their hand and then getting them qualified to come and visit the campus, I think, is a process improvement that will move money from counselor salaries to this other area, and it could reinvigorate this thing from a ground campus standpoint. And you have to remember that in terms of revenue per student, ground campus is huge because of the impact of housing and board and other fees associated with being on the campus. And so... Daniel Bachus: To answer the question about going forward, we will continue to spend. At some point, the spend will transition from fall of '26 to fall of '27. We are projecting that marketing as a percentage of revenue will be fairly flat year-over-year. So although we'll continue to spend, our hope is that our spend is very effective and thus, you will not see a significant increase in marketing costs as a percentage of revenue. Brian Mueller: The interesting thing is that the January and February spend is probably still 90% students who are seniors and have not made a decision where they're going to college. Students are increasingly putting that decision off because leverage has flipped. They know that the supply and demand is different, and they can put off making that decision because they're kind of in the driver's seat, more so than they have been in previous decades. But that's kind of playing into our favor because January, February spend is not -- probably 10% for 2027 fall and still 90% for fall 2026. And so we'll see how it plays out. Alexander Paris: Great. And then -- so what does that do to the high school enrollment counselor count? Orders of magnitude, where were you and where are you now given the... Brian Mueller: We're probably down 10%. We're probably -- we're down 10% from a counselor standpoint, where we were the previous year. Alexander Paris: Okay. Great. That's great color on the ground campus, and it sounds like those investments are paying off in terms of higher -- significantly higher applications for the fall... Brian Mueller: Go ahead. Alexander Paris: I was just going to say, are there any offsets? Do we have -- are we expecting an increasing number of graduates like overall you have been experiencing? Daniel Bachus: Yes. I mean that will continue. Brian Mueller: It will continue as it is. I mean we're -- at every graduation now for our ground campus, I ask how many of you have graduated in the last 4 years. And the majority of the hands go up. And then I ask how many parents in the audience are happy that their students graduating in less than 4 years and a roar goes up in the audience. And so what we have to do a better job of is making sure that people know that. The bet we're making is that we can grow to 50,000 students because of that, or partially because of that. And so we're giving up a fourth year of revenue in some ways, but we think we'll make up for it in increased enrollments on the front end. Alexander Paris: Great. And then my last question is just -- I thought I'd ask to get an update on corporate programs in general. I know you have 5,500 employers that you work with, and I believe roughly 1/3 of GCU starts come as a result of working directly with these companies and organizations. How does that work? Or what sort of color can you share with us about the process within these corporate relationships, adding new corporations, adding new -- are there -- is there discounting that goes on as a result? Brian Mueller: Yes, there's a little bit of discounting that goes on with that, and that's why you've seen revenue per student from an online standpoint go down some. But that activity is not even close to reaching its pinnacle. That activity is continuing. We're signing agreements with school districts all over the country, and it continues on a daily basis. Schools are really stuck with having a shortage of teachers, counselors and social workers. And there's nobody -- even in some states, we are producing more teachers than their in-state institutions are producing. And so that continues in a very robust way, but we're applying that principle to health care areas and to social work areas and to counseling areas. Now we're just getting started in counseling and social work, but there's a huge shortage of those people in this country, and companies -- organizations are very interested in taking their people that are operating at lower levels, putting them in programs and getting them baccalaureate and master's degrees so they can operate at higher levels. And so the success we've had in the education and nursing area, we're now applying to counseling and to social work. We're applying it in terms of military bases in the cybersecurity area. And we are developing a really strong relationship with the Taiwanese chip manufacturing company, which is exploding here in Arizona. They want every electrical or mechanical engineer that we can produce, but they're growing so fast that they need technicians. And we've developed a program that they're ecstatic about. I was out there and went through the whole process of walking through their fab. They've got one fab up -- they're building five more fabs. They've only been in operation for a year, and they've already been told because of the shift to producing chips for AI that they are expected to do 2x what they were expected to do when they started, which was just a year ago. And so we are working with them on a multitude of levels. The people they're sending over from Taiwan need to go back periodically to get up to speed with what's going on there and their spouses are staying here. So we're getting their spouses involved in education programs, so they have something to do while they're gone. But it's the technicians that we're producing that they're very excited about. And so yes, we are continuing to work directly with corporations all over the country. Will we move from 1/3 of our starts to maybe 50% of our starts over the next 5 years? We will be moving in that direction because it's a very, very high-quality way to provide higher education that is very specifically targeted to what organizations need. And as I tell our people all the time, we're in the business of helping people grow individually, and we're in that business of helping organizations grow. And if we stay focused on doing those two things, AI is going to do nothing but enhance our potential in higher education versus people fearing that because all of this data and information is available to people, they won't need higher education. That is just not going to happen if you're educating in the right ways and you're doing it specific to where the jobs are going to be. Alexander Paris: That's very, very helpful. Do you disclose what percentage of GCU total enrollment is employer related? Daniel Bachus: We don't. But as Brian said, I mean, you hit the numbers. We were talking about the fact that about 1/3 of our online enrollments come from that channel, and that's growing. Operator: Our next question will come from the line of Jeff Silber from BMO Capital Markets. Jeffrey Silber: Alex really covered a lot of the operational questions. Maybe I can ask more big picture stuff. And we get questions all the time about the regulatory environment. And I know we've got some changes coming up this summer in terms of loan caps and then eventually the earnings premium accountability calculation. Can you give us some color how that may or may not impact your company? Daniel Bachus: Yes. I mean our expectation is it's going to have little to no impact. If you talk about loan caps, the tuition levels, the loan cap changes are primarily at the master's level and above. GCU's tuition rates are well below those loan caps. And so would it potentially eat into some living expense money? Maybe. But I think the total cost of attendance generally at GCU is below the loan cap. So I think there'll be very little impact to that. There's no material changes at the bachelor's level, which is where the majority of our programs are now, including the ABSN program. That is a bachelor's program. It is not a professional program. It's never been a professional program. And so there's no changes really from the funding perspective at the bachelor's level or no material changes that we see. So I think there'll be little to no change on that perspective. I know Brian can talk about this, but he's a proponent of these changes. We've historically seen overborrowing, especially at the master's level for living expenses. These changes help universities help students manage their borrowing. Brian Mueller: It's so different. The difference in how the administrations view this whole area is -- because we have said for a decade that the graduate students are different today. 50 years ago, 40 years ago, 30 years ago, students would graduate from college, and they would enter a master's or graduate degree program. And sometimes they would be married, sometimes they would have children, but they were doing -- most of them were pursuing a career in education in the academic world. And they needed help with living expenses in order to do that. That's not the case today. Most people that are pursuing master's degrees are people who are in the middle of a career. They want to enhance their capabilities in that career. They want to do it while they're raising their family and building their career. And so they don't need living expense money. But if you're going to make it available to them, they're going to take it. And so we had this process in place called responsible borrowing, where we would -- before they even started the program, say, listen, if you borrow the amount that is required for tuition, et cetera, this will be your payments. If you borrow -- if you overborrow, these will be your payments. And we were actually -- we were criticized by the previous administration for doing that. And our response to that was you're looking at this as almost a safety net kind of a thing, and that's not how we view this thing. And it shouldn't be viewed that way. And so we were actually a proponent of lowering the maximum amount people could borrow so that we would get loans paid back and we get them paid back timely. And the Title IV program was once very, very profitable for this country because universities were responsible in the amount of money they were charging, students were responsible in the amount of money they were borrowing, and they were paying the loans back. What's happened in the last 6, 7 years has just been unfortunate, and we just need to get this thing back on track, so it is what it was intended to be originally. Daniel Bachus: In terms of the second part of your question, Jeff, we're watching that very closely. In the preliminary data that was put out, I think you wrote a note on, there was one category that failed for GCU. It's the Master's of Counseling category. Looking through the data for all other universities, it appears that, that category failed for most, if not all, of the universities that provide that program to working adults. So we're working with our partner and with the administration to try to better understand why generally people that get that master's degree, which interestingly is required for licensure, make an amount that's equal to or less than those that did not have that master's. You need the master's to be licensed in that area. So it seems like it's an anomaly that has to be further researched. We have some assumptions on why that could be, but we're doing some additional analysis on it. Other than that, all the programs at all of our partners passed. And so we'll -- we've got some time to work on that one program group, and we'll continue to look at it. Brian Mueller: A lot of people get into graduate programs for lifestyle changes. And people that go into counseling many times want to hang their own shingle. They want to work two days a week instead of five or six days a week. And so they're willing to make less money to work two days a week to build their own business. And so they're getting out of the degree what they wanted. Not everything can be measured strictly in terms of dollars made, especially at the graduate level. And the thing that makes me frustrated with that thing is when you're talking about graduate students, you're talking about people who have gone through a baccalaureate program. They understand higher education up one side and down the other. They're mature people. They're making a decision that's best for them and their life. And so kind of stay out of their way and let them do it. I understand that for an 18-year-old whose -- nobody in their family has ever gone to college, this is really new. This is very different, and they need help in understanding. And so putting some boundaries around that, I understand that. But at the graduate level, it doesn't make any sense to me. Daniel Bachus: We have reached the end of our fourth quarter conference call. We appreciate your time and interest in Grand Canyon Education. If you still have questions, please contact myself, Dan Bachus. Thank you. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.
Operator: Hello, and welcome to today's Fourth Quarter 2025 Results Conference Call and Webcast. My name is Leslie, and I will be your event specialist today. Please note that today's conference call and webcast are being recorded. To follow the conference online, please visit https://consorcioara.transmision.com.mx. The word transmission is with 1 s only. If you would like to view the presentation in a full screen view, please click the full scree button in the upper left-hand corner of your screen. Press the same button to return to your original view. It is now my pleasure to turn today's program over to Alicia Enriquez, Administrative and Financial Director. Please go ahead. Alicia Enriquez Pimentel: Thank you, Leslie. Good morning, and a warm welcome to our conference call on the fourth quarter 2025 results of Consorcio ARA. This call will be also transmitted via webcast, accompanied by a slide show for visual support. With me on the call to discuss the results are Luis Ahumada Russek, Vice Chairman of the Board; Miguel Lozano, Chief Executive Officer; and Felipe de Loera, Chief Financial Officer. I want to alert everyone that certain statements and comments made during the course of this call may be considered forward-looking statements as defined by the Securities Litigation Reform Act of 1995. Consorcio ARA believes that such statements are based on reasonable assumptions, but there are no assurances that current outcomes will not be substantially different from those discussed today. All forward-looking statements are based on information available to the company on the date of this call. The company is under no obligation to publicly update or revise any forward-looking statements as a result of new information that may become available in the future. As usual, at the end of our prepared remarks, there will be time for Q&A. We'll wait until then to open the queue for questions. Results for the fourth quarter of 2025 compared to the fourth quarter of 2024, the solid financial and operating results we achieved in the fourth quarter of 2025 reflect the positive momentum of the 3 preceding quarters and a year in which results were the best of the past half decade. Total revenues, which are the sum of housing revenues, plus revenues from other real estate projects came to MXN 2.33 billion in the fourth quarter of 2025 with an outstanding double-digit growth of 30.5% over the same period of the preceding year. Housing revenues reached MXN 2.23 billion, 31.4% higher than in the fourth quarter of 2024. This came from the sale of 1,782 homes, a 25.8% increase at an average price of MXN 1.249.9 million, 4.4% above the average in the same period of the previous year. Housing revenue growth was driven by the middle income and residential segments. Middle income homes totaled MXN 1.08 billion at 67.8% advance, and residential sales reached MXN 548.1 million, an outstanding 45.8% expansion. Sales of affordable entry-level homes in the quarter stand 11.3% to MXN 600.9 million due primarily to the completion of our development in Tijuana. As I mentioned in our previous conference call, this year, we will already begin entering revenues from a new development in that city. Looking at the revenues from homes delivered under the deal with Infonavit Loan or Line 3 program, between October and December 2025, the total came to MXN 41 million. The vast majority of these homes were in the affordable entry-level segment. Revenues from all real estate projects, mainly from the sale of land and shopping center leases, totaled MXN 99.9 million, mainly due to higher revenues from land sales. For the mix of revenues in the fourth quarter of 2025, sales of affordable entry-level homes accounted for 25.9%, middle income homes, 46.3%, and residential homes, 23.5%, while the remaining 4.3% came from other real estate projects. Operating income in the fourth quarter of 2025 came to MXN 220 million, rising 23.1% over the same quarter of 2024. EBITDA was MXN 307.2 million, 25.8% higher and net income was MXN 354.9 million, a 93.3% growth largely due to a credit from deferred income tax. Our operating margin in the fourth quarter of 2025 was 9.5% and the EBITDA margin was 13.2%, both of them 50 basis points lower than the same period of last year due to higher overhead costs. The net margin for the quarter was 15.2%, an expansion of 490 basis points attributable basically to the favorable effect of deferred tax. In the last quarter of 2025, we generated positive free cash flow to the firm, totaling MXN 58.6 million, from 4Q 2025 compared to 2024. As I mentioned at the start of the call, 2025 marks our best performance of the past 5 years. Total revenues, which are the sum of housing revenues, plus revenues from all the real estate projects came to MXN 8.25 billion in 2025, a 16% growth compared to 2024. Another highlight of the 2025 result was 113 days reduction in our working capital cycle, which supported positive generation of free cash flow for the firm, totaling MXN 400.9 million, 35% more than in 2024 and MXN 98.2 million after interest payment. Housing revenues in 2025 totaled MXN 7.86 billion, a growth of 15.4% over 2024. These revenues came from the sale of 6,214 homes of an average price of MXN 1.26 million, a 6.7% increase of an average price of 2024. Breaking down our revenues for 2025 by housing segment, the affordable entry-level segment generated MXN 2.29 billion, 6.6% lower, mainly because of the completion of development in the city of Tijuana and the second stage of our development in Mexico state. As I said earlier, this year, we will already be reporting revenues from a new development in the city of Tijuana. Since last year's fourth quarter, we are also booking revenues from the third stage of the development in Mexico state. Middle-income homes totaled MXN 3.66 billion, a 29.7% increase, and residential income came to MXN 1.91 billion, a year-over-year growth of 24.1%. Revenues from all real estate projects in 2025 amounted to MXN 395.4 million mainly due to higher revenues from the sale of land and from shopping center leases. For the mix of revenues in 2025, the affordable entry-level segment accounted for 27.7%, the middle-income segment, 44.4%, the residential segment, 23.1%, and all the real estate projects, the remaining 4.8% Operating income in 2025, total MXN 796.0 million, 7.2% higher than in 2024, EBITDA was MXN 1.16 billion, rising 11% and net income came to MXN 906.2 million, up 31.9% due to the reduction in deferred income tax. Our operating income in 2025 was 11.6%, down 80 basis points from last year and EBITDA margin came in at 14% and 60 basis point decline. These reductions were the result of higher general expenses. Despite this, the net margin was 11%, an expansion of 130 basis points due to the reduction in deferred income tax. Financial position as of December 31, 2025. The balance of cash and cash equivalence close 2025 at MXN 2.10 billion, 10.2% lower than the close of the previous year. As of December 31, 2025, the balance of account receivable stood at MXN 709.7 million, rose 27.5% of receivable on December 31, 2024. The account receivable turnover was 31 days. Total inventory as of December 31, 2025 amounted to MXN 19.37 million, 7% higher than the close of the previous year. At the close of the fourth quarter of 2025, cost-bearing debt changed to MXN 2.66 million, remaining basically stable compared to the close of 2024. Short-term maturities, meaning debt coming due in the next 15 months, made 61.8% of cost-bearing debt, and long-term debt 38.2%. I should mention that we will be refinancing the ARA 23X note for MXN 1.2 billion, which comes due on November 25, of this year. At the end of 2025, 63.8% of our cost-bearing debt was in the form of the ARA 23X and ARA 21-2X notes. 14.1% were simple unsecured bank loans without real estate collateral, 11.9% were simple secured loans for our shopping centers and the remaining 10.2% were lease liabilities. Net debt at the close of last year was positive by MXN 557.5 million. ARA positive result were accompanied by healthy leverage indicators. As of December 31, 2025, cost-bearing debt-to-EBITDA was 2.3x. The net debt-to-EBITDA ratio was just 0.48x and the interest coverage ratio was 3.65x, and if we base this ratio on coverage of net interest, meaning, interest expense less interest income, it could be 7.85x. On October 13, HR Ratings issued a favorable opinion on the ARA 21-2X and ARA 23X sustainable issues in recognition of the sustainable solution we offer as the proceeds were used to finance various developments. This development incorporate homes built with ecotechnologies for water and energy efficiency and promote sustainable uranization. The opinion also recognizes the congress of our sustainability strategy, its clarity and alignment with the reference frame. The full report can be viewed on our corporate website Housing industry performance. According to Mexico's National Institute for Statistics and Geography, or INEGI, industrial activity in general grew by 1.5% in 2025 compared to the previous year. Construction industry expansion was 6.8% and the building subsector, which includes housing and industrial base increased by 9.6%. Information from the Unified Housing Registry, RUV indicates that in 2025, 310,518 homes were registered, a significant 73.9% increase compared to 2024, and 138,631 homes were produced, 8.2% higher than in 2024. Based on data from the Ministry of Agrerian, Territorial and Urban Development, or SEDATU, between January and November of 2024, Infonavit granted 161,546 homes for the acquisitions of new homes and 8.4% increase over the same period of the previous year. These loans require an investment of MXN 123.2 billion, 19.3% [higher]. The average size to the home loan in the first 11 months of 2025 was MXN 763,000 a year-over-year growth of 10.1%. Fovissste granted 12,239 homes for new homes, between January and November of 2025, a 13.1% decline from the same period of 2024, and the investment in these total, MXN 13.7 billion, 6.2% higher. The average size of our loan granted in the first 11 months of 2025 was MXN 1.11 million, a 22.3% advance over the same period of the year before. [indiscernible] from financing between January and October 2025, 76,600 mortgages was granted for the acquisition of new and existing homes, a 5.8% reduction, compared to the same period of last year, and investment in these totaled MXN 187.8 billion, 1.2% lower. The average size of our loan granted in the first 10 months of 2025 was MXN 2.45 million, a 4.8% growth over the same period of the previous year. In 2025, 63.3% of our revenues came from homes financed by Infonavit, 11% from Fovissste, and the remaining 25.7% from commercial banks and homes purchased without financing. Shopping Centers. In line with the Housing division results, the Shopping Center division also posted double-digit growth in its numbers. In the fourth quarter of 2025, revenues totaled MXN 146.9 million, 15.8% higher over the same period of last year, while net operating income was MXN 104.5 million, a 23.4% growth. In 2025, revenues total MXN 546.6 million, a 10.9% increase over 2024, while net operating income was MXN 379.9 million, an expansion of 10.8%. This is also response to shopping center that are 100% owned by ARA and are consolidate into a financial statements as well as 50% of Central America's Paseo Ventura, according to our stake in those properties, which are entered under the equity method. Total gross leasable area in our shopping centers and Mini shopping centers is 204,003 square meters and [indiscernible] December 31, 2025 was 94.8%, a very competitive level. Dividend. Consorcio ARA has a policy of [indiscernible] out dividend equivalent to up to 50% of its net income, to the following conditions: one, a sufficient balance in the net tax income account, and two, positive free cash flow generation. Yesterday, the Board of Directors proposed a dividend payment of MXN 300 million for this year equivalent to 22.1% of net income in 2025. This will be a dividend yield of 4.4% based on the share price as of December 31, 2025, which was MXN 3.74. Shareholders will be involved on this proposed dividend in the next General Ordinary Annual Meeting of Consorcio ARA to be held in April. Not also that the dividend will be paid out of the net fiscal earnings account as of December 31, 2014, which means is not subject to income tax. Conclusion. For the current year, Infonavit [indiscernible] a total of MXN 262.2 billion in loans for new and existing homes, while Fovissste expect to distribute MXN 33.6 billion. We don't have a formal estimate for the commercial banks, but we believe they will keep up a robust pace of mortgage place. Encouraged by this [draft book] of mortgage lending in 2026, the expected stability of the macroeconomic climate and [least] demand for housing, our expectations for this year are positive, and we will be looking to replicate the revenue growth reported for 2025. Thank you, and we will now move on the question-and-answers. Operator: [Operator Instructions]. The first question from the audio line is from Mr. Alejandro Gallostra from BBVA. Alejandro Gallostra: First of all, my first question is regarding volumes. Can you please explain what has been driving the significant increase in sales volumes from the middle income and residential segments together with a relatively small increase in the average sales price? This is my first question. Alicia Enriquez Pimentel: I really apologize, Alejandro, but I don't know if it's the line, but it's very hard to understand the question. Alejandro Gallostra: My first question is regarding volumes. I'd like to know what has been the driver behind the significant increase in volumes from the middle income and residential segments together with a significantly lower increase in the average sales price this quarter. Alicia Enriquez Pimentel: Yes, exactly. Well, Alejandro, as I mentioned, the middle income and residential segment had a very good performance in the fourth quarter and also in the whole year. It has to be with new projects, also there was an increase, for example, in the middle-income segment, an increase in the average price. In residential, it is little bit different because we have another mix of project, for example, in the back we have a [indiscernible] the average price of around MXN 60 million to MXN 80 million in the fourth quarter of 2025, we didn't recognize any revenues from this project, but we have other projects with a lower average price, so that's why the average price was different, Alejandro. Alejandro Gallostra: Basically, you think that this is explained by new projects with different price points rather than perhaps applying some discounts to sales this quarter? Because I'm also surprised to see that the revenue mix is better, but profitability has not increased though. I was just wondering if you applied some discounts this quarter. Alicia Enriquez Pimentel: In some projects, yes, we have some discounts, but in general terms, we were able to transfer the increases in the cost to the price. There are some projects that, yes, we have some discounts in the sales price, but on general, we increased the prices in our projects. We could do it. Alejandro Gallostra: My second question is regarding your accounts payable. I was just wondering how you managed to increase the account payable days from your suppliers for 2 consecutive quarters. I was wondering if this is sustainable or not. Alicia Enriquez Pimentel: Yes, it is sustainable. Our target is to have 90 days. I think we mentioned in the previous conference call that we have a factoring program in place for our suppliers. In the past, it used to apply to certain types of work, but in 2025 -- are putting in place across all areas, all our suppliers. In the past, it was just our construction suppliers, but now all our suppliers, [indiscernible] the supplier of our area -- administration area or commercial area or whatever area, all the suppliers are in this factoring program. As I mentioned, our target is to maintain 90 days, Alejandro, so it's sustainable. Alejandro Gallostra: Another question, if I may, is regarding your long-term strategy. Can you just repeat what are your medium and long-term goals for the company? Also mentioned your goals, since your balance sheet is still very strong, but leverage has been increasing recently, if you could also comment about your working capital requirements since this has been improving. If this is a reflection of a change in strategy or not? Alicia Enriquez Pimentel: Talking about working capital cycle, obviously, our objective is to reduce as we mentioned last year, we reduced by 113 days. For this year also, we are expecting to have the same kind of reduction. Obviously, we are going to do it through increasing our revenues. It's our main strategy to grow in our revenues and monetize our inventories, is the main strategy, Alejandro. Definitely for the short and long-term, we are going to be focused on that to reduce the working capital cycle. I don't know, if you ask something else, Alejandro? Alejandro Gallostra: I was just wondering about the overall long-term strategy and also you have any goals when it comes to your balance sheet leverage, since even though you have a very strong balance sheet, but it's been increasing recently. Alicia Enriquez Pimentel: As you know, we are going to follow that strategy to manage in a prudent way or -- yes, I could say, prudently, our debt. We can grow, but also in a sustainable way with our debt. The metrics that you saw at the end of 2025, we are planning to maintain those metrics in terms of net debt-to-EBITDA. Alejandro Gallostra: I was just wondering, if you could give us additional information about your long-term goals when it comes to either profitability from operations, achieving a higher profitability from operations or a higher return on capital, if there is anything that you could share with us regarding those lines? Alicia Enriquez Pimentel: You ask about our goals, if I understood, Alejandro. I really, I don't know really if the line. I offer to have one-on-one because I can't understand the question. Is it possible, Alejandro to have on-on-one? I really apologize. I don't know if it's my line. Operator: Our next question is from Mr. Andres Aguirre from GBM. Andres Aguirre: Congrats on the results. I have a quick question regarding costs. We observed a sharp increase in SG&A expenses during the period, mainly attributed to promotional advertising. Should we consider the expense as a one-off? Or should we expect similar levels going forward? Alicia Enriquez Pimentel: Andres, for this year, we are expecting to have growth in revenue similar to the last year. We think that we can improve our operating margin mainly in the part of wages because we have the structure to produce that level of revenues. We can have more revenues, we can decrease overhead cost as a percentage of revenues. We think it's not going to be very significant, we are not going to see a dramatic change, but at least we are not going to increase that percentage of general expenses that we saw last year. Andres Aguirre: The second question, if I may, regarding a potential distribution. I'm not sure if you can comment on this at this stage, but do you expect any distribution to be announced? If so, could you provide some color on the potential amount? Alicia Enriquez Pimentel: Do you mean dividends, Andres? Andres Aguirre: Yes, Alicia. Alicia Enriquez Pimentel: Yesterday, our Board of Directors proposed a dividend payment of MXN 200 million, the same amount that -- than the 2024, 3Q -- this means a yield of 4.4%. Operator: We have finished with the conference call questions, and we'll now continue with the webcast questions. Alicia Enriquez Pimentel: Okay. Thank you. Let me brief the webcast questions. The first one is from [indiscernible]. We continue to see middle-income residential gain in share relative to lower income unit. Could you please share your expectation for the 2026? Yes. As I mentioned, we are going to open a new project for affordable entry-level segment. For this year, we expect that this segment represents around 30% of our revenues. We are going to have an increase in the [indiscernible]. Also, middle-income represent around 40%, 42% and rest the residential segment, 27%. The next question from [Machara] from Mindset Capital. What is the difference between [homes] registered and [homes] produced? Why is the gap so much higher from [indiscernible]? This is explained by the registry program of the governor. This program is called Wellbeing Housing Program or Government Affordable Housing Program. Since August 2025, we saw significant increase in the number of housing registration. This explained by these program. As per regional government is [indiscernible] is 1.8 million housing, so in this year and in the following years, we are going to see an increase in this number. We expect also in the coming years, we are going to see increase in the housing production. The following question also from [Machara]. What will be the dividend declared this year? I already mentioned, MXN 300 million, a yield of 4.4%. I think there are no more questions. Thank you very much for your interest in Consorcio ARA and have a great day. Thank you. Operator: That was the last question. This concludes the question-and-answer session for today. Consorcio ARA would like to thank you for participating in today's conference call and webcast. You may now disconnect.
Operator: Thank you for standing by. Welcome to the PLS Fiscal Year 2026 Interim Results. [Operator Instructions] As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Dale Henderson, Managing Director and CEO. Please go ahead, sir. Dale Henderson: Thank you, Jonathan. Good morning, good evening and thank you all for joining us. I'll begin by acknowledging the traditional owners on the land on which PLS operates. The Whadjuk people of the Noongar nation here in Perth and the Nyamal and Kariyarra peoples in the Pilbara. We pay our respects to elders past and present. I'm joined today on the call by Flavio Garofalo, our interim CFO, and members of our senior leadership team. This call will run for approximately an hour with time for questions. Now before turning to the numbers, I'd like to briefly step back and reflect on the structural environment shaping the industry. The global energy system continues to electrify, and batteries are increasingly becoming a strategic infrastructure in that system. And recent international discussions, including remarks for senior -- including remarks -- sorry, from senior U.S. leadership at Critical Minerals Ministerial, governments have underscored the importance of securing diversified supply chains for materials that underpin advanced technologies and battery systems. As that happens, the critical mineral supply chains that support batteries, which, of course, includes lithium are becoming strategically important. This remains a young capital-intensive industry. Demand can move quickly, supply responds slowly and capital allocation that's cyclical, making volatility inherent. In that environment, value transfers to operators with structural margins, balance sheet strength and staged growth optionality. PLS has been deliberately structured to capitalize on that reality. So against this backdrop, we have delivered a very strong first half, returning to profitability, materially improving earnings and improving the capital light restart of our Ngungaju processing facility that we announced today. Revenue, EBITDA and NPAT increased significantly year-on-year. Unit costs reduced and our balance sheet remains strong. This reflects the operating leverage strengthened during the down cycle now converting into earnings. The Ngungaju processing plant restart is a staged activation of existing infrastructure, consistent with our disciplined capital framework. Please turn to Slide 2. Our strategy remains consistent, to operate at scale, strengthen cost competitiveness and preserve balance sheet strength and pursue disciplined growth aligned with the market cycle. As market conditions improve, these pillars are increasingly working together with operational performance and cost discipline, converting into stronger earnings supported by financial resilience. Capital discipline remains the gatekeeper for any capital deployment, and we will invest only when returns are compelling and sustainable through the cycle. Importantly, execution of our strategy is anchored in balance sheet resilience and return generation, not short-term price movements. Please turn to Slide 3. This slide highlights the attributes that differentiate PLS and why they matter as the cycle strengthens. We operate a high-quality 100% owned Tier 1 asset with a cost position designed to protect margins through volatility and expand them as pricing improves. The first half was a clear demonstration of that operating leverage in action. We maintain balance sheet strength with close to $1 billion in cash and approximately $1.6 billion of total liquidity, providing flexibility and control over our capital allocation decisions. We have demonstrated execution capability, flexing production, managing costs and sequencing capital as conditions evolve. The approved restart of the Ngungaju processing plant is a current example of that discipline and practice. Finally, we have strategic exposure across the value chain beyond spodumene pricing through our partnerships and downstream initiatives, which we believe will become increasingly relevant over time. Turning to Slide 4. This slide summarizes the core outcomes for the half, improved pricing translated directly into stronger earnings, expanded margins and a return to profitability. Sales volume increased 7%, realized pricing increased 40% and underlying EBITDA was $253 million, delivering a 41% margin. Net profit after tax was $33 million compared to a loss in the prior corresponding period. From a growth perspective, as well as the Ngungaju restart, we have provided an update on the study time lines for both the P2000 project and Colina project. Now moving to Slide 5. Safety remains our highest priority. During the half, our total recordable injury frequency rate increased to 3.79, up from 3.1 in the prior period. That step back in performance is not acceptable. In response, we have intensified targeted safety initiatives and strengthened frontline leadership engagement across our operations. Encouragingly, quality safety interactions increased to 3.38 per 1,000 hours worked materially above our internal target, reinforcing proactive risk management behaviors. Beyond safety, we continue to support communities in which we operate with strong procurement levels from Australian and First Nations businesses. And with that, I'll now hand over to Flavio to take us through the financials for the half. Flavio Garofalo: Thank you, Dale, and good morning to those on the call. Please turn to Slide 7 for a review of our key financial metrics for the half year ended 31 December 2025 or H1 FY '26. Our strong first half results reflect solid operational execution and cost discipline, combined with favorable pricing outcomes towards the end of the reporting period. Production increased 6%, while sales volume increased 7% to 446,000 tonnes. FOB unit operating cost decreased to $563 a tonne driven by operational efficiencies and the benefit of higher sales volume. Revenue of $624 million was up 47% compared to the prior corresponding half driven by a 40% improvement in realized pricing and higher sales. These factors support an underlying EBITDA of $253 million for the first half with EBITDA margin increasing to 41%. The half year end saw a return to profit with net profit after tax of $33 million, a turnaround from a loss of $69 million in the prior corresponding half. Net profit after tax included $16 million in midstream demonstration plant project costs and $39 million of noncash impacts relating to P-PLS comprising a $16 million write-down in the group's call option and $23 million equity accounted share of P-PLS losses. Moving now to Slide 8. Slide 8 shows the cash flow bridge for the half year ended 31 December 2025. Closing cash at the end of the half year remains strong at $954 million decreasing marginally by $20 million during the half, primarily due to working capital timing. The underlying cash generation of the business strengthened materially with cash margin from operations of $174 million and cash margin from operations, including mine development and sustaining capital of $111 million. As mentioned in December quarter 2 results, this included the $32 million in customer refunds from lower final pricing on FY '25 shipments, which were cash settled in early H1 FY '26, while approximately $85 million in positive pricing adjustments on the December quarter shipments are expected in the March quarter of this financial year. When adjusted for these timing differences, underlying cash margin would be approximately $291 million or $228 million including mine development and sustaining capital. This reinforces strong cash generation of the business as market conditions improve. Moving now to Slide 9. Our balance sheet remains robust, reflecting disciplined capital management and a continued focus on value creation. In addition to the group's cash balance of $954 million we have an undrawn debt capacity of $625 million under the group's revolving credit facility, providing over $1.6 billion in total liquidity for PLS. This positions us well to navigate the cycle and selectively deploy capital into value-accretive growth opportunities. Turning to working capital. Inventory remained flat with increased ore stockpiles supporting ore supply security through the wet season, largely offset by lower spodumene inventory as sales volumes exceeded production. On the liability side, borrowings remain broadly unchanged, while lease liabilities increased, reflecting new finance leases under Phase 2 of the heavy mobile equipment strategy. Overall, the balance sheet remains in a strong position. As we review our growth options, we remain focused on preserving balance sheet strength and financial flexibility, deploying capital with discipline to fund value-accretive opportunities and maximize long-term shareholder returns. I'll now hand back to Dale. Dale Henderson: Thank you, Flavio. Now turning to Slide 10. And before turning to specific growth initiatives, I'd like to step back and consider the platform we have deliberately built through the cycle. In a strategic and volatile supply chain value accrues to operators with structural margins, balance sheet strength, staged growth optionality and trusted execution. That architecture is not built in a single period. It's developed through years of disciplined operating and capital decisions. The strength of this first half result reflects improvements in recovery, cost position, scale and financial resilience that were strengthened during the downturn, not short-term movements. The following slides demonstrate how that foundation allows us to activate growth with discipline, maintaining control over timing, preserving capital strength and sequencing expansion only when it turns resilient. So turning to Slide 11. Over recent years, we have materially strengthened our operating platform. Recovery rates have improved, scale has increased and unit costs have reduced. These improvements were delivered during a period of pricing pressure, not during a price upswing. That structural work is now evident in the first half performance, where improved pricing translated efficiently into earnings expansion. This is not simply price leverage. Its operating leverage built deliberately through disciplined execution. Importantly, our approach to growth has always been staged and disciplined. We have sequenced capital deployment carefully, expanded capacity only when returns are compelling and balance sheet strength was maintained. That track record matters. It demonstrates that the growth in PLS is not reactive to short-term price movements, but governed by return thresholds and capital discipline. This consistency underpins our credibility as we execute the next phase. Moving to Slide 12. During the recent downturn, we deliberately prioritized preservation of strength. We moderated capital expenditure, retained liquidity and maintained optionality rather than stretching the balance sheet to pursue expansion at unfavorable economics. As a result, we exited the weaker part of the cycle with approximately $950 million in cash and it's that financial resilience that gives us control over timing and capital allocation. As it relates to the market, market conditions have improved relative to the low it has experienced early in the cycle. Realized pricing increased materially during the half supported by improving sentiment and contracting activity. While volatility remains inherent in the lithium market, current conditions allow us to reassess the timing of incremental capacity within our disciplined framework. Moving to Slide 13. Against that backdrop, the Board has approved the restart of the Ngungaju processing plant with production scheduled to recommence in July '26. This is a tactical reactivation of existing infrastructure, not a greenfield expansion. Capital requirements are modest, execution risk is limited and operating costs remain within our broader cost guidance range. Ngungaju provides incremental capacity with a measured risk profile aligned to improving conditions supported by contracting arrangements with the market. Now moving to Slide 14. Beyond Ngungaju, our large-scale growth initiatives, including P2000 and Colina remain carefully sequenced within our framework. P2000 is a brownfield expansion at Pilgangoora that would increase capacity to approximately 2 million tonnes per annum, subject to FID. The feasibility study is targeted for the December quarter this calendar year. It is more advanced of the 2 projects. And importantly, as future production remains unallocated preserving strategic flexibility. Colina provides geographic diversification through a greenfield development in Brazil. Current work is focused on drilling, resource growth and optimization of the development pathway with the feasibility study targeted for the December quarter next year. Any final investment decision on either project will be driven by study outcomes, sustainable market conditions, return thresholds and balance sheet capacity. In both cases, growth remains an option, not an obligation. Moving to Slide 15. This slide places our production platform and growth pipeline in the global context. On the left, PLS produced approximately 100,000 tonnes LCE for calendar year '25 with Ngungaju in care and maintenance, positioning us among the larger primary lithium producers globally. That reflects the scale and quality of Pilgangoora today. On the right, we illustrate the stage production profile, the base is P1000 installed capacity, including the improved restart of Ngungaju. P2000 represents a brownfield expansion that would lift capacity to approximately 2 million tonnes per annum, subject to study outcomes in FID and Colina provides long-term geographic diversification, adding growth potential also subject to stage development and market conditions. All assets are 100% owned, providing full control over timing and capital allocation. Importantly, the future capacity shown here is optional, not committed. We will only proceed when returns, funding capacity and sustainable market conditions are supportive of that investment. Moving to Slide 16. In addition to our upstream expansion options, we retained measured exposure across the lithium value chain. Our approach to downstream and midstream participation is deliberate, structured to preserve capital discipline while maintaining long-term strategic optionality. As it relates to midstream, the midstream demonstration plant with construction complete in the December quarter, with commissioning updates expected in the coming months. We have also announced today that we've agreed a strategic restructure with Calix and we'll acquire full ownership of the demonstration plant. This simplifies governance, strengthens operational control, secures a perpetual royalty-free license for the technology within our primary lithium operations. As it relates to our P-PLS joint venture with POSCO, our minority interest with the JV hydroxide facility remains strategically positioned. Both trains were idled in the December quarter to preserve capital and align with market conditions, consistent with our disciplined approach. As it relates to our study with Ganfeng, we have continued to assess longer-term downstream conversion opportunities through the study. Across all of these initiatives, the principle is consistent: maintain flexibility, preserve balance sheet strength and retain exposure to value chain upside without committing capital ahead of sustainable market signals. Now moving to the market, turning to Slide 17. The lithium market remains cyclical. However, long-term fundamentals are being shaped by structural electrification trends and the pace at which new supply can respond. The following slides outline the demand backdrop and the constraints on supply and why we have pursued a disciplined through-cycle strategy. Moving to Slide 18. Global electrification is accelerating, what the International Energy Agency describes as the age of electricity. Global power demand is forecast to grow at approximately 3.6% annually to 2030, around 1,100 terawatt hours of additional demand each year. This is roughly 50% faster than the prior decade. Importantly, electricity demand is now outpacing economic growth for the first time in decades. And by 2030 is expected to grow more than twice as fast as total energy demand. That reflects a structural shift towards electricity as the primary energy carrier. As grids become more renewable heavy, battery storage becomes essential to maintaining reliability, positioning the lithium-ion technology at the center of both mobility and stationary energy systems. So for lithium, this is not a cyclical trend, it is structural expansion of the demand base. Moving to Slide 19. Against that electrification backdrop, lithium demand remains structurally strong and increasingly diversified. Electric vehicles continue to represent the largest single source of demand growth while battery energy storage is the fastest-growing segment. By 2030, EVs and energy storage combined are expected to account for more than 90% of lithium battery demand. As grids integrate higher shares of renewable generation, large-scale storage deployment is accelerating globally, adding a second major structural demand engine alongside mobility. Overall lithium demand by end user is forecast to grow at approximately 10% CAGR over the forecast period, reflecting this dual driver dynamic. Growth will not be linear. Periods of volatility and supply adjustment are inherent in commodity markets, but the underlying demand trajectory remains structurally upward. Moving now to Slide 20. The key question is how will the supply base respond to that demand trajectory? The fundamental constraint is that new supply is slow and capital intensive to deliver. In many jurisdictions, the time line from discovery to first production now extends well beyond the decade, reflecting more complex approval processes, higher environmental and social standards and increasing capital intensity. As a result, meeting projected demand will require significant new greenfield investment across the industry and sustained pricing at levels that support that investment over time. But while pricing has improved recently, this confidence in long-term price levels required to support new greenfield investment decisions remains critical to bringing on supply at the pace required. In that context, scale, cost competitive and balance sheet strength become structural advantages, particularly where producers can add capacity through stage brownfield options rather than relying on greenfield development. At PLS that means we can sequence growth deliberately, activating capacity when returns are attractive while maintaining discipline through volatility and protecting long-term value. I just offer a quick comment on the market today where we see it. As you could tell from the pricing trends we've seen recently, the market, in our view, is short. Recent pricing today is approximately around $2,100 per tonne for spodumene. This is very strong in the context of Chinese New Year, which is at this time where typically we've seen a softness for this period. So we're seeing relative to strength on a seasonal basis. The price trends have, of course, been upwards over the last week, it's been upwards -- incremental improvement about 5%. Looking back over a 2-month period, it's been 50%. And on a 6-month look back, it's been 150%. And I'd also add that as an anecdote support, we continue to see strong inbounds seeking supply. So out of all of that, this is some of the reasons which gives us confidence with the Ngungaju restart that we've announced today and the possibility for us to capture the stronger margins we're seeing in the market today. Now finally, just to finish with some closing comments. The first half of FY '26 demonstrated the strength of the PLS platform. The operating leverage strengthened during the down cycle is now translating into materially stronger earnings, reflecting a structurally more resilient business. This remains a volatile capital-intensive industry. That reality does not change, but our focus remains consistent, disciplined capital allocation, balance sheet strength and value creation through the cycle with a strong balance sheet, 100% ownership of Tier 1 assets and the restart of the Ngungaju processing plant ahead of us, we are sequencing growth from a position of control. Larger growth options remain gated by sustainable returns and capital discipline, Structural operating strengths, financial resilience and stage capital deployment define how we create long-term value and a strategic and evolving supply chain. Thank you all for your time this morning, and I'll now pass back to Jonathan to start questions. Operator: [Operator Instructions] Our first question for today comes from the line of Mitch Ryan from Jefferies. Mitch Ryan: Just wanted to understand the key source of ore for Ngungaju, will that be the southern pit? And how do we think about the impact on fleet size, material movements, strip ratio over the next sort of 2 years? Dale Henderson: Sure. Thanks, Mitch. So in terms of ore feed, that will come from the full mine. It's not restricted to any particular pit. And the way Brett and team optimize processing is through the full mine and through all available pits. So it's not described to a particular pit. That being said, depending where they're at the mine plans at different points in time, they will dedicate one source, depending where they're at in the mine, but that would be the strategy there. As it relates to fleet capacity, there is a small increase in fleet and bringing on some additional operators, but it's not material. As it relates to the key lift for the operation is principally for the processing team and the need to onboard processing operators for the plant. Mitch Ryan: And just sort of a follow-up or the other part of the question is, obviously, you've maintained CapEx guidance. I realize the CapEx to restate Ngungaju is not material, but what other parts of CapEx you have declined to allow you to maintain capital guidance? Or have you pushed some of that into FY '27. If you can give any color around what's happening within that CapEx, that would be appreciated. Flavio Garofalo: Yes, Mitch, I can answer that. The majority of the costs in relation to the Ngungaju restart will actually be expensed. So what you'll find is essentially it will go through our P&L and hence the reason why we've set our FOB guidance will be towards the upper end of the scale from $560 to $600 a tonne. Operator: And our next question comes from the line of Hugo Nicolaci from Goldman Sachs. Hugo Nicolaci: Always a lot to talk about, but maybe also just on the Ngungaju restart now it's been approved. Firstly, can we just confirm, would you be making that restart decision today without that recently secured offtake agreement you announced earlier. And as a follow-on, can you talk us through the process of arriving at that $1,000 a tonne price floor just given, Dale, your previous comments around like you didn't have to get a floor that you'd have to be giving something away on the upside. Dale Henderson: Yes, sure, Hugo. As it relates to the NLO restart. Look, I suspect we would have step forward with the decision anyways with or without that particular offtake we announced because inbound inquiry has been so strong. And had we not awarded to Canmax the other day, it would have been another strong chemical -- because there was a bunch who were keen to contract with us. And as it relates to the floor pricing, this is a negotiation. So what the team did is, of course, reach out to market to see who would be interested in offtake and ran a competitive process. And of course, floor price is a key term that we tested the market on. And the combination of terms that we secured with Canmax was really the key draw cut plus the fact that we've had an established relationship with Canmax, we had for a long number of years. And we thought that this was the right step to extend that partnership further. Hugo Nicolaci: If I can just clarify that combination of terms. I mean is it higher spec or what is it sort of given them the confidence to offer your price for? And then maybe any color on why $1,000 a tonne and not $800 or $1,200? Dale Henderson: So for clarity, no, there's nothing new or different in terms of product specs but that's all consistent with how we engage with our other customers. As it relates to price floor, as I said, that that's a function of the tender process and a key term we negotiate. Obviously, for a floor price, we wanted as high as possible. They wanted as low as possible. It's a negotiation. And I think where we landed is a sensible landing point. And I'd also add that I think part of the set of terms, in my view, demonstrates the premium of contracting with PLS. We're proud of the reputation as a reliable partner in this market. And we believe that's recognized and believe the set of terms we've agreed with Canmax in part reflects that. Operator: And our next question comes from the line of Austin Yun from Macquarie. Austin Yun: Good results. Just a quick question on [ Ngungaju ] restart, hoping to get some color on the ramp-up profile supplying additional lithium to the strong market. And also, any ore sorting technology, so any learnings from the Pilgan that you can transfer [ Ngungaju ] to lift the nameplate capacity? Dale Henderson: Yes, thanks for your question. In terms of ramp-up profile, we'll provide more visibility on that as part of our guidance for next year, which we are targeting to release that with the June quarter results. So sorry about that. We'll have to come back to you on that one. And yes, that will be a staged ramp-up that although the plant has been in care and maintenance, it's natural to expect not necessarily a rapid ramp up. But as I say, we will offer more color on that as part of next year's guidance. As it relates to ore sorting, yes, of course, lots of learnings from the Pilgan operation, bringing that technology to life. And the team are considering whether in time to deploy that technology to Ngungaju. However, it's not a straightforward case in that the Ngungaju capacity is somewhat limited and the net benefits of that type of investment are not as strong as what we've achieved at the Pilgan unit, the relative scale differences. That being said, the numbers need to be worked through, and it is under consideration. But I suspect we wouldn't step down that path for quite some time if we were to go in that direction. Operator: And our next question comes from the line of Levi Spry from UBS. Levi Spry: Maybe just on P2000. So I think Ngungaju is as expected. When it comes to the next step, we've got some numbers out there, they're 2 years old. That's kind of forever in lithium land, $1.2 billion in '24 per dollar. How can we think about scope that's being considered in the feasibility? And can you particularly thinking about the flow-sheet infrastructure? And can you give us any update on permitting and construction time lines? Dale Henderson: There's a bit in that. And most of it, in fact, all of it will come in that study outcome in the December quarter. But to offer just a slight bit of color, and we have talked a little bit of this into the release today. This will, of course, be the third processing facility at Pilgangoora. So the team is optimizing that new facility to optimize the whole in consideration of the respective strengths of Pilgan and Ngajugar. This will be plant #3. And of course, the aim here is about maximizing global lithium recoveries from the operation. Now what flows from that, the team are narrowing in on a whole ore flotation circuit, but of course, adopting the best of the best and the processing tech that we've deployed on the other plants and where it's heading would be, in my view, sort of the next evolution of processing technology for our market. So plenty of work underway around the processing thinking. To your point about capital costs, yes, it's a different environment for pricing the project from when we released that PFS in August '24. So yes, an update is definitely required there and that will come with the December study outcome. Then to the point around infrastructure, yes, we are thinking through what enabling infrastructure might make sense, potentially some pre-FID enabling infrastructure. Yes, we've got the work underway thinking through that, but yet too early to really describe what that is or any numbers. But plenty of work underway on the P2000 study. Levi Spry: Could I just follow up on the permitting front. I mean, there's a project just down the road, the gold line that's taken a bit longer than maybe the market thought. What sort of -- what would be the steps in front of you, given that yours as brownfields? Dale Henderson: Yes. Sorry for missing that one. No, we've secured the permits required for that expansion. Operator: And our next question comes from the line of Matthew Frydman from MST Financial. Matthew Frydman: Can I ask on the Canmax offtake in the Ngungaju restart. Obviously, you've got a $1,000 a tonne floor there. Is that enough to underpin a positive cash margin for Ngungaju or are you still taking some price risk there in your view, given the, I guess, the all-in cost structure of Ngungaju? Dale Henderson: I'll give it to Flavio. Thanks, Matthew, for the question. The way we think about the operation is in aggregate. So the 2 operations combined. And for that reason, yes, very happy with the floor price of USD 1,000 per tonne. Matthew Frydman: Okay. Got it. And then secondly, I guess following on from some of Hugo's questions earlier, what dictated exactly the size of that offtake? I guess you said you had a bunch of inbounds, potentially could have done more from a volume perspective. Is that the case? And if not, -- why did you not elect to do more? And I suppose an extension of that is could you sign more floor contracts in the future to underpin other growth options like P2000? Dale Henderson: Sure. Yes. So as it relates to the term, the volume and the various options we've built in the PLS' election, the makeup of those, of course, is very dependent on the counterparty. So the team went out to market although we had some sort of upper bounds of what we were prepared to commit in terms of this particular offtake award. We have flexibility depending on the needs of that counterparty. So it's very much an iteration in terms of understanding the counterparties' needs and then, again, negotiating and running several strong options in parallel as you do in competitive process. To the question of could another offtake with another floor price be possible? Yes. I think is the short answer there, given what we saw through this process. And yes, interested to see what this offtake award means for the market more broadly. To our knowledge, this is a first of its kind for our market in terms of this combination of terms and maybe it's the first or more to come. Time will tell. Operator: Our next question comes from the line of Kaan Peker from RBC. Kaan Peker: Two for me. Just on Ngungaju, what does steady-state costs look like once Ngungaju is fully ramped? Are you still suggesting 20% to 25% higher cost versus Pilgan? Dale Henderson: Kaan, you'll get high level of visibility when we do the guidance for next financial year. But just to preempt disappointment, we won't be breaking it out by operating plant. Apologies. Kaan Peker: And secondly, just on P2000. If you got another floor pricing that covered commitments for P2000 at around that $1,000 a tonne floor price, would you sanction P2000 then? Dale Henderson: Yes. Obviously, we want to see the study outcomes before we could take a view of that. But in terms of what we saw from the PFS, yes, I think would be -- we would go there. I think the -- from the PSF outcomes, the P2000 provided scale and provided a lower unit cost. At that moment in time, obviously, we need to recheck those with the new study. And that was at a cost base well below USD 1,000 per tonne. So look, let's wait for the study if it's something similar. And if the market is valuing that security of supply and we can secure floor price, I think that would be very attractive and very supportive to an FID decision. Operator: And our next question comes from the line of Andrew Harrington from Petra Capital. Andrew Harrington: My question is with regard to downstream processing of WA spodumene. What do you see as the prospects for that to happen outside of China within the next 5 years or so? Dale Henderson: Yes. Thanks for the question. Look, as it relates to downstream processing in Australia, Australia has some challenges as -- if you consider the lithium market to be a global market and the jury is out if it continues to be that way given some of the overtures around dedicated supply chains, but it's a global market today. Australia is high cost in terms of power, labor, capital, and there isn't a lithium-ion battery ecosystem here. There's no consumers of the batteries in the main. There's no cathode makers, chemical makers. It's all missing. That adds to essentially -- or the absence of that makes you less competitive. So the stack of those things makes onshore processing in Australia more challenging relative to other jurisdictions, which have the opposite of all of those things, low-cost power, labor, capital and their own battery ecosystems, which, by the way, is part of the draw card for PLS to be working with POSCO in South Korea, where it has all of those things in combination. So Australia, there's some challenges to compete long term globally. But of course, it's a noble ambition. And if onshore processing can be achieved in Australia and successfully long term, why not. But there is one variant of onshore processing, which might be a more sensible landing point, and that's midstream. And midstream for those who are not aware is the concept of doing several value-added processing steps at the mine site to produce chemical product, but chemical product, which is not battery grade ready, it's more of a lithium salt type product. We think that shows strong potential for Australia potentially. Hence, we're stepping down the path of our demonstration plant and looking forward in time to seeing how that goes. Maybe that variant will go well for Australia in time, we will see. Andrew Harrington: Okay. I guess the question wasn't specifically about downstream processing in Australia. I mean Korea and Japan stand out potentially to pick the ecosystem and other criteria you mentioned. Is that the only options? Or I'm thinking more in the sense of the world we're living in with geopolitical strategic concerns now rising very high in terms of the priorities versus just in time or lowest cost. How does that -- how do you square the circle if those concerns are priority? Dale Henderson: Sure, sure. So a few layers to this. Look, the first is just -- and apologies for some of this a bit obvious, but the lithium industry is very young, growing rapidly. And the supply chains required for the future state of the industry are not yet built. Therefore, they need to be built. So the question is where will they be built. Now what we've got today is, of course, China, of course, is the battery ecosystem of the world. You've got a smaller version in Korea and a smaller version in Japan. And that basically is the full set of supply for the globe today. But of course, more needs to be built out and the question is where. And the driving forces of that are many. So yes, it includes geopolitical collaboration. There's a lot of talk around that, but not a lot of action, at least not yet, in our opinion. And then you've got those sort of fundamental attributes of what makes a long-term competitive battery hub ecosystem. So the cost points that you mentioned or that I mentioned, et cetera. So a lot of that is yet to grow out. But this is an area of deep work that we've done in our study pathway with Ganfeng, has been looking at exactly this and sort of studying the globe in terms of what is available where and what do we think long term makes a potential successful hub. We're studying something like more than 900 industrial parks globally. So we've got a pretty rich picture of the landscape today. But yes, as I say, plenty of moving parts shaping the way this industry grows. Operator: And our next question comes from the line of Glyn Lawcock from Barrenjoey. Glyn Lawcock: I just wanted to sort of hear some of the thought process behind the dividend decision because, obviously, you're confident in the market you've restarted Ngungaju. So you've got the confidence for that, but -- and you've got a massive cash pile and lots of liquidity yet you didn't have the confidence to restart the dividends. Just your thought process behind that? Dale Henderson: It's not a -- Glyn it's not a question of confidence, it's a question of applying a capital management framework, which -- and given the half was, as you can see from the numbers. Net positive only just -- given the inflection of the market has only just occurred that translated to essentially no dividend. But what we have flagged as stated in the release today is the positive expectation of the full year, subject to, of course, the positive pricing and market outlook that we're seeing so far. Glyn Lawcock: All right. And then maybe just as a follow-up, just again, just thinking about the logic. It obviously now clearly looks like P2000 goes first, Colina second. Just was there anything that drove that specifically to push them one before the other in that order? Dale Henderson: Yes, is the short answer. Firstly, it's good to sort of reflect on the 2 very different projects. In the case of P2000, it's a scale brownfield expansion and more mature in terms of the study work and quite a different profile in terms of capital and commensurate offtake. As it relates to the Colina project, it's greenfields, it's earlier and a study maturity. And it's early as it relates to resource development. And this is actually one of the key focuses for that asset is the want to prioritize more drilling to grow the resource. So very much sort of mining development 101 in terms of maximizing the asset that you have in the ground. So what we're seeking to do is to do more drilling, grow the resource. And having done that, of course, then you go and size your processing plant accordingly, optimizing for value in terms of volume -- production volume versus mine life. Now outside of that, however, the enabling infrastructure works continue, and we have flagged in the release today potential pre-FID funding to support some of that enabling infrastructure. So both sets of initiatives in parallel. But what all that sort of translates to is a longer runway. We have to get more drilling done, redo the resource, do a reserve, fold that into an updated processing plant design and of course, have all that ticked and tied ready for a full FID, which is when you go back and compare that to P2000 yet there in lies -- it's different maturity levels of the 2 projects. Operator: And our next question is a follow-up from the line of Mitch Ryan from Jefferies. Mitch Ryan: Dale, just on Colina, you sort of said you're assessing some of the early-stage infrastructure initiatives. Can you just help us think about the range and scope of the spend and the timing of that, please? Dale Henderson: Yes. So yes, we'll give more guidance on that later. But the makeup of it includes a short road from the highway into site, some water infrastructure from the local dam, some power. It's of that nature. As to timing, we'll come back to you. I suspect this will come in with our guidance for next year. But I can't give you any numbers on that today. Mitch Ryan: Okay. And sorry, my last one is just -- can you just help us understand your rationale for collapsing the Calix JV? Dale Henderson: Yes. So the rationale there was really about enabling PLS more flexibility under a JV structure. Of course, as JV partners, you have to enroll your partner in all decisions. This restructure with PLS taking 100% ownership, of course, gives us full autonomy to optimize that facility in the context of the broader Pilgangoora operation as we see fit. So it's really about our flexibility. And I just want to reassure that in terms of Calix and PLS, we both remain as enthusiastic and as committed as ever to the potential of this project and long-term commercialization and Calix will be continuing to support us, including the commissioning activities and ultimately, the commercialization. We will do that jointly as set out in the release today. Operator: And our next question comes from the line of Lyndon Fagan from JPMorgan. Lyndon Fagan: Look, the first one is just on the P2000 study, are you actually considering any other scope i.e., P1500 or something above 2000? And I guess why 2000? Is there a governing factor to jump so high, I guess. And then just a follow-up is, I guess, if we're talking about Colina, we've moved the outcomes out for another year. It was originally coming in before P2000. I guess, when would you anticipate first production for that? Dale Henderson: Yes, sure. Thanks for those questions. As it relates to P2000, the step-up there is driven by the -- really a practical reality of -- in order -- we've sort of maxed out our infrastructure at Pilgangoora. So to build any more processing capacity, it requires building a new crushed ore stockpile and ROM, the whole [indiscernible], if you will. So then the question becomes what's the optimal size for that. And larger essentially works better to achieve those economies of scale. So it is possible we could build a smaller version. However, we wouldn't enjoy the scale benefits and the capital efficiency benefits you get from that larger operation. So that's the principal reason. And we've taken the view that when you consider the growth outlook for the market, P2000 is definitely needed, so is Colina and so it's a whole lot more. The question is not if, it's when. It's about timing it appropriately. So as for P2000, we will do exactly that. So we will time it appropriately. We want to make sure we're deploying our shareholders' capital as efficiently as possible, and we'll time that into market when that makes sense for the market. As it relates to Colina, sorry, what was your question on Colina? Lyndon Fagan: Just when you would anticipate first production as a ballpark? Dale Henderson: Yes. We haven't reset that outlook because it very much -- we very much have to step through the drilling and see where we can grow the resource to. That is the key determinant, which, of course, informs the design and ultimately, the delivery pathway. But what we'll seek to do is provide a bit more color on this in some future disclosures just to at least give a tentative outlook for what we're aiming to achieve there. Lyndon Fagan: And is there any early findings relative to the study that's out there that you would want to call out? . Dale Henderson: Not at this stage other than to reassure, we're very happy with everything we've seen. If anything, we -- things have proved up to the upside. So metallurgy, what we're seeing in the ground, the guys have done deeper levels of work of course in all manner in terms of infrastructure, ore body understanding, we've had all of our specialists over there working with the Brazilian team and been very delighted at the quality of the work done, the quality of the asset. So looking forward to providing more visibility in time, but it's all looking good so far. James Fuller: Dave, we're going to move to some online questions from the webcast. Does the midstream processing plant just save transport costs due to concentration? Or does it offer other value adds to the product? Dale Henderson: Yes, there's a number of benefits for the midstream product. First and foremost, the alumina silicate component of the spodumene concentrate that we ship today does not get shipped. It gets left at the mine site where it can get more readily handled. So that, of course, essentially solves for what is a waste product in many markets, albeit some markets put into cement, but leaves that at the mine site, that, of course, saves on transport. Then the actual lithium salt itself is materially concentrated. So there's another transport saving there. And then there's the carbon footprint. So the key distinguishing feature of the demonstration plant and the midstream project that we're pursuing here is the use of Calix's electric calciner. And when you look at sort of the waterfall of carbon consumption for spodumene concentrate from ore body through to hydroxide gate, the biggest draw of carbon is the calciner. So this effectively solves that. So that would be a further benefit. And then there's just what is the cost of production and what additional margin can be realized. Now this is the bit that we're yet to validate and why we're building the demonstration plant. We want to see does the energy efficiency of the calciner, the combination of other cost inputs to produce this lithium salt relative to the sales price does it net a larger margin than shipping spodumene concentrate through the traditional pathway. So lots of benefits for pursuing this. James Fuller: Okay. Another midstream question around the use of fine ore and coarse ore. So the question is around can we use coarse ore through the midstream plant as well as fines or can you produce more fines by grinding? Dale Henderson: Yes. So as a function of the nature of the calciner being essentially a flash calciner for the spodumene concentrate to convert through alpha to beta phase, the particle size needs to be small. Therefore, fines is required. Now if it turns out that the economics make sense to grind our coarse or finer to a cheaper fines and then feed it through the calciner, well, that's a possible processing pathway. But we cannot feed coarse product through the calciner. James Fuller: Okay. Thank you. We had a number of other questions, which we've already addressed. So that's the end of questions online. Dale Henderson: Great. Well, thank you all for dialing today for our half year results. Looking forward to updating again in due course. Thank you for your time. Operator: Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.
Operator: Good day, everyone. Welcome to the SOL Strategies Fiscal First Quarter Ended December 31st, 2025 Earnings Conference Call. [Operator Instructions] On the call today is Mr. Michael Hubbard, Interim Chief Executive Officer; Mr. Doug Harris, Chief Financial Officer; and Mr. Max Kaplan, Chief Technology Officer. At this time, I would like to turn the conference over to Mr. John Ragozzino with ICR. Mr. Ragzzino, please go ahead, sir. John Ragozzino: Good afternoon, and thanks for joining SOL Strategies Fiscal First Quarter 2026 Earnings Conference Call. Before we begin, I want to remind everyone that certain statements on this call contain forward-looking statements subject to risks and uncertainties. Actual results may differ materially from these statements. We refer you to our latest press release, MD&A and SEDAR+ filings for detailed risk factors and assumptions. All dollar amounts are in Canadian dollars unless otherwise noted. The company assumes no significant events occur outside our normal course of business and that current trends in the digital assets marketplace continue. However, listeners should note that crypto markets are volatile and that our business metrics can fluctuate significantly. With that, let me turn it over to Michael Hubbard, SOL Strategies, Interim CEO. Michael Hubbard: Thanks, John. Good afternoon, everyone. I want to start with our most significant development. In January, we launched STKESOL, our Liquid Staking Token, commonly referred to as an LST. This is a major strategic milestone that fundamentally expands what SOL Strategies offers to the market. How it works? When SOL holders stake through our protocol, they receive STKESOL, a receipt token, representing a stake position that continues to earn accrued staking rewards. That token can be held, traded, used as collateral and DeFi applications or deployed for additional yield opportunities, all while the underlying SOL continues earning staking rewards. What is unique about STKESOL, is that when it allocates SOL across validators, it uses our own stake with score, which intelligently allocates SOL across validators based on performance, security and decentralization metrics. This moves us from being a player in the arena with other validators into an aggregator role, advancing decentralization by supporting dozens of vital smaller validators that help keep Solana safe, all while providing a new revenue stream to the company. LSTs solve several problems in the staking market. First, native Solana token staking, locks tokens with roughly 2-day unstaking periods, limiting liquidity. Second, stakers traditionally must choose between earning yield and capital deployment. Our LST eliminates that choice. Holders maintain full exposure to staking economics while preserving liquidity through a tradable receipt token that appreciates to reflect accumulated rewards. Third, staking to a single validator carries risk of lost rewards if that validator experiences downtime. Our LST delegates to dozens of validators, significantly reducing the risk of a single validator's failure. Lastly, LSTs carry significant tax advantages for holders as they don't own new tokens every few days from staking rewards, instead experiencing a gradual increase in their exchange rate back to SOL, resulting in long-term capital gains rather than short-term income. This is, of course, jurisdiction dependent and not tax advice. From a business perspective, this presents a new product line in our staking business. Our staking business now encompasses our proprietary validators, earning commissions and lot rewards, our white label validators earning revenue based on our commercial agreements with customers, our staking services and reporting business with customers like the VanEck Solana ETF, and now a liquid staking business, earning commission on all the SOL held within the liquid staking protocol. By providing superior utility, competitive yields and through our robust and reputable infrastructure platform, we expect to drive meaningful growth in our assets under delegation. The LST becomes both a distribution channel and a differentiation tool in what has largely become a commoditized staking market. In just a few weeks since launch, we have already seen strong early adoption with over 675,000 SOL staked. The market recognizes and respects our commitment to the Solana Economy, our compliance infrastructure and transparent reporting that we are seeing translate into growth. Now let me provide context on Q1 fiscal '26, which set the foundation for this launch and our momentum heading into the remainder of the year. Our validator network scaled significantly. We recently announced we are now serving over 31,000 Unique Wallets, up 63% from 19,000 at the end of September. Assets Under Delegation grew to over 3.3 million SOL, up from 2.8 million just 3 months prior. Our validators maintained 99.999% uptime while consistently delivering yields above network average. To drill down on the unique wallets for a second, this is a key point for us. Unique Wallets are akin to unique customers, and they are staking with us epoch after epoch. In an analogy to the Software-as-a-Service world, these are equivalent to monthly active users. The entire Solana network as of the 10th of this month has approximately 576,000 Unique Wallets with the average validator having just 685. This means we are punching well above our weight with 5.5% of all staking users choosing us, more than 46x the average. VanEck selected us as the SOL staking provider for their U.S. spot Solana ETF. This isn't just another partnership. VanEck is a Tier 1 asset manager, and they chose us over every other validator operator in the ecosystem. That's validation of our compliance stack, our technical performance, our reporting product and our operational excellence at the institutional level. Turning briefly to our balance sheet. During the quarter, we further optimized our balance sheet by restructuring a $25 million credit facility with our largest shareholder, simplifying our capital structure and significantly reducing liabilities. Additionally, we successfully completed a $30 million life equity offering, further enhancing our financial flexibility and improving liquidity in our stock. Looking ahead, we remain focused on continually evaluating ways to become more capital efficient. We were active throughout the quarter, engaging with existing shareholders, potential investors and telling our story about being a diversified Solana economy company as we participated in dozens of one-on-one meetings with new investors at several major institutional investor conferences during the quarter. We look forward to continue to engage with new and existing investors, and we'll continue to actively tell our story at a variety of conferences and events in '26. Now let me address the elephant in the room, SOL's price movement in recent weeks. Times of such significant volatility don't change our thesis. They reinforce it. Times like these are when the active builders within the ecosystem are separated from the passive participants. When prices are rising, we all look very smart. When they're falling, it becomes clear who's actually building sustainable infrastructure and creating value versus just passively riding market momentum. We are not a digital asset treasury. DATs are just one subset of public crypto companies. They're a financial engineering play on token holdings. We're building operating infrastructure that drive recurring streams of revenue regardless of token price. We are using this period to build. When SOL goes down, we look at network activity and see a variety of opportunities because our business is driven by our operating infrastructure, not passive token exposure. First, we remain highly focused on our validate operations with best-in-class performance and staking yield metrics. We also continue to actively pursue new staking partnerships on the institutional front. The VanEck agreement announced in November is an important validation on that front. Our pipeline continues to expand. Our stake SOL product launched on schedule, and we're executing regardless of price action because we're building long-term infrastructure, not chasing short-term pumps. Second, we continue to pursue a dual-pronged growth strategy by complementing our organic pipeline development with an active M&A strategy. We're currently evaluating several strategic M&A opportunities as recent market conditions have created an increasingly attractive environment for highly strategic bolt-on opportunities. Businesses with proven track records or significant technology enhancements in the Solana ecosystem, but whose operators may be struggling with balance sheet stress. Here's the reality. Institutional adoption of blockchain infrastructure doesn't move in Lockstep with token prices. The VanEck mandate didn't happen because SOL was up or down. It happened because we met their institutional requirements. ETF launches, custody integrations, traditional finance build-out, these trends are multiyear and largely price agnostic. If anything, lower prices accelerate institutional interest because fiduciaries can deploy at better entry points with reduced downside risk from recent highs. Even amid broader macroeconomic corrections across crypto and global markets and ongoing shifts in fiscal policy and interest rates, we continue to see strong evidence that blockchain technology remains well positioned for long-term adoption within the global financial system. So yes, Solana token pricing is down, but we will continue to execute our strategy and be an integral part of the Solana ecosystem. And when SOL recovers, which it will, because Solana's technical advantages and ecosystem growth haven't changed, we will have more tokens staked, more institutional relationships secured and more operational leverage built. This is exactly when you want to be aggressive, not defensive. We have the capital and the team to execute. So when others falter, we accelerate. The Solana Economy is still in the early innings, and we are continuing to see the building continue. Most traditional finance institutions haven't started evaluating on-chain applications yet. When they do and they will, they need operators who meet multiple needs. That's us. Now let me turn it over to Max to talk about developments in our staking and infrastructure business. Max Kaplan: Thanks, Michael. As Michael said, Q1 marked an exciting quarter for us with the launch of STKESOL, one of our flagship new staking products. STKESOL is a liquid staking token, giving users more optionality into how they want to stake with us. In just a short period of time, STKESOL has grown to 661,000 SOL in TVL, total value locked and integrated into every blue-chip Solana DeFi protocol. One of the most unique parts is STKESOL is our algorithmic delegation strategy, which picks which validator to pool stakes with based on a number of key metrics and also spread downtime risks across 75 validators. With native staking, if a validator goes down, the staker loses out on potential rewards. By staking across 75 validators, if any single validator goes down, the risk is greatly minimized, providing stakers more assurances about their returns. For managing and developing the infrastructure for the pool, SOL Strategies takes 5% of the rewards the pool generates, making -- marking a new revenue stream for the company, which is quite exciting. We have a lot more planned for the future that I'm excited to launch. With that, I'll hand it over to Doug to discuss our financials. Douglas Harris: Thank you, Max. Good afternoon, everyone. I'd like to walk you through the financial results for the 3 months ended December 31st, 2025, and provide some important context around the numbers. Keep in mind that the following discussion includes non-GAAP financial measures. Please refer to our MD&A for more information. The key takeaway from our results are that our staking income grew 69% year-over-year, 120% on a SOL basis. Our SOL treasury expanded to approximately 529,000 tokens. Our reported loss is dominated by noncash items, and our capital structure was strengthened through the post-quarter retirements of the unsecured credit facility. Total staking and validation income reached CAD 2.1 million, up 69% from CAD 1.2 million in Q1 fiscal 2025, consisting of CAD 1.6 million in staking rewards on our SOL Holdings and 471,000 in net validation service income from third-party delegators. On a SOL basis, rewards were up 120% year-over-year, with the difference from the COT figure attributable to the decline in the average SOL price and the strengthening Canadian dollar. Reported net loss was CAD 11.9 million compared to net income of CAD 3.2 million in the prior year's period. Adding back noncash and nonrecurring items, amortization of CAD 2.4 million, share-based compensation of CAD 1.3 million, noncash interest and accretion of CAD 1.2 million, realized cryptocurrency transaction losses of CAD 6 million. Note that these are primarily related to coin-to-coin swaps that are required to be recognized as a disposition by IFRS accounting standards and nonrecurring legal expenses of CAD 475,000 produced total add-backs of approximately CAD 10.9 million and an adjusted loss of approximately CAD 500,000. Below the net loss line, other comprehensive loss included a CAD 53.5 million unrealized markdown on our cryptocurrency holdings reflecting the decline in SOL price from approximately CAD 290 at September 30th to CAD 274 at December 31st. This markdown fluctuates with the SOL price from quarter-to-quarter and has no impact on our operating cash flow. Total operating expenses were CAD 7.7 million versus CAD 1.3 million in the prior period. Four line items, amortization, share-based compensation, professional fees and interest expense account for approximately CAD 6 million of that total, 3 of which are noncash or capital structure related. The remaining net operating expenses were CAD 1.8 million, including G&A of CAD 668,000 and consulting fees of CAD 692,000. On the balance sheet, total assets were CAD 132 million at December 31st, down from CAD 169.6 million at year-end. This was driven entirely by unrealized SOL markdowns. Cryptocurrency holdings were carried at CAD 92.2 million at quarter end. Total debt of CAD 52.3 million was comprised of CAD 14.9 million in credit facilities and CAD 34.9 million in convertible debentures. Subsequent to quarter end, we fully retired the unsecured credit facility provided by a significant shareholder through the issuance of 2.3 million shares and cash payments totaling CAD 4.9 million. Cash at quarter end was CAD 223,000, consistent with our treasury strategy of holding the majority of our assets in SOL. We also have access to the Kamino decentralized credit facility, providing Stablecoin Liquidity against our SOL collateral without requiring us to liquidate our cryptocurrency holdings. During the quarter, we completed a life offering, raising CAD 30 million in gross proceeds, CAD 27.9 million net through the issuance of 4.38 million units at $6.85 per unit. [ APW ] conversions of CAD 1.26 million reduced that facility to USD 9.5 million and shares outstanding grew from 23 million to 28.6 million. In summary, our SOL holdings grew over 90,000 SOL to approximately 529,000 SOL at quarter end. Our staking net income grew 69% year-over-year, 120% on a SOL basis. Our reported loss is dominated by noncash and nonrecurring items. And subsequent to year-end, our capital structure was strengthened through the retirement of the unsecured credit facility. With that, I'll turn it back over to Michael. Michael Hubbard: Thanks, team. Let me wrap up with where we're headed. Q1 proved institutional Solana adoption isn't slowing down. VanEck was the validation, 105% growth in Unique Wallets [indiscernible] proof. The STKESOL launch opened the next chapter. But here's what matters most. We're still early. Most institutional capital hasn't moved on chain yet. Most traditional finance firms are still evaluating whether the blockchain infrastructure is real. When they decide it is and they will, they need partners who deliver institutional-grade compliance, performance and reliability. That's us. That's our position. That's where we're building. We're not a passive treasury vehicle hoping for token appreciation. We're an operating company generating recurring revenue from critical infrastructure while holding strategic exposure to the asset powering that infrastructure. The next 12 months will see more ETF launches, more institutional custody integrations, more traditional finance service building on Solana. We intend to capture our share. To our shareholders, Q1 was about execution. The remainder of fiscal '26 will be about acceleration. We have the right strategy, the right team and the right positioning. We look forward to sharing some of our M&A developments in the near future. With that, operator, let's open it up for questions. Operator: [Operator Instructions] And we'll go first this afternoon to John Roy with Water Tower Research. John Marc Roy: So Michael, I'm curious if you can give us any more color on your M&A thoughts, maybe the type of acquisitions you're looking at. I mean we're trying to get an idea of what you see might be coming in the future. Michael Hubbard: Absolutely. Thanks, John. So we're looking at a few different opportunities, and we're very actively involved in evaluating options at the moment. So we have a strong pipeline and a few different paths we can go down. We're looking at opportunities that both involve larger scale, more developed businesses that have strong existing revenue that are in the infrastructure space or in the product space in the Solana ecosystem. But we're also evaluating opportunities that are smaller teams that have very big -- very strong promise that have a really strong team that we think will be accretive to our internal engineering teams. And business teams, but also that are building exciting technology that we think will fit in and slot in with [indiscernible].. John Marc Roy: Great. And kind of maybe switching gears just a little bit. The LST, I'm kind of really trying to think about how it fits in your existing staking business. Is it really going to compete with the native validation business? And any kind of revenue expectations you might have longer term? Michael Hubbard: Absolutely. So when we think about the staking market, it's sort of like a layer cake, where you've got the validators right at the bottom and then you've got the stakers at the top. And over the last 2 or 3 years, we've seen this middle layer evolve, which is the liquid staking market. And that market is growing consistently. We've seen over the last 2 years, it's grown from basically 0 to now I think it's about 15%, 17% of the total market -- total staking market on Solana. Now what's very important is that liquid staking acts as kind of an aggregator above the validator layer. So there's an important market, important use case for native staking, which is taking directly to the validators. It provides you with the ability to choose your validator to have a relationship with that validator, if you want, which is important for institutions. And with liquid staking, you get the other side, which is where you have a token that you can hold in your wallet, you can deploy it in DeFi, you can potentially collateralize it. You might have some tax advantages depending on your jurisdiction, obviously, check with the tax adviser. This is not tax advice. But liquid staking gives you that flexibility. And what it means for us is that rather than competing with our validators where we're really serving a different segment of the staking market, we're stepping into that aggregator role where now we are providing the ability for liquid staking users to get exposure to dozens of different validators, and we're acting as an intermediary that is helping secure the network, supporting dozens of validators based on our algorithmic scoring. So we're really focused on smaller validators with good track records. We're using 120,000 data points, evaluating every single validator that we delegate to. So with that, we're really trying to improve the network and offer a unique use case to those liquid staking users. And sorry, just on the revenue front, you can think of it similar to operating an additional validator. We charge a 5% fee on all of the rewards that the liquid staking protocol generates. So all of the SOL people deposit generates staking rewards, we charge a 5% fee on that. So that's kind of similar to running a validator with a 5% commission. The difference being here that we're sitting at that intermediary aggregation layer. Operator: [Operator Instructions] Mr. Hubbard, I'd like to turn things back to you, sir, for any closing comments. Michael Hubbard: Thank you all for joining us today. We're extremely excited about the future of global finance on Solana, and we continue to work diligently to capture that upside. I think the reports really speak for themselves. Year-over-year, we're seeing good growth. Our validate and staking business is maturing. Additional verticals have come in now with the liquid staking and the institutional partnerships. So we're on a strong footing and we're excited for the year ahead. With that, we end our Earnings Call today, and I thank you all for joining. Operator: Thank you, gentlemen. And again, ladies and gentlemen, that will conclude the SOL Strategies Fiscal First Quarter Earnings Conference Call. Again, thank you all so much for joining us today, and we wish you all a great evening. Goodbye.
Rebecca Wilson: Good morning, everyone. Welcome to Cogstate's Full Year Results for Financial Year '25. I'm pleased to introduce on our call today, Brad O'Connor, Cogstate CEO and Managing Director; Darren Watson, our CFO; and Rachel Colite, our Executive VP of Clinical Trials. Before we get started, a reminder that this webinar is being recorded. [Operator Instructions] I'd like to now hand over to you, Brad. Bradley O'Connor: Thanks, Beck. Welcome, everybody, and thank you for joining us today. I'm really excited to bring you these results. We'll dig into the numbers, but I think what's really interesting is that, within Cogstate, we feel that the business is changing fairly substantially over the last 6 months. And through today's presentation, we're going to try and draw out those changes and the growth that we're seeing in the business as well as the financial results. So today's presentation, of course, includes forward-looking statements, and therefore, I note our disclaimer stating that this information in the presentation is general in nature. Obviously, encourage all investors to consider your own investment objectives and also to review in detail our 2025 annual report as well as the half year financial reports that we've released today. So with that, and before we get into the numbers, what I want to do is spend a couple of minutes just highlighting the trends that are driving our business. One of the key takeaways from this presentation is the expansion and diversification of both the portfolio of trials that we're working on as well as the growth in the customer base. As at 31st of December, Cogstate is managing a portfolio of 133 clinical trials, which is up 34% on the same time in the previous year. This included a record 42 new trials that were started during the December half year period. And that's a record for any half year period. And in fact, it's more trials than we started throughout all of fiscal '25. Pleasingly, after investing in additional resources to support a push into new indications, we saw almost a 6x growth in the value of sales contracts in mood, sleep and other neurological disorder programs throughout the December half. In terms of who we're selling to, we've added new pharma customers as well as larger biotech customers to our customer base, and many of those customers have potential for multi-program pipeline trials. In part, our growth stems from the growing maturation of our channel partnership program. As Rachel will take you through later in this presentation, we have identified a record number of sales opportunities in each of the last 6 quarters, and our channel partners are a really big factor in that growth. In the December quarter, channel partners drove 70% of the number of sales opportunities identified and 62% of the number of sales contracts executed. It's important to note that Cogstate margins aren't impacted when we're co-selling alongside channel partners. We also continue to invest in technology advancement, and we believe that new and improved products will be a key to Cogstate's ability to grow market share over time. From a financial perspective, as we announced last month, sales contracts for the December half year totaled $41.7 million, which was an increase of 105% on the previous corresponding period. In reviewing this growth, the relevant question is whether the market overall is growing or whether Cogstate is growing market share. And we believe the answer is a little bit of both. We note that over the next 10 years, CNS trials are expected to be one of the fastest-growing areas of R&D spend, and so we're well placed to benefit from that growth. First half revenue was $26.9 million, which is slightly ahead of the guidance we provided of around $25 million to $26 million. That $26.9 million was up 12% compared to the previous corresponding half, but down approximately 8% compared to the most recent June half year period. Given the strong sales contracts that we executed, the in-period revenue yield was probably slightly lower than we might have otherwise expected and certainly lower than the historical average. Darren will dig into that as we go through the presentation a little bit. It is important to note that license fee revenue was 23% of clinical trials revenue in this December half, which was up from 19% in the previous corresponding December half, but down from 31% in the most recent June half. Because license fee revenue is generally recognized in the same half as we execute contracts, lower license fee revenue can result in a timing difference in terms of revenue recognition. So that's part of the explanation as to why we saw that lower in-period revenue yield. As indicated at the beginning of the financial year, direct costs were expected to increase during the first half of '26 as we invested in additional resources to support expansion to new therapeutic indications and to pursue growth opportunities across the Asia Pac region. Both initiatives have been instrumental in driving the strong growth in sales contracts that we saw during the first half of the year. In total, we increased the number of staff directly involved in the clinical trial delivery by 17%. However, as Darren will walk you through a little bit later in the presentation, our cost of sales was also impacted by some one-off costs and some reallocation of costs from overhead. Like-for-like comparison of costs shows a 58.4% gross margin, which was in the range of guidance provided at the beginning of the financial year when we said that we expected margins to be intact to be somewhere between 0 and 3 percentage points. Notwithstanding our investment in growth, profit margins remained strong. EBITDA of $6.5 million at a 24.3% margin, profit before tax of $5.3 million at just under 20% margin and profit after tax of $4.5 million at a 16.7% margin, all demonstrate the leverage that exists in the business. As a management team, we're really confident that those margins will improve in the second half of the financial year. Again, we'll talk about that as we get into the presentation, but that's really a revenue question there that will drive that margin improvement. We begin the June half of -- with $21.7 million of revenue contracted for that half year period. That's up 24% from the same time last year. So at 1st of January '25 -- sorry, yes, sorry, 1st of January '25, we had $17.4 million of revenue contracted for the June half. And ultimately, we recorded $29.1 million of revenue for that half. So that's the relevant previous corresponding period. So as I said, $21.7 million contracted at 1 January 2026, which is up 24%. Cogstate had $27 million of revenue already contracted for FY '27, which is up 13% compared to the amount we had contracted for FY '26 at this time last year. Our pipeline in terms of opportunities remains at record levels, and that provides us with confidence in respect to sales contracts as we look forward to the June half period. I'm now going to hand over to Darren, who's going to take you through the financial results. Darren Watson: Thanks, Brad. So as Brad mentioned, revenue growth for the half year is 12%, largely driven by growth in our clinical trials revenue, which was up 13% year-to-year. That clinical trials revenue growth is a result of the strong new contract sales number, as Brad mentioned, $41.7 million, though partially offset by a lower in-period revenue yield. That lower yield resulted from a late new contract sales skew with 1/3 of the contract value signed in December, together with a mix of contracts with a couple of those contracts being Phase IV real-world evidence deals, which have a slower revenue yield than the typical Phase II and Phase III trials, hence, the lower yield in the half. Our gross profit is down 3% year-to-year, with margins down by 8.6%. The largest contributor to this is the investment we have made during the half, knowing that we have an increasing number of trials to support across a greater number of indications, which has been important to set the business up for expected ongoing growth. Our margin has also been impacted by the movement of key science resource from operating expense into clinical trials costs to better reflect the contribution that they make to our clinical trials business, together with an increase in sales commissions given the stronger sales performance and a provision for doubtful debt that we've taken up relating to a U.S. biotech for a trial that did not meet its endpoints. We'll dive into that in a little bit more detail in a moment. Despite decline in margins, we do expect margins in the range of 56% to 59% in the second half of FY '26. And beyond that, we continue to hold to our target model margins of 60 points plus. Our operating expense is down 9% year-to-year. It does benefit from the reallocation of cost into clinical trials, but excluding that, still contained to a moderate growth year-to-year. EBITDA has grown 5% year-to-year, although the EBIT margin is down, which reflects the investments that I just mentioned before. And our net profit before tax is up a modest 2% year-to-year. But with the expectation of revenue growth going into the second half and improving margins, we expect a higher net profit before tax in the second half. Just focusing on revenue for a moment. Our strategy is clearly resulting in a more mature revenue profile in the business. As you see, the successful expansion into other indications, the success we're seeing from our channel partners, in particular, Medidata and the expansion of the number of customers is resulting in strong revenue performance in new contract sales and as a result, a continuing growing revenue profile. And we continue to see demand for both our digital cognitive tests and our rater training products, which has provided for a license fee revenue mix at 23% for the half, above our historical long-term trend, although down from the high that we achieved in the second half of '26. The graph here illustrates that maturity that we're now seeing in our business, shows a strong growth profile over the last 5 years. So while the first half of '26 is down on the second half of '25, which is not unusual given the software license mix and contract milestones. The important thing is, from our perspective is that, the revenue under contract for the second half of '26 sits at $21.7 million and positions us for what we believe will be strong growth coming out of the second half of '26. That $21.7 million is up 24% from where we were in the second half of '25. So bodes us well for that growth. From a cost of sales perspective, as I mentioned earlier, our margin in the first half has been impacted by a conscious investment that we have made in delivery capabilities to support an expanded number of trials across an expanded number of indications. We have increased the number of FTEs by 17% to almost 90 FTEs in clinical trials to ensure we maintain our standard of delivery to our customers, but also position us for the growth we expect to see in the second half. In addition to this investment, we've also seen another of impacts in the half. There has been a reallocation of science resource from operating expense into clinical trials to better reflect that contribution that those resources make to our clinical trials business, but which has no bottom line impact. We have also incurred higher sales commissions due to the strong new contract sales performance in the first half, and we have booked a provision for doubtful debt of $0.5 million, which relates to an unsuccessful study of a U.S.-based biotech. We're continuing to pursue the debt with a customer, but we've prudently taken a provision for that loss. Importantly, if we adjust for the reallocation and the other impacts, gross margin would have been 58.4%, roughly aligned with our target model. But as I've mentioned, we're confident of improving margins in the second half. If I turn to cash flow, the business remains very strong from a cash perspective with $34.1 million of cash on hand and no debt and a positive operating cash flow of $2.4 million. You can see the cash flow used in investing activities reflects the investment we're making in both modernizing our existing technology platform, but also investing in new innovative products that will differentiate us against our competitors. $2.2 million was spent on that technology investment, and I'll cover that in a little bit more detail in a moment. The cash flow used in our investing activities includes the payments of our maiden dividend of $2.2 million, proceeds from the exercise of some employee options, but offset by a lower share buyback activity during the half. As we've mentioned, we do enter the second half with strong contract -- revenue under contract. Our total future contract revenue has grown by 6% year-to-year, resulting from the clinical trials backlog revenue of $92.3 million, which is up 9% year-to-year. Importantly, we're well set for the second half of FY '26 with $48.3 million of contracted revenue being our first half actual of $26.9 million and $21.7 million under contract for the second half of FY '26. That compares to $17.5 million that we commenced with at the start of the second half of '25, a 24% increase and so positions us well for going into growth in the second half. On technology spend, as I mentioned before, we continue to remain focused on creating new innovative products that differentiate Cogstate in our market. Our development of AI-powered monitoring and AI-powered rater training is progressing, and we are now working on scaling the technology for commercial release. We're also continuing to enhance our algorithmic monitoring solutions, which enables our customers to improve data quality through automated error detection. We're also working to modernize our technology platform to ensure that we continue to scale, integrate and innovate at pace. This work is progressing well and should be largely completed by the end of this financial year. With that, I'm going to hand over to Rachel. Rachel Colite: Thank you, Darren. So clinical trial sales contracts executed in the first half totaled $41.7 million. That's more than double the prior corresponding period, and it represents our second best sales result ever for our half year. The composition of these contracts demonstrates substantial progress in our diversification strategy. 45% of contract value was derived from a category of mood, sleep and other neuro. That's almost a sixfold increase compared to the previous half year period. Of that 45%, a large proportion of that is in the area of depression trials, which shows significant traction in a stated growth area for Cogstate. Depression trials represent a market that we've really targeted within CNS, it's the second largest CNS indication based on trial starts per year. It's second to Alzheimer's disease. It's also an area with potential -- with the potential for large relative deal sizes given the number of service lines that these trials can require. They often rely on central rating services where Cogstate or an organization like Cogstate will centrally rate the endpoints versus site raters, and this helps to overcome some of the trial challenges in these types of trials, such as rater variability and blinding challenges. We also note that our first half sales result was second only to the first half of financial year '22, which was a unique period in that it saw significant concentration in Alzheimer's disease. In particular, this period saw large presymptomatic stage trials, which Cogstate is the market leader, and we remain well positioned to win when these types of trial opportunities present. Moving forward, we anticipate AD trial growth to remain strong, and that's fueled by momentum in the disease-modifying breakthroughs that the field is seeing advances in blood-based biomarkers and a broadening set of therapeutic targets. So these dynamics really support our continued sales growth in our core area of Alzheimer's disease while also expanding opportunities in rare disease in these emerging areas such as mood, sleep and some others. A leading indicator that is tracking quite well with our increased sales contracts. We're seeing consistent sales pipeline growth in the number of new sales opportunities or requests for proposals. As Brad mentioned, in the December '25 quarter, 70% of opportunities and 62% of executed sales contracts included our channel partners. So this speaks to the strength of the channel partner strategy execution, and it also speaks to the alignment of the strategy with the prevailing outsourcing approaches by trial sponsors. Many of these sponsors want a single contract, full-service relationship across multiple service lines, such as the eCOA that's offered by our partners and the quality assurance services offered by Cogstate. The diversification we're seeing in our sales contract values is also evident in our expanding portfolio of clinical trials projects with an increase in the number of trial starts across a broad number of indications and customers. In this half, we managed 42 new trial starts versus the 25 in the previous period, making this our most active half year ever in terms of trial starts. This increase in the number of new trials reflects the diversification of the portfolio as we move into new areas where individual trials may be smaller and faster moving than some of the presymptomatic AD trials. This is especially true in the Phase II versus Phase III stage of development, which is an area we're seeing strong growth, and the majority of active trials are in this Phase II space. This dynamic is setting us up for future growth as the incumbent service provider as these Phase II trials move into Phase III. As Darren mentioned, we grew our full-time headcount by 17%, and we also grew our clinician network of consultants by 25% between December '24 and December '25. This investment in scientific and technical staff enables us to expand into new therapeutic indications and support the delivery of an increasingly complex services that command premium pricing. So as we've described previously, it is our strategy to integrate with leading providers of electronic clinical outcome assessment technologies or what we call eCOA. The goal here is to offer sponsors a best-of-breed approach when paired with our data quality solutions and digital endpoints. So this allows us to differentiate from competitors who seek to provide these services all in-house, which can limit sponsors' choice. Here, we have a case example that highlights the success we're seeing with this approach. A top 5 pharma sponsor selected Cogstate for an early phase program where our deep scientific collaboration and our proprietary endpoints positioned us well to support the later-stage program for that compound. Cogstate then invested in technical integrations with the sponsor's patient randomization and enrollment system, and we also invested in integrations with their preferred eCOA partner systems, all to reduce friction points in the trial conduct. The engagement has since expanded to multiple late-stage trials across Alzheimer's, related dementias, movement and disorders. And all of these are delivered by Cogstate, but uniquely alongside different eCOA partners based on the sponsor's preference for the trial. We're offering the consistency with our -- of our science paired with the flexibility to deliver with their eCOA partner of choice. So we've established a strong strategic account planning process with the sponsor, and we now have visibility to additional future contracts across additional indications. So this is a real success story for our partnership strategy. Now with that, I will pass it back to Brad to recap some growth drivers and outlook. Bradley O'Connor: Thank you, Rachel. Thank you, Darren. So just to summarize, and we'll then have a look at what the second half looks like. So we continue to see growth opportunities across multiple indications, and that's obviously been a real focus for us. As mentioned, we've expanded our offering into mood disorders, but we're also beginning to push into dermatology, autoimmune diseases and hematology. Cogstate digital tests remain a really key plank for us gaining market share. In sleep and narcolepsy trials, Cogstate digital endpoints are regularly chosen now as either primary or key secondary endpoints in those trials. And Cogstate is currently working across 4 such programs with different sponsors, and those opportunities are growing. Our work in rare diseases continues to mature. Following a number of years of early phase work and a number of natural history trials, we're now seeing more Phase III work in rare disease, which obviously just increases total contract value. And finally, we are really well positioned in presymptomatic Alzheimer's disease, and that's an area whilst not a big focus in this December half year period just finished that we expect will get a lot of attention throughout calendar 2026. In terms of how we go to market, we believe that we're only getting started with our channel partners. Obviously, those results look really good, but we think it's the beginning of how we can leverage off the depth of partner relationships or customer relationship within those partners. So we believe there's substantial upside still to come from those relationships. Finally, we believe that the competitive dynamics are favorable for us. There are only a few full-service providers that compete with us on a like-for-like basis, and there are high barriers to entry for new players coming into this market. So we're well positioned there. Just really briefly in terms of capital allocation. We note that the Cogstate Board has resolved not to declare an interim dividend for the half year. We maintain our annual dividend policy, which targets a payout ratio of 20% to 50% of NPAT, which is subject to capital plans as well as our franking balance. Our share buyback remains open. We'll use that opportunistically where we see value. Obviously, we've been an active acquirer of our own shares over the last couple of years. I think just to close out this section, we're very much still in growth mode, and we're investing in new products and solutions. And you can see that in the results in terms of where we're putting our numbers that we're investing in those solutions that will enhance our capabilities and allow us to deliver long-term growth and to grow market share over time. Turning to the forward-looking comments. We're expecting revenue growth both from half 1 into half 2, but also from FY '25 into FY '26. Our sales pipeline is at record levels and execution against those opportunities will allow us to add revenue to both the second half of FY '26, obviously, into FY '27 also. We expect gross margins to recover in the June half. And as we've mentioned throughout this presentation, that will largely a function of revenue growth. Operating costs should remain relatively constant in the June half. We'll continue to invest in the expansion of indications in technology and in our channel partnerships because these are the drivers of our medium-term revenue growth. Finally, we believe that our proven capabilities, our unique technology offering, our go-to-market strategies will allow us to win a greater proportion of work in a market that we expect will continue to grow. So in summary, we believe that these half year results show a business, not only delivering today, but is also investing for tomorrow, and we're poised to profitably grow market share in a growing market. With that, Beck, I'm going to open up to questions. Rebecca Wilson: Fantastic. Thanks, Brad. So that does bring us to the conclusion of the formal part of today's meeting, and we'll now open for questions. Thank you to everyone who has been entering their questions into the chat function as well. We have got a couple that have been pre-submitted. So I'm going to start there before turning to others. You've delivered double-digit revenue and earnings growth alongside record sales contracts and contracted future revenue this half. How should investors think about the sustainability of this momentum and what it signals about Cogstate's competitive position over the next few years? Bradley O'Connor: Yes. So I'll take this briefly, and then I'll hand over to Rachel for some sort of more color. But I think from the sustainability point of view, one of the things we've been really focused on is, obviously, we've got a really strong offering in Alzheimer's disease. But the reality is that, Alzheimer's disease trials and particularly Phase III trials are really expensive, and there's a limited number of companies that are running those trials. So we understand that, that degree of concentration just leads to a relative boom and bust cycle or can lead to that in terms of our sales contracts, whilst at the same time, providing really good revenue visibility for a number of years given the length of those trials. So what we've sought to do is to expand our offering to ensure that we can see growth in other central nervous system diseases. And I think we've been really successful in doing that. I think the other aspect is then layering that on top of our channel partnership program has enabled us to put that offering as a really viable offering in front of a number of new customers. And we're seeing that, that message is being well received. So I think the opportunity in terms of the momentum is continuing to grow at this stage, and we really don't see a lead on that opportunity at the moment. Rachel, I don't know if you want to add some more color to that. Rachel Colite: Yes. No, I completely agree. I think the exciting thing for where we are today is that, there's growth in our core area of Alzheimer's disease. We're really seeing new trial targets, new mechanisms as well as seeing sort of the next-generation of amyloid clearing agents progress. And I think that the opportunity for those trials to become more commonly run by a larger number of sponsors is only increasing with the advent of blood-based biomarkers progressing. So I think those trial costs will come down, which will certainly fare well for Cogstate and our support of those trials. And at the same time, we are expanding into new areas that is right in line with what our channel partners need. And so it's allowing us to really make the most of those partnerships, particularly our growth in psychiatry and certainly rare disease and sleep. So I think these are really exciting times for those reasons. Rebecca Wilson: Thanks, Rachel. This next question, I'll direct to you, Darren. With more diversified customer base now in expanding medical indications, are there customer credit quality measures that you're implementing to avoid future bad debt situations with smaller biotechs? Darren Watson: Yes. Thanks, Beck. Yes, we have put in additional controls around credit checks and contract language to ensure that we don't get caught up again in a similar situation. And also looking carefully at payment structures to ensure that particularly where it's a smaller biotech in a single molecule trial that we don't allow to get ahead of ourselves. Rebecca Wilson: Thank you. Historically, license fee revenue was recognized upfront. Roughly what proportion is now being recognized over multiple years? Is this limited to new complex endpoints? Or does it apply more broadly? Darren Watson: There hasn't been any change. We still continue to recognize software license upfront. At this point in time, we don't have any software license revenue that is recognized over a period of time. That may change as we start to sell our AI-powered monitoring and rater training. But at this stage, we haven't entered into contracts for those yet. So at the moment, we're still recognizing all software license revenue upfront. Rebecca Wilson: Thanks, Darren. At the Investor Day, the company noted some exciting AI-enabled functions being introduced to customers. Are some of those project costs in this half year's high R&D CapEx? And what's the development on those projects so far? Bradley O'Connor: Darren, do you want to take that? Darren Watson: Yes. So those costs are in our capital spend through the half. There's roughly around USD 500,000 to USD 600,000 spend across those 2 products. That's the AI-powered monitoring and the AI-powered rater training. We're continuing to progress the development of those 2 products. We're now in a phase of scaling them up across different scales and languages. The rater training is pretty much for one of our scales is ready for use, but our focus is now is on scaling and ready for commercial use. Rebecca Wilson: Just staying on the AI theme for a moment. Globally, tech companies have seen a dramatic sell-off in the last few months due to fears around AI displacing their business models. Can you talk about Cogstate's moat and how it protects itself from new AI start-ups and partners or customers using more AI to replace Cogstate solutions? Bradley O'Connor: Yes. So it's probably not the last few months that you've seen that. I think it's the last few days, but apparently SaaS is dead and everything -- everyone loves services again. Welcome back. We missed you. So look, I think there's a couple of really important things to draw out here. And the first is in terms of what -- when we talk about AI or advanced analytics, what we're talking about. So we're not talking about large language models that are scraping the Internet looking to solve these problems. What we're talking about is bespoke data sets. So Cogstate has access to thousands of recordings of these assessments that have been conducted by either site-based staff or Cogstate clinicians as a telehealth assessment. We train those staff as to how to administer those tests, so we know what good looks like. And so what we're doing is training a very bespoke model, so it's a small model as opposed to a large model on those materials. What we're then seeking to do is apply that model to stand in the place of an expert and identify error as it occurs. So what would happen at the moment when we talk about central monitoring, what that is, is an assessment is conducted, it's recorded and then an individual reviews that assessment after the effect -- after the assessment has been completed. What we're seeking to do with these AI models is have the AI standing as the first screener rather than a human to do that review. So it's quite distinct to what you're looking at, at the moment. So when you look at how SaaS companies, yes, whether that be Atlassian or others are being -- their valuations are being hit at the moment. The concern is that with the advancement of AI and vibe coding, what that will enable businesses to do is to create their own solutions rather than need to rely on Atlassian's material or whatever it is to manage their businesses better. This is quite distinct from that, right? Now in terms of what's the moat to that, the reality is, as we mentioned, it's a relatively small competitive set. There's only a small number of companies who have access to a similar portfolio or well of these kind of recordings. It's not something you can just go to the Internet and scrape and create that data set, you have to create the data set. So that becomes the moat. So I would actually argue that our moat at Cogstate is actually getting bigger, not smaller because of the advancement of AI. Rachel Colite: Yes. And I would just add to that, Brad, our customer base for these types of services, there's a real value in our independence and that we are a separate entity doing these reviews purely objectively to ensure the data quality without introducing any bias. So I think that independence is something that will certainly continue. You won't see these services sort of go in-house, the way that there may be a threat that's quite different with some of the B2B SaaS dynamics. We're also in a space that is quite conservative with the use of technologies in place of clinical expertise. And so we really see that our human-in-the-loop clinical expertise is another key driver. It's very difficult to get to full automation or quite progressed automation without having a really strong basis of clinical expertise. And so our global clinician network will remain a really critical part of how we deliver these services, which I think is also quite unique for our space. Rebecca Wilson: Thanks, Brad. Thanks, Rachel. Can you just remind us, please, on the geographic split of FTEs and cost base across Australia versus U.S. versus the rest of the world? Bradley O'Connor: So most employees are based in the U.S. We have -- so rough numbers today is roughly around 170 FTE. We have around 30 in Australia, I think 12 in the U.K. We have a couple in Japan and the rest in the U.S. Rebecca Wilson: Gross margin stepped down in the first half due to reclassification of scientific resources and those sort of high commissions and the one-off doubtful debt that's been mentioned. Can you just unpack how much of this is genuinely structural versus temporary? And what gives you confidence in returning to the sort of 56% to 59% range and towards that longer-term target of 60%? Bradley O'Connor: Yes. So the -- so a couple of things there. So we pull it apart. That really reallocation of science resources that will stay the same. So that was present in the June half year and present in the most recent December half. It wasn't -- that allocation wasn't the same in the previous corresponding December half. So that's a difference from half to the previous corresponding period, but that will stay the same going forward. But that's not additional cost. It's just reallocation. So you've seen overheads go down and you've seen cost of sales go up. So that's just what that is. So that will stay the same. We hope sales commissions go up, let's be honest, right? Sales commissions going up is what everyone wants to see because that means we're selling more. So let's hope that sales commissions are even higher in the June half, that would be great. We really would like not to see significant doubtful about debt in the June half, and we hope that, that's really a one-off. And as Darren mentioned, we're continuing to pursue that. And so there is a chance that some of that will get written back depending on how successful we are in the pursuit of that debt. So those things, I think you can pull apart and understand what those are. In terms of the investment we've made in resources, a 17% increase in actual direct resources. Obviously, that will continue into the June half. And in fact, you'll see more of the cost because that would -- you'll get a full half of those additional resources in the June half versus a half in the December half. So you will see those cost of sales increase as they will, right? Cost of sales will always increase. We're not going to be a $100 million revenue business with the same cost of sales. But what we're targeting, as Darren mentioned, is that sort of 60 points plus of gross margin, and we think that's realistic. So what gives us confidence in respect of that margin improvement from H1 to H2 is really just revenue growth. So we'll see some growth in cost of sales, even just a full 6 months of those existing costs, but we're going to add some resources in the June half. We've already identified -- we've approved a couple this week in terms of additional hires that we're going to seek to make over the coming months. And that's really to service that much larger of work that we're doing at the moment. And realistically, as Rachel mentioned, we started 42 new trials in that December half year period. If we do anything like that again in the June half, we are going to need just additional bumps on seats to help us manage that increased volume of work. But the revenue growth that we're expecting to come from those increased contract sales and from the contracts that we already have in place, we think will allow us to deliver that sort of 56% to 59% gross margin in that June half year period. Rebecca Wilson: Yes. Thanks, Brad. Look, you've covered -- I'm going to ask this question because there's a little bit more specificity in it, but you have sort of covered, I think, most of it. So again, just on gross margin percentage. So in H2 cost of sales, $800,000 reallocated to science talent is carried through and high sales commissions presumably will stay with the strong sales outlook. You pretty much answered that. So should we think H1 GM percent without the bad debt at 53% is the true GM percentage carried in H2? And then just a second part to that, with low end H2 gross margin of 56%, up that 3%, what are the key variables driving that? And just finally, are you assuming more upfront licensing revenue in H2 with good visible trials timing? Bradley O'Connor: So let's run through those in order. So I think the first comment in terms of just backing out the bad debt is fair, right? So that's what we've said. You continue your reallocation your resources. Let's hope we do another $40 million of bookings in the June half and your commissions look the same, right? So I think that's fair. Then the second part, Beck, just remind me was... Rebecca Wilson: So the second part was just, are you expecting that sort of gross margin to carry through in H2? Bradley O'Connor: Yes. So that -- so those costs will carry through. Then it becomes a revenue question. And so you've asked the question there around license fees. We don't have a forward visibility sort of view on license fees per se. I mean, obviously, we've got some specific trials that we're looking at and things like that. But I think generally speaking, what we're doing is looking at revenue growth just in total from H1 to H2. Obviously, we start the half at a much stronger position. So we started at $21.7 million, which compares to $17.5 million at the same time last year. So last year, we were successful in adding $12 million of revenue from in-period revenue yield. As mentioned, that included a really high license fee percentage of 31% of that. So $3 million roughly of license fees. So we don't think we'll get to probably that 31%. We think that's probably a little unrealistic. We did 23% in this half. And so if you wound that back a little bit, if we can achieve the level of contracts that we think the opportunities give us because the opportunities are there, so we've got to go and execute on them. But if we can achieve that, we'll be able to deliver that revenue growth. And given cost containment, albeit with the increases that we have mentioned, we think that delivers the same margin growth that we're seeking. Rebecca Wilson: Yes. Thanks, Brad. Two final questions. Are you expecting to see further growth in FTEs given that sort of pipeline that shows sort of significant opportunities? Bradley O'Connor: In direct costs, we will. Yes. But maintaining -- focusing on that 60% gross margin. We're not expecting growth in OpEx. Rebecca Wilson: Great. Thank you. And Rachel, a question to you. Funny, what are you -- what is a couple of the more exciting opportunities you're seeing out of the U.S. at the moment? Rachel Colite: Yes. I'm really excited by the mood -- the psychiatry area generally, but major depressive disorder in particular. There's a really high unmet need with treatment-resistant depression, the fast-acting agents and what we're seeing with some of the psychedelic treatments. So it's just a really exciting area. And we're certainly seeing it come through in our pipeline -- our sales pipeline. So that's been a really tremendously exciting area and one where we're gaining experience, and we've added the right scientific expertise to allow us to address that market like we have in the past. And so that's something I'm really excited about. Also really excited just about our core of Alzheimer's disease. I think it is a very exciting time there as we're seeing these sort of next-generation treatments in development and the promise there to really impact patients earlier. I think it's going to fuel investment, and I think we're going to see the cost of trials come down significantly, which should allow for a stronger pipeline. Rebecca Wilson: Right. That sounds like a fantastic place to finish. Over to you, Brad, for any concluding remarks. Bradley O'Connor: Look, I just want to thank everyone for your interest. As I mentioned, we feel really that the business is in really good shape. We're seeing an enormous volume of activity across a range of indications. And I think we're really well positioned to service that. So I look forward to delivering a strong second half result and a strong FY '26 result. Thank you for your time. Rachel Colite: Thank you. Darren Watson: Thank you.
Operator: Greetings and welcome to the TrueBlue, Inc. Fourth Quarter 2025 Earnings Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. At this time, I want to remind everyone that today's call and slide presentation contain forward-looking statements, all of which are subject to risks and uncertainties and management assumes no obligation to update or revise any forward-looking statements. These risks and uncertainties, some of which are described in today's press release and SEC filings, could cause actual results to differ materially from those in the forward-looking statements. Management uses non-GAAP measures when presenting financial results. You are encouraged to review the non-GAAP reconciliations in today's earnings release or at trueblue.com under the Investor Relations section for a complete understanding of these terms and their purpose. Any comparisons made today are based on a comparison to the same period in the prior year, unless otherwise stated. Lastly, a copy of the company's prepared remarks will be provided on TrueBlue, Inc.'s investor website at the conclusion of today's call, and a full transcript and audio replay will be available soon after the call. I will now turn the call over to Taryn R. Owen, President and Chief Executive Officer. Please go ahead. Taryn R. Owen: Thank you, Operator, and welcome, everyone, to today's call. I am joined by our Chief Financial Officer, Carl R. Schweihs. Before we discuss our fourth quarter results, I would like to take a step back and reflect on the year. During 2025, we executed on our strategic priorities with discipline and focus, forming a strong foundation to build upon as we advance towards sustainable, profitable growth. We restructured our business model to expand our sales capability, unlock additional growth opportunities, and improve profitability while tightly managing costs. For our on-demand staffing business, we executed a comprehensive reorganization of our operating model, transitioning to a more efficient, territory-based structure and investing in sales resources to expand our reach in key markets. This structure and increased sales capacity enable more targeted, localized sales strategies and deeper client engagement. As a result, our sales-enabled territories continue to deliver stronger sequential performance. We have also focused on strategic partnerships and cross-selling initiatives as we continue to prioritize our return to growth. We launched an enterprise-wide strategic partnership with a leading group purchasing organization, unlocking new client acquisition channels and fueling a growing pipeline of multi-brand opportunities across our portfolio. This partnership has led to approximately $15,000,000 of annualized new business wins and continues to build momentum as we expand the relationship into new sectors. We are also fostering stronger partnerships across our brand portfolio. Greater enterprise alignment and collaboration continue to create more cross-selling opportunities, allowing us to better serve client needs and accelerate growth with our full spectrum of specialized workforce solutions. For example, collaboration between our PeopleReady and PeopleManagement teams continues to deliver results, with our commercial driver business securing three additional new locations serving a leading energy solutions manufacturer. Market expansion was a significant performance contributor over the past year as we leveraged our strong market position and expertise to capture demand in attractive verticals with strong growth drivers. Our energy sector revenue grew 60% while our commercial driver business continued to outperform the broader market, delivering its second consecutive year of double-digit growth. Structural labor shortages and strong secular forces in the energy space signal further growth potential as we continue to capture market share with our skilled businesses both geographically as well as in adjacent subsectors such as the construction of energy storage facilities and data centers. Our RPO solutions continue to expand coverage in attractive verticals such as engineering and technology through higher skilled roles. We increased our professional hires this year, building momentum as we diversify our business mix to grow market share. Healthcare also remains a significant long-term market opportunity with strong secular growth drivers. We have made meaningful progress expanding our presence in the healthcare market with new business wins spanning across our brands, as well as the addition of healthcare staffing professionals to the TrueBlue, Inc. portfolio. Since joining TrueBlue, Inc., HSB has expanded into three new states, and we are committed to thoughtfully scaling this business to capture sustained demand. Leveraging our deep expertise, extensive reach, and sophisticated technology, we continue to strengthen our position in the U.S. healthcare market. A key factor in our ability to deliver a differentiated user experience while also driving operational efficiencies is our portfolio of proprietary technology platforms. We have made significant progress enhancing the capabilities of our digital ecosystem with advancements that include embedded AI-powered job matching, predictive analytics, and behavioral insights across the talent lifecycle. Recently, we launched an AI-enabled bill rate feature within our jobs app that provides personalized, data-driven bill rates in seconds, supporting businesses in making faster, more confident staffing decisions. Our technology is a key contributor in delivering smarter workforce solutions, creating greater value for the customers and talent we serve, supporting efficiency at scale. It enables us to reduce operating costs, extend our reach, and continue investing in strategic sales initiatives as we accelerate growth. We are confident our strategic plan to enhance our sales model, expand our share in attractive end markets, and accelerate efficiency with technology and operational excellence positions us well to capitalize on the growth opportunities ahead. Our continued actions to drive top-line growth and margin expansion underpin our overarching commitment to realize long-term sustainable value for our shareholders. Our ability to execute this strategy is strengthened by the experience and expertise of our Board and leadership team, who are committed to serving the best interests of all shareholders and positioning TrueBlue, Inc. for long-term success. Now let us review our fourth quarter performance. We delivered our second consecutive quarter of organic revenue growth, driven by continued success growing our skilled businesses and greater stability in general demand trends. While we further grow the top line, we remain committed to driving improved profitability, as evidenced by our continued cost discipline leading to reduced operating costs for the quarter. As our strategic focus drives improved results, we are well positioned to capitalize on the untapped potential of the staffing market and deliver greater shareholder value. I will now turn the call over to Carl R. Schweihs, who will share further details around our financial results and outlook. Carl R. Schweihs: Thank you, Taryn. Total revenue for the quarter was $418,000,000, up 8% and near the high end of our outlook range. Organic revenue increased 5%, with the acquired HSB business contributing three percentage points of growth. Robust results in skilled trades fueled organic growth, as overall market conditions showed ongoing signs of stabilization. Our skilled businesses continue to outperform the broader market, delivering double-digit growth for the third consecutive quarter, driven by our team's success in capturing rising demand in the energy vertical. Our other business lines are also showing improved trends and solid momentum going into 2026 as we maintain our strategic focus on accelerating growth. Gross margin was 21.5% for the quarter, down from 26.6% in the prior-year period, primarily due to less favorability in the prior-year workers’ compensation reserve adjustments and the changes in revenue mix. As you may recall, last year’s gross margin benefited from a significant reduction in workers’ compensation costs due to favorable development of prior-year reserves. As expected, that degree of favorability did not repeat this year. For the revenue mix impact, this stems from more favorable trends in our staffing businesses and outsized growth in PeopleReady renewable energy work. As a reminder, renewable energy work carries a lower gross margin than the general PeopleReady business due to pass-through travel costs involved. Outside of these costs, the underlying margin for renewable energy work is consistent with other large PeopleReady accounts. We successfully reduced SG&A by 11%, even while revenue grew 8% for the quarter. This improved leverage demonstrates our continued commitment to managing costs and delivering enhanced profitability. We have made significant progress creating greater flexibility to scale and driving efficiencies that position us well to deliver strong incremental margins as industry demand rebounds and we further advance our growth initiatives. We reported a net loss of $32,000,000 this quarter, which included a non-cash long-lived asset impairment charge of $18,000,000 associated with the sublease of our Chicago support office. As a reminder, this reduction in corporate office space unlocks over $30,000,000 of cash flow over the remaining ten years of the lease, providing greater flexibility as we target compelling growth opportunities. Our results also included a small amount of income tax expense primarily associated with our foreign operations and essentially zero income tax benefit on U.S. operations due to the valuation allowance in effect on our U.S. deferred tax assets. As a reminder, the impairment charge and valuation allowance have no impact on our operations or liquidity. Adjusted net loss was $8,000,000 while adjusted EBITDA was $2,000,000 for the quarter. Now let us turn to our segments. PeopleReady grew 11%, driven by continued outperformance in the energy sector. Revenue more than doubled in the energy vertical for the second consecutive quarter, as our strong market position and deep client relationships continue to drive success in this growing market. Our on-demand business is also showing improved trends, especially in our local business where we have invested in sales resources, signaling building momentum as we enter 2026. PeopleReady segment profit margin was down 370 basis points, mainly due to the favorable prior-year workers’ compensation reserve adjustments not repeating at the same level, as well as changes in business mix with outsized growth in renewable energy work as I mentioned earlier. PeopleManagement revenue declined 2% due to lower on-site volumes, primarily in the retail vertical and consistent with the macro conditions in that space. While client volumes declined for the quarter, our teams are building momentum with 13 new sites launched during the quarter and continued success in new wins, positioning the business well to drive revenue expansion in 2026. Our commercial driver business also continues to outperform, delivering its eighth consecutive quarter of growth as we leverage our strong client relationships and expertise to capture rising demand. PeopleManagement segment profit margin was up 50 basis points due to disciplined cost management actions to drive improved efficiencies and greater scalability. PeopleSolutions revenue grew 42%, with HSB performing in line with expectations and driving the year-over-year growth. On an organic basis, PeopleSolutions was flat to the prior year, as overall hiring volumes remained subdued. While clients continue to navigate budget restraints and evolving workforce needs, we are encouraged to see signs of stabilization with our new business wins and expansions. We continue to win and expand with new clients, especially with higher skilled roles and serving growing end markets with long-term secular tailwinds. PeopleSolutions segment profit margin was up 180 basis points, primarily driven by cost actions to deliver efficiencies and greater operating leverage. Now let us turn to the balance sheet. We finished the quarter with $25,000,000 in cash, $66,000,000 of debt, and $68,000,000 of borrowing availability, resulting in total liquidity of $92,000,000. During the quarter, we reduced our debt position by $2,000,000 while increasing working capital by $2,000,000 as we maintain our focus on delivering operational efficiency and enhanced financial flexibility. With the recent amendment to our credit facility effective January 30, we have increased our borrowing availability for the remainder of the agreement term by transitioning to an asset-backed structure. We remain committed to managing a strong liquidity position and foundation to ensure we are well positioned to capitalize as market demand rebounds. Looking ahead to 2026, we expect revenue growth of 3% to 9% year over year as we continue to build on the success we have achieved in recent quarters. This includes one percentage point of inorganic growth from HSB. I would also like to provide additional context around workers’ compensation reflected in our first quarter margin outlook. As we have discussed, prior-year periods benefited from outsized favorability in workers’ compensation reserve adjustments. These trends have since normalized, resulting in year-over-year margin compression for the fourth quarter and a similar headwind expected for 2026. This represents a return to a more normalized run rate, rather than a change in underlying trends. Given the expected revenue mix and the fact that the first quarter is seasonally our lowest revenue quarter, we expect a lower margin in the first quarter, but our lean cost structure will drive improved margins as we move through the year. Additional information on our outlook can be found in our earnings presentation shared on our website today. Before we open up the call for questions, I will turn it back over to Taryn for some closing remarks to the prepared section. Taryn R. Owen: Thank you, Carl. Before turning to Q&A, I want to touch briefly on the recently announced changes to our Board of Directors. Over the course of several months, TrueBlue, Inc. engaged with shareholders as part of a deliberate board refreshment process. In early 2026, we welcomed two highly qualified independent directors with deep operational and commercial experience and announced that two current directors would step down at or before our 2026 annual meeting. This refreshment strengthens and broadens the Board's capabilities while reinforcing our commitment to shareholder engagement and effective oversight. As you have heard from us today, we have a clear strategy to drive long-term sustainable value, and it is producing results. We have executed on this strategy with discipline and focus, strengthening our market position, diligently managing our cost structure, and building momentum to fuel future growth. In 2026, we are acutely focused on capturing market share as we further strengthen our sales reach and expand in growing markets, leveraging our efficient and scalable operating structure to deliver improved profitability. We are confident we have the right people, structure, and strategy to drive TrueBlue, Inc. forward, accelerating our growth, enhancing shareholder value, and advancing our mission to connect people and work. This concludes our prepared remarks. Operator, please open the call now for questions. Operator: Thank you. We will now open for questions. One moment while we poll for questions. Thank you. Our first question is from Marc Frye Riddick with Sidoti & Company. Carl R. Schweihs: Hi, good evening. Hey, Marc. Hi, Marc. Marc Frye Riddick: So I wanted to maybe start where you left off there with the margin discussion. Maybe you could talk a little bit about how, given the sort of the different rates that we are seeing of business recovery and client demand improvements, how that might impact the overall firm-wide margin trajectory as we sort of move forward through the year. And this is a—we are putting aside the prior-year workers’ comp part of the conversation, but maybe you could sort of talk about the margin trajectory going forward. Carl R. Schweihs: Yes. Thanks for the question, Marc. I will take that. We have done a really good job managing costs, in controlling what we can in this market. And we have mentioned this in the past, we feel like with the optimized fixed cost base that we have, we are poised for significant incremental margins and expanding our profitability as demand rebounds. Just historically, our incremental margins have been between 15% to 20% across the portfolio. But with the actions that we have made, we believe we will do a little bit north of that range, depending on, obviously, the segment in which it comes in. So, all told, if we are in that normalized industry growth rate, we would expect to expand our EBITDA margin percentage upon those sort of growth rates. Right now, our entire focus is really around controlling what we can control. Whether or not we see a faster recovery or slower recovery, we are going to continue to be driving growth and productivity and focused on driving increased profitability in the business. Marc Frye Riddick: Okay. Great. And then maybe you could sort of shift over to the energy activity and renewables in particular. With the top-line growth that you are seeing there, can you talk a little bit about the visibility and sustainability of that growth and activity? And then maybe you could talk a little bit about what you are seeing as far as new business wins and the current pipeline and maybe sort of the strategic approach that you are taking there to maintain growth going forward there? Taryn R. Owen: Thanks for the question, Marc. We are very encouraged by the momentum in our energy business, especially in renewables. Expanding in high-growth, underpenetrated markets is a key strategic priority for us across the brand portfolio, and energy is a great example of this. We are seeing strength across commercial solar and full-scale renewable projects, and we are also focused on expanding into nonrenewable energy sectors as well. As mentioned in our prepared remarks, our energy business more than doubled the second quarter in a row, really driven by our expertise and the strong client relationships that we have built with these clients over the past decade. In quarter four alone, we secured several multimillion-dollar project wins, and our pipeline remains very healthy, positioning us very well for continued growth in this space. Carl R. Schweihs: Yes, if I could just add a couple of points here. And Taryn mentioned that decade of experience here, so we feel good about what we have done. But it does expand just beyond the renewables. And energy as an end market for us reached 15% of our portfolio at 2025. It was 10% as of 2024. We do not think the energy usage here in the U.S. is going down anytime soon, so we feel good about that opportunity as we move forward. Marc Frye Riddick: Okay. Great. And then you made a commentary during your prepared remarks around the contributions with HSB and what you are seeing in healthcare-wise. Can you maybe talk a little bit about how you view that vertical and, as an offshoot, as far as potential cash usage, is there room for inorganic pursuits in that space or any that you see as attractive at this point? Carl R. Schweihs: Yes. Thanks for the question, Marc. Let me take that first one. So yes, in Q4, HSB delivered about $40,000,000 of inorganic growth, reflecting really our growing traction in that market and strength of our integration work. We remain confident in the strategic value of the acquisition and intend to continue our expansion in the high-growth end markets. This acquisition was accretive to us. It allows us to continue to capitalize on secular growth opportunities in the healthcare space and think that that is going to be a long-term driver for our business. As we just look back on the original strategy with our HSB acquisition, it was a regional West Coast-based firm that we had plans to expand into more states and more geographies. And as Taryn mentioned in prepared remarks, we added another state. So we are in our third new state since launch and feel good about this one continuing to be a good driver for us going forward. Taryn R. Owen: And, Marc, to answer your question regarding M&A, right now we are not prioritizing M&A, but instead focusing on managing the business to cash flow positive. We will continuously, of course, evaluate any opportunities to enhance shareholder value and position TrueBlue, Inc. for long-term success. Marc Frye Riddick: Great. Thank you very much. Carl R. Schweihs: Thanks, Marc. Operator: Our next question is from Mark Steven Marcon with Baird. Good afternoon, and thanks for taking my questions. Mark Steven Marcon: Just want to start with the energy business. So, Carl, you said it is 15% of the total portfolio at this point? Is that correct? Carl R. Schweihs: That is energy as an end market. So that is across all of our portfolios. It is 15% across PeopleSolutions, PeopleManagement, PeopleReady as well. Mark Steven Marcon: Got it. And what about just the renewable energy within— Carl R. Schweihs: Within PeopleReady? Yes. That is about a third of our business probably. Mark Steven Marcon: And just— Carl R. Schweihs: Trying to dig down into the gross margins. If we take a look at that— Mark Steven Marcon: That business, because you have got— Mark Steven Marcon: You know, some pass-through, how much of that business is pass-through? Carl R. Schweihs: Yes. No. Great question. It does— Carl R. Schweihs: Pass-through costs, and that is what we called out in the remarks as well. Mark, as you think about that significant growth, it resulted in about 200 bps of gross margin contraction. We have got those pass-through costs that go into that business. So our on-demand business obviously has a bit higher gross margin. But it is important to note that this is still a high EBITDA margin business for us. Mark Steven Marcon: And what percentage of the revenue from that is pass-through? What percentage of the revenue of that is pass— Taryn R. Owen: Through? Mark Steven Marcon: Yes. Is that the question? Taryn R. Owen: Yes. Carl R. Schweihs: I do not have the numbers in front of me, Mark, but it is about a third. And I would say the gross margins, you know— Mark Steven Marcon: Probably— Carl R. Schweihs: 60% of the rate of our on-demand business. Mark Steven Marcon: Okay. That is helpful. Great. And then can you talk just in PeopleReady—we are starting to hear and see some signs of economic recovery. If we strip out that renewable energy business, and maybe even stripping out the commercial driver business on the PeopleReady side, what are you seeing in terms of organic growth outside of those two spaces? Are you seeing any signs of improvement— Carl R. Schweihs: Yes. Thanks for the question, Mark. So, yes, PeopleReady did see improved trends with our weekly sequential revenue growth during the quarter. Now it was driven by the skilled businesses that we had talked about. Just to put this in perspective, we exited Q4 at a similar rate to Q3. So we were plus 16% in Q4, plus 18% in Q3. I will give a couple of other trends across the portfolio as well. Our PeopleManagement business, those monthly trends were largely in line with our quarterly results. And then as we move into January—I know this is to be one of the ones you are thinking about—it is strong results in January as well. They were offset by a little bit of weather impact that we saw across the country. The last thing that I would call out here too, Mark, is in our PeopleReady on-demand business, which is one of your questions, we did see stronger performance in our local business versus our national accounts, really driven by a lot of the sales investments that we have made there. And then from an end-market perspective, I would say the biggest improvements we saw across our portfolio were energy, hospitality, manufacturing. Mark Steven Marcon: And then just going back to the gross margins, what was the difference in terms of what changed the level of favorability in terms of the accrual reversals a year ago relative to this year? Carl R. Schweihs: No change in our expectations. So we guided to that as well. It had about a 290 basis points impact to Q4 results, Mark. But we called those out Q4 of 2024 as well. They were really our prior-year reserve credits that impacted it. So that is the impact. Mark Steven Marcon: I am just trying to get to what caused the change. In other words, are you starting to see a higher level of workers’ comp claims? Are the cost of the claims potentially changing at all? What is going on underneath the surface? Carl R. Schweihs: Great question. So, no. From a worker safety perspective, this is really important to our business. We continue to manage our safety and claims processes very, very closely. A lot of what we saw was some of the mix shift in business that we have through our energy business that we talked about, lower revenue models in our on-demand versus our renewables. But nothing changed to the underlying fundamentals. Once we work through Q1, which we guided to as well, this normalizes. Mark Steven Marcon: Okay. So it will normalize starting in Q2? Carl R. Schweihs: That is right. Mark Steven Marcon: Okay. Great. And then you mentioned the non-cash impairment charge of $18,000,000 with regards to the Chicago support center. How much is that going to save you in cash going forward? Carl R. Schweihs: $30,000,000 over the next ten years. Mark Steven Marcon: Is that $3,000,000 per year? Carl R. Schweihs: It will, with rent escalations, a little bit. So I would say between $3,000,000 and $5,000,000 through those terms. The other thing to call out here is ongoing SG&A savings, about $1,000,000 in 2026. We will have about $3,000,000 in 2027, and then following those cash savings that we talked about is $3,000,000 to $5,000,000 thereafter. Mark Steven Marcon: And then are you including a WOTC credit in your projections for 2026 or not? Carl R. Schweihs: We do. We have small WOTC credits included in there. Mark Steven Marcon: Why? It has not passed legislation yet. Carl R. Schweihs: Not in our guidance. We do not have anything in our guidance, Mark. Mark Steven Marcon: Okay. Great. Thanks. I will jump back in the queue. Taryn R. Owen: Thank you, Mark. Carl R. Schweihs: Thanks. Operator: Our next question is from Jessica Luce with Northcoast Research. Taryn R. Owen: Hi. Good evening. Jessica Luce: Hi, thank you for taking the question. I wanted to comment—I know that you mentioned that there are some stronger signs within the local business, and I am curious how you would characterize your conversations with customers today versus if you look back about six months ago? Taryn R. Owen: Yes, great question. Thank you. I would say, overall, our customer sentiment remains cautious due to ongoing uncertainties in the environment. With that said, we are encouraged to see the positive momentum in the business and signs of stabilization, particularly in our on-demand business with our second quarter of organic revenue growth here in Q4. We are seeing momentum and a return to growth among some clients and geographies, with our teams securing new wins and customer expansions—really all good signs that customers are beginning to experience positive momentum, tempered with some of that uncertainty we talked about. Jessica Luce: Okay. Perfect. Thank you so much for the clarity. And then just one brief follow-up. How would you describe the current pricing environment? Is there anything that stands out right now? Carl R. Schweihs: Yes. Thank you for the question. From a pricing standpoint, we continue to see some pricing pressure in the business. We had our pay rates up about 3.8% in the quarter while bill rates were up 2.5%. It led to about a 40 bps decline in our margin during the quarter. Really, pay rates were largely in line with where they were in Q3, Jessica, and increasingly driven by role-specific skills rather than general labor shortages. So while there is still some pricing pressure in the business that we would expect in this environment, we continue to be disciplined with pricing to ensure that we are not pricing ourselves out of the market, feeling good about being able to pass through our bill rate increases. Taryn R. Owen: Alright. Perfect. Thank you so much. Jessica Luce: Thank you. Operator: Thank you. There are no further questions at this time. I would like to hand the floor back over to management for any closing comments. Taryn R. Owen: Thank you, Operator, and thank you, everyone, for joining us today. I want to take this opportunity to thank the entire TrueBlue, Inc. team for their tremendous effort providing our customers and associates with exceptional service and for their commitment to advancing our mission to connect people and work. We look forward to speaking with you at upcoming investor events and on our next quarterly call. If you have any questions, please do not hesitate to reach out. Operator: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Hello everyone. Thank you for joining us and welcome to the Clearwater Paper Corporation fourth quarter and full year 2025 earnings conference call. After today's prepared remarks, we will host a question-and-answer session. If you would like to ask a question, please press star 1 on your telephone keypad. To withdraw your question, press star 1 again. I will now hand the call over to Sloan Bohlen, Investor Relations. Please go ahead. Thank you so much. Sloan Bohlen: Good afternoon, and thank you for joining Clearwater Paper Corporation’s fourth quarter and full year 2025 earnings conference call. Joining me on the call today are Arsen Kitch, President and Chief Executive Officer, and Sherri Baker, Senior Vice President and Chief Financial Officer. Financial results for 2025 were released shortly after today's market close. You will find a presentation of supplemental information, including a slide providing the company's current outlook, posted on the investor relations page of our website at clearwaterpaper.com. Additionally, we will be providing certain non-GAAP financial information in this afternoon's discussion. A reconciliation of the non-GAAP information to comparable GAAP information is in the press release and in the supplemental information provided on our website. Please note slide two of our supplemental information covering forward-looking statements. Rather than reading this slide, we will incorporate it by reference into our prepared remarks. With that, let me turn the call over to Arsen. Good afternoon, and thank you for joining us today. 2025 was a transformational year for Clearwater Paper Corporation. It was our first full year operating as a paperboard-focused business, and I am pleased with how well our team executed, even as we faced a challenging industry environment. Let me provide a brief recap of our 2025 performance. We successfully completed the integration of the Augusta Mill and the separation of our tissue business. Arsen Kitch: Both ahead of schedule. Net sales increased by 12% year over year, driven by a 14% increase in shipments, primarily from operating the Augusta Mill for a full year. Adjusted EBITDA was $107,000,000, an improvement of $71,000,000 versus the prior year, driven by exceptional cost control and execution. We completed all three major maintenance outages in 2025 on schedule, with total direct costs of $50,000,000, marking a significant improvement in execution and cost versus 2024. We delivered more than $50,000,000 in fixed cost reductions, including $16,000,000 in SG&A savings, which should improve our long-term earning potential as our industry recovers. SG&A declined to 6.5% of net sales, down from 8.4% in 2024, which we believe positions us as an industry leader on this metric. We repurchased $17,000,000 worth of shares during the year, with $79,000,000 remaining under our authorization. And importantly, we maintained a strong balance sheet, ending the year with more than $400,000,000 in liquidity. Looking ahead, we will continue to evaluate our options and alternatives to maintain financial flexibility and optimize capital allocation, including refinancing our 2020 notes, which go current in August 2027. Let me spend the next few minutes discussing current industry dynamics and the actions that we are taking to position us for return to cross-cycle margins and cash flows. Sherri will then review our financial results in more detail, including our first quarter outlook and key assumptions for 2026. I will then conclude with remarks on our shareholder value proposition. Let us start with our industry. Paperboard continues to face challenging supply and demand dynamics, particularly in SBS. We believe that there are three factors that are driving this imbalance. First, demand recovery for packaging has not materialized as expected. Industry shipments of SBS were largely flat year over year, based on the latest AF&PA data, and down in CRB and CUK. CPG and QSR volumes remain lackluster, pressured by inflation, economic uncertainty, and the likely impact of GLP-1 drugs on consumption. While demand for SBS is relatively flat, a competitor added more than 500,000 tons of new capacity in 2025, representing approximately a 10% increase in industry supply. As a result, industry operating rates decreased to the low 80% range by 2025, leading to pricing and margin pressure. At these margin levels, we do not believe that Clearwater Paper Corporation can produce the cash flows and returns that are necessary to reinvest in these types of capital-intensive assets in the long run. We also believe that these dynamics are beginning to impact other paperboard substrates, as there is meaningful overlap in end-use applications. Today, SBS is priced lower on a per ton basis than CUK, even though SBS has higher manufacturing costs and a superior print surface. SBS is also priced lower on a per square foot basis versus CRB, since a heavier-weight CRB is required to replicate performance characteristics of SBS. We are aware of CPG customers that are actively moving their business from CRB to SBS, a trend that we expect to continue at these price levels. Let me briefly discuss the most recent RISI reported price movements in SBS and the impact on our business. RISI reported a $100 per ton decrease in their SBS folding carton index during the fourth quarter. From our vantage point, this change did not accurately reflect industry pricing, as our price declined by an average of only $21 per ton from Q3 to Q4 and not $100 per ton. While we disagree with RISI's latest reported decrease, we are faced with a $50,000,000 price headwind as a result. After the Augusta acquisition, approximately 40% of our volume is now tied to the RISI folding carton index, while 10% is tied to the RISI cup index. In total, including the latest fourth quarter RISI index change, we are faced with an approximately $70,000,000 pricing headwind in 2026 versus 2025. While the most recent fourth quarter pricing movements were negative, RISI is projecting a recovery in both SBS operating rates and pricing in 2026. Sloan Bohlen: Specifically, Arsen Kitch: RISI is projecting operating rates to improve to 90%, with a price increase of $60 per ton in 2026 and a total of $130 per ton by 2027. If these projections were to hold, our margins would improve by more than 10% and get us back towards cross-cycle returns and cash flows. As I mentioned previously, this is a supply-driven downturn that is unsustainable. Specifically, we believe that supply now exceeds demand by about 400,000 to 500,000 tons, resulting in industry operating rates being around 10% below historical norms. We believe that this is a temporary condition and that a combination of three factors will drive an improvement in the supply and demand balance and get us back to cross-cycle margins and cash flow. First, SBS demand is forecasted to grow in 2026, and we should benefit from substitutions. Second, imports are forecasted to decrease by 8% in 2026, while exports increase by 5%. And third, RISI has forecasted a net capacity reduction of 180,000 tons in 2026. With all these changes, RISI is forecasting industry operating rates to approach 90% by year-end. We believe that these factors will accelerate an improvement in industry conditions going forward. While the industry environment remains challenging, we are focused on controlling the controllables and assessing our options. First, we continue to focus on running efficiently, reducing costs, and maintaining share with our long-standing strategic customers. Second, we recently announced a price increase to our customers of $60 per ton in our cup grades and $50 per ton for all other products. These increases are necessary to offset the cumulative impact of inflation over the last several years and to enable us to continue to invest in our assets. These increases impact approximately 50% of our volume that is not tied to the RISI price index. The remaining 50% of our volume will move as industry price is reflected in the RISI price index. Lastly, we plan to balance Clearwater Paper Corporation’s supply with demand in 2026, which may include extended curtailments on our assets and variabilizing our costs whenever possible. In addition, we will look at our manufacturing assets to determine what actions we can take to reduce our costs further, improve our margins and cash flow. Let me wrap up with a few comments on our strategic efforts to diversify our product portfolio. We believe that these efforts will deepen our relationships with our converters and allow us to sell incremental volume. We are preparing to launch VOLURA, a new lightweight paperboard product line in the second quarter. This brand incorporates mechanical pulp in the middle layer and is designed to compete with FBB, which represents approximately 10% of North American bleached paperboard demand. We have completed the engineering feasibility for a CUK investment at our Cypress Bend facility, with a cost now estimated at $60,000,000 with a 12 to 18 month execution timeline. We believe that annual CUK supply is roughly 2,000,000 tons in North America, of which 300,000 to 400,000 tons is currently sold to independent converters. With this investment, we believe that we can capture approximately 100,000 to 150,000 of these tons. The remaining 200,000 tons of capacity at Cypress Bend would provide flexibility to meet bleached paperboard demand or target additional unbleached products such as white top. We believe that this project offers an attractive return and enhances our ability to manage through market cycles. We have not made the final decision on this project at this point. In addition, we are continuing to evaluate external options to add CRB to our portfolio, further diversifying our end market exposure. With that, I will turn the call over to Sherri to walk through our fourth quarter and full year financial results along with our first quarter outlook and full year assumptions. Sherri Baker: Thank you, Arsen, and good afternoon, everyone. Let me start by sharing our results for the fourth quarter. Sherri Baker: Net income from continuing operations was $3,000,000, or $0.20 per diluted share, including $17,000,000 of insurance proceeds. Net sales were $386,000,000, flat versus 2024, as higher shipments were offset by lower pricing. Adjusted EBITDA from continuing operations was $20,000,000, above the midpoint of our guidance range of $13,000,000 to $23,000,000, driven by cost reduction efforts and $6,000,000 of insurance proceeds. We executed the Augusta maintenance outage successfully, $17,000,000 in total direct spending. SG&A remained below our targeted 6% to 7% range, reflecting our continued cost discipline. For the full year, net loss from continuing operations was $53,000,000, or $3.28 per diluted share, primarily driven by a non-cash goodwill impairment. Net sales were $1,600,000,000, up 12% versus 2024, with higher shipments from our Augusta acquisition as well as growth from our existing customers. Adjusted EBITDA from continuing operations was $107,000,000, up $71,000,000 year over year, driven by strong cost management leading to a $50,000,000 fixed cost reduction as well as higher volumes and lower input cost. Total major maintenance outage spending was $50,000,000, significantly lower than prior year due to improved planning and solid execution. Let me provide a few additional comments on the insurance recovery. As part of the Augusta acquisition, we obtained representation and warranty insurance with a coverage limit of $105,000,000. During integration, we identified matters inconsistent with representations made to us and notified the insurers accordingly. In Q4, we received an initial settlement payment of $23,000,000, of which $6,000,000 is related to operating costs incurred in 2025. We have approximately $75,000,000 remaining of our $105,000,000 coverage limit and continue to work through the claims process with our carriers. Let us now turn to our outlook for the first quarter. We expect adjusted EBITDA of approximately breakeven for the quarter. We experienced operational disruptions and higher cost due to severe weather at our Odessa and Cypress Bend facilities in January and February. Our team was able to safely navigate this event without any long-term impact to our assets, and we are now back to running normally. As a result of higher energy costs and impact on production, we incurred approximately $15,000,000 to $20,000,000 in incremental costs during the quarter. We expect flat to slightly lower paperboard shipments versus the fourth quarter. We expect $10,000,000 to $12,000,000 of lower pricing related to Q4 RISI movements, and $11,000,000 to $13,000,000 of lower maintenance expense versus Q4, as there are no major outages in the quarter. Turning now to our key assumptions for 2026, which include revenue of $1,400,000,000 to $1,500,000,000 with flat to modest shipment growth, approximately $70,000,000 in pricing headwind from 2025 carryover. Importantly, our assumptions do not include any impact from our recently announced price increase or the latest RISI forecast on pricing and operating rate improvements. We expect our net productivity to offset 2% to 3% input cost inflation. Capital expenditures will be in the $65,000,000 to $75,000,000 range. We expect approximately $20,000,000 of working capital improvement, and we are planning to maintain SG&A at 6% to 7% of net sales. With that, I will turn the call back over to Arsen for closing remarks. Arsen Kitch: Thanks, Sherri. To close, I want to emphasize that we operate high-quality assets, are executing well, and have long-standing strategic customer relationships. We took several difficult but significant actions in 2025, including reducing our overall workforce by more than 10%. This includes a reduction in our corporate SG&A headcount of around 40%. Our team is operating with a lean and disciplined mindset, intensely focused on results. We have a strong balance sheet with more than $400,000,000 of liquidity, which positions us to weather this supply-driven downturn. I remain confident that this cycle will turn and that we will return to cross-cycle EBITDA margins of 13% to 14% and generate more than $100,000,000 of annual free cash flow. That said, today's margins and cash flow levels are not tenable for us for an extended period. This is a capital-intensive industry, and adequate returns are required to reinvest in these types of assets over the long term. Simply put, current margins are not sustainable for us. We are taking action, starting with recent price increases, being prepared to take market-related downtime to address our operating rates, assessing our costs and assets, and continuing to evaluate alternative uses of our capacity, including a CUK conversion. Above all, we will continue to make disciplined decisions that drive long-term shareholder value, supporting our customers, employees, and communities. Thank you for your time today. Operator, please open the line for questions. Operator: We will now begin the question-and-answer session. If you would like to ask a question, please press 1 on your telephone keypad. To withdraw your question, press 1 again. Please pick up your handset when asking a question. If you are muted locally, please remember to unmute your device. Please standby while we compile the Q&A roster. Sloan Bohlen: Your first question comes from the line of Mike Roxland with Truist Securities. Operator: Your line is open. Please go ahead. Sloan Bohlen: Yeah. Thank you, Arsen and Sherri, for taking my questions. Arsen Kitch: Mike, welcome to the call. Sloan Bohlen: It is good to be here, and to the extent I could say in terms of trying to manage a very difficult environment, obviously there is a lot going on, a lot of moving pieces, and it is truly the efforts you are putting in terms of managing cost. You are seeing some of those benefits flow through, so good job in that regard. Also, I wanted to start on grade switching that you called out in your comments and in the slides, from CRB to SBS. You mentioned some of your customers are looking at that. Any color, or additional color, I should say, in terms of have you seen that in your own portfolio? To the extent you can, how many tons have actually pursued that? Are you seeing more and more customers line up, particularly given the fact that SBS is now cheaper than the other two? So just any type of grade substitution that you are seeing would be very helpful. Thank you. Arsen Kitch: Yep. Good question. Listen, we are in early days of this. We know customers are looking at this. They are facing a lot of cost pressure, just like everyone else. And right now, there is an arbitrage with SBS being priced lower than both CUK on a per ton basis and CRB on a per square foot basis. There is a lot of overlap in applications. Frankly, I think there are very few applications where you are not able to substitute. So I think we are in early days of this, but I know our customers are talking about it. We know competitors are talking about it. But I think we are still in early days of this. This is not something that happens overnight. Got it. Sloan Bohlen: Okay. And you mentioned that you expected, you cited RISI in terms of their forecast, the demand to improve. But what gives you confidence that demand will inflect this year? What are you hearing from your customers? Some of the comments at CAGNY were not so positive this week. General Mills just lowered their sales outlook for the year. So what gives you confidence that you are going to see this demand improvement? And if you do not see this demand improvement, how much additional capacity do you think has to come out of the market for things to balance accordingly? Arsen Kitch: Yep. A few questions in there. First and foremost, I think paperboard has been in this volume recession now for a couple years, and a lot of it is, frankly, inflation and CPG and QSR companies not promoting and not driving as much innovation as they have historically. Every single CPG and QSR company that you listen to is now talking about growth and foot traffic and volume growth and share, so we think that is a positive sign. Inflation is slowing. That is another positive sign. There is some possible substitution. That is a positive sign. Our customers are generally optimistic as we head into 2026. Now 2025, with call it zero shipping growth, and SBS was below our expectations, but SBS outperformed both CUK and CRB, and if you look at those shipments, they were down about 4% year over year. So right now, the forecast is call it maybe about a percent growth. We are seeing green shoots, but we need to see that translate into real volume. Sloan Bohlen: Got it. Well, that is where I will turn it over. Just you mentioned taking extended curtailments if the situation does not improve given the backdrop. Have you made any concrete decisions in terms of mills, where, when, how long? Just any color you can provide around maintenance or extended downtime. Thank you. Arsen Kitch: Yeah. It is a good question. We have not. We are obviously thinking about it. We think we will have a path forward by the end of Q2 and a strategy by the end of Q2. We have been balancing supply and demand over the last year or two, so that is not new news for us. But we have not spent much time trying to variabilize those costs. At this point, I think we need to look at it more in the longer run and see where we can actually take out costs as we think about these more extended curtailments. So more on this to come. Sloan Bohlen: Got it. Thank you very much. Operator: Your next question comes from Sean Steuart with TD Cowen. Your line is now open. You may go ahead. Sloan Bohlen: I want to follow up. Arsen Kitch: With the supply management piece of this, it sounds like you are biased towards taking rolling market-related downtime to supplement the maintenance schedule. It feels like the need here is more permanent or indefinite supply closures. It sounds like Smurfit WestRock has stepped up with something small. Any perspective on your portfolio machines that might make sense to curtail on a longer-term basis, and I guess just weighing the cost of permanent or indefinite closures versus this rolling downtime approach, which can be expensive. Any thoughts on that front? Yeah. Thanks, Sean. That is a great question. Listen, we have taken downtime over the last couple of years to balance our supply and demand. It was mostly inventory driven. We have also taken a lot of cost out of our system. But there is still a fundamental issue with underutilized capacity within the industry and within Clearwater Paper Corporation. I am not prepared to talk about any specific decisions that we are or are not going to make. We need to look at further cost reductions, and we need to look at our assets and see what makes sense for us in the long run. As I mentioned in my comments, at these margin levels and these pricing levels, we are simply not earning enough cash or margin to be able to reinvest in our assets in the long run. We have ample liquidity. We can weather the storm. The question just becomes what are the right decisions to make for the business. K. Got it. And on that liquidity position, it is healthy. I think the messaging last call was you would consider reengaging on buybacks when leverage ratios have come into at least closer to target ranges long term. Has that perspective changed at all? We have seen decent capitulation in your share price valuation on long-run metrics. Any perspective on appetite for buybacks into a much weaker share price of late? Sherri Baker: Yeah. Thanks for the question. So first and foremost, we continue to prioritize investing in our assets and a strong balance sheet. Those are our top priorities to maintain and preserve both long-term viability and success. We will look at strategic capital in support of our potential CUK investment as a good example of this. And then third, we would look at share repurchases as another lever when we have better line of sight to more positive free cash flows. Arsen Kitch: Okay. Thanks for that, Sherri. Sloan Bohlen: That is all I have for now. Thanks. Arsen Kitch: Thanks, Sean. Operator: Your next question comes from Amit Prasad with RBC Capital Markets. Your line is now open. Please go ahead. Arsen Kitch: Hey. It is Amit on for Matt. Just one quick Sloan Bohlen: question for me. Thinking about input costs throughout the year, Sean Steuart: is there any risk on the fiber cost side in Georgia and North Carolina with reduced pulpwood salvage harvest in there. Sherri Baker: No. We have not identified any risk. We feel that we are in good shape from that perspective. Arsen Kitch: I think if you look at inflation in general, we are expecting 2% to 3%. A lot of it is labor, some chemicals, maybe some wood, some transportation like rail. But I think we have enough productivity in the pipeline and carryover to be able to offset that, call it, $20,000,000 to $30,000,000 of inflation. Sean Steuart: Okay. Perfect. Thanks for the color. And then one kind of cleanup question. On the working capital improvements, how should we think about the cadence of that $20,000,000? Should that be kind of evenly split throughout the year, or any other help there would be appreciated? Sherri Baker: It will be heavily weighted towards the back half of the year. Sean Steuart: Okay. Perfect. Thank you so much. That is all I had. I will turn it over. Operator: Thank you. There are no further questions at this time. This concludes today's call. Thank you for attending. You may now disconnect.