加载中...
共找到 17,823 条相关资讯
Operator: Thank you for standing by. My name is Jordan, and I will be your conference operator today. At this time, I would like to welcome everyone to the Jack in the Box Inc. First Quarter 2026 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. If you would like to ask a question during this time, please press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star 1 again. Thank you. I would now like to turn the call over to Rachel Webb, Vice President of Investor Relations. Please go ahead. Rachel Webb: Thanks, operator, and good afternoon, everyone. We appreciate you joining today’s conference call highlighting results from our first quarter 2026. With me today are Chief Executive Officer, Lance Tucker; our Chief Financial Officer, Dawn Hooper; and our Chief Customer and Digital Officer, Ryan Ostrom. Following their prepared remarks, we will be happy to take questions from our covering sell-side analysts. Note that during both our discussion and Q&A, we may refer to non-GAAP items. Please refer to the non-GAAP reconciliations provided in the earnings release, which is available on our Investor Relations website at investors.jackinthebox.com. We will also be making forward-looking statements based on current information and judgments that reflect management’s outlook for the future. However, actual results may differ materially from these expectations because of business risks. We, therefore, consider the safe harbor statement in the earnings release and the cautionary statements in our most recent 10-K to be part of our discussion. Rachel Webb: Material risk factors, as well as information relating to company operations, are detailed in our most recent 10-K, 10-Q, and other public documents filed with the SEC and are available on our Investor Relations website. Additionally, on 01/21/2026, the company filed a definitive proxy statement and related materials with the SEC in connection with the 2026 Annual Meeting of Stockholders. Our directors and certain officers are participants in the solicitation of proxies in connection with the annual meeting. Stockholders are encouraged to read the proxy statement and related materials, as they contain important information, including the identity of the participants and their direct or indirect interests, by security holdings or otherwise. While we understand that there may be interest in our ongoing proxy contest, please note the purpose of today’s call is to discuss Jack in the Box Inc.’s first quarter earnings results, and we ask that you keep your questions focused on our financial performance. I will now turn the call over to our Chief Executive Officer, Lance Tucker. Thanks, Rachel, and I appreciate everyone joining us today. Lance Tucker: I want to begin by thanking our teams, our franchisees, and our shareholders. This past quarter has been one of hard work, dedication, and grit. It is a quarter critical to laying the foundation for 2026 and beyond. We remain focused on simplifying the business, and we have made visible progress since the last quarter. On this call, I will provide a brief update on our Jack on Track plans and how I am thinking about the remainder of 2026, and then I will turn it over to Dawn to walk through first quarter results. In December, we successfully closed on the sale of Del Taco; we then made a significant pay down on our debt. We are doing exactly what we committed to do—simplifying the business and bringing down debt levels—and I am really pleased with the progress to date. With the transaction complete, only minimal separation activities remain; the team is fully re-centered on strengthening the Jack in the Box Inc. brand and executing the remaining elements of our Jack on Track plan. As we entered 2026, Jack in the Box Inc. proudly marked its 75th anniversary, a milestone few brands reach. The response to our anniversary activations has been positive, reinforcing what we know to be true: Jack remains beloved by our customers. Guests are leaning into the nostalgia that defines our heritage while embracing the differentiation and innovation that continue to move the brand forward. 2026 is about laying the foundation for sustainable long-term growth, which requires doing a lot of hard work right now. We are confident that the actions we are taking will lead to a stronger, more stable platform from which to grow. We are beginning to see early results that reinforce that we are on the right path, but as a reminder, this is a multistep process, and the benefits of this work will take time to fully materialize. Turning now to first quarter results. Q1 results were choppy, but broadly in line with our expectations. As we discussed on the last call, we got off to a tough start to the quarter, and while we did experience some bright spots throughout the quarter, the end of the calendar year did not improve to the degree we were looking for. It really was not until January that we started experiencing consistent, meaningful improvements to performance and, importantly, improvement was on both a one- and a two-year basis. January featured the launch of our 75th anniversary marketing calendar, including a throwback combo, the Chicken Supreme Munchie Meal, coupled with a new fan favorite, Jibby, a backpack charm. Customers have been trying to collect all four Jibbies, and we have seen a great response, which drove an increase in sales of our Munchie Meals, which generate a higher average check. Customers are still careful about where they spend; we remain committed to a strategy grounded in driving value for guests while protecting profitability for ourselves and our franchisees. You will see us continue to feature price-pointed value promotions, but also drive our barbell strategy with add-ons and upsells through technology. To reiterate, Q1 was in line with our expectations, and we knew the year would get off to a slow start. But as the reaffirmation of our guidance reflects, we expect to see steady improvement on the top line as we move through 2026. This is really a year of getting back to our roots at Jack in the Box Inc. We have been very deliberate in how we spend our time and capital, focusing on the fundamentals we believe are essential to sustainably improving the business. These efforts will take time to become visible in our results, but they are critical to improving consistency, profitability, and long-term returns. I am more convinced than ever that we are moving in the right direction. To frame up some of the early progress we are making on Jack’s Way, which is designed to improve the guest experience, I am pleased with the progress the team has made in improving operations. Last quarter, we identified a gap in field support and restructured that team. Shannon has moved these changes decisively from design to execution, meaning we have a greatly increased presence in the restaurants to get more real-time support to our franchisees and team members as they ultimately work to delight the guest. Starting in Q1, the team aligned the training on our core Jack’s Way principles to further simplify the experience for our team members and reinforce the importance of fundamentals. For example, aligning with our Monster Munchies promotion, the team was focused on doubling down on joyful service, and we will continue to see the fundamentals reinforced across every marketing window. In Q1, we also enhanced our restaurant audit process to reinforce critical behaviors and standards to elevate the guest experience. We have additional high-touch training coming later this year, including in-restaurant workshops, and none of this would be successful without laying the foundation of a new field team to ensure it sticks. We are also making progress on enhancing our value proposition and menu strategy. As we continue to celebrate our 75th anniversary, you will see brand activations leaning into classic fan favorites, while we also launch new products designed to drive customer interest and trial, leveraging innovation that can only be found at Jack in the Box Inc. Just last week, we announced the return of one of our most popular products, the Hot Mess Burger. The limited-time offer is paired with another collectible, our antenna ball featuring the Meat Riot Jack head from one of our most memorable Jack commercials. We are also incorporating experiential marketing, with an anniversary tour that kicked off in Los Angeles and is landing in Austin for Jack’s actual anniversary later this month. We have continued to simplify marketing as well. We simplified our marketing calendar to have a more balanced and consistent focus between value and innovation, and we also reduced our media messages from three to two, which allows our teams to focus on stronger execution of fewer LTOs and drive media effectiveness. The final component of Jack’s Way is modernizing our restaurants. The key takeaway here is that we are focused on a highly cost-effective refresh that substantially improves the curb appeal of our restaurants. So far, the mini refreshes we have put in market have generated a modest but meaningful uplift, and we remain encouraged by the limited investment they require. Across roughly 20 restaurants in tests today, we are seeing low single-digit sales lift. We are now expanding these efforts in Southern California markets, which allows us to capture additional upside potential as we see higher clusters of refreshed restaurants. As you recall, last year we also modernized our technology within the restaurant, rolling out both new POS and back-of-house systems. We can now start leveraging these systems not only for cost efficiencies, but also better upsell capabilities, which we expect will improve both the top and bottom lines. Before I turn it over to Dawn, I want to reiterate just a few key points. First, we are doing exactly what we said we were going to do with regard to both the Jack on Track initiatives to strengthen our business model and also with our Jack’s Way programs to improve operating results. Both are yielding tangible results. Second, we are seeing early positive results from simplification efforts made across ops and marketing, allowing our teams to focus on what truly matters: driving trial and frequency and executing on a great customer experience. I am confident that these changes will drive improved same-store sales as we move through the balance of the year. And finally, I continue to be inspired by the efforts and resiliency of both our team and our franchisees and by the foundation we are building as we do the hard work to strengthen the business. These efforts are helping us to sharpen our discipline as a brand and position Jack in the Box Inc. to drive sustained profitability and long-term shareholder value as we move through 2026. I will now turn the call over to Dawn. Dawn Hooper: Thanks, Lance, and good afternoon, everyone. I will start by reviewing the details on our performance in the first quarter as well as provide an update on Jack on Track. Before I begin, I just wanted to remind everyone that the company completed the sale of Del Taco on 12/22/2025, and the results of Del Taco are excluded from continuing operations and associated results for these purposes. The first quarter same-store sales for Jack in the Box Inc. decreased 6.7%, comprised of franchise restaurant same-store sales decrease of 7% and a company-owned same-store sales decrease of 4.7%. This resulted from a decline in transactions and sales mix, partially offset by menu price increases. Jack’s restaurant-level margin percentage in the quarter decreased to 16.1%, down from 23.2%. Food and packaging costs as a percentage of sales were 29.7% for the quarter, increasing 380 basis points from the prior year. This was driven by commodity inflation of 7.1% in the quarter, the negative impact from rolling over a prior year beverage benefit, and a change in the mix of restaurants. Labor costs as a percentage of sales were 35.3%, increasing 200 basis points from the prior year. This increase was primarily related to a change in the mix of restaurants driven by our Chicago restaurants. We expected Chicago to have elevated labor in the quarter, and while the market did improve throughout the quarter, there is still work to be done. Shannon and team are working with urgency to address this market. Occupancy and other costs increased 120 basis points, driven by higher costs for utilities and other operating expenses. Franchise-level margin was $84.1 million, or 38.6% of franchise revenues, compared to $97.1 million, or 40.9%, a year ago. The decrease was mainly driven by lower sales driving lower rent and royalty revenue, and a decrease in the number of restaurants. Turning to restaurant count. There were six restaurant openings and 14 restaurant closures in the quarter. SG&A for the quarter was $37.0 million, or 10.6% of revenues, compared to $41.2 million, or 11.1%, a year ago. The decrease of $4.1 million was primarily due to the market fluctuations of our COLI policies and the current period income from our transition services agreement, partially offset by increases in information technology expenses and digital advertising costs. Excluding net COLI gains of $2.4 million as well as advertising costs, G&A was 2.5% of total systemwide sales for the quarter. Following the Del Taco sale, we are generating income associated with the transition services agreement, or TSA, and we received approximately $0.9 million in the first quarter. We expect our TSAs to largely be completed by the end of the second quarter. For the full year, we expect the income to be nominal, no more than around $2 million. This income is included in our reported G&A figures. Other operating expenses, net, were $8.1 million for the quarter, which include proxy contest fees and professional fees for a tax refund settlement, partially offset by gains on real estate sales. The effective tax rate for continuing operations for the quarter was 32.4% compared to 30% for the same quarter a year ago. The adjusted tax rate used to calculate the non-GAAP operating earnings per share this quarter was 31.2%. Earnings from continuing operations were $14.4 million for the quarter as compared to $31.0 million for the first quarter of the prior year. We reported GAAP diluted earnings per share from continuing operations for the first quarter of $0.75 compared to diluted net earnings per share from continuing operations of $1.61 in the same period of the prior year. Operating earnings per share, which includes adjustments for certain items, was $1.00 for the quarter versus $1.86 in the first quarter of the prior year. Consolidated adjusted EBITDA was $68.2 million, down from $88.8 million in the prior year due primarily to the impact from sales deleverage. Now for some specifics regarding Jack on Track. As a reminder, while Lance discussed elements of Jack’s Way, which focuses on operational and sales improvements, Jack on Track is meant to bolster the long-term financial performance of the company by strengthening the balance sheet and positioning the company for sustainable growth. I have already mentioned a few points in regards to our Jack on Track plan, but to put a finer point on it: First, we simplified the company by selling Del Taco and successfully closing on the transaction in December. Second, we are focusing on franchisee economics by closing underperforming restaurants. In the first quarter, franchisees closed 12 restaurants. Based on closures so far, we have generally seen a roughly 30% sales benefit to nearby restaurants. This element of Jack on Track is moving a little slower than we would have expected as franchisees are evaluating lease dynamics and sales transfer benefits on a case-by-case basis. Third, we are preserving our capital expenditures for technology and restaurant reimages. For the first quarter, our capital expenditures were $23.2 million, which primarily includes spending on restaurant information technology. Approximately $8 million reported in Q1 relates to prior year expenditures, primarily for our new Chicago restaurants, that were incurred in fiscal 2025 but paid in fiscal 2026. This is solely a timing impact and does not represent incremental fiscal year 2026 spend. Lastly and importantly, our focus on debt reduction. During the quarter, we made a partial prepayment of $105 million on our August 2026 tranche. Our total debt outstanding at quarter end was $1.6 billion, and our net debt to adjusted EBITDA leverage ratio was 6.5x. Please note that this figure now excludes any historical adjusted EBITDA impact for Del Taco. We remain committed to paying down an additional $200 million in debt over the course of our Jack on Track plan. As it pertains to real estate sales, we generated $10.9 million of proceeds in the first quarter, with associated gains of approximately $6.3 million. We expect to sell real estate with proceeds of $50 million to $60 million by the end of fiscal year 2026, with the expectation that these proceeds, along with cash on hand, would be applied to pay down debt. We are thoughtfully assessing refinancing options related to our upcoming tranches, taking into account market conditions, interest rates, and our long-term capital structure objectives. It is likely we will be in the market in the coming months. Lastly, as we mentioned in today’s release, we are reiterating our guidance from November 2025. In closing, this quarter reflects steady progress on Jack on Track as we continue to build a stronger foundation for sustainable, long-term growth. We look forward to keeping you updated on our progress throughout this fiscal year. Thanks again for your time this afternoon. Operator, please open the line for questions. Operator: As a reminder, if you would like to ask a question, press star followed by one on the telephone keypad. Your first question comes from the line of Alex Slagle from Jefferies. Your line is live. Hey. Thanks, and good afternoon. Guess I wanted to follow up on just some of the trends you are seeing. I mean, it sounds like the initial response to some of the 75th anniversary work has been good, and January trends were improved. And maybe you could elaborate on what you saw. I am not sure, like, how much there is weather that maybe came into an impact at all in your system in February, if that is something we should consider also. Lance Tucker: Sure. Hi, Alex. So, kind of to your point, once we hit the beginning of ’26, we did start to see some kind of meaningful improvements. Certainly, when we got off to the new window, that helped a lot. And as we got into Q2, because bear in mind, our quarter ended kind of mid-January, we are really seeing January as we got into Q2, kind of same-store sales play out the way we thought they would. We started second quarter really a couple hundred basis points better than we were in the first quarter, and that is before the weather impact. To your question about weather, we are actually over 400 basis points better when you factor in the winter storm, which on a full-quarter basis will have about a 60 or 70 basis point impact to the quarter. Since we are talking about, you know, roughly a month of impact, it is a couple hundred basis points just for the month. So when you factor out the weather, we are really low single digits right now, which we are pleased with. We are not quite where we want to be. But 200 negative—let me rephrase that. I think I misspoke there. We are not quite where we want to be, but we are certainly gaining on it, and we are getting really good initial response to our 75th anniversary marketing. Alex Slagle: Awesome. The Chicago performance and the efforts to recover from some of the labor and the inefficiencies there? What is the issue going on there? I guess, is it still a drag? I would have thought it was more about the openings and staffing up, and that would sort of be able to get out of that, you know, heading into the 2Q, I guess. Lance Tucker: We are still working on it, as you can see from the results. I think from a top-line standpoint, we are kind of performing reasonably well, particularly given that we have not yet turned on our 24-hour operations. We have not yet turned on digital. We do not have our full menu yet. So there is still a lot of upside on the top line. We have not turned those things on yet because we do still have some issues we are working through. And I think the easiest thing I can say about it is it is a tough labor market. We opened eight restaurants in a span of under three months, which for us and our corporate operations adds a lot. And we are just still dialing in the P&L there. So it is one of the big priorities we have right now. We are spending a lot of time up in Chicago to get that fixed. I think it will be fixed in the coming months, and then you will see us be able to turn on the sales side full steam. And I think you will see that market come around the way we expect to. Dawn Hooper: And the only thing I would add to that, Lance, is we did expect continued margin compression of Chicago in our guidance that we provided, specifically in Q1. Alex Slagle: Alright. Lance Tucker: Thanks. Operator: Your next question comes from the line of Jeffrey Bernstein from Barclays. Your line is live. Hi. Good afternoon. This is Pradek on for Jeff. Alex Slagle: Thanks for the question. Lance, I had a question on franchisee four-wall margins, which were presumably below the company margin at 16.1%. Given the ongoing disparity in comp performance beyond Jack on Track, is there anything in the short term that you can do to help franchisees navigate this difficult environment? Maybe on the commodity side to secure better prices or maybe rent relief? And I have one follow-up. Lance Tucker: So generally speaking, our franchisees have pretty good economics with AUVs still approaching $2 million. But you are right. We are seeing pressure on four-wall EBITDA right now between the sales conditions and then beef inflation in particular. So, at this point, no, we are not doing any kind of blanket assistance. But we are looking at what we need to do in those kind of one-off cases where we have a franchisee struggling. But generally, I mean, you can imagine right now, particularly with where beef is, the four-wall margins are not where they need to be, but we are doubling down, doing a lot on the profitability side. We just actually restructured our team to make sure we are more focused on profitability. We are doing things like rolling out a new soft drink dispenser. We are doing a number of things within the supply chain to try to cut costs. So, we are kind of putting a full-court press on all of our profitability. And then we are also making some revamps to our digital programs, including loyalty. We are going to add some profitability back in that channel as well. Jeffrey Bernstein: Got it. Thank you for that. And, Dawn, it was encouraging to see the company traffic trend improve modestly on a two-year basis. I believe you were at the mid-2% pricing range to close fiscal 2025, and you ended this quarter at 3%, it looks like, per the 10-Q. Just wanted to get your thoughts on how you think about the price-value equation in this environment while at the same time, you know, protecting your margin and unit economics. Thank you. Lance Tucker: This is Lance. I will start with that one, and Dawn can come on and jump in here as she needs to. We have been able to take a little more price on the company side. It is interesting. The franchisees have taken a little more price than we had historically, so our absolute prices are still lower. But throughout the quarter, we were able to take a little more price on the company side and still leave ourselves in a spot where we feel very comfortable with the value proposition we are giving to our guests. The other thing we did do during the quarter was take several of our bundles and made sure that we lowered prices—kind of in one of our chicken bundles, in one of our burger combos, in a combo. We also added ounces into the soft drink amounts. So we are doing a lot of things to try to make sure that we are showing that value to the customer, at the same time making sure that we are protecting profitability not only here on the corporate side, but ultimately to the franchisees as well. Jeffrey Bernstein: Thank you very much. Operator: Your next question comes from the line of Sarah Senatore from Bank of America. Your line is live. Alex Slagle: Thanks for the question. Isaiah on for Sarah. Just kind of touching on what you were just discussing. Anything specific as to why there was such a large gap in comp between the company restaurants and the franchise ones? Maybe anything related to operations, anything that you have there? Jeffrey Bernstein: Say, yeah— Lance Tucker: A couple things. One is we think a bit of price disparity, but I think probably the bigger factor is our company restaurants are pretty much 100% religious about opting into the offers that we do on the digital side. Franchisees tend to be a little more selective as to which actual promotions they are going to opt into. And so we have seen on the company side a lot more overall effectiveness on the digital side than we have with franchisees. And I think that is probably the biggest singular driver. Alex Slagle: Got it. Thanks. And then just kind of switching gears. Just thinking about how—if you can give us a little color on just how you guys have historically competed against larger competitors, just in periods of intense value competition. And when you are thinking about scale, do you guys think more about the importance of competing nationally, or do you view scale on a more local, you know, easier-to-compete kind of basis more? Lance Tucker: Let me start with that, and then I will ask Ryan to jump in and supplement me a little bit too. But I think, first of all, you know, we have always been smaller than some of these really big chains like a McDonald’s or Taco Bell, Burger King, whoever it may be. I think in order for us to be successful when they are out there heavy value, we have to have our own consistent value, and then we have to lean into what really differentiates Jack, which is innovation. We have a lot of innovation both within our LTOs, but also within our core menu. And so making sure we have our own consistent price, that that price is in a reasonable spot, and that we continue to bring innovative products you cannot get somewhere else is the biggest piece. Now I will turn it over to Ryan, let him supplement that. Ryan Ostrom: Yeah. We know to be relevant, we have to have that price-pointed value, which we have in every single window moving forward, which is something we did not have in ’25. So that really goes after our value guest, but it is about the distinctive and ownable value that we have out there. So when you think about Jack in the Box Inc., it is really about that abundance value. It is about the Munchie Meals. We saw a great response to our Jibby, so adding some gift-with-purchase on our abundant meals has done really well. On top of aggressive quick-hit value, I mean, we are an iconic brand that has tacos. And so our ability to pulse in some aggressive, disruptive price points on tacos—celebrating our 75th like we are once a month with $0.75 tacos. We have a $0.75 Jumbo Jack coming next week, or this Saturday. These types of offers that are ownable and distinctive to us really drive a quick impact to drive traffic to our brand. But we also have to look at value differently, and where we really need to compete is how do we improve value for the guest through quality. And so it is not all just about price points. It is about improving the quality of our goods. And we have already executed some of that in our latest window with improving our core grilled chicken. And our next step is looking across our core platform and improving across our items to make sure that value-for-the-money score that is really important to the guest matches up with the product they are getting. And so you will see a lot more quality improvements from our brand moving forward. Operator: Your next question comes from the line of Andrew Charles from TD Cowen. Your line is live. Jeffrey Bernstein: Great. Thanks. Alex Slagle: Dawn, you called out the 7% commodity inflation in the quarter. Can you just remind us what you are expecting for commodity inflation for the year? And really just how much of that 7% increase was in beef, as well as the forecast for that within the ’26 guidance? Dawn Hooper: Yeah. So, our guidance still stands. We had guided to mid single digits back in November. Beef is definitely the most impactful one—actually came in a little higher than we had anticipated. But you can look to see beef up double digits. And as the year continues, that impact will moderate. It was definitely the highest in Q1. Operator: Your next question comes from the line of Gregory Francfort from Guggenheim. Your line is live. Alex Slagle: Hey. Hey. Thanks for the question. My first one, just on weather—there was some maybe drag later in January, but you guys have a lot of stores on the West Coast. Are you guys able to identify if it may have helped late December and early January? Lance Tucker: We did not see any meaningful improvements or benefits, I would say, relative to weather. Certainly, everything we saw was more related—particularly with the big Texas footprint and where we are in the Midwest—to, it was called Fern, Winter Storm Fern. It impacted us by a couple hundred basis points, actually. Gregory Francfort: Got it. And then just maybe going back to kind of franchisee health and performance, how much is beef up now versus where it was a few years ago? And if that reverses, I guess, what could that do to franchisee cash flows? Do you expect that to happen over the next 12 to 18 months? Thanks. Lance Tucker: I think Dawn is going to look back and see if she can give a reasonable estimate as to what it has done for the last few years. I do not have that off the top of my head. Obviously, though, beef is trading very, very high relative to where it has been, and we would expect a fairly significant benefit if it were to go down. As Dawn said, we expect it to moderate some throughout ’26. But I think at least as far as the predictions I have seen, the next 12 to 18 months, would not expect it to become a tailwind. Gregory Francfort: Okay. Thanks for the perspective, Lance. Operator: Your next question comes from the line of Samantha Chang from Goldman Sachs. Your line is live. Dawn Hooper: Hi. This is Samantha on for Christine Cho. Thanks for taking my question. I wanted to ask about breakfast. I know many of your competitors have called out this daypart as an underperforming part of the day as it tends to be more economically sensitive. With some peers recently making breakfast optional for franchisees, could you share an update on how you are thinking about breakfast and how this daypart has performed at Jack relative to the rest of the day, particularly following the launch of your Much Better Deals lineup? Thanks. Lance Tucker: Sure. So breakfast for us has actually been pretty consistent. It has always been a big part of what we do at Jack. And, of course, we have breakfast all day, which I am sure you are aware. So from our perspective, as we look at this past quarter as an example, it was pretty consistent with all our other dayparts, with the exception of late night, which is where we really had some gains. So overall, we have not seen much change. We are aware that other competitors are giving some optionality to their franchisees as to whether or not they do breakfast, but we will have to wait and see if that impacts us. Ryan Ostrom: Yeah. With us, all-day breakfast is the core of our brand that has been around since this brand has been around. So it is something that we take really seriously in making sure that we continue to drive breakfast as an all-day solution to our guests. Operator: Your next question comes from the line of Karen Holthouse from Citi. Your line is live. Dawn Hooper: Hi. This is Karen, on for Jon Tower. Just going back to the remodel program, I do not know if you have shared or are willing to share your guardrails around what you are thinking in terms of your cost per unit. What are, like, the key elements you think are really, you know, driving that curbside appeal or change in curbside appeal? And how do franchisees plan on funding this? Do they think they can do it through existing cash flows? Is there appetite for financing it? Anything on that would be great. Lance Tucker: Sure, Karen. You know, as I know I have said a couple times here over the last few of these calls, our ultimate goal is to get a full-scale reimage program established and going kind of towards the end of the year. Really, what we are doing right now, though, is much more of what we are considering kind of a mini refresh, and the intent, honestly, is just to improve the curb appeal until we get to such point as we can do the full reimage program because, as you know, even if we kick that off within the next 12 months or so, it takes usually a number of years for those things to play out. So this is really more cosmetic is what I would tell you. It is paint. It is restriping and sealing the parking lot. It is cleaning up the landscaping. It is making sure the drive path looks good. And that can be done for a very, very low cost. You know, I am talking under $20,000, and franchisees tend to have a way of doing it more cheaply than we do. So for them, it is probably under $10,000. So this is the kind of thing that really is intended just to give us a better curb appeal, get us through to the point when we are ready to get the full-scale reimage program going, and do so at a tremendously economical price. Karen Holthouse: And then just a follow-up. When, you know, we get there, you know, end of this year, hopefully talking about, like, logging into a broader remodel program, is your expectation that, you know, there would be some incentives tied to doing that or any sort of financial support for franchisees? Lance Tucker: 100%. We—let me rephrase that. 100%, there will be assistance from corporate. Corporate will not pay for it 100%. I figured I better clean that up. But, anyway, yes, we would expect to make a meaningful contribution to whatever reimage program we would eventually roll out. The most recent one we did was in the 35% neighborhood, if I am not mistaken. And so I would think a little bit either side of that as we would be talking about. Karen Holthouse: Okay. Great. I will pass it on. Thank you. Operator: Your next question comes from the line of Jim Sanderson from Northcoast Research. Your line is live. Jim Sanderson: Hey. Thanks for the question. I wanted to find out a little bit more about Hispanic consumer demand. I think you had called that out in the past as something that was unusually difficult for Jack in the Box Inc. Has that improved over the past year and most recently? And is it improving at a much richer pace? Lance Tucker: What we have seen, let us say, over the last quarter, is not a whole lot of movement, frankly. We have seen, you know, both in the low-income consumer and the Hispanic consumer segments, we have seen maybe the slightest amount of change—meaning improvement—but not anything significant at this point. Jim Sanderson: Okay. So that is more or less trending with the sequential improvements you have observed across the board. Is that the right way to look at that? Jim Sanderson: Nothing then— Lance Tucker: It is kind of in that ballpark. Certainly, we are not seeing anything meaningful as far as improvement there yet. Jim Sanderson: Alright. And if I could follow up with a question on—you had mentioned some technology you were leveraging in store, and I was wondering, is that related to the new point-of-sale system, to the kiosks? Anything there to call out that might be beneficial, especially in the back half, to drive traffic or transactions? Lance Tucker: Jim, there are a couple things we have done, actually. So we completed the rollout of the POS system along—I think it was about August. And so as we continue to make retirements to that and learn it, I would expect to see some benefit there. But the other thing we did, and this is a real tribute to the ops team as well as our IT team led by Doug Cook, we did deploy new back of house, both on the labor management side and the inventory side. And that was completed in November of ’25. And so, again, it is kind of very early days. We are getting to know the systems. We are learning how to utilize them. But our focus for the balance of the year is really going to be how do we leverage those systems, now that we have made those investments, to get more efficiencies out of them both on the top line and the bottom line? Jim Sanderson: Alright. Thank you very much. Operator: Your next question comes from the line of Jake Bartlett from Truist Securities. Your line is live. Gregory Francfort: Thanks for taking the question. You know, mine was about your regional performance, and as we compare Jack in the Box Inc. to the larger peers, it might be, you know, unfair just given your exposure to certain markets. So I am wondering whether, you know, markets like California are particularly weighing the system down and maybe how you think you might compare to your peers within a big market like California. Lance Tucker: Sure. I will start with that, and then I will ask Ryan to jump in if there is anything he wants to add, or Rachel for that matter. But, you know, California has been difficult for, I believe, most brands, at least from the information that we have. So I do believe that is a little more of a headwind—not only on the sales front, but certainly on the profitability front with some of the labor pressures that you see in California. Now, as we look at first quarter in particular, I think the weather—obviously, the weather impact we have already talked about—was more of a Texas and Midwest phenomenon than it was in California. But just generally speaking, what we have seen in my time back here is that California has been challenging. And I think when you look at our over 40% of restaurants being based in California, we certainly have a little more of a headwind looking at an overall consolidated number than some of our competitors may. Operator: That concludes the question-and-answer session. I would now like to turn the call back over to Lance Tucker, CEO, for closing remarks. Lance Tucker: As always, I just want to say thanks to everybody for your time, and we will look forward to seeing you this time next quarter. Operator: That concludes today’s meeting. You may now disconnect.
Operator: Good afternoon. Operator: My name is Tamia, and I will be your conference operator today. At this time, I would like to welcome everyone to Nextdoor Holdings, Inc.'s fourth quarter and full year 2025 earnings conference. To prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. You would like to withdraw your question, please press the pound key. Thank you. You may now begin your conference. Thank you, operator. Nirav N. Tolia: I am Nirav Tolia, Nextdoor cofounder and CEO, and I would like to welcome everyone to our fourth quarter and full year 2025 earnings conference call and webcast. Joining me today is Indrajit Panambalam, our chief financial officer. I would like to extend a big welcome to Indrajit who joined us in December. We are thrilled to have him as part of the Nextdoor executive team. Now let us start today’s call with our standard disclaimers. During this call, we may make statements related to our business that are forward-looking statements under federal securities laws. These statements are not guarantees of future performance, are subject to a variety of risks and uncertainties. Our actual results could differ materially from expectations reflected in any forward-looking statements. For a discussion of the material risks and other important factors that could affect our results, please refer to our SEC filings available on the SEC’s website and in the investor relations section of our website, as well as the risks and other important factors discussed in today’s earnings release. Additionally, non-GAAP financial measures will be discussed on today’s conference call. A reconciliation of these measures to their most directly comparable GAAP financial measures can be found in the Q4 2025 Nextdoor investor update released today. Operator: Alright. Let us get started. Nirav N. Tolia: This quarter, we know we are speaking to a broader audience than usual, including many retail investors joining us for the very first time. I would like to start with absolute clarity about how we think about Nextdoor, how we have approached this turnaround, and why we remain confident in the long-term opportunity in front of us. Let us begin with our foundation. Nextdoor is not a traditional social app. It is a trust-based local network built on a verified address-based neighborhood graph that connects real people to real places. That graph grounded in identity and location is our core asset. It is what differentiates Nextdoor, and it becomes more valuable in a world where digital experiences are increasingly shaped by AI. The asset has always been unique, what has changed is how we are unlocking its value. Over the past two years, we have reworked the product experience to elevate the most relevant decision-oriented content. The recommendations, services, alerts, local news, and information that people rely on when something in their real world requires action. Unlike many social platforms, our value is not measured by passive scrolling. It shows up when intent is high and decisions are being made. Our strategy is to combine the strength of our trusted community with AI, to surface the right local information at the right moment, increasing utility for neighbors and economic value for both local businesses and Nextdoor. We have paired this strategy with disciplined execution and a clear founder’s mentality, one that prioritizes long-term network health over short-term optics, capital efficiency over growth at any cost, and durable unit economics over temporary wins. With that context, Q4 was an important quarter. It reflected progress not only in our product and operating performance, but in demonstrating that this strategy is gaining traction. Turning to performance, while we still have significant work ahead, Q4 was our strongest quarter ever in terms of financial metrics. Revenue grew 7% year over year, and we delivered positive adjusted EBITDA with continued margin expansion. That progress reflects improved execution, disciplined cost management, and strengthening performance across our monetization platform. Comparing full year results, we have repositioned the company from an adjusted EBITDA loss of over $70,000,000 two years ago to positive adjusted EBITDA in 2025. We expect 2026 will build on this momentum. And this is a result of structural changes in how we operate, not short-term optimization. On the user side, we continue to be focused on leading indicators. Platform WAU will not inflect overnight nor does it need to for this model to improve. What matters most at this stage is engagement quality and intent. Our net promoter score improved steadily throughout 2025, and we are seeing encouraging increases in engagement frequency. Neighbors are returning more often for high-value use cases, which reinforces the durability of the network. And on the advertiser side, continue to invest in our proprietary ad stack, are seeing measurable gains particularly in self-serve. Our AI-driven tools have reduced friction in campaign creation, improved reporting transparency, and strengthened optimization performance. Advertiser retention remains solid, outcomes are improving, and these gains are being driven by better ad performance, not by increasing ad load. Overall, I will reiterate that Q4 reinforced that the strategy outlined earlier is translating into real material progress. I will now turn the call over to Indrajit to review the quarter in greater detail and discuss our outlook. Indrajit Panambalam: Thanks, Nirav. And hello to everyone joining us today. I am excited to join Nextdoor at such an important time for the company. I have been impressed by the strength of the team, the opportunity ahead of us, and I look forward to partnering with my colleagues to drive sustainable growth and long-term shareholder value. Now let us jump into the results. Q4 platform weekly active users, or WAU, which measures users engaging directly on the Nextdoor app or website, was 21,000,000, a 3% sequential decline, roughly in line with our expectations. This reflects our ongoing effort to prioritize engagement quality over volume. Specifically, our users have told us to get smarter on notifications. So we are working on those improvements with the goal of maximizing long Indrajit Panambalam: term user value as notifications improve. As a result, we expect platform WAU will continue to fluctuate in the near term, which is an intentional trade-off as we focus on relevance, retention, and overall improved user experience. Now let us turn to revenue. Q4 revenue was $69,000,000, up 7% year over year. This was our highest ever quarterly revenue, reflecting continued strong self-serve advertiser demand, improved sales productivity, and better yields driven by product improvements. We saw year over year growth in both customer count and average customer spend, while ARPU increased 13% year over year, all without an increase in ad load. Advertisers benefited from higher click-through rates while we grew our active customer base and associated net new advertiser spend. In short, our ad stack investments are delivering measurable improvements. We are seeing positive effects in our self-serve platform, including incremental advertiser spend, improving advertiser mix and retention, and better operating efficiency from a more streamlined sales model. As we continue to roll out new ad formats and apply AI to optimization and creative workflows, our focus remains on steadily improving monetization and advertiser outcomes over time. Our self-serve platform lets businesses of any size quickly create and run their own ads on Nextdoor. By removing friction for advertisers, we have created an efficient path for businesses to leverage our neighborhood data and AI to reach verified household decision makers and measure results clearly. Our self-serve channel was again a core growth driver, and remains a key component of our monetization strategy. Q4 self-serve revenue grew 32% year over year, and comprised roughly 60% of total revenue. Now let us move to profitability. Q4 GAAP net loss was $4,000,000, or negative 6% margin, representing 13 points of year over year improvement. Q4 adjusted EBITDA was $8,000,000, an 11% margin, representing six points of year over year improvement driven by revenue scale and continued broad-based operating expense leverage. Like revenue, Q4 was the strongest adjusted EBITDA quarter in our history. Our strong Q4 results allowed us to achieve positive adjusted for the full year 2025, twelve months ahead of schedule, reflecting our continued focus on efficiency and productivity. Revenue per employee increased which is another good proof point 26% year over year in Q4. of our revenue growth and the operating leverage we drove through 2025. At quarter end, we had $405,000,000 in cash, cash equivalents, and marketable securities, and zero debt. In Q4, we repurchased 2,500,000 shares at an average price of $1.77. Looking ahead, we continue to prioritize operational investments that we feel will drive long-term value for the platform. Now let us turn to our financial outlook. We expect Q1 revenue of $57,000,000 to $59,000,000, representing 7% year over year growth at the midpoint of the range, and adjusted EBITDA of negative $6,000,000 to negative $4,000,000, representing negative 9% adjusted EBITDA margin at the midpoint. Here are some factors to consider related to our Q1 outlook. Nirav N. Tolia: First, Indrajit Panambalam: our Q1 guidance reflects normal revenue seasonality, where Q1 is typically our softest quarter of the year. Second, we remain focused on optimizing the core user experience and driving quality engagement. So we are intentionally limiting our new user acquisition efforts and do not plan to increase ad load in Q1 2026. Given the multi-quarter nature of our product initiatives, and their impact on usage patterns, believe quarterly guidance is the most appropriate way to communicate our near-term outlook. That said, we are encouraged by our operating progress in 2025. For full year 2026, we expect to see continued revenue growth. We also expect to see adjusted EBITDA margins in the mid-single digit range. With that, I will turn it back over to Nirav. Thank you, Indrajit. You made a strong impact in a short period of time. Nirav N. Tolia: The discipline, perspective, and cross-functional leadership you are bringing are raising the bar across the company, and I am excited about the role you will play in our next chapter. We are fortunate to have you on the team. Before we move to Q&A, I would like to wrap up our prepared remarks by specifically articulating our investment thesis, which rests on five pillars. Operator: First, Indrajit Panambalam: our core asset, Nirav N. Tolia: the neighborhood graph. Nextdoor is built on a verified address-based neighborhood graph covering 350,000 neighborhoods and more than 105,000,000 verified neighbors, roughly one in three U.S. households. Because identity and location are verified, neighbors come to Nextdoor for you utility, not passive scrolling. We have built a trust-based graph that is differentiated and difficult to replicate. Second, intent-driven engagement. Our platform centers on real-world decisions, finding a service, responding to an alert, getting a recommendation, the value of the network appears when intent is high. We are not optimizing for entertainment and scrolling. Are optimizing for relevance and action. Operator: Third, Nirav N. Tolia: multiple monetization pathways. High intent creates commercial opportunity. We see substantial room to close the gap between user intent and monetization through contextual native advertising and lead generation. All that connects local demand with local supply. Is particularly compelling with small and medium-sized businesses, a fragmented market with lower digital penetration and clear ROI expectations. Importantly, improving monetization does not require a step change in user growth. It simply requires better matching of intent and outcomes. Fourth, a validated business model. We are demonstrating that this model works. We are capturing a differentiated high-intent audience, we have multiple monetization formats, and advertiser retention and ROI are improving. Revenue per employee is expanding, and as Innerge had outlined, operating leverage is emerging in our financial results. These are early but concrete signs of validation. Operator: Fifth and finally, a founder’s mentality. Nirav N. Tolia: Turnarounds require a precise understanding of the core asset, and disciplined execution around it. A founder’s mentality brings both. This translates into an approach that prioritizes long-term thinking, disciplined capital allocation, and an uncompromising focus on network health. It means resisting short-term monetization tactics that erode trust. It means making decisions that strengthen the platform over years, not quarters. That founder’s mentality underpins how we are executing this turnaround, and how we are investing for durable growth. It also shapes how we approach AI, which we strongly believe will drive a material transformation not just for our company, for our entire industry. We are not pursuing AI as a feature cycle. We are applying it to a proprietary asset built over more than fifteen years, a verified address-based neighborhood graph that generates content and context that does not exist anywhere else. The value of AI here is not a generic capability. It is based on the uniqueness of our data and the community engine that produces it. By combining our hyper-local, real identity graph with AI, can enhance relevance, improve advertiser performance, increase efficiency, and most importantly, deepen our competitive moat. As such, AI does not compromise our thesis. It strengthens all parts of it. The opportunity in front of Nextdoor has not changed. Has changed is the rigor and discipline with which we are executing. When viewed through the right lens, one centered on trust, intent, and durable economics, Nextdoor represents a differentiated platform with a path to sustainable long-term growth that we believe remains underappreciated. And with that, happy to take your questions. But before we begin Q&A, let me briefly outline how we will structure it. We will start with questions from our covering analysts. After that, Indrajit will share some of the most common questions we received from individual investors over the past few weeks. We appreciate the engagement and look forward to the discussion. With that, operator, let us open the line for questions. Operator: Thank you. We will now begin the question and answer session. Operator: If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason at all you would like to remove that question, please press star followed by two. Again, to ask a question, please press star one. The first question comes from Jamesmichael Sherman-Lewis with Citi. You may proceed. Nirav N. Tolia: Hey. Good afternoon, Nirav and Indrajit. Thank you for taking my questions. It is two here, if I may. First, encouraging to hear frequency and engagement quality are improvement improving. Can you add more color on the specific product changes that are resonating most of users? As we look at the new UI, recommendations and notification changes, etcetera? And are you seeing any delta in usage trends from existing versus newer user cohorts? And then I have a follow-up. Great. Well, James Michael, it is good to hear from you. And I will just give you the color on what we are seeing that working. I would say, in general, we are slowly but surely converting our product to something that feels much more utility centric and is driven by intent. And so the things that are driving deeper engagement are whether they are big things like a greater focus on recommendations and local news and other things that give you the information you need to make decisions, or whether they are smaller things that are at the ecosystem level like more relevant notifications, using AI to better personalize the feed, it is a series of different things that we need to do because the end of the day, the product experience is not just one feature. It is a set of lots of different features, and we have to make all of them better. And if we do, we start to see compounding. I think we are starting to see the very beginnings of that and we are excited about it. Were gonna ask me to follow-up question. Operator: Yeah. Nirav N. Tolia: Follow-up here. As we think about the advertiser base and self serve segment, could you revisit, you know, any budget trends by vertical or advertiser size? And and specifically, any update on spending patterns from larger advertisers? Thank you very much. Okay. Thanks for the question. You know, we did have the strongest revenue quarter in our history. And so I would say across the board, we saw strength from advertiser demand. And we continue to use AI to generate better outcomes for those advertisers. I will let Indrajit chime in a little bit on a few of the specifics, but I think it was really better demand and better performance across the board. Indrajit Panambalam: Thanks, Nir. Yeah. I would echo what you said. It was pretty broad based to what we saw in Q4, which is obviously very strong quarter for us. There were no particular verticals that stood out as significantly sort of outperforming the others. And as I mentioned in my remarks, we are seeing good trends on number of ad advertisers, net new ad revenue. So we feel like those are headed in the right direction. Excellent. Thank you, Moe. Operator: Thank you. Operator: As a quick reminder, if you would like to ask a question, please press 1 on your telephone keypad. Next comes from Jason Michael Kreyer with Craig-Hallum. You may proceed. Indrajit Panambalam: Thank you, guys. Appreciate it. Nirav N. Tolia: Wanna build on the last question. Any updates on building out a programmatic ad stack for for the large It has been kind of a year since we talked about, you know, more volatility in that category. I think last quarter, you kinda said, know, you were stabilizing things with SSPs and DSPs. So curious where that is at and if if you think that can drive more growth throughout 2026. Just as you get that stack fully implemented. Operator: Sure. So Nirav N. Tolia: you know, we need to continue investing in programmatic formats and the programmatic ad stack in general. Because that is what large advertisers are seeking. What you heard a year ago is that there were large advertisers who said that they would not consider us until we started to roll out those improvements to the platform, and we have done that. And so as we have done that, we have seen greater demand. As we continue to invest in that, we should see greater demand as well. But it is it is a it is a part of the whole. I would not call it out as a particular focus of ours. It is something that we need to do to be competitive. And so we will continue to do it. And we do expect demand to go up as a result, but it is not something that I would point to as some specific opportunity that we think outsized that we are going after aggressively. Operator: And, Neera, if I could just add, I think what we have seen over the last Indrajit Panambalam: twelve months since we first introduced programmatic is really strong in improving performance on our on our direct sales ourselves. We are seeing strong demand from advertisers there, which we are able to monetize quite well. So I think program programmatic has been a great supplement to that. But we are also encouraged by our own our own performance too. Nirav N. Tolia: Great update. Thank you. And then just maybe another one in terms of the evolution of recommendations. I know that you have kinda tweaked that kinda go to market or the rollout of of recommendations over the last couple of quarters. What what is in store for 2026? How broad is that rollout now, and how much does that change in the next few months? It is a great question. And I would say that in 2026, recommendations and in general making it possible to easily find the absolute best small businesses in your neighborhood, is a major priority for us. And so whether that means ensuring that when neighbors ask questions, they are answered more quickly, whether that means using the power of AI to summarize old conversations or new so that you can get multiple recommendations in one fell swoop. Operator: Or Nirav N. Tolia: if it means bringing those great SMBs on the platform so they can respond directly to neighbors so that it is a closed loop kind of experience, those are all things that we are focused on in 2026. We think this is one of the really unique advantages that Nextdoor has. We are a place where you come to get real recommendations from your neighbors. It is not bots that are creating the recommendations. It is not star ratings. It is neighbors that are willing to vouch for the small businesses that they believe in. And this is a value proposition that we need to get much better and much more forward in front of our consumers because there is nothing like it across the web. Wonderful. Cannot wait to see it. Thanks, guys. Operator: Thank you. The next question comes from Ryan James Powell with B. Riley Securities. You may proceed. Indrajit Panambalam: Great. Hi. Thank you for taking our question. This is Ryan Powell on for Naveen. So first, Ryan James Powell: we appreciate the color in the prepared remarks, but we are wondering a little more on much more work needs to be done on moderating the notifications and emails. And whether the current frequency is about what you expect long term? And then I have a follow-up. Nirav N. Tolia: Okay. Thank you for the question. I think that we will never stop working to make the notifications more relevant. The way that it goes with notifications is that the more relevant they are, the more you can send. The problem with sending irrelevant notifications is it may not show up in the near term, but in the long term, it does. Either through a lower NPS score or even worse when people unsubscribe. And so we have taken a very, very conservative view as it relates to notifications. We have made the difficult decision to focus on the long term, and as a result, we pulled back quite a bit, and, frankly, we will continue to do that if it is the right thing for neighbors. So as we build more relevant notifications, we can be more aggressive with them. And we will. I would say today, we still have a lot of work to do. And we are gonna be much more long-term minded versus feel like we need to pump out as many emails and mobile notifications as possible. Just so we can pump up the metrics. What is really important to us is ensuring that when someone receives a notification, they feel like it is relevant to them. And until we can do that with real regularity, we will continue to be conservative in how many we send out. Operator: Great. That makes sense. Thank you. Ryan James Powell: And then second on the phase launch, where are you currently in rollout? And how has it impacted the quality of content in neighborhoods that it is live. Nirav N. Tolia: Okay. It is a very good question. And faves, is part of that overall ecosystem of recommendations and small businesses. And in general, one of the things that we feel that Nextdoor should be truly great at which is helping you find the best service providers, the best businesses, the best places to spend your money in your neighborhood. I do not think that this year, we will think about this as some large rollout. We are gonna think about it as a series of improvements that are ongoing and iterative. And so at any moment, you may think that it is mildly improved. But if you look back at this over a year, I think you will see some major progress. So versus thinking about this as there was a launch, and then we have got a big release next quarter and then another release the quarter after that. We are thinking about this much more like traditional web development where we should have deadlines and milestones and releases every few weeks. And you should feel like the the product is getting gradually better and better and better and better. Ryan James Powell: Awesome. Thank you. Operator: Thank you. Operator: There are currently no other questions queued. So this is your final reminder that if you would like to ask a question, please press 1. With that being said, I will pass it back over to the team for a Q&A. With the analysts. Indrajit Panambalam: Great. Thank you, operator. As Nirav mentioned, we are pleased to now answer some of the most popular questions that investors have submitted to us in the last few weeks. So let me start with our first question, which is on AI. What has been the progress of implementing AI features into the app? What are the main bottlenecks to implementing more AI features? Nirav N. Tolia: Okay. So let me start by saying that we are of the mind that AI is as transformative as anything that is happened in our lifetimes in the technology industry. So we are true believers when it comes to the power and potential of AI. We think that it should ultimately shape us and has shaped us already in three different ways. It should make the company more efficient, it should make the consumer product better, and it should increase advertiser optimization and performance. We have done things in all three of those areas. And much like I described our faves rollout as not one big bang, but rolling thunder that is increasingly just something that is natural something that we look to as part of our normal cadence over time, that is the way that we will continue to implement AI solutions. We do not see AI as some vertical thing that we focus on that is outside of the main set of things that we are doing. We see AI as a powerful technology that needs to be the foundation of everything that we are doing. And so the real opportunity for us is to take our incredible community system, which is uniquely human, and it is verified, and you have actual neighbors that are creating content and combine that with AI, to create content that ends up being higher quality, more relevant, but still uniquely human. And that is a very unique opportunity that we think exists for Nextdoor. Ryan James Powell: Great. Indrajit Panambalam: Second question is on platform differentiation. How is Nextdoor truly different from other social media or home or home services apps on the Internet? Nirav N. Tolia: So I would go back to what I articulated with our investment thesis, and that is point number one. The core asset of Nextdoor is a neighborhood graph. It is a graph of people that have verified identity, and real location. That then enables a trust-based network that is very different than the other social networks. That is difference number one. Difference number two is many of the social platforms today engage in what I would describe as one-to-many communication. There is content on the social network, and then there are consumers of that content. Followers is typically what you call those those consumers. And you have one content creator that is communicating with lots of different followers. On Nextdoor, it is not one-to-many communication. It is many-to-many communication. It is more about community. You post on Nextdoor, and then what is really interesting is the responses that come to your post. And those responses are not just from one person. They are from a number of different people, and they are all your neighbors. And so it creates a completely different dynamic because it is not about the one big content creator, and then you are responding to that content creator but you are not talking to all the other people that are responding to the content creator. Nextdoor is a community centric social network. And increasingly, that is different than the other things that we see across the web. Operator: Great. Indrajit Panambalam: Okay. Third question is on vertical specific monetization. Question was, would you consider leaning more heavily into vertical specific use cases like home services and pet services? So Nextdoor has, from the very beginning, been a broad local social network, which means there are a variety of different use cases Nirav N. Tolia: that may span from simply getting to know your neighbors to understanding what to do this weekend in your neighborhood to asking for help to find a lost pet, to coming together in times of crisis, to, of course, finding recommendations for the best businesses in your neighborhood. Those are a series of very different things. And even within those verticals, like finding the best business in your neighborhood, there are lots of sub-verticals as well. So this is a big challenge for us. It is also an incredible opportunity. In the highest value verticals, and service providers is one of them, we should actually build more vertically specific features and functionality. Whether that ultimately looks in the app like a series of channels, whether there continues to be a single monotonic news feed that then actually branches out when you need it to, those are the things that we will experiment with. But, ultimately, we know that particularly for the highest intent, and the best monetization use cases, we do need to push deeper and build more vertically specific solutions. Indrajit Panambalam: Okay. Thanks, Nir. Alright. Now on to our last question, which is related to cash management. Couple folks several folks asked, what is your philosophy on the use of your cash? So why do not I take this one? First, as a reminder, we ended 2025 with slightly over $400,000,000 of cash and marketable securities and no debt, which we view as a major strategic asset of ours. Also, as you saw in our results, we reported positive EBITDA and positive cash flow from operating activities for full year 2025 which, we find very encouraging. And look. We do not assume that access to cap capital markets will always be readily available for companies of our size. So preserving liquidity gives us important operating and strategic flexibility. And for us, really, any use of cash, whether for organic investments, external opportunities, or capital return, it must all exceed our return of invest return on investment thresholds. So, really, if we look at it, you know, we continue to regularly evaluate all options for our cash. And we use those objectives, as we evaluate the opportunities before us. Nirav N. Tolia: Okay. With that, we are gonna wrap up this call. We really appreciate your interest in Nextdoor, and we look forward to continuing to communicate our progress on this turnaround. We are very optimistic about our future, but we know that there is a lot of hard work ahead. Stay tuned. Indrajit Panambalam: Thank you, operator. Operator: This concludes today’s conference call. Thank you for your participation. You may now disconnect your line.
Operator: Good day, and welcome to the ProPetro Holdings Corp. Fourth Quarter and Full Year 2025 Conference Call. Please note that this event is being recorded. I would now like to turn the call over to Matt Augustine, ProPetro's Vice President of Finance and Investor Relations. Please go ahead. Matt Augustine: Thank you, and good morning. We appreciate your participation in today's call. With me are Chief Executive Officer, Sam Sledge; Chief Financial Officer, Caleb Weatherl; President and Chief Operating Officer, Adam Munoz; and President of PROPWR, Travis Simmering. This morning, we released our earnings results for the fourth quarter of 2025. Please note that any comments we make on today's call regarding projections or our expectations for future events are forward-looking statements covered by the Private Securities Litigation Reform Act. Forward-looking statements are subject to several risks and uncertainties, many of which are beyond our control. These risks and uncertainties can cause actual results to differ materially from our current expectations. We advise listeners to review our earnings release and risk factors discussed in our filings with the SEC. Also during today's call, we will reference certain non-GAAP financial measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are included in our earnings release. Finally, after our prepared remarks, we will hold a question-and-answer session. With that, I would like to turn the call over to Sam. Sam Sledge: Thanks, Matt. Good morning, everyone, and thanks for joining us today. 2025 was a year that was defined by uncertainty across the broader energy markets. There was a significant slowdown in completions activity as illustrated by our estimates that the Permian is operating with approximately 70 full-time frac fleets, down meaningfully from 90 to 100 fleets just a year ago. This headwind was compounded by tariff impacts and OPEC+ production increases that added pressure to commodity prices throughout the year, affecting budgets and creating a more cautious operator mindset. Despite these dynamics, ProPetro continued to deliver both operationally and financially and generated strong free cash flow, particularly in the fourth quarter. Our legacy completions business continues to generate sustainable free cash flow even in this tough market environment, which gives us confidence as this business helps fuel investments we are making in PROPWR, our future growth engine. Our solid fourth quarter performance underscores the industrialized nature of our completions business and the benefits of the technology and next-generation equipment investments we have made over the last several years. While we expect market challenges to persist into 2026, we continue to control what we can and move quickly by streamlining costs across the business, performing a granular analysis and taking decisive action. I'm proud of our team's ability to adapt quickly, rationalize costs and protect our asset base, thereby supporting our margins and competitiveness in the market. This will remain a key focus in 2026. ProPetro is a fundamentally strong company. We have low debt, first-class customers operating in the Permian Basin, a refreshed next-generation fleet and a team that continues to execute at a very high level. Even if challenging market conditions persist, our company's unique attributes position us to continue performing. As we've said before, market cycles create opportunities. And with that, we expect attrition among smaller and less disciplined competitors that cannot sustain prolonged market weakness. We believe this dynamic will provide structural benefits for well-capitalized next-generation operators like ProPetro. I also want to discuss the strategic actions we're taking to support resilient financials. As a reminder, we currently have the majority of our active frac fleets under contract, providing us with ongoing stability in our operations. Over time, we plan to continue to allocate capital to our FORCE electric equipment, given its strong demand and commercial leverage. However, prior to committing to additional FORCE equipment orders, we require greater visibility into customer demand and growth, especially in the challenging market environment to ensure these investments are both strategically justified and aligned with expected return. Additionally, in 2026, as a part of our completions CapEx program, which Caleb will discuss in greater detail, we plan to allocate targeted capital to refurbish a portion of our existing Tier IV DGB fleet, make investments in fleet automation technology as well as measured investments in direct drive gas frac units. These direct drive gas units are highly complementary to our current frac asset base and their integration is anticipated to partially offset future capital requirements for investment and refurbishment in our conventional frac. These new investments, specifically in fleet automation technology and direct drive will reinforce our position as a premier completions provider in the Permian Basin and support our broader goal of further industrializing our business. Importantly, given the current challenging market dynamics, we remain disciplined in our capital deployment, investing only when there is clear visibility to high returns and strong customer endorsement, principles that are embedded in our way of doing business. Additionally, 2025 was an exciting year for PROPWR, where we made significant progress as we capitalize on robust customer demand to not only launch the business, but to bring our total committed capacity to now approximately 240 megawatts and to also deploy our first assets into the field. This total includes recent contract wins supporting production operations for Permian E&P customers secured since our last update in December. Additionally, as announced in December, we placed orders for an additional 190 megawatts of equipment, increasing total delivered or on order capacity to approximately 550 megawatts. With this order, PROPWR's equipment portfolio is split approximately 70% and 30% between high-efficiency natural gas reciprocating engine generators and low emission modular turbines, respectively. PROPWR anticipates all units will be delivered by year-end 2027 with contracts expected to be secured ahead of delivery. PROPWR's expected total cost per megawatt for the 550 megawatts ordered today averages approximately $1.1 million, including development plant. We're confident in the business' future growth capabilities and expect to secure additional contracts throughout 2026 due to our flexible asset base, ability to rapidly respond to evolving customer demand and quality execution. Furthermore, we would like to reaffirm our 5-year growth outlook for PROPWR as communicated last quarter. We are positioned to deliver at least 750 megawatts by year-end 2028 and 1 gigawatt or more by year-end 2030. Our standing in the supply chain not only enables us to meet these milestones, but also provides us the ability to scale beyond these targets if the right opportunities present themselves. Moreover, we are seeing a growing number of inquiries from potential data center and industrial clients. Over time, we anticipate these opportunities occupy a higher share of our overall capacity, driven by both their larger load needs and longer-term strategic commitment. These evolving market dynamics, coupled with our strategic partnerships and operational excellence, uniquely position us to capitalize on large-scale long-term demand and drive sustained value for our clients and stakeholders. These growth targets reflect the significant opportunity we see in the market for reliable, low-emission power generation solutions. PROPWR's momentum is tangible, and we're excited to continue our efforts to expand our reach and drive long-term growth. In terms of capital to fund our PROPWR strategy, our approach remains deliberate and balanced. Resilient free cash flow generated from our completions business continues to serve as the company's preferred capital source. This strong foundation will be further enhanced by contributions from our power business, especially as we exit 2026 and have deployed on multiple projects. Moreover, our recent equity offering provided approximately $163 million in cash net of fees, strengthening the company's balance sheet and reducing ProPetro's near-term reliance on debt. In addition to the equity offering, our strong balance sheet is bolstered by our refreshed capital structure, which includes our recently expanded $157 million financing facility at favorable cost of capital and on flexible terms with Caterpillar Financial Services Corporation, along with a $350 million leasing financing facility secured in December with Stonebriar Commercial Finance that we will utilize on an as-needed basis. These sources of capital are key to ensuring we have the financial flexibility to take advantage of the exciting opportunities ahead of PROPWR and across our entire business. Caleb will discuss our financial results in more detail, but as we previewed in our December update, we expected a very strong finish to 2025, and that is exactly what we delivered in the fourth quarter. Revenue remained resilient, holiday impacts were less pronounced than in prior years and the decisive cost structure actions we took during the third and fourth quarter helped support margin performance. Pricing remained stable through the quarter, and we continue to stay disciplined on that front. As we've said before, we will not run fleets at subeconomic level as preserving fleet quality remains essential to ensuring readiness for rapid deployment when market conditions do, in fact, improve. Importantly, ProPetro's hallmarks of operational excellence and efficiency continue to prevail as evidenced by our ongoing cost control actions. As we look ahead, the near-term outlook remains uncertain and headwinds appear likely to persist into 2026. That said, we like what we are seeing currently in our active fleet, and we expect approximately 11 active frac fleets in the first quarter, although winter weather in late January did have a significant impact on our activity, which we expect will meaningfully affect first quarter profitability. Furthermore, as I mentioned, we are reaffirming our 5-year growth outlook for PROPWR, and we expect the first half of 2026 to focus on derisking deployments and establishing a strong operational foundation, positioning our company for sustainable long-term growth. By the second half of 2026, we expect PROPWR to begin contributing meaningful earnings. Before I turn the call over to Caleb, I want to reiterate the fundamental strength of ProPetro. Our differentiators are clear. We have a strong balance sheet, first-class customers, a refreshed next-generation asset base, strong free cash flow generation in our completions business and PROPWR as a key growth engine that will drive our earnings profile. Most importantly, we have a first-class team that continues to execute at a very high level, ensuring that we continue operating safely, efficiently and productively while enhancing our ability to capitalize on the opportunities ahead. With that, I'll turn it over to Caleb. Caleb Weatherl: Thanks, Sam, and good morning, everyone. As Sam mentioned, ProPetro's performance in the fourth quarter and throughout 2025 showcased the results of our strategy at work. Through disciplined cost control efforts and continued industrialization of our operations, we delivered resilient margins, strong free cash flow from our completions business despite a challenging market environment. We also advanced PROPWR meaningfully through new contracts, strategic equipment orders and flexible financing arrangement, positioning it as a growing contributor to future earnings. During the fourth quarter, ProPetro generated total revenue of $290 million, a decrease of 1% as compared to the third quarter. Net income totaled $1 million or $0.01 income per diluted share compared to net loss of $2 million or $0.02 loss per diluted share for the third quarter of 2025. Adjusted EBITDA totaled $51 million, was 18% of revenue and increased 45% compared to the third quarter. This includes the lease expense related to our electric fleet of $17 million. Net cash provided by operating activities and net cash used in investing activities, as shown on the statement of cash flows were $81 million and $39 million, respectively. Free cash flow for our completions business was $98 million, supported by strong EBITDA performance and reduced completion CapEx. Additionally, free cash flow was further bolstered by working capital tailwinds, which contributed an additional $28 million in cash. Moreover, we also generated $14 million from select asset sales and received $11 million from the note receivable related to the sale of our Vernal, Utah cementing operation completed in the fourth quarter of 2024. As Sam mentioned, our legacy completions business continues to generate sustainable free cash flow, demonstrating what we have consistently communicated over the past several years. Even in today's challenging market environment, our performance has remained steady and reliable. During the fourth quarter, capital expenditures paid were $64 million and capital expenditures incurred were $71 million, including approximately $12 million primarily supporting maintenance in the company's completion business and approximately $59 million supporting PROPWR orders. During the quarter, some of the PROPWR spending was accelerated as our supply chain partners have consistently delivered equipment efficiently and on time or ahead of schedule. Notably, the difference between incurred and paid capital expenditures is primarily comprised of PROPWR-related capital expenditures that have been financed and paid directly by the financing partner and unpaid capital expenditures included in accounts payable and accrued liability. We will continue to evaluate the market and scale CapEx as activity demand. We currently anticipate full year 2026 capital expenditures to be between $390 million and $435 million. Of this amount, the completions business is expected to account for $140 million to $160 million, including $40 million to $50 million related to lease buyouts for a portion of the company's FORCE electric fleet portfolio. As a reminder, our 5 FORCE electric fleet leases were secured with an initial 3-year term and include options to either buy out or extend the leases at the end of that period. The intent behind these leases was to defer upfront capital expenditures while securing the equipment at an attractive cost of capital, supported by the contracted earnings from the FORCE electric fleet. This strategy proved successful, enabling us to rapidly transform our fleet and still generate accretive cash flow. The upcoming lease buyouts reflect the completion of a deliberate and strategic capital allocation decision. By exercising these options, we will take full ownership of the FORCE fleets each buyout will immediately reduce our lease expense, currently reflected in operating expenses and strengthen our commercial flexibility. We expect to buy out all 5 fleets with buyouts anticipated to begin in late 2026 and through 2028. As Sam mentioned, the completions business guidance range also includes capital reserve for refurbishing a portion of the existing Tier IV DGB fleet, investment in fleet automation technology as well as measured investment in direct drive gas frac unit. Additionally, the company expects to incur approximately $250 million to $275 million in 2026 for its PROPWR business. This range allows for additional equipment orders and associated down payments. The outlook is based on the current 550 megawatts of PROPWR equipment on order as well as plans to reach at least 750 megawatts delivered by year-end 2028. While these PROPWR capital expenditure estimates reflect the total cost of the equipment, they do not account for the impact of financing arrangements, which are expected to reduce near-term actual cash outflow or cash CapEx required from the company. Cash and liquidity continue to remain healthy. As of December 31, 2025, total cash was $91 million and borrowings under the ABL credit facility were $45 million. Total liquidity at the end of the fourth quarter of 2025 was $205 million, including cash and $114 million of available capacity under the ABL credit facility. Notably, as of January 31, 2026, total cash was $236 million and borrowings under the ABL credit facility were $45 million. Total liquidity as of January 31, 2026, was $325 million, including cash and $89 million of available capacity under the ABL facility. This increase from year-end is primarily due to the approximately $163 million in net proceeds the company received through the equity offering we completed in January. Lastly, and as I mentioned last quarter, we'll continue to take a disciplined approach to deploying capital. This commitment ensures ProPetro remains well positioned to fund the strategic growth of our PROPWR business while maintaining a strong financial foundation. Resilient free cash flow generated by our completions business, complemented by future contribution from our Power segment serves as the preferred source of capital for these initiatives. In addition to internally generated free cash flow, we maintain access to flexible financing facilities with favorable terms, which we will utilize diligently and only as needed to preserve financial flexibility and low near-term leverage. Most recently, our equity offering has further strengthened the balance sheet, increasing liquidity and ultimately reducing our reliance on debt to advance PROPWR. With these resources and actions in place, we are equipped to seize the exciting opportunities ahead for PROPWR and across our entire business while continuing to drive long-term value for our stakeholders. Sam, back over to you. Sam Sledge: Thanks, Caleb. As we wrap up today's call, I want to address the significant interest we've received from various stakeholders regarding what differentiates PROPWR in the power market. how the business has positively progressed since its launch in late 2024 and how we foresee its evolution in the future. Some of this will be restating what you've already heard from me earlier in the call. Since launching the business, PROPWR has demonstrated a unique execution strategy. A key differentiator in our strategy is our belief that there is meaningful value in acting now, deploying assets into the market, capturing market share and then extending and expanding with both existing partners and those in our pipeline. Rather than waiting for the perfect contract, our speed-to-market advantage and confidence in operational execution enable us to build momentum and secure meaningful contracts over the past year. Market dynamics have also evolved and continue to evolve in our favor. Demand for power has accelerated in the Permian across the U.S. and global. Since PROPWR's launch, there's been a further awakening to the scarcity of reliable power and the data center and AI boom only amplify this issue. This has led to increasing demand for PROPWR within this arena. Our first data center contract announced last October was a pivotal moment. They signal our ability to participate in this arena and outside the Permian Basin, where we expect to grow in both deployed megawatts and contract duration over time. In the oilfield sector, we recognized early the emerging bottlenecks around power availability. Our foundation in the Permian positions us uniquely to solve these challenges for E&P customers, many of whom already know and trust ProPetro based on the proven performance of our legacy business line. We believe that no competitor matches our support infrastructure, logistics capabilities, supply chain expertise and operational experience with heavy machinery and large-scale field assets. Accordingly, demand remains strong for PROPWR in the oil and gas sector. This part of our commercial pipeline has also gained significant momentum as customers increasingly realize the cost savings of replacing inefficient power setup with efficient infield distributed microgrids that PROPWR can offer. Moreover, as production matures and well inventory complexity increases, more power is going to be needed to maintain and especially increase production from today's level, placing additional stress on the already overburdened and in some places, nonexistent Permian power grid. Given these dynamics, we anticipate continued growth in oil and gas power demand, which will remain a core opportunity alongside data center and other industrial infrastructure projects. This diversification strengthens our position and underpins our confidence in our growth expectations. Looking ahead, we will continue to strategically deploy assets where we generate the highest return, a direct function of maximizing free cash flow while balancing the length of contract term. As I already mentioned, our pipeline today suggests increasing opportunities in larger, more substantial projects across the data center and industrial sectors while maintaining a meaningful presence in oil and gas. We are excited for what lies ahead, and we continue to grow, innovate and lead in the evolving power market. Lastly, it's clear that we've built ProPetro into a resilient company capable of generating cash through cycles while investing in higher return growth. We proved in 2025 that we can respond proactively and decisively to the market. And 2026 will be a year focused on executing across PROPWR and continuing to strengthen our core completions business. I'm grateful for our team and how they navigated 2025 with urgency, discipline and ownership. Their work positions us exceptionally well for the opportunities ahead. We remain confident in our strategy and in the future of ProPetro. With that, operator, we'll now open the line for questions. Operator: [Operator Instructions] Your first question comes from the line of Derek Podhaizer of Piper Sandler. Derek Podhaizer: Maybe we'll start with expanding on some of your last comments there, Sam, on PROPWR. Just trying to think about the contracting cadence for 2026. You mentioned you have -- sorry, 240 megawatts committed today. I believe your average term is around 5 years. I know you're primarily addressing oil and gas, but obviously, we have the 60-megawatt data center contract. How should we really think about this mix and term evolving as we work through 2026? And then do you believe we'll be close to additional data center contracts this year? Sam Sledge: Yes. Great question. I think for us, it's definitely -- and we've shown this, it's definitely a portfolio approach. I think as we're starting and launching the business from both a commercial and operational standpoint, we value being able to get equipment on the ground, generate returns and prove out our execution. You also heard in our remarks that we think of a larger share of our work over time is non-oil and gas. Those projects are many times larger and a little bit different from a time horizon standpoint in a very positive way. So we do think our mix will evolve in that direction a little bit more over time. And look, I think we're pretty proud to have contracted well over 200 megawatts in our first year standing up the company. And if we stick to our 5-year plan, which we think is very doable and executable, I think you can look for that level of contracted equipment from us on almost an annual basis moving forward to get to the 1 gigawatt number 5 years out. So we're really confident in our ability to continue to march down that path. That said, to the upside of that, some of these non-oil and gas data center, industrial type projects can be much bigger and chunkier in nature. So one of those can potentially change that time line and that mix very significantly if we're able to capitalize on one of those opportunities soon. Derek Podhaizer: Got it. That's helpful. I appreciate the color. Switching over to the completion side of things. And I found it interesting, you mentioned 70 fleets today, down from 90 to 100. And I know one of the big themes as we work towards the end of the year is around frac attrition. You obviously have your version of frac attrition where you'll be refurbing some of your Tier IV DGBs. You talked about investing in direct drive to help offset some of your legacy Tier 2 diesel assets. My guess is that you'll be replacing those Tier 2 diesel assets, and I think this is a theme that we're seeing across the market. So maybe just simplistically, does the industry have enough frac equipment to get back to that 90 to 100 level if there is a call on demand? Maybe just some of your thoughts around the potential tightness we could see in this frac market if we do see some activity start coming back as we work towards the end of the year. Sam Sledge: I think the short answer on can we get back to that 90 to 100 in the Permian, that's -- I think that would be a major stretch for the existing pressure pumping market. We have been banging the attrition drum loudly the last few years, and a lot of that is because of the information that we get through our own company and our own business and how difficult it is to keep a sizable fleet operating in these market conditions. That said, all along, when we've been talking about attrition, especially at the bottom end of the market, the smaller, less sophisticated players the market has been shrinking as well. So you haven't had circumstances in a way where that attrition necessarily shows through. That's why we continue to remind people that if and when activity picks up, it's not going to take very much to structurally tighten the market. That said, it's hard for us to see past what everyone else can see is the potential, crude oil supply glut and what weakness might remain there for kind of the near term. But we all know this business cycles that the supply and demand balance usually fixes itself. If and when that happens, I think we're going to have a frac operation that is very, very well positioned to capitalize on a much tighter market. We've got a great portfolio of technology starting to dribble in a little bit of direct drive gas equipment. We have one of the premier electric frac operations in the Permian Basin, and we have some very flexible diesel and dual fuel assets that are quite valuable in today's market as well. So we think that we're very, very well positioned to capitalize on that structural tightness when it does come, and we think it will. Operator: Your next question comes from the line of Arun Jayaram of JPMorgan. Arun Jayaram: I wanted to just talk to you or ask you about, pardon me, just about kind of the mix between finance CapEx versus cash CapEx. In 2025, gentlemen, you financed just under 30% of your $281 million of CapEx incurred. And so is that -- how should we think about that mix relative to the 2026 CapEx program, which is kind of just above $400 million at the midpoint? Caleb Weatherl: Yes. So in terms of funding our CapEx program, we have a lot of different options. We obviously did the equity issuance opportunistically from a position of strength, and we're always going to prioritize our use of sources of capital to fund our growth from a cost flexibility and size standpoint. So first of all, we like to use cash on the balance sheet, including organically generated cash from our business to fund growth. But like you mentioned, we have several flexible and competitive debt facilities in our ABL and cap finance facility. And we are also happy to have the Stonebriar lease financing facility in place, which is committed capital that we can draw on as needed. So I think that we have like several different attractive options, and we'll plan to use a mix of those. Arun Jayaram: Great. And just as my follow-up, you guys have 7 Tier IV DGB fleet, if my notes are correctly. Sam, could you talk about some of the planned upgrades between automation and the investments in the direct drive? Just trying to understand how your DGB fleet will evolve over time. Sam Sledge: Yes. We made our first DGB investments probably a little over 5 years ago and built on that pretty aggressively for a couple of years and have held it relatively flat since peaking out around that 7 fleet range. We obviously have -- we're bringing in some of the direct drive units like we already talked about. We also have our electric offering and our diesel offering. And as I said, that portfolio, we find to be very valuable in the Permian Basin, where there is both stranded gas where we can capitalize on that type of situation with the customer, but also in other places where customers are selling their gas at a very reasonable price and might want to burn diesel or a blend the two. So it's probably hard to see from an external standpoint, but there's a lot of regional pockets in the Permian in size and sophistication of E&Ps that value all of these different types of offerings. And I think what we have now is a very good portfolio for us to be able to service the biggest, most sophisticated E&Ps in the Permian, but also the growing independence that still exist in an entrepreneurial area like West Texas and New Mexico. So I think in the near term, Arun, from like a portfolio mix standpoint, it's probably just more of the same for us. We talked about rebuilding some Tier 4s and maintaining kind of that 7 fleet type of capacity for that, but also making a nod to some of the newer technologies like direct drive that certain customers are very interested in. And on the -- you mentioned the fleet automation technology. Look, that's just really, in some ways, we believe the cost of doing business and the cost of playing the game at the most -- at the highest level in the pressure pumping sector where you've got to be able to bring those types of high-tech solutions to your customers and allow them to fine-tune their completions programs as much as possible, while at the same time, deploying technology internally into our business that allows us to extend equipment life and use more predictive maintenance tools, lots of things like that. So that's where some of these technology upgrades are coming from us. And I think to sum all that up, these are the types of things you have to do to remain competitive at the highest level in the pressure pumping sector. There's a lot of players that aren't making these moves in these investments back to kind of the structural tightness that we believe will exist in the future because the bar just continues to go higher every day from a performance technology equipment standpoint. And we like our position being able to compete in that game in the future. Operator: Your next question comes from the line of Stephen Gengaro of Stifel. Stephen Gengaro: I had 2 questions, Sam. The first one was just around the demand for power in the oil patch versus the assets getting pulled into other applications for data centers, et cetera. And is there any concern about the cost of power for the e-fracs and how that evolves and how that affects the frac business? Sam Sledge: Yes. I'll answer the e-frac question first and maybe let Travis chime in on your first question. I don't think we have any concern around e-frac power right now. We kind of look at that market, and it having matured a bit over the last year or so. That was a very aggressively growing market for a few years there when we were deploying into it and getting power to pair with that electric -- our FORCE electric frac equipment was a bit of a task at the time. But we think a lot of that equipment that's serving the e-frac market is in a pretty stable place given that, that market is not really growing that fast right now. And a lot of that power is more custom tuned and built for that very application. So it has a little bit of a more difficult time going other places in the power market. Travis, I don't know if you want to take his first question. Travis Simmering: Yes. I guess the first question was just on the oil and gas demand relative to the data center markets. Clearly, we see both growing. The data center demand is much higher. We're excited to be able to diversify into both sectors. Really excited that we were able to kind of act quickly and execute in the oilfield here in our backyard and just get confidence and grow our fleet, but also the ability to do that has allowed us to participate in these larger and longer chunkier deals in the data center market. So we're just -- we're happy to be able to participate in both and have the equipment that I think serves both because of the high efficiency, low emissions that we've done. Stephen Gengaro: And then the follow-up I had was just around when you think about contract duration versus terms on some of the data center contracts that you're looking at, should we think about the returns on the investment being potentially a little bit lower if you're able to secure long-term contracts. We've heard that from others, which when you have visibility of cash flows, it's a big positive, but the returns and our pricing could tend to be a little lower. Is that the right way to think about the blend? Travis Simmering: Yes. I think it's a balancing act. I mean we're looking at a diverse group of contracts and duration and even site size. So we look at a number of different variables that we weigh into our return metrics, but there's a possibility as they go really long that we're willing to take something a little bit lower. Sam Sledge: Stephen, I'll just add a little bit more to that and watching Travis and his team work through this commercial pipeline. There's always so much time and energy and assets that we can deploy. So I think everything that Travis said is highly accurate. It's definitely a balancing portfolio effort. That said, we prioritize real conversations with customers that are serious about making moves and cutting deals that are mutually beneficial to both them and what we have to offer in PROPWR. And I think what you've seen from us to date in the contracts that we've and the assets that we're going to deploy are to real projects that are going to generate real earnings and have real time lines. There's a lot of blue sky out there in this market that I think mostly materializes over time. But from a timing aspect, running a business like we run ours that's highly interested in real work and real earnings, we usually move to the front of the line, the people that are most serious about actually getting a deal done and getting equipment into the field. Operator: Your next question comes from the line of Eddie Kim of Barclays. Edward Kim: Just wanted to ask about the cost of your power equipment and if it changes based on the end market. You mentioned you expect a larger share of your work over time will be towards non-oil and gas applications. To the extent more of your equipment goes toward data centers going forward. Just curious if the mousetrap or configuration is different such that the $1.1 million per megawatt cost estimate increases at all as a result? Any thoughts there would be great. Travis Simmering: Yes. That's a good question. So the $1.1 million that we've talked about is for the modular equipment we bought today, definitely works at certain power nodes in both the oil and gas and data center market. As we evaluate technologies that might be a little bit larger and maybe more infrastructure-esque, I think there's a possibility that, that CapEx goes up a little bit on that equipment, but obviously requires a longer tenor on the contract and maybe larger contract size to justify that investment. Edward Kim: Got it. Got it. And then just sticking on the cost estimate. So you mentioned you expect the cost of the 550 megawatts ordered to date to be that $1.1 million per megawatt, including the [ Dallas ] plant. For the incremental 450 megawatts to get to your 1 gigawatt target by 2030, do you expect that incremental capacity to cost a bit more than your estimate. So just -- I mean, just curious, are the OEMs starting to raise pricing industry-wide? How is the pricing environment for power gen equipment changed, if at all, over the past 6 months or so? Travis Simmering: Yes. We're evaluating the mix on the additional 450, have a lot of optionality there right now. I think the important thing is that the return metrics will be the same regardless of the CapEx input. So we're evaluating projects and different industries a little bit different from an equipment perspective, but looking at the same return profile across the board. Operator: Your next question comes from the line of Jeff LeBlanc of TPH. Jeffrey LeBlanc: In the press release, you referenced that the opportunities to deploy incremental fleet is limited, but have you had success transitioning your existing customers from Tier 4 -- excuse me, the Tier 2 to the Tier IV DGB assets? Because I think at some point, you had some assets idle. Sam Sledge: Yes, there's been a little bit of that. But I think going back to kind of some things that I mentioned earlier, it's more of a specific tool for a specific customer and region right now. Gas prices can vary greatly across the Permian Basin, depending on where you are and what your pipeline deal is. So it's a little bit less of we need to grow a customer from diesel to dual fuel into electric. That was a game that we played very heavily and very successfully into the last several years. But I think there's a little bit more stability in the market right now. And I think at the given activity levels, crude prices, gas prices, I think most of the E&Ps that we're dealing with, they know exactly what they want, and they know exactly what fuel sources that they want to utilize wherever their specific acreage might be. So there's still a little bit of that going on, but I'd say that's a little bit less of a game that's being played today than it was maybe a couple of years ago. Operator: Your next question comes from the line of John Daniel of Daniel Energy Partners. John Daniel: Just a couple of quick housekeeping. Sam, can you say how many of the Tier 2 fleets are working today? Sam Sledge: 2 or 3. John Daniel: 2 or 3. Okay. And then on the direct drive, I got in a little bit late on the call. Did you specify like how many new units you're adding and just a little bit more on the strategy there? Sam Sledge: Yes. We've had a couple of units running for the last 6 months or so. They're part of kind of like a pilot program for us. We're going to add more than that here with kind of the CapEx that we've outlined, but not a lot, John. These aren't like fleets at a time. This is kind of like gradually adding them in with some of the attrition that we're seeing in our own fleet and taking them to very specific customers that have showed an interest in that equipment and committing to it over some period of time. So it's not -- this is not like a major reinvestment cycle for us. This is kind of an evolution, kind of slow evolution that is being -- listening to certain customers of ours. I guess it's a little bit more of a rifle approach, so yes. John Daniel: Fair enough. And then last one, just since I'm a traditional energy guy. Can you just give us some thoughts on wireline and cementing and what you're seeing in both of those service lines today? Sam Sledge: Yes. Wireline Silvertip team has done a fantastic job over the last year managing the market volatility. I think we've probably been a net market share winner in that business, along with really good margins, really good pricing discipline. There's been maybe a little bit of a flight to quality in the wireline business, and we benefited from that. Very stable right now. We've got a good amount of overlap with our frac fleets, which also creates good integration and stability, good efficiency. Cementing, we've seen the rig count throughout last year continue to drill lower and it's still at a pretty depressed area. That's hit that business a little bit. But we think the bones are there to have a really great business over time. I think we're probably top 3 or 4 market share there, very competitive, one of the best labs in both plants in the Permian Basin and a great footprint on the Western side of the basin in the Delaware with the Par Five acquisition that we made a couple of years ago. So that business is down a little bit relatively to something like powerline -- wireline and frac, but still in a really good strong position. Operator: [Operator Instructions] Your next question comes from the line of Scott Gruber of Citigroup. Scott Gruber: I want to come back to the power side. Demand for on-site generation for data centers appears to be taking another step higher here, seeing CapEx numbers from the hyperscalers continue to grow. And you mentioned that it's unlikely that the data center market pulls e-frac megawatts due to the design configuration differences. But is the pull from the data center market starting to improve the terms and conditions and potentially the return profile that you're able to achieve on incremental investment in megawatts into the oilfield microgrids? Travis Simmering: Yes, I think it helps. The competition certainly raises all boats, I would say. So the limited amount of megawatts is being certainly recognized by the oilfield players as well, and they see the demand constraint or the supply constraints, both from the utility and from a behind-the-meter perspective. So we see that all as positive for what we're looking at. Operator: With no further questions, that concludes our Q&A session. I will now turn the call back over to Sam Sledge, Chief Executive Officer, for closing remarks. Sam Sledge: Thanks, everybody, for joining us today. Thanks for your interest in ProPetro. We look forward to talking to you again soon. Operator: That concludes today's conference call. You may now disconnect.
Operator: Good evening, ladies and gentlemen. Thank you for your patience, and welcome to Orange's Full Year 2025 Results Conference. For your information, this conference is being recorded. [Operator Instructions] The call today will be hosted by Christel Heydemann, CEO; and Laurent Martinez, CFO, with other members of Orange's Executive Committee for the Q&A session that will start after the presentation. Thank you, and let me hand over the floor to Christel Heydemann. Christel Heydemann: Good evening, and thank you for joining our 2025 results presentation. These 2025 results successfully conclude our 3-year Lead the Future plan, which has been marked by consistent execution and focus on value creation. All our key objectives have been met or overachieved. We also finished the year with sustained strategic activity. In Spain, we signed a binding agreement with Lorca to acquire full ownership of MASORANGE by acquiring the remaining 50% stake in the joint venture for a price of EUR 4.25 billion. With this operation, Spain will become our second largest market in Europe, and we will be able, upon closing, to capture 100% of MASORANGE value creation. PremiumFiber, the co-owned FiberCo with Vodafone and GIC, began operations in Q4. With over 12 million premises and nearly 5 million connected customers. This is the biggest FibreCo in Europe in terms of customers. In France, we submitted in October, together with Bouygues Telecom and Free Group Iliad, a joint nonbinding offer to acquire a large part of Altice activities in France. In a challenging competitive environment, this deal would allow us to strengthen investments in France while maintaining a competitive ecosystem for the benefit of consumers. Due diligence works have been initiated in early January 2026. There is no certainty that this process will result in an agreement. Back to our 2025 results, we are really pleased to report a robust commercial performance in France, Europe and Africa, Middle East, fueling strong results fully in line with our guidance. After 2 consecutive guidance upgrades this year, full year EBITDAaL grew by 3.8% with a solid 0.9 point margin rate improvement. Organic cash flow reached EUR 3.7 billion, representing more than 8% growth year-on-year, overachieving our Lead the Future guidance. Let's now review our strong full year and Q4 results. On the top line, the group delivered EUR 40.4 billion in revenues, representing a 0.9% increase, driven by growth in retail and MEA. EBITDAaL performance is up plus 3.8% for the full year. France grew at an accelerated pace. Europe's growth remained solid and Africa, Middle East continues to perform strongly in the double-digit territory. Finally, Orange Business further improved its EBITDAaL trend. We maintained discipline on eCapEx with eCapEx to sales at around 15%, in line with our target. Organic cash flow reached EUR 3.7 billion, rising by more than 8% and well in line with our annual goal of at least EUR 3.6 billion. Our free cash flow all-in stands at EUR 2.8 billion, Our balance sheet remains robust with a net debt-to-EBITDAaL ratio of 1.8x. We also fully achieved our 2025 greenhouse gas emissions target on all scopes. Lead the Future has built a strong, sustainable momentum across the company, uniquely positioning Orange on its markets. With a powerful brand, cutting-edge networks and our global teams, we are now serving 340 million customers worldwide. We are stronger in our core business, more efficient in our operations and financially healthier. We have been very active in in-market consolidation across Europe, notably through the successful creation of MASORANGE, now the leading operator in Spain. We are about to get full ownership of this operation, delivering synergies at full speed. I continue to advocate Europe to review its regulatory framework as we believe a strong digital and telecom ecosystem is essential for enhancing competitiveness in the region. Over the past 3 years, we have strengthened our leadership in NPS across 16 countries and delivered solid retail performance with an outstanding double-digit growth in Africa, Middle East and leadership of Orange Cyberdefense. All of this has been achieved by maintaining a solid balance sheet while owning our infrastructures, which is a key differentiator. FTTH deployment is almost done in Europe, and we now have approximately 100 million FTTH connectable homes. Our primary focus over the period has been execution. We streamlined our portfolio with the exit of Orange Bank in Europe, the sale of OCS and Orange Studio in 2024 and the continued transformation of Orange Business. Additionally, we accelerated efficiency through a major workforce planning agreement in France, simplified group processes and maintained a relentless focus on cost optimization and operational efficiency. Financially, free cash flow all-in has grown significantly by 74% over 3 years, translating into an additional EUR 1.2 billion in cash. The dividend increased by 7% over the last 3 years, while total shareholder return surged by 82% in 3 years. We are very proud of these achievements. We have now very solid foundations for our next strategic plan, which we will present to you tomorrow. Looking at our sustainable performance, we all made significant achievements over the last 3 years, and we exceeded our 2025 targets. Greenhouse gas emissions are down 49% on Scope 1 and 2 compared to 2015. And Scope 3 is down 16% compared to 2018. Those results reflect all the efforts and levers activated, as for instance, our partners to net zero carbon program for which we signed 7 partnerships. We are committed to our mission to reduce the digital divide and have increased 4G population coverage in MEA to 80%. Regarding digital inclusion, more than 3 million people benefited from free digital training since 2022. Finally, as part of our trust development strategy, we continue to launch new offers for youth protection and B2C cybersecurity. And in December, we appointed a Chief Trust Officer, Guillaume Poupard, to accelerate this strategy. I will now hand over to Laurent for the financial review on Slide 8. Laurent Martinez: Thank you, Christel, and good evening, everyone. Let's start on revenues, up 0.9% in 2025 at EUR 40 billion, fueled by robust service growth of 2%, which offset the expected wholesale decline. From a segment perspective, revenue growth is driven by Africa and Middle East, outstanding double-digit growth, and Europe at plus 2%. In France, retail ex PSTN is up 0.6% as expected, and was offset by anticipated decline in wholesale. Orange Business is still impacted by portfolio pruning and by the difficult IT market and French macro environment. On efficiency, we have delivered strong results and achieved our 3 years net saving target of EUR 600 million. This success has been driven by strong operational efficiency leading to a solid improvement in the EBITDAaL margin of close to 1 point in 2025. Regarding our procurement initiative, we are well on track to meet our midterm target of EUR 700 million, and we exceeded EUR 300 million of value created, thanks to AI in 2025. This sets the stage for the next phase of efficiency, which we will present tomorrow at our Capital Market Day. Moving to EBITDAaL, growth reached 3.8% for this year, strong result, which is driven by outstanding double-digit performance from Africa and Middle East, a continued solid growth in Europe and a positive EBITDAaL momentum in France. Finally, Orange Business continued its EBITDAaL improvement trend despite current macroeconomic headwinds. Turning to net income. '25 net income is driven by EBITDAaL step-up, offset by tax and by 3 main exceptional items: the booking of a provision related to the Senior Part-Time for EUR 1.2 billion net of tax, the impairment of Orange Business activities for around EUR 330 million, driven by market evolution, and the start of depreciation of the copper dismantling asset booked in 2025 for around EUR 370 million. Related to copper in France, 2025 marked the beginning of the [ industrial ] phase of copper shutdown, in line with the decommission plan announced in 2022. As part of this process, we have recognized, as per IFRS standard, a provision of EUR 1.7 billion in '25, representing the best estimate of the dismantling cost. This provision will be reversed as real cost occur. In symmetry to this provision, a dismantling asset of EUR 1.7 billion has been recorded and will be amortized on a roughly linear basis until 2030. In parallel, to ease the analysis of our underlying performance, we introduced new indicators, including -- excluding specific elements, the adjusted net income and adjusted earnings per share. Altogether, the adjusted net income amounts to EUR 3.1 billion in '25, considering around EUR 1.95 billion of adjustment mainly driven by the 3 exceptional items of '25 that I just described. Let's move to CapEx. We maintained our disciplined policy with 15% eCapEx to sales ratio. We pursued our investment in Africa and Middle East to support our strong revenue and decrease CapEx in all segments. Excluding Africa and Middle East, our group eCapEx decreased by more than 3% year-over-year. On organic cash flow, the organic cash flow is up EUR 280 million, reaching EUR 3.7 billion, well in line with our guidance of at least EUR 3.6 billion. This strong growth is mainly driven by EBITDAaL increase. Free cash flow all-in reached EUR 2.8 billion, with a slight decline year-on-year due to the expected phasing telco license payment between '24 and '25. Net debt is stable and stands at 1.8x EBITDAaL, in line with our guidance of around 2x. We are very proud to have successfully issued 2 Jumbo bonds at the end of '25 and early '26, amounting to EUR 5 billion and $6 billion, both of them massively oversubscribed. This achievement secures the upcoming refinancing of MASORANGE debt and demonstrate the strength and attractiveness of our group on the debt market. Moving to the business review and starting with France. The competitive environment remains generally stable with sustained competition on the low end. In this context, we are laser-focused on our efficient commercial strategy grounded in segmentation, strong customer loyalty and value. This approach has driven robust commercial performance this year. This quarter, we maintained positive momentum with 134,000 mobile net adds, 315,000 on fiber and record since the last quarter's 2022 and 25,000 on convergence. This performance is fueled by positive result on both Orange and Sosh brands and effective churn management with mobile churn reducing by more than 2 points year-on-year. Convergent ARPU at close to EUR 79 continue to grow and is up 1.2% year-on-year in Q4, while mobile and fixed broadband ARPU declined year-on-year, reflecting the mix effect and our strategy to attract customers in all segments and then upsell and cross-sell. Overall, we continue to demonstrate our leadership and innovation in France. We are, once again, recognized by Arcep as the best customer service and for the 15 consecutive time as the best mobile network. We also have launched an innovative direct-to-device satellite SMS offering and successfully tested next-generation GPON fiber technology. Moving to the financials. Our efficient commercial strategy led to a 0.6% growth in retail ex PSTN revenues in '25 and 0.5% in Q4, as expected, outperforming all the players of the market in a challenging environment. As anticipated, revenues remain impacted by the structural decline in wholesale. In Q4, this decline was offset by slightly more cofinancing received this quarter. 2025 also marks the beginning of the technical closure of copper with more than 200,000 premises completion. The robust improvement in EBITDAaL trend in '25 and operating cash flow growth is driven by rigorous cost management with a significant 4% OpEx reduction over the year. This translates into a 1.1 point EBITDAaL margin improvement and an increase of close to 3% of EBITDAaL minus CapEx. Turning to Africa and Middle East, which continues to deliver a very strong performance, demonstrating once again our positive momentum. Revenues are up double digits for the 11th consecutive quarters, driven by our 4 key drivers. Thanks to revenue growth and strict cost control, we delivered double-digit EBITDAaL growth in 2025 for the sixth consecutive year, raising the bar of EBITDAaL margin to above 39%, up by 0.6 points. EBITDAaL minus CapEx is up at 17% on the FX comparable basis and 14% on a historical basis, leading to a strong cash generation in [ euro ], our top priority for MEA. Moving on to Europe. Revenues are back to growth, increasing by more than 2% in '25, sustained by services and IT&IS, thanks notably to large deals in Poland and Romania. Services remain strong, fueled by effective volume value strategy, an increase of customer base by around 700,000 customers in 2025. Over the quarter, net adds remain robust, with mobile net adds above 100,000. Convergence revenues are up by 6% over the quarters with net add at 32,000 and growing ARPU, notably in Poland. EBITDAaL reached EUR 2 billion, up 3.2% in 2025, and EBITDAaL minus eCapEx is up by more than 12%. Moving to Orange Business. Revenues are still impacted by last year's portfolio pruning and by the French macroeconomic environment. While the French market remains difficult, international segment of the business is showing clear signs of improvement as reflected by a win ratio of close to 50%. Orange Cyberdefense continued to grow sustainably at 7% in 2025. From a value proposition perspective, our new secure connectivity offer is a significant success with over EUR 240 million in orders this year and nearly 60% customer growth in second half of 2025. With this new modular platform, our clients now have the opportunity to use connectivity as a service, offering self-service, dynamic pricing and AI-driven automation. Together with Orange Cyberdefense, we are driving growth and profitability with our combined offers, leveraging both telco and cyber strengths. We are stepping up as well on our new flagship products such as our trusted AI platform, Live Intelligence. In that context, the EBITDAaL trend at minus 6% year-on-year is improving for the third consecutive year, while not fully at our initial 2025 target. Let's turn to Spain. On a stand-alone basis, MASORANGE fully achieved its 2025 ambition. In particular, the company delivered above the targeted EUR 300 million in cumulative synergies at the end of the year. From a commercial standpoint, we achieved strong net adds in the mobile segment and maintained stable volume in fixed broadband. Revenues are up by 0.7% in the fourth quarter, top line benefiting from strong growth in both B2B and our new business initiative, offsetting the challenging telco retail market. adjusted EBITDA minus recurring net CapEx is up 10%, in line with our 2025 outlook. Finally, proceeds from the FiberCo transaction resulted in a significant deleverage with a net debt to adjusted EBITDA now at 3.6x from 4.5x at the end of 2024. Moving to a word on PremiumFiber. We are very pleased to have successfully completed this NetCo transaction closing at the end of the year, maximizing the value of the largest fiber network in Spain. Going forward, the impact of the rental fees to access fiber premium network will be broadly cash neutral, thanks to the reduction in interest costs driven by the strong deleveraging. With this, I hand over back the floor to Christel for the conclusion. Christel Heydemann: Thank you, Laurent. We are proud of these strong 2025 results and the achievements over the past 3 years. They provide a solid foundation for our next plan, which will be presented tomorrow. Laurent, Jerome, Yasser, Meini and I are now ready for your questions. Please note that we will only answer questions related to full year '25 results. All forward-looking questions will be addressed tomorrow. Operator: [Operator Instructions] Our first question today comes from Akhil Dattani from JPMorgan. Akhil Dattani: Christel, firstly, one for you, if I can. You mentioned in your opening remarks that you started due diligence on SFR with the consortium in January. You may have seen the press reports that have come out in the last few weeks suggesting that due diligence has been closed and that there's a chance of potentially quite a fast deal close. Now I'm sure you weren't able to comment too specifically, but can you sort of give us a bit of color on exactly what's been going on? And if, high level, there is anything within that, that is -- you can help us with to better understand what's going on? And then the second one was on MASORANGE. I saw helpfully on Slide 32, you've given us pro forma financials for the asset. I just wanted to better understand a little bit what you've given us? And what I'm trying to understand is, firstly, the EBITDA impact from PremiumFiber EUR 350 million is a bit higher than I thought. If you could maybe just help us understand what's in that just so we understand if that's a reasonable starting point for going forward? And I was always -- also interested to see that there's no CapEx that moves to PremiumFiber, so maybe you can help us understand why that is? Christel Heydemann: Thanks, Akhil. So on SFR, as we communicated a few weeks back, we have started due diligence work early January. And to be fair, those discussions and due diligence and exchanges are still continuing. So I was not the source of the press report that you saw, but clearly, the legal and financial terms of the transaction have not yet been agreed upon, and we are still discussing and working on due diligence. So nothing has been concluded. And as we said, it's still too early to say whether or not we will be able to reach an agreement. On the MASORANGE pro forma number, Laurent? Laurent Martinez: Yes. Akhil, so EUR 350 million is a good proxy in terms of indeed lease costs moving forward. And of course, there will be a CPI inflation on top of it over time, obviously. So that's a good benchmark. And in terms of CapEx, Meini, maybe you can say a word, but there is very few CapEx attached to the impact of this. Meinrad Spenger: So this year is basically no CapEx assigned to PremiumFiber. And in general, the CapEx intensity for MASORANGE is very low. Operator: Our next question is from Stephane Beyazian from ODDO. Stéphane Beyazian: Can I ask you if you can comment on the competitive environment in France. We've seen a little bit more pressure on your non-convergent ARPUs in Q4 and in the past few days, or perhaps today, we've seen also one offer a bit more aggressive from one of your competitor in the fixed market. So I was just curious if there's anything you could comment overall on the competitive environment, especially for perhaps the first quarter, perhaps the market is a bit more softer than in the past. And my second question is regarding to capital expenditures. It's interesting to see that it was down in the second half of 2025 in Europe at business services and in carrier services. Without obviously telling too much on what you will be saying tomorrow, but I was just curious if there was anything to mention specifically for the second half? Or you believe that this is part of the savings that you're doing and potentially that could continue in the future? Christel Heydemann: Thank you, Stephane. So on the French market, and I will start and then Jerome can comment further. But generally speaking, as we said, the low end of the market, be it broadband or mobile, remains competitive. We have not seen an increase. Actually Q1 is, as usual, a bit less intense in terms of promotion than the Q4 and the end of year season. But we have not seen, I would say, a drastic change from the overall environment, which remains competitive on the low end. And when it comes to our ARPU's evolution, as we've said, there is nothing that wasn't planned. And this is the evolution of the mix, and because we play on the volume and value, and we acquire customer, including low-end price customers, but then our strategy is to upsell them. Mechanically, we are feeding the growth also through convergence, and you see the continued growth of our convergent ARPU, but we see a small impact on the ARPU evolution in mobile only and broadband only. Convergent remains the bedrock of our growth strategy, and that's 31% of our total revenue and very important. Jerome, if you want to... Jerome Henique: Thank you, Christel. I think you said it all. It's an overall stable market, still quite aggressive on the low end, but all stable on the high end, particularly on fixed broadband. Of course, we adapt to shield our market share. But as you saw, we had remarkable performance on sales, on commercial performance during the quarter. And about the ARPU, I think it's worth saying that for fixed broadband, it's stable quarter-over-quarter. So we mentioned last quarter the decrease year-over-year, but on a quarter-over-quarter basis, Q4 versus Q3, we remain stable. And as Laurent mentioned, we use of course entry-level pricing for fixed broadband and mobile to attract customers. And then we upsell them on higher packages and particularly on convergence, and this is why you see more value uplift on convergence and an increase in the convergence ARPU. Christel Heydemann: On the question CapEx, Laurent, if you want to -- H2 CapEx trend? Laurent Martinez: Yes. So of course, we continue to optimize our CapEx evolution, and you spotted the one in Europe. So we continue to optimize this. Of course, we'll come back to you with more depth on that tomorrow in terms of forward-looking statements. But you see, of course, in H2, the first perspective of our CapEx optimization. Stéphane Beyazian: And specifically at Orange Business Services, was there a decision in order to protect the free cash flow generation, strategic decision to stop investing, I mean I exaggerate, obviously, but a strategic decision there? Laurent Martinez: No, no, no strategic decision, Stephane. This is more a phasing of our CapEx projects. Some of them are customer related. So it's purely phasing. Operator: Our next question is from Roshan Ranjit from Deutsche Bank. Roshan Ranjit: I've got 2 questions, please. And perhaps just sticking with the French KPIs. I guess for the last 12 months, we've been talking about slowing overall market volumes, yet this quarter, as we saw, I think, in Q1, Q2, you had taken market share. And in particular, the record fiber ads, I think, since the end of Q4 '22. So can you tell us what's happening there, particularly on the fiber side given the mature end market? Has there been a change in strategy? What is driving the customers to kind of take fiber now versus 12 months ago? And secondly, thank you for providing the net income bridge on Slide 11. One question just around the copper decommissioning component. Should we expect that to continue for the next few years? And tied to that, when should we start seeing the benefits on the OpEx level from those lower costs from switch off the copper network? Christel Heydemann: Thank you, Roshan. On the French KPIs, I think Jerome can provide you more details, but that's really long-term work that we've done on our quality of operation, on the shortening the timing between a customer signs up for broadband and then can be can be connected, and a lot of work focusing as well on, of course, the copper decommissioning that's also feeding broadband growth. But I'm sure, Jerome, you have a lot more details on that. Jerome Henique: Yes, maybe just a thing that our sales machine is working particularly well as you underlined and with a very strong adds momentum during Q4 in all segments, convergence, fixed broadband with very strong performance on fiber and mobile as well. Mobile net adds are comparable to Q3. Of course, we are protecting value while making sure that we are attracting new customers and having a strong market share on gross adds. And as Christel said, this is the result of, let's say, long-term work on our commercial channel, sales channels, [indiscernible] shops, but as well digital and all channels. And this is the result as well of, I think, very positive image in the market of Orange as the best operator in terms of quality of service recognized by Arcep as mentioned by Laurent. And we know that those days customers are looking for price, but they are looking as well for quality. And this is a clear differentiation for us, which translates into the best NPS in the market as well as different awards and recognition from the regulator. Christel Heydemann: Thank you, Jerome. On copper decommissioning, of course, I mean, this program was launched a few years back and it's going to last until 2030. So for all forward-looking OpEx reduction and efficiency impact, of course, we will discuss it tomorrow. But on the closing of 2025 and the provision, Laurent? Laurent Martinez: Yes. So Roshan, just to clarify, so we have booked EUR 1.7 billion into our assets, which will be depreciated over time up to 2030, so around EUR 360 million in '25, and you should expect something roughly linear until end of 2030, which will be impacting our net income. Operator: [Operator Instructions] Our next question comes from Josh Mills, BNP Paribas. Joshua Mills: Two from my side. So Firstly, on the French service revenues ex PSTN, we saw a bit of an improvement in Q4 versus Q3. I just wanted to check, are there any one-offs there regarding current investment, fiber payments, anything else we should be aware of? Because given the commentary last quarter on the commercial trends and the ARPU declines, we're seeing this quarter, it seems to be surprising that service revenues have picked up in the fourth quarter? And then secondly, perhaps a question for Meini on the MASORANGE business. So it looks from my tracker at least, like we saw a bit of a deterioration in retail service revenues this quarter and EBITDA on a year-on-year basis is down 17%. Now I know EBITDA in MASORANGE has been very volatile over the year, but are there any drivers within that minus 17% year-on-year quarterly EBITDA decline? And in particular, does that include the 1 month of fiber copayments, which I think you've highlighted in the slides as well? So France and Spain would be my questions. Christel Heydemann: Thank you, Josh. So on the retail French services performance in Q4, we continued to have a positive growth this trimester, of course, excluding PSTN, and this is driven by good volumes and our convergent ARPU growth and our efficient commercial strategy. Back to your question, there is no one-off explaining this performance. And as you know, we were guiding when we had our H1 and Q3 results, we were saying that the environment would be flat to small positive for retail services revenue, and that's what we see for the full H2. So very consistent and in the end, it's the outcome of our efficient commercial strategy. On MASORANGE, Meini? Meinrad Spenger: Yes. Thank you, Joshua. First of all, overall, the big picture, we are growing around 3% in revenues and around 10% in operating cash flow. So it's a very positive result for us. Regarding Q4, we don't see a negative trend. We see some, let's say, special seasonality effects, both in revenues as well as in EBITDA. In terms of revenues, we have seasonality in Enterprise Solutions and in wholesale, and wholesale, by the way, low-margin business because it's international carrier services related. In Retail Services, as you can see, we have a stable FMC ARPU, which is positive in a very challenging environment. However, we have some negative effects on mobile and fixed-only ARPU. However, we have 84% of our client base in convergency, so it only affects a minor part of our client base. In terms of EBITDA, again, we compare to a very strong Q4 '24. And that was particularly strong because of some seasonality effects because of accounting effects. In Q4, we reversed an excess provision recorded in previous quarters related to content costs. We have been especially prudent regarding the football soccer rights, which are quite expensive in Spain. And we have done the reversal of this provision in Q4 last year. And then very important, we are doing and reinvest -- we are doing an incremental investment in our growth areas in B2B and the new businesses where we have short term some negative effects, but we believe mid- and long term, it's the right thing to do. Operator: Our last question this evening comes from Ondrej Cabejsek from UBS. Ondrej Cabejšek: Two questions for me, please. Just one following up on the question around M&A. My question, Christel, is, basically, we've seen a lot of conflicting messaging from various stakeholders. I believe, for example, the French government seems to be supportive in the situation, the European Council seems to be support -- in support of M&A, even the head of the commission seems to be in support of M&A, but then we've seen other very important stakeholders such as the DG Comp or the mission responsible for consolidation put out less encouraging messages. So I guess what is your view of the situation more broadly? That's question Number 1. And the question Number 2 is basically on the Spanish situation where once the deal is closed, as you're saying, sometime around 2Q, how fast do you think you will be able to refinance the debt back to like an investment grade and thus add to the free cash flow potential of this unit? Christel Heydemann: Thank you, Ondrej. On the M&A and conflicting or sometime different messages from different stakeholders, let's be, I mean, very clear. First of all, I mean, we've been advocating for how important that is to just realize in Europe that we cannot continue with so many fragmented markets and so much competition when the rest of the world is actually acting differently. It's not just me talking. You've seen the Mario Draghi Report, the Enrico Letta Report, And this is something where I think there is a clear awareness politically. And that's true from the Brussels, I would say, leaders, that's also true from country leaders. And if I step back to where we were when we were negotiating on the MASMOVIL-Orange merger, we had a strong support from the Spanish government. We also had support politically, I would say, from Brussels. Despite that, we had to go through a long and probably too long, but still concluded positively and got the approval from DG Competition. So our take on this one is there is definitely awareness. We're hear supporting messages from political leaders. That being said, we will not wait, let's be clear, and that's why we are actively discussing in France. We've been driving consolidation as well in Belgium, in Romania. We are not waiting for, let's say, merger guidelines to be fully revisited. And we are of the opinion that concrete test cases will be the best way to prove our case that mergers, national consolidation creates efficiency and efficiency is the best way to continue to invest and it's the best way to secure, in the long run, low prices for consumers. So that's something that we are very much convinced about, and we see that based on facts after the merger of MASMOVIL and Orange in Spain. So I think we are confident, but again, you cannot expect DG competition, and I would say experts who have been working one way to change from one day to another. So it's based -- it has to be based on concrete facts. And that's our opinion. On the MASORANGE strategy, I would say, on the refinancing, Laurent? Laurent Martinez: Yes. Ondrej, so to make it simple, just to have the high-level picture, we have EUR 9.4 billion of debt at MASORANGE, plus around EUR 4.2 billion of the price to Lorca. So we are talking about around EUR 13 billion. But as I explained, we have issued in advance 2 Jumbo bonds for EUR 10 billion end of '25, early '26. So you see a very large majority of this refinancing is feasible at closing, and we'll be doing that at closing. We have as well a strong liquidity on our side to get to where we want to be overall. Just to take a note that this refinancing will yield interest savings for MASORANGE. And this will offset nicely the lease that we discussed in your question, the question #1, for the PremiumFiber. So that will be a good synergies that we'll be implementing post closing of MASORANGE. Ondrej Cabejšek: In other words -- can I just follow-up that. In other words, you see no kind of obstacle to the full ERU 13 billion roughly being refinanced almost immediately because you've secured some financing already, but the rest, you think, will not be a problem in terms of any -- okay. Laurent Martinez: Yes. We have EUR 10 billion out of EUR 13 billion plus extra liquidity we have. And then we will have the flexibility until closing either to keep a bit of -- a small bit of the current MASORANGE financing or basically to have other solutions. But globally, the financing is secured and completed. Operator: That concludes the Q&A with financial analysts. Journalists, as a reminder, please stay connected. Your session will start shortly. I will now hand it back over to Christel Heydemann for any concluding remarks. Christel Heydemann: Thank you. We are pleased with our full year results, strong full year results and lead the future achievements, which position us very well to meet upcoming challenges and seize new opportunities in our markets. Thank you, and I look forward to seeing you tomorrow at 9 a.m. for our Capital Markets Day.
Operator: Thank you for standing by. My name is Jordan, and I will be your conference operator today. At this time, I would like to welcome everyone to Ternium S.A. Fourth Quarter 2025 Results Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star, followed by the number one, on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Sebastián Martí. Please go ahead. Sebastián Martí: Good morning, and thank you for joining us. My name is Sebastián Martí, and I am Ternium S.A.'s Global IR Compliance Senior Director. This morning, we released our results for the fourth quarter and full year 2025. Today’s call is intended to add context to that presentation. Joining me today are Maximo Vedoya, our Chief Executive Officer, and Pablo Daniel Brizzio, the company’s Chief Financial Officer, who will review Ternium S.A.'s operating environment and performance. Following our prepared remarks, we will open up the floor to your questions. Before we begin, I would like to remind you that this conference call contains forward-looking information and that actual results may vary from those expressed or implied. Factors that could affect results are contained in our filings with the Securities and Exchange Commission, and on page two in today’s webcast presentation. You will also find any references to non-IFRS financial measures reconciled to the most directly comparable IFRS measures in the press release issued today. With that, I will now turn the call over to Maximo Vedoya. Maximo Vedoya: Thank you, Sebastián, and good morning, everyone. We appreciate you being here today in our conference call. Can you deliver resilient results in 2025, overcoming challenging market conditions by adapting rapidly and acting roughly to protect profitability. The company's cost reduction and efficiency program generated $250,000,000 in savings in 2025 over 2024. Key initiatives included enhancing blast furnace stability, negotiating service contracts, optimizing iron ore sourcing, and improving logistics. As a result, our EBITDA margin reached 10%. Our performance, however, was affected by a fatal accident at Turnure Mexico in 2025 and another at Ternium Brazil during this quarter. Usiminas also experienced a fatality in 2025. We take safety extremely seriously and consider these events a significant setback. Such outcomes are unacceptable prompting us to reinforce our safety programs. In response, we are ramping up preventive actions with a special focus on critical risk. Let me now review the latest changes in the global trade environment. The United States took significant trade measures in 2025. To counter unfair trade practices from China and other Asian countries. And this is reshaping the global steel market. As other countries around the world are following a similar path. In Mexico, the government recently raised import Maximo Vedoya: tariffs Maximo Vedoya: more than 1,400 tariff lines for countries without a free trade agreement. In the case of steel, import tariffs increased from 25 to 35%. Meanwhile, negotiations surrounding the North American region trade framework are ongoing. Many stakeholders from both sides of the border continue to engage in discussions. We have taken an active role in sharing the concerns and priorities of the manufacturing industry throughout this process. I see broad support for public policies that promote greater regional integrations. The aim is to keep trade fair addressing balance, avoid transshipment, and reinforce rule of origins. It is important to mention that an agreement to intensify trade flows should evolve restrictions on intra regional trade. Like those based on section two three two. As a USMCA, joint review take place removing restriction to trade among its member will be essential to ensuring the benefit of deeper integration. Ternium is also doing its part in this process of greater regional integrations. Since our arrival in Mexico over twenty years ago, we have significantly expanded our footprint in the country, investing in state of the art technology to offer a wider range of high value added products to our customers in the region’s manufacturing industry. In this line, I am pleased to share some exciting news. rolling mill We have started production in our new cold and also in our galvanized line at the Pesqueria facility. This achievement completes our downstream expansion at the site made possible by outstanding teamwork. The entire project also added a picking line and a finishing line center. All these facilities are now operational with the cold rolling and the galvanized lines starting the ramp up phase. Meanwhile, construction of the slab plant is moving ahead as plant. As we expect to start up the facility by the end of the year. This new plant will allow us to produce high quality automotive steel with a lower c o two emission per ton in the industry. Adding a touch of color, in 2025, we secure a 1 and a quarter billion dollar loan through a green financing facility to support this project. The loan received several awards last quarter, including IFR's Sustainable Loan of the Year, the GBM awards sustainable loan deal of the year in Latin America and Caribbean, and honorable mention from Latin finance. Coming to Brazil, the recent implementation of anti dumping measures and the increase in import taxes of nine steel products represent a significant shift the market environment. These decisive action signal a stronger government commitment to support local producers and achieve a balanced competitive Maximo Vedoya: landscape. Maximo Vedoya: Looking ahead, will be key to monitor the market closely to prevent attempts to circumvent these measures, ensuring that these new continue to support fair competition. In Argentina, growing concerns have emerged regarding unfair trade practice from China. In this situation, the new trade agreement between Argentina and The United States is important because both countries have agreed to work together to address unfair trade policies from other nations. While we believe Argentina should further integrate with the global economy, it is crucial to approach this process with cautions, particularly in view of China's excess production capacity and predatory trade tactics. Samiva, I am optimistic about Tarmium's outlook for the coming years. I expect Ternium I expect Ternium's profitability improve in 2026, starting from the first quarter. On one hand, we will continue working on reducing costs and enhancing operational efficiency. On the other, although there are still several important trade issues to be worked out, I am encouraged by the growing support of market economy governments around the world for addressing unfair trade practices. A discussion between The United States and Mexico Advance, I am confident that a mutually beneficial agreement will be reached as a world structure agreement is good for all parties involved. Mexico has demonstrated its commitment to reinforce regional defenses against unfair trade practices and encouraging investment within the region. Align strategy with that of The United States in ongoing negotiations. In addition, promising changes in Brazil steel market environment and advancing economic reform in Argentina give us give us hope for the future in South America. In this context, we have reached an important milestone in the largest industrial expansion in our company's history. Together, these developments will put us in a unique positions as they will help create a stronger foundation for growth across the region. Thank you all for your attention. And before I hand it over to Pablo, let me thank especially our colleagues in in Brazil all the analysts there who made it join us during the Carnival season. So I hope you have a very good holiday. So, Pablo, please go ahead. Thanks, Maximo. Thanks, everybody, for being today with us. In in this conference call. So let me begin with a review of our operational and financial performance. If we move to the page three in the webcast presentation, you you can see that adjusted EBITDA declined slightly sequentially. In the fourth quarter. It was in line with our expectations. EBITDA margin remained relatively stable and there was small seasonal decrease in shipment. As as we move into the 2026, Pablo Daniel Brizzio: we anticipate a sequential higher adjusted EBITDA mainly driven by an increase in EBITDA margin as well as growth our shipments. Let’s move to the next slide. Net income for the fourth quarter totaled $171,000,000 in the fourth quarter, We show a lower operating income mainly impacted by one time charges, mostly related to an impairment in less one of our mining operations in Mexico. On the other hand, we have a better income tax refund. Along with stronger financial results. In the sequential comparison, we have deferred tax write down using in the register in the third quarter. Let’s turn to page five to review the performance of our steel segment. Shipments declined mostly during the quarter. Primarily due to weaker volumes in other markets. Mainly in The US and in Brazil, reflecting seasonally slower activity. This effect were mostly offset by higher volumes in Mexico and in the southern region. In Mexico, we saw better volumes to the commercial market as a result of government measures aimed at curbing unfair trade practices. Looking forward to the first quarter, we anticipate a sequential increase in shipments mainly as a result of the stronger demand in Mexico. Turning to Page six. Steel cash operating income decreased sequentially. Driven by slightly lower sales volume and a decline in realized steel prices. Which was partially offset by reduced raw material purchase lab costs together with efficiency gains. Turning to the next slide, The mining cash operating income increased sequentially, driven by stronger shipments and higher realized iron ore prices partially offset by higher unit cost. We will review our cash performance and balance sheet performance on page eight where we see that in the fourth quarter, we record another solid level of cash generation by operations. Supported by a reduction in working capital primarily driven by a decrease in trade and other receivables. Also, offset by a decrease in trade payables and other liabilities. We are now past the peak of our capital expenditures. Which in the fourth quarter totaled $463,000,000 primarily reflecting continued progress in the construction of new facilities at the Turner Industrial Center in Pesqueria. Mexico. Our net cash position remains stable in the fourth quarter of the year. And we have a neutral free cash flow. In addition, dividend payments to shareholders and minority interest were largely offset by an increase in the value of financial security. Let’s now turn to the final slide to summarize our full year performance. In a challenging year for the steel industry, we were able to defend profitability as we had proactively to mitigate the impact of the drop of steel prices and volumes. And as a result, our EBITDA margin achieved a two digit level. In 2025, cash generated by operation reached strong $2,300,000,000 allowing us to finance demanding CapEx requirement as we completed the downstream project in Pesqueria and keep working on the slab facility. Looking forward, we anticipate a decrease in CapEx in 2026 to a level of around $2,000,000,000. In this context, Therneos was board of directors has proposed an annual dividend of 2.7 per a d dollars per ADS for fiscal year twenty twenty five. Keeping at the same level as for the year 2024. Of this total, we have already anticipated and paid 90¢ as an interim dividend in November. The proposal showed our confidence in the company's prospects even though we are currently undergoing a phase of significant capital expenditure. As the current market price of 10 new NDAs this implies a dividend yield of over 6%. With this, we conclude our prepared remarks. I will now turn the call over to the operator to begin the Q&A session. Thanks. Operator: At this time, I would like to remind everyone, in order to ask a question, press star and one on your telephone keypad. Your first question comes from the line of Rafael Barcellos from Bradesco BBI. Your line is live. Rafael Barcellos: Hello. Good morning, and thanks for taking my questions. So firstly, would like to get a bit more color on your outlook. For the Mexican market. So demand today is still running well below the peak levels we saw a Maximo Vedoya: few years ago. So I am trying to better understand how do you see the recovery path from here. Specifically, I mean, with the recently announced TRC Mexico, I mean, how do you how should we think about the potential impact on demand growth for thousand twenty six? And other than that, I mean, how are you thinking about the likelihood of the timing of a USMCA deal What showing impact if a significant part of this impact could be captured in 2006 or if it is a war story for 2027 and beyond. Could be helpful. And as a second question, turning to Brazil, I would like to get your thoughts on the recently announced anti dumping measures I mean, how do you expect these measures to place into pricing dynamics? Over the past few quarters? Should we think about a relatively quick pass through into domestic prices or is the impact to be a more gradual depending on, inventories and competitive behavior And and if you could even, like, give some color on the magnitude of a potential hikes here. Thanks. Pablo Daniel Brizzio: Thank you, Rafael. Let’s start with the first question. The next Maximo Vedoya: Mexican market and demand. Your quite, right demand is very low. It was very low in Mexico in 2025. Apparent consumption of steel decreased 10% That it is a huge decrease. I have never seen something like that in Mexico. To be honest. And this was even worse if you separate long products and flat products. The the upon consumption in flat products, which is our main market, this was 14% below that of 2024. So this is a huge decrease. Ternium in that Rafael Barcellos: our shipment in Mexico were a little bit Maximo Vedoya: the decrease was smaller because we managed to to gain market share in the flat products. So so it was an important measure. I think in 2026, the the estimation of of Canacero is that the market is gonna grow 4%. But I think all these measures are going to allow the local steel mills to gain more market Rafael Barcellos: share against imports. You have to remember that Maximo Vedoya: in Mexico, there is still a huge amount almost 9,000,000 tons of finished products that are reimported in Mexico. So our target with all these measures is to gain Rafael Barcellos: more market share as we did in 2025, Maximo Vedoya: And although the market is not growing as much Rafael Barcellos: as we expect, gain in our shipment with the market share. Pablo Daniel Brizzio: In 2026, so the timing then the timing in the USMCA it is very difficult at the moment. I mean, Maximo Vedoya: there is a target that is that in July, USMCA should be renewed. I I really do not Rafael Barcellos: know at this moment if that is gonna be achievable. In our projections, we are not seeing a lot of of increase Maximo Vedoya: of the of the timing of the USMCA for 2026. And we are putting that more in the 2027. I mean, of course, Rafael Barcellos: we hope that this is sooner, but we have to expect or we are making our plans Maximo Vedoya: in order that it is a little bit later. Rafael Barcellos: Then Maximo Vedoya: the the the the second question was regarding Brazil. Pablo Daniel Brizzio: And and the dumping measures. Maximo Vedoya: I mean, to give a little more color, I think this is a very important step. If you remember, Rafael Barcellos: have not been Brazil has not been very much advocate in the last years of defending industries again unfair trade policies, the predatory Maximo Vedoya: tactics by by China. But this change with four dumping cases, The the plate one, the the repainting, and and last week, the the cold rolled and the So this is a very important news a very important first step that Brazil joined most of the rest of the economies. I mean, from Europe to India to Mexico to The US, all the countries are are fighting unfair trade from China and from Asia. Impact on prices, I think the impact will be gradual. I do not expect a huge increase in prices because of this. Again, this is a first step But it is gonna be a a more gradual, as you said, impact in in in the future. I think, Rafael, I answered your questions, but I do not know if you you want more clarity. Rafael Barcellos: That is perfect. Thank you. Thanks a lot. Operator: Your next question comes from the line of Carlos de Alba from Morgan Stanley. Your line is live. Carlos de Alba: Good morning, everyone. Thank you very much. Maybe, Maximo, first of all, clarification. You said that Canacero sees demand up 4% or down 4% in 2026? Pablo Daniel Brizzio: Up 4% in 2026. Carlos de Alba: Great. Thank you. Operator: Fantastic. Okay. And then, my my two questions will be first, Pablo Daniel Brizzio: on USMCA. And what would be Maximo Vedoya: in the event that there is not a a renewal of USMCA and and so that Mexico cannot reach a commercial agreement, stand alone with the US. Carlos de Alba: What would be attorney's plan b? Maximo Vedoya: Given that a lot of the particularly on the auto side, Carlos de Alba: you the volumes going to that sector and then Maximo Vedoya: Mexico exports a significant amount of the cards that that that are producing in the country. And and my second question, if you can give us maybe a little bit of an outlook on how do you see earnings volumes performing in 2026? What are the expectations in terms of volume growth, in the different in the different countries where you are or operation where you are Carlos de Alba: actively right now. Maximo Vedoya: Yeah. Can you repeat the first question of the USMCA? Because we Yeah. We did not hear very well. Yeah. Sorry. Just what would be what is Theranos plan b? What would be your strategy if if there is not a renewal of of the trade agreement? And also Mexico does not reach an agreement exclusively with the US. Yeah. I mean, we operate all twenty twenty five with these premises. There is no I mean, on a sense, the USMCA, if it is renewable, the the great benefit is that the section two three two is gonna disappear between Mexico and The US. I do not see a renewal of agreement with the two three two onboard. And and that would be the biggest benefits of the renewal. So in 2025, we operate without it it is a USMCA, but the two three two in in steel derivative and a lot of products Carlos de Alba: made it the way to operate if there is not a renewal. Maximo Vedoya: Again, I think that some of these measures are going to be taken away, although prob if or the the renewal is postponed. So we are operating in this environment, Carlos. Pablo Daniel Brizzio: The Maximo Vedoya: volumes of 2026 Okay. Let me take that one. I am not sure. Pablo Daniel Brizzio: As as you know, as you hear, you know, we are at you know, with Outlook, we are expecting volumes to start increasing already through the first quarter. And in this case, mainly coming from from Mexico. So let let me divide the the the answer to this question into a different market where we are. Because there we have different situation. In in in South America, the first quarter is the seasonally lowest quarter. Of the year. So you are not seeing any any increase during the first part of of of the year, during the first quarter. And the opposite situation is in Mexico where we seasonality is coming at the last part of the fourth quarter. So taking into consideration what Maximo said that expectation is at least an increase of 4% in peak consumption for the year. And the possibility of, further increases in our market share because of the volumes that we will be able to increase and produce with the new facilities. And even even without taking into consideration the the possible outcome of the USMC annualization and the consequences of that, we are positive that that the increase in the Mexican shipments will be above at least the numbers that Maximo mentioned and expectation for for for the for the for the Mexican market. In the case of Argentina or the southern region, you know that volumes were decreased, at the beginning of the 2025 because we were getting out from a big recession in Argentina. So numbers tend to recover volumes tend to recover in the part of the year. So we are expecting to have a positive number coming out in in the second vision. In initiating in the second quarter of the year, not during the first quarter. Differently, the situation in Brazil where we saw volumes, but healthy level during 2025, and going with the increase of the GDP growth of the country. So expectation for Brazil is to keep growing at moderate levels. So volumes will be more related to these changes in the general economy of the country. Operator: Thank you. Pablo Daniel Brizzio: Thank you, Carlos. Operator: Your next question comes from the line of Timna Tanners from Wells Fargo. Your line is live. Timna Tanners: Yeah. Hey. Good morning. I wanna to drill down, if I could, please, on the EBITDA margin in the past, you have guided to a normalized level of 15 to 20%. And in the second quarter call, you had said you expected 15%, the low end by the fourth quarter. I am just wondering, you know, the last two years have been challenging. I I I acknowledge that. But just trying to get a sense of what it takes to get back to that 15 to 20%. Could could we see that in 2026? What, you know, what what are gonna be the puts and takes to to get there again? Thanks. Pablo Daniel Brizzio: Hi, Timna. This is Paulo. How are you? So let me let me try to answer your question, which first of all, you are right. We were expecting further recovery in the last part of last year that at the very end did not materialize because among other things, the the the impact of of certain things are happening in the different markets the the impact on on in Brazil because of of the imports, especially coming from China and the lack of of anti dumping measures at the moment. So depressing prices in the market. The impact on the changes in the new rules of of trade coming from The US that impacted especially industrial sector during the second semester of the year. And the increase of the two three two margin during the year. So that is put a lot of pressure on on margins and and did allow us to to reach the original expectation. In the in the meantime, taking that into consideration, we implemented a cost reduction program that, as Maximo explained, gained more than around $250,000,000 during the year and, clearly, we will continue. Maximo Vedoya: Doing that. So Pablo Daniel Brizzio: the kind of explanation why we were not able to reach the number that we were expecting. I I have probably would not say exactly the same, but we have the chance to reach the number by the end of this year because we we will not reach that number during the first part of the year for sure. Though even we are announcing and and it will allow us very clear on that, that we will increase the margins during during this first part of the year. Because of, increases in prices across the board, of course, that we also have an impact on cost that will be also increased, but we are expecting to have better margins during the first quarter of the year. We will continue to work, as I mentioned, in in further core reduction program to further increase this margin. But a lot will depend on what we have been discussing up to now and Maximo described at length. Which is the consequence or the situation related to the negotiation of February and the impact that is we have. So again, not initially, we will not be able to read the number, We have a chance, and we will work for that to reach the number which is, as you know, our goal. You mentioned between 15 to 20% All I am saying is to try to reach initially 15%. And and and keep you working on that. As you know, the company is always working with that goal and trying to find ways to reduce our cost and to be able to take advantage of the situation that appear in the market. Maximo Vedoya: So, again, Pablo Daniel Brizzio: hopefully, this year, we will do right. Timna Tanners: Okay. Very helpful. If if I could follow-up on that, I saw with interest in the DIO CCIL yesterday. You have the announcement that Mexico is doing a dumping investigation into cold rolled imports. From The US. And I guess it just prompted me to think that you know, is is it enough to to have the trade action so far in Mexico and Brazil especially when you have 50% tariffs in The US, but also the 50% coming in steel action plan in in Europe. And the CBAM, of course, already implemented. So even if the, you know, Mexico and Brazil started some actions, the rest of the world is taking even more aggressive actions. So I am just wondering if you think these are enough to move the needle, as much as as as necessary to to reach those goals you have just enumerated. Maximo Vedoya: Thank you, Steven. Hello. How are you? You made a very good point. I think all the things that you are saying are very positive. I mean, again, I think that, as I said before, Brazil this is a very good first step. As you say, The US, Canada, even Mexico, Europe, are much more ahead in this trade measures against unfair trade. Than than Brazil. But it changed a lot from last quarter to this one. All these change of mood in in Brazil. And Mexico the the dumping case against the cold rolled, it is it is not only from The US. US, Malaysia, and China. Remember? And and I think, again, we will continue Pablo Daniel Brizzio: presenting dumping cases if we see Maximo Vedoya: that they were pursuing. In the in this case, we think it is, and the Mexican government accept the petition to open it. So they they see some merit or they see merit in this investigation. But Mexico is also going continue probably with some measures to not duplicate by but trying to be similar to The US market. Maximo Vedoya: And so all these measures are are counting, and I think Maximo Vedoya: more are coming. So you are right. They are not sufficient, but they are in the right path. Timna Tanners: Okay. Great. Thank you. Pablo Daniel Brizzio: You are welcome. Operator: Your next question comes from the line of John Brandt from HSBC. Your line is live. Hey, good morning, guys. Thanks for taking my question. John Brandt: First wanted to ask about CapEx. I know you said $2,000,000,000 for 2026. Presumably, that continues to fall as we go into 2027 and 2028. So I am I am hoping you can give us a little bit of guidance as to what those numbers might might be or what a normalized CapEx number might be as the major CapEx is rolling off and the projects are are completed. And then, you know, what then does that mean for, you know, the additional free cash flow that you have? Right? I mean, you you painted a good picture of increasing demand, increasing prices, improving profitability, falling CapEx means there is some free cash flow. So I am wondering about capital allocation, if we should see your net cash position has also fallen over the years as these CapEx has ramped up. Should we expect the net cash position to rise? Or are there other alternatives for this cash? And I guess my second question is kind of related to that Now that you have sort of completed the acquisition of Nippon stake and Usiminas, is there any sort of additional consideration about potentially taking out the minorities in Usiminas Have you analyzed what sort of benefits or cost savings you would have if if you own that a 100% Anything you could tell us there would be great. Thanks. Maximo Vedoya: Thank you, John. Good morning. CapEx, Pablo Daniel Brizzio: CapEx as you said, 2,000 this year would be around 2,000,000,000. Maximo Vedoya: 2027 will be around 1,200,000,000.0, so it is decreasing. And then in 2028, we do not have an exact number, but it is gonna be around 800. Million, the CapEx. That is a regular CapEx This is including Usiminas. So you are right. The capital allocation for Pablo Daniel Brizzio: probably the 2027 We are gonna have a different view. Today, 2026, Maximo Vedoya: we still are are going to have a a huge CapEx, and probably we have to increase, our working capital. Because the last three week three quarters, we have a decrease in capital. So I do not know if I do not think it is gonna change lot, but I do not know if you want to add something, Pablo, to that. Yes. Okay. Hi, John. How are you? Pablo Daniel Brizzio: Let me add a little bit into that because 2256 for for sure will be a year in which we will be using cash and capital because if you add up the $2,000,000,000 in CapEx, The dividend that we are paying and the the amount that we, as you mentioned, already paid for the shares of of Usiminas from from Nippon. So these these add up more than or close to $3,000,000,000 and and and most probably the the cash generation that we were describing will be in in with this year or even higher, but also take into consideration that we will reverse the reduction working capital and probably we will need to allocate certain certain cash over there. So for sure, we will be reducing our net cash position that we end up at the 2025 with $700,000,000 of net net cash. This will be reversed Maximo Vedoya: So we will move Pablo Daniel Brizzio: to a net debt position but again, at very low levels. And then move to 2027, as Maximo mentioned, we will be reducing our CapEx. We will be we will we will not know yet the how the outlook for the working capital will be will continue with the payment. So probably, we will be able to regenerate a little bit the the the or reduce the net debt position at this moment. But we are not seeing significant changes in in our capital allocation at the moment. We will continue the CapEx. We will continue with the dividend. And we already made an investment in in the case of of. So, clearly, 2026 will be a year to use and probably 2027 will be a year to recover a little bit of cash. But, Martin, I think that you have a well, there was a different part of the question from from John. Yeah. Then the the the Nippon and Maximo Vedoya: and the minority shares of Usiminas Today, we are not considering launching a tender offer or buying share the the the rest of the shares of of convenience. To be clear. But, you know, Brazil for us, Fortunium is a very important market. We have already a significant footprint in in country with our stake in Usiminas, with our operation in Tamil Brazil, in in Rio De Janeiro, also know we have a a huge commitment to the community investing $45,000,000 in the new technical school for the community of of Santa Cruz near our plant in Rio De Janeiro. Pablo Daniel Brizzio: So we will continue looking to to further opportunities Maximo Vedoya: As I said, we do not have any plans today. Of doing anything, but we are continuously looking for for new opportunities to grow. I hope, John, I answered the question there. John Brandt: That is great. Thanks, Maxwell. Pablo Daniel Brizzio: You are welcome. Operator: As a reminder, if you would like to ask a question, simply press star followed by the number one on your telephone keypad. Your next question comes from the line of Henrique Marquez from Goldman Sachs. Your line is live. Henrique Marquez: Hi, everyone. Thanks for taking my question. Just wanted to get more details on the upstream project in Piscataea. Think that is in the end increasing volumes. Relies a lot on on the market situation. But do you think there is room for higher Maximo Vedoya: steel volumes when you finish the project? And Henrique Marquez: also, if you could share more details on how much you expect to save in terms of cost, with your own slide production versus third party purchase, that would also be great. Thank you. Maximo Vedoya: Yeah. Remember, the the Pesqueria project, we have the the upstream project was always focused for the automotive industry. As you remember, when the USMCA was negotiate, was a clause for 2027 where most of the automotive industry has to have melt and pour for gaining origin. So this project Pablo Daniel Brizzio: is going through that. Maximo Vedoya: Probably, it is gonna allow us to sell even more volume to the automotive industry that we are selling today We have a footprint of around 2,000,000 tons for the automotive industry. And probably with this project, we will be able to sell much more. These 2,000,000 tons today comes from slabs that we make in in Brazil, and we shipped to Pesqueria for the hot roll, cold roll, and galvanize. So we are changing that and probably will allow us to replace more volume from Japan, from Korea, from other region, from even Europe that are selling in Mexico. So it is not a a a safe cost. Then again, we have more capacity today of hot rolled. So if the market improve, we will be able to serve other different sectors with our spare capacity that we have today in Mexico. John Brandt: I I hope, Enrique, this was clear or Pablo Daniel Brizzio: if you want more Henrique Marquez: more on this. Maximo Vedoya: Yeah. No. Just sorry. I I think I I just wanted to Henrique Marquez: better understand, like, Caio Greiner: when you produce in these labs in Mexico, like, how much of that connection, like, save you in terms of cost, in terms of logistics, Just to to try to better understand the I know it is the motive of of the project is is also strategic, but just to try to get, like, the benefits from the from the production project. Apart from increasing volumes in the in the outdoor in the outdoor industry. Pablo Daniel Brizzio: Hi, everybody. This is Paulo. Let me try to add a little bit to them. As as I was explaining, we are, substituting slabs that we are bringing from some other places or even from Brazil or the ones that we will produce. So there, you will gain part of the margin because you will move from from buying to produce. Which is already an important saving, then this will be a very efficient and sophisticated facility And and and, also, the this will allow us to produce products that we were not able to produce before with our own with our own facility. So that will also add savings in logistics, savings in in the way we produce, and also we will have we will give out the possibility. Of course, probably this will take a a little longer. To be realized the possibility to increase volumes of sales because we have a higher capacity of the one that we are utilizing today for the auto sector. And if the market continues to grow as we expect, after a good negotiation with USMCA, this could allow us further increase volume. So all in all, it is it is a key project for for Ternium. For for many different reasons. And among that reasons is because of the savings and the reduced cost that we were able to take from from that process. Caio Greiner: Right. Thank you. Henrique Marquez: You are welcome. Operator: Your final question comes from the line of Caio Greiner from UBS. Your line is live. Caio Greiner: Hello. Good morning. Thank you, everyone. Two follow ups from me. The the first one on on to Timna’s question. I wanted to understand what do you guys see in terms of margin potential for Turing that does not rely on on The US removing or lowering section two three two. So what what level of so how how much more do you see EBITDA margin rising over the next couple of quarters? Again, assuming that Section two thirty two is not withdrawn or is not lowered, by The US. And the second question, also a follow-up to to John’s question on on capital allocation. So thank you guys for the visibility that you provided for for 2026 and 2027. That is that is really helpful. But I think, it would be interesting to hear your, your thoughts for Ternium post 2027. So we still have a a hard time understanding what the company, looks like, in the next five years, in the next ten years. And what are management’s priorities? And we do know that in the batch, you have talked about corporate simplification, especially with focus on Argentina. Again, John has asked specifically about the Ximena’s minority stake Also, I wanted to know if any of these again, are your priorities or you could have other priorities going forward being that growing through M and A, being that doing working on other projects in Mexico, organic projects and, or it is all of this is still or or if management management still has little visibility on all of this provided that that we still do not have visibility on the USMCA agreement and so on. Be I would be keen to hear your talk on this. Thank you. Pablo Daniel Brizzio: Thank you, Caio. Did you take the first one, Pablo? I will the first one. Relationship to emergency. After a good negotiation of the SNCA for for first of all, Cairo, thanks for the question. First of all, the as already was mentioned during one of of the answers, the the real impact of a good negotiation of recent 2027. So if that is the case, there should be an adjustment on pricing environment in the North American market where there needs to be a reaction of the impact of the tariff and this will help help using that one and increasing margins for for premium with of course, we never know where this will end up being. And, also, if that is the case, there should be an and this is not merging, but this is volumes and increasing volume that will help us numbers of of of of forward. Again, there is still a lot of of discussion, negotiations to be take that needs to take place. And and that is is something that we will see during this year. There is uncertainty the timing on the agreement. There is uncertainty on the expected result. Of that agreement. So we are positive on the outcome, as Maximo explained very clearly. And so we should we are positive on the on the outlook and the possibility of of turning increasing and enhancing margin. And, again, this was part of of the answer, as you mentioned, to to team language we are expecting that margins to increase and to get back to the places or or the place where we used to be in the past. And and regarding the capital allocation, CAIO for the further for the long term, as as you put it, five, ten years, Maximo Vedoya: Simplification is still a goal that we have. And and we always are we are are going to see when is the best moment on when or when it can be done. Caio Greiner: Depending on which part, Maximo Vedoya: But it is always in in in our to do list in a sense. Pablo Daniel Brizzio: I think that we tend to shareholders where so we would always be Maximo Vedoya: a priority in our capital allocation. And I do see further opportunities Caio Greiner: then in the long term or the medium term both in Brazil and Mexico. As you know, Maximo Vedoya: both markets are growing, Caio Greiner: And and and as I said before, Mexico has a huge opportunity of of growing against, imports Maximo Vedoya: and the market our customers have very willingness to to to buy from us. So I think there is still opportunities over there. I think it is too early to to try to to put them on on a paper or make it public, but we are always analyzing these opportunities in time, in Brazil and Mexico. Think, Caio That is great. That answer your question, but Caio Greiner: Yes. That is that is great. So just just maybe two follow ups, if I may. Pablo, I think you mentioned that you see margins recovering towards the normalized range of 15 to 20% And I am just not sure, if if you if you mentioned that that is including, the upside potential from, from US sensing renegotiations or if that is, those factors. My my question was, if, assuming that, that the current environment stays. So it is assuming that nothing changes regarding the USMC agreement, what level, what level of margin, of what level of margin upside do you do you still see that Ternium can reach without without that specifically? Thank you. Pablo Daniel Brizzio: Yeah. Sorry. Sorry. Probably, I did not answer it correctly what you what you were asking for, but my intention was that because we believe, as Maximo said, that the impact of the USMC negotiation is positive as we believe will not be during this year. So this is more for for 2027. So my answer before, our intention for answering that we will work and we will be enhancing our margin that we have, we could have a possibility of reaching the 15% of the lower part of the range that we are looking for was without taking into consideration any impact of of the negotiation. We are already expecting an enhanced on our margins during the first part of the year. Of course, not reaching 15%, and we will continue working. We think there is a chance that possibility for Telion to reach by the end of the year a better margin than the one that we will have during the first part, hopefully reaching that target by the end of the year. Of course. After failing on on the presentation last year, we will be be more conservative and cautious on on making the same one during this year, but the chance exists. Caio Greiner: Understood. Thank you. And since since I am the last question, I will I will I will take the opportunity and and ask another follow-up and, to to Maximo on capital allocation. Maximo so from from your answer, I can understand that that the company is still sees still sees great opportunity for growth at its main markets. So is that gonna be a priority instead of, potentially raising dividends further or creating a dividend policy that could maybe increase the company’s dividend potential going forward or even a buyback program? Thank you very much, guys. Maximo Vedoya: Thank you, Caio. Maximo Vedoya: I think that the the two priorities for us, increase dividends, I mean, returning to shareholders and looking opportunities in our main markets that we know that we can value a lot of profitability or add added to our business growing in those markets. I think they are both. I I do not think at Caio Greiner: as we have discussed in the past, I do not think the share buyback Maximo Vedoya: is something we are gonna do because of Caio Greiner: of how much shares are in the market. But the the other two are one priority. Both are priorities for us. Maximo Vedoya: Caio. Caio Greiner: Thank you very much, guys. Operator: We actually have one more question from John Brandt from HSBC. Your line is live. John Brandt: No. Operator: John, your line is live. John Brandt: Guys. Sorry about that. Thanks for taking my follow-up. Kyle’s question actually got me thinking a little bit. You mentioned there were some opportunities to grow in in the main markets, and that is kinda one of the things you are looking for And I think I know the answer to the question, but I will ask it anyways. CSN have said they are looking for a potential partner or to do something with their their steel assets in in Brazil. I am wondering if is that a potential opportunity for you to grow? Or can you sort of rule out any, say, pot with them? Thanks. Pablo Daniel Brizzio: Thank you, John. Maximo Vedoya: Yeah. We we we heard what what CSN is doing. Its main focus is the cement and and I think the infrastructure assets they have. Regarding the steel, we at this moment, we are not analyzing any of the any thing with CSN. But as I said, before and I said several times, Brazil is important for us. So we are always open to analyze different opportunities if they appear. But at this time, with this CSM, we are not analyzing anything. John Brandt: Okay. Thank you. Pablo Daniel Brizzio: You are welcome, John. Operator: Concludes the question and answer session. I would now like to turn the call back over to Ternium S.A. CEO for closing remarks. Pablo Daniel Brizzio: Okay. Thank you all for joining us today, and please feel free to Maximo Vedoya: share any comment with us. And goodbye. Have a good day. Thank you very much. Operator: That concludes today’s meeting. You may now disconnect.
Operator: Good day, everyone, and welcome to the Verisk Analytics, Inc. Fourth Quarter 2025 Earnings Results Conference Call. This call is being recorded. Currently, all participants are in a listen-only mode. After today's prepared remarks, we will conduct a question-and-answer session where we will limit participants to one question so that we can allow everyone to ask a question. We will have further instructions for you at that time. For opening remarks and introductions, I would like to turn the call over to Head of Investor Relations, Stacey Brodbar. Stacey, please go ahead. Thank you, operator, and good day, everyone. We appreciate you joining us today for a discussion of our fourth quarter 2025 financial results. On the call today are Lee M. Shavel, Verisk Analytics, Inc. president and chief executive officer, and Elizabeth D. Mann, chief financial officer. The earnings release referenced on this call as well as our traditional quarterly earnings presentation and the associated 10-Ks can be found in the Investor section of our website, verisk.com. The earnings release has also been attached to an 8-K that we have furnished to the SEC. A replay of this call will be available for 30 days on our website and by dial-in. As set forth in more detail in today's earnings release, I will remind everyone that today's call may include forward-looking statements about Verisk Analytics, Inc. future performance including those related to our financial guidance. Actual performance could differ materially from what is suggested by our comments today. Information about the factors that could affect future performance is contained in our recent SEC filings. A reconciliation of reported and historic non-GAAP financial measures discussed on this call is provided in our 8-K and today's earnings presentation posted on the Investors section of our website, verisk.com. However, we are not able to provide a reconciliation of projected adjusted EBITDA and adjusted EBITDA margin to the most directly comparable expected GAAP results because of the unreasonable effort and high unpredictability of estimating certain items that are excluded from projected non-GAAP adjusted EBITDA and adjusted EBITDA margin, including, for example, tax consequences, acquisition-related costs, gains and losses from dispositions, and other nonrecurring expenses, the effect of which may be significant. And now I would like to turn the call over to Lee M. Shavel. Thanks, Stacey. Lee M. Shavel: Good morning, and thank you for taking the time to join us this morning. Today, I will provide a broad overview of our fourth quarter and full year 2025 results and portfolio actions as well as our financial and strategic outlook for the year ahead. Elizabeth will give a more detailed view in our financial review. I will also offer recent perspective on our industry engagement including client discussions around current operating environment and developments around the uses of advanced technologies including the evolution of AI. Finally, I will finish with some updates on recent inventions we have introduced into the market to provide some context on how we are leveraging the demand and opportunity. Turning to the results. I am pleased to share that Verisk Analytics, Inc. delivered solid financial results for 2025 marked by organic constant currency revenue growth of 6.6%, organic constant currency adjusted EBITDA growth of 8.5%, and strong free cash flow growth. This growth was in line with the guidance that we provided at the beginning of the year and was achieved despite some temporary headwinds including a year of very low weather activity. The solid financial results in 2025 close out the three-year period with growth at or above the midpoint of the long-term expectations we set at Investor Day in 2023. As we look ahead, we continue to have confidence in delivering against our long-term growth targets based on the ongoing adoption of data and technology across the global insurance industry and our opportunity to support the needs of our clients and address their objectives with our distinct capabilities. Before we turn to the strategic discussion, I want to address the two portfolio actions taken at the end of the fourth quarter. Operator: First, Lee M. Shavel: we made the difficult decision to terminate the definitive agreement to purchase AccuLinks. We had strong conviction that the acquisition could create substantial value for the insurance ecosystem and would drive growth and generate strong returns on capital for Verisk Analytics, Inc. We went to great lengths and made extensive efforts to address FTC requests. That said, following the notice from the FTC that the review would be extended, the opportunity cost of waiting on the sidelines through a long, uncertain, and costly approval process was too high given the rapidly evolving environment. Second, we sold Verisk Marketing Solutions during the quarter. This transaction is a demonstration of our ongoing portfolio management and our commitment to focusing on data analytics and technology solutions for the global insurance industry. Turning to 2026, the insurance industry is healthy, coming off a strong 2025 marked by solid mid-single-digit net written premium growth, and consistently better year-over-year combined ratios, reflecting strong overall profitability. This is positive for the industry's interest and capability to adopt and integrate improved data, analytics, and technology into their businesses, particularly at a time when efficiency, better risk selection, and the adoption and integration of new technologies are top of mind. This is one of the reasons I am so pleased to share that Steve Cotterer has joined Verisk Analytics, Inc. to lead our claims business. Steve brings with him valuable perspective and intensive expertise developed across his three decades of experience working as a consultant at firms including McKinsey, Operator: Bain, Lee M. Shavel: and most recently Parthenon. Steve has focused on advising leading global carriers and brokers on transforming insurance industry workflows using data and technology including AI, and will be instrumental in advancing our client engagement and building on our active partnership with the industry. Turning our attention to client engagement, we are in constant dialogue with our clients covering strategic and technological issues and over the last year, I have been part of many C-suite conversations with chief underwriting officers, chief risk officers, and chief claims officers to discuss their AI strategies and how they would like to work with Verisk Analytics, Inc. in adapting our data, analytics, and connectivity to their evolving needs. There were two common elements in these conversations. One, how can we continue to enhance the critical data that the industry overwhelmingly trusts us to provide and two, how can we help support practical, safe, and regulatorily approved applications of evolving AI technologies with good ROIs. The unique nature of the insurance industry requires a massive amount of specific and representative data in order to ensure rate adequacy, evaluate claims fairly, promote competition and innovation as well as satisfy the needs of regulators. High quality data is critical for accuracy and effectiveness. And Verisk Analytics, Inc. is in a unique position as one of very few providers who currently aggregate data from multiple sources, organize it, and normalize it, in order to glean insights about risk at a granular level and include that in innovative products and services it files on behalf of our clients. In fact, Verisk Analytics, Inc. submits over 2,000 regulatory product filings each year on behalf of our clients and our government relations teams interact with all 50 state regulators on a daily basis. And it is this data quality, breadth, and organization that is essential to effective AI deployment. We already have the data infrastructure in place, and, in many instances, have AI tools built into associated workflows to enhance carrier accuracy and efficiency. In fact, we currently have more than 35 AI-powered projects and solutions for both internal and external purposes in use today. And we have plans to introduce many more throughout 2026. In order to illustrate this more concretely, I wanted to share one very specific description of our integration of the evolving range of AI technologies into our products, its adoption by our clients, the unique strengths we bring to that process. I recently returned from our Elevate conference in Salt Lake City where we bring together key participants in the claims process including carriers, adjusters, contractors, and other ecosystem technology partners to discuss technology development and adoption for this professional community that is dedicated to helping policyholders recover from damage to their property. At the conference, we unveiled the next generation of our AI-enabled estimating products, ExactGen. This product builds on a progression of AI technology that started with Exact Expert which we launched in 2023. Exact Expert uses rules-based logic and machine learning to assist estimators with identifying discrepancies in their estimates, providing advice on what questions should be asked, and correcting errors based on their employer's established rule set and experience. Exact Expert has been rapidly adopted industry wide including by seven of the top 10 homeowners insurers and now serves tens of thousands of adjusters and estimators. At the conference, a major restoration contractor referred to Exact Expert as, quote, an industry game changer. The rapid adoption of the product relied on trust in our proprietary cost repair data sets that underlies the technology and that estimators rely on for their work, and the common process platform in Xactimate that connects industry professionals. We expanded our offering of advanced technologies in our property estimating solutions in October 2025 with the launch of Exact AI. Exact AI applies generative AI to the production of initial estimates with content input from the Xactware platform. As part of the conference, I hosted a fireside chat with the CEO of one of the leading adjusting firms, shared his excitement about the AI platform, and shared that they are training thousands of their employees on the technology. Again, this solution builds on our established and proprietary datasets as well as the workflows relied upon by carrier claims professionals, independent adjusters, and contractors to smoothly settle and resolve a claim, ultimately benefiting policyholders. And now the addition of ExactGen, are adding agentic AI to handle content gathering from many sources, including aerial imagery providers, policyholder photos, and policy information from the carrier, amongst others, to generate near-complete exterior and interior estimates and facilitate settlement and resolution with the involved parties. Not only does ExactGen benefit from the established network of carriers, contractors, and adjusters, but we are integrating data and content from the broader network of technology providers who we have incorporated into our ecosystem. This reduces the burden of on-site professionals because they are spending less time gathering and waiting for information and more time with the affected insured client, accelerating the pace of recovery. The feedback was enthusiastic about how this could improve efficiency and help reduce resolution times, which have long been challenges for the industry. I could take you through similar examples across our other businesses, but the themes and our competitive advantages would remain the same, namely, one, the critical value of our data sets to AI, two, an established industry process and domain expertise to innovate from, three, the importance of existing connectivity to multiple parties in the ecosystem, and four, the ability to invest in innovation at scale and deliver technology across a large installed base, providing an economic advantage to the client and a stronger return on invested capital. It is these same competitive advantages that we capitalize upon to create growth and value for the insurance industry through prior technology transformations, including digitization, cloud, and SaaS. As our 2025 results demonstrated, our business and economic model are strong, as we crossed the $3 billion mark in revenue and delivered another year of solid growth and profitability, robust free cash flow generation, and strong returns on invested capital. We are well positioned to benefit from AI, drive new innovation, further connect the insurance ecosystem, and deliver growth in line with our long-term growth targets. We are energized by the opportunity that lies ahead and are looking forward to speaking about our plans in more detail at our Investor Day on March 5. I will now turn the call over to Elizabeth. Thanks, Lee. Elizabeth D. Mann: And good day to everyone on the call. On a consolidated and GAAP basis, fourth quarter revenue was $779,000,000, up 5.9% versus the prior year. Net income was $197,000,000, a 6.2% decrease versus the prior year, while diluted GAAP earnings per share were $1.42, down 1% versus the prior year. The decrease in diluted net income and GAAP EPS was due to non-operating items including costs incurred in the current year associated with the early extinguishment of debt, and net gains on the settlement of investments recognized in the prior year. Moving to our organic constant currency results adjusted for non-operating items, as defined in the non-GAAP financial measures section of our press release, Verisk Analytics, Inc. delivered OCC revenue growth of 5.2%, with growth of 7.2% in underwriting, and 0.5% in claims. This growth compounded from 8.6% growth in the prior year period which included the impact of Hurricane Helene and Milton, and was delivered despite the temporary headwinds we had called out previously, namely a historically low level of weather activity and a reduction in a government contract. Together, those two factors combined for an impact of approximately 1% to overall OCC revenue growth in the quarter. For the full year 2025, we delivered OCC revenue growth of 6.6%, marking another year of growth in line with our expectations and in line with our long-term targeted growth range. The continued strong growth of our subscription revenues is the clearest demonstration of the ongoing health of our business. Subscription revenues, which comprised 84% of our total revenues in the quarter, grew 7.7% on an OCC basis, compounding from the 11% organic constant currency increase that we delivered in 2024. The drivers of growth in the quarter were consistent with trends we have seen throughout 2025, including strength across our largest subscription businesses, namely forms, rules and loss costs, catastrophe and risk solutions, and antifraud. Just a quick note, we have officially renamed our Extreme Event Solutions to Catastrophe and Risk Solutions, which we think more accurately describes the breadth of solutions we deliver to the global insurance ecosystem. In forms, rules and loss costs, we continue to execute against and realize the benefits of our Coreline Reimagine program, which is driving strong value realization throughout the renewal process. Throughout 2025, we enhanced our engagement with clients both in terms of frequency of meetings, and seniority of teams we are engaging with. The net result was over 600 client engagements including deep dives, that have served to help us better understand how our clients are leveraging our innovations, while providing us with feedback on how to continue to enhance our solutions in a rapidly evolving environment. In total, we released 22 customer-facing modules, ahead of our target of 20 for the year, with a further 25 modules planned for release in 2026. Once those modules are introduced this year, we will have delivered upon the original scope of the Reimagine investment program. We will continue to drive further enhancement of our proprietary content with additional tools and functionality powered by the evolution of AI, enhancing the value for our clients and for Verisk Analytics, Inc. Within catastrophe and risk solutions, we delivered another quarter of double-digit growth driven by the expansion of contracts with existing clients, solid renewal, and the addition of new logos, including competitive wins. We are seeing strong interest in Verisk Energy Studio, and clients are expanding their hosting relationships with Verisk Analytics, Inc. in preparation for the launch of the platform later this year. Lee M. Shavel: In antifraud, Elizabeth D. Mann: our ecosystem strategy was further enhanced this year, through the introduction of new partnerships, bringing us to a total of 18 integrations offering new features and functionality to the industry standard ClaimSearch platform. This has helped us drive strong value realization. Additionally, we have continued to drive growth with non-carrier clients including third-party administrators and health care subrogation companies. While we remain in the early stages of commercialization, we are seeing strong interest and uptake in new advanced antifraud inventions, including Claims Coverage Identifier, and Digital Media Forensics. Our transactional revenues, which comprise 16% of total revenues, declined 6.5% on an OCC basis in the fourth quarter. The primary driver of the transactional revenue decline was lower volume in our Property Estimating Solutions business, resulting from continued low levels of weather activity. As a reminder, 2024 included a transaction benefit of slightly less than 1% of total revenue associated with Hurricanes Helene and Milton. Additionally, as we noted on our prior call, softness in our personal lines auto business also negatively impacted growth. Moving to our adjusted EBITDA results, OCC adjusted EBITDA growth was 6.2% in the quarter, while total adjusted EBITDA margin, which includes both organic and inorganic results, was 56.1%, up 200 basis points from the prior-year period. This quarter's margin benefited by approximately 50 basis points from favorable foreign currency translation, with the balance driven by leverage on solid sales growth and ongoing cost discipline. For the full year 2025, OCC adjusted EBITDA grew 8.5%, while adjusted EBITDA margins were 56.2%, up 150 basis points year over year. This margin reflects core operating leverage on solid revenue growth and our continued cost discipline, while absorbing the impact of our self-funded investments back into our business to fund future growth. On a full-year basis, foreign currency translation improved margins by 40 basis points. As such, the normalized operating margin would have been 55.8% for 2025. We do not anticipate large foreign currency impacts on our margins as we move into 2026, as we have taken structural balance sheet actions to reduce volatility going forward. Continuing down the income statement, net interest expense was $57,000,000 compared to $35,000,000 in the prior-year period, due to higher debt balances and interest rates as well as debt issuance costs. This was partially offset by higher interest income on elevated cash balances. On 01/06/2026, we redeemed the $1,500,000,000 in senior notes that were issued in connection with the previously announced planned acquisition of AccuLink. These notes were redeemed following the termination of the definitive agreement to purchase AccuLink in accordance with their special mandatory redemption feature. Pro forma for the redemption, our leverage would have been at 1.9 times at year end. Lee M. Shavel: Our reported effective Elizabeth D. Mann: tax rate was 19.5%, compared to 26% in the prior-year period. The year-over-year decline was primarily due to tax benefits recognized in connection with the sale of Verisk Marketing Solutions, as well as other discrete tax items. On a full-year basis, our tax rate was 22.5% as compared to 22.6% in the prior year. Adjusted net income increased 11.3% to $253,000,000, and diluted adjusted EPS increased 13% for the quarter. The increase was driven by solid revenue growth, strong margin expansion, a lower tax rate, and lower average share count. This was partially offset by higher interest expense. For the full year, adjusted EPS of $7.16 was up 7.8%, reflecting strong operational results and a lower share count, offset in part by higher interest expense and higher depreciation expense. From a cash flow perspective, on a reported basis, net cash from operating activities increased 34% to $343,000,000, while free cash flow increased to $276,000,000. On a full-year basis, free cash flow increased 30% to $1,190,000,000, reflecting solid operating profit growth and some benefit from the timing of certain cash tax payments and the timing of interest income and interest expense paid. We are committed to a shareholder-centric deployment of that powerful free cash flow generation. During the quarter, we returned $286,000,000 through repurchases and dividends. Today, I am pleased to announce our intention to execute a $1,500,000,000 accelerated share repurchase program in the coming days, supported by our Board's approval of an increase in our share repurchase authorization to $2,500,000,000 inclusive of the previously remaining authorization amount. After the ASR, we will have a further $1,000,000,000 in authorization, which will provide flexibility for continued open market purchases subject to market conditions. Our Board has also approved an 11% increase to our dividend to $2 per share annually. As we discussed, we enter 2026 with clear strategic momentum, and are capitalizing on the substantial opportunity in a rapidly evolving environment. To that end, we are pleased to deliver our outlook for 2026 which builds upon the solid performance from 2025. All guidance figures reflect the impact of the sale of Verisk Marketing Solutions, which contributed $68,000,000 in revenue in 2025 and was included in our underwriting subsegment. Our guidance also assumes current foreign currency exchange rates and current interest rates. Lee M. Shavel: More specifically, Elizabeth D. Mann: we expect consolidated revenue for 2026 to be in the range of $3,190,000,000 to $3,240,000,000. We expect adjusted EBITDA to be in the range of $1,790,000,000 to $1,830,000,000 and adjusted EBITDA margin in the range of 56% to 56.5%. This margin compares to the normalized baseline of 55.8%, as reported margins in 2025 included a 40 basis point nonrecurring benefit from foreign currency translation that I spoke about earlier. We expect interest expense to be between $190,000,000 and $200,000,000. This level reflects our plan to use some of our excess balance sheet capacity to execute the $1,500,000,000 ASR. We expect capital expenditure to be within the range of $260,000,000 to $280,000,000 as we continue to prioritize organic investment in our business, our highest return on capital opportunities. We expect our tax rate in 2026 to be in the range of 23% to 26%. This range is slightly above our long-term structural rate, reflecting our expectation of a lower level of stock option exercise activity. This culminates in adjusted earnings per share in the range of $7.45 to $7.75. We would note that the sale of Verisk Marketing Solutions presents an $0.11 headwind to EPS. Specific to the pacing of growth throughout the year, we want to bring a few things to your attention. First, we have tougher comparisons in the first half of the year as 2025 benefited from a strong subscription renewal cycle across our largest underwriting businesses in particular. Lee M. Shavel: Second, Elizabeth D. Mann: because of the low level of weather activity in 2025, we enter the year with a lower run rate of volume in our property repair estimating Lee M. Shavel: platform. Elizabeth D. Mann: Especially compared to the prior year, which had carryover impact from the storms in the fourth quarter 2024. And third, there is a work stoppage on a certain government contract that started in the first quarter and will impact revenue growth. Taking all this together, we anticipate first quarter 2026 reported revenue will be lower than reported revenue in 2025 by a low single-digit percentage, given the divestiture of Verisk Marketing Solutions. Lee M. Shavel: We do expect growth in reported revenue Elizabeth D. Mann: on a year-over-year basis and on a sequential basis when normalized for the sale of Marketing Solutions. Additionally, we anticipate the first quarter to be the trough both in terms of reported dollars and growth rates. A complete listing of all guidance measures can be found in the earnings slide deck which has been posted to the Investors section of our website, verisk.com. And before I turn the call over to Lee for some closing comments, I would like to remind you that we are looking forward to hosting everyone at our upcoming Investor Day on March 5. Lee M. Shavel: Thanks, Elizabeth. We are excited about the growth opportunities ahead and have confidence in delivering a year of growth in 2026 that is in line with our long-term growth targets and compounds the solid year in 2025. We continue to appreciate all the support and interest in Verisk Analytics, Inc. Given the large number of analysts we have covering us, we ask that you limit yourself to one question. With that, I will ask the operator to open the line for questions. Thank you. Operator: We will now begin the question-and-answer session. If you have dialed in and would like to ask a question, please press 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your questions, simply press 1 again. If you are called upon to ask your question and are listening via speakerphone in your device, please pick up your handset to ensure that your phone is not on mute when asking your question. We do request for today's session that you please limit to one question only. Thank you. And our first question comes from the line of Toni Michele Kaplan with Morgan Stanley. Your line is open. Thanks so much. Lee, you mentioned that you recently had many conversations with your clients. And so I was wondering when you are talking to them, would they prefer to be the ones to use your data to create AI products themselves so they have an advantage versus other insurers, or would they prefer that you create the AI product so that they do not have to spend the capital doing it? And maybe also, are they able to use your data as an input into third-party AI products? Thanks. Lee M. Shavel: Yeah. Toni, thank you very much for the question. I know it is a great, great question to, I think, frame the conversations. And the answer is both based upon the nature, typically the scale, sometimes the sophistication of the client. But in those conversations, particularly with our largest clients, they want to compare what their objectives are in AI, recognizing that our data is a critical input for that function, and so they first want to have a coordinating or an alignment discussion to make certain that we are delivering the data in a format that can be effectively utilized by AI. We have been working on establishing model context protocols and MCP servers to be able to meet those needs. But part of that discussion is also look. Here is what we are looking to develop, and what do you have, or how are you integrating AI that may be an efficiency for them so that they can dedicate their dollars to more differentiating, competitively oriented applications. On the smaller side, I think we have a lot of clients that are daunted by the breadth of AI development. And so in those contexts, there is clearly more interest in how they can get a clearer and stronger return on their investment by testing and utilizing a number of the AI products that we are applying to our existing processes and our products. That was something, as I mentioned in my prepared remarks, where you could see particularly in the contracting firm, the estimating firm, and on the claims professional side, where there is strong adoption of that AI because in many cases, those are smaller midsized companies and we can deploy that are more interested in getting that immediate, immediate benefit. AI across an established process that they are familiar with. So I think it is both, but the important thing is our data is at the core because that analytics function relies on good quality industry-wide data. And there is a recognition that Operator: Ladies and gentlemen, this is the operator. I apologize, but there will be a slight delay in the conference, and we will resume shortly. Lee M. Shavel: Thank you. Operator: Please stay on the line. Hello there, everyone. This is the operator again. Our speakers are in. Please proceed. Yep. So, Toni, can you let us know where we dropped off Lee M. Shavel: in terms of the answering? How much of that did you catch? Operator: Yep. Oh, Toni may have dropped as well. So I am just going to recap Lee M. Shavel: briefly the question from Toni. Is, you know, to what extent are clients looking to utilize your data and Verisk Analytics, Inc.'s applications relative to their own applications? And my answer was, there really is a range from our largest, most sophisticated clients who emphasize that they want to use our data, in many cases are looking to develop their own AI applications, also interested in what they can leverage in terms of what they are doing on existing either underwriting or claims applications, and from smaller and midsized there is more of an interest in relying on the AI that we are integrating into our product and process given their scale and desire to achieve a faster return on investment. So, you know, that is in essence, the response to Toni’s question. Operator: Thank you. Our next question comes from the line of Manav Shiv Patnaik with Barclays. Your line is open. Lee M. Shavel: Thank you. Maybe just to follow up on that question to a certain extent. You have talked about the softwareization of Andrew Owen Nicholas: Verisk Analytics, Inc. over the years. I was just curious how much of the software and analytics that you sell come tied with the data that you have versus separate and, you know, how those relationships and contract structures might change in this new environment? Lee M. Shavel: Yes. Thanks, Manav. Also a great question. And I think the primary application of software in our context is in the delivery of data and the integration of the ecosystems to deliver the data and the outcomes that facilitate improved efficiency and functionality of those ecosystems. So it is inherently a data delivery device and a data connectivity element that is integral to that core process. And I think we see that in whitespace. We see that in the Core Lines Reimagine upgrades where we have provided new connectivity and deeper connectivity to our data sets. On the claims side, the Xactware function, the antifraud functions are software delivered, but at the core, it is a data and analytics function. Some of the smaller businesses, like our life business, is going to be a policy administration system, but it is tied to data and is delivering significant economic benefits to participants within the marketplace. But the predominance of our software footprint is related to that data delivery and integration function. Operator: Next question comes from the line of Faiza Alwy with Deutsche Bank. Your line is open. Yes. Hi. Thank you. So, also wanted to follow up on the same topic. And, you know, I guess I wanted to ask that as you are rolling out these new technologies, do you expect to see sort of better ability to take pricing for the value that you are providing and if there is any differentiation in terms of customer type? And, you know, similarly, what does this mean for margins in terms, you know, cost of innovations versus the efficiencies that you are now able to generate? Lee M. Shavel: Thank you, Faiza. So all of our businesses are fundamentally value-driven from a pricing standpoint. And I think there are kind of two key elements. One is that are we able to make that investment, monetize it and deliver that functionality at a lower cost relative to what our client is able to deploy, and are we able to find new uses of data that create value through our clients’ utilization of AI. Both of those are going should drive incremental revenues because we are creating value for the client. And as we are with a number of our investments looking to participate in that value creation. From a margin standpoint, I think the incremental margin on the use of that data, I think there is inherent operating leverage associated with that. That is beneficial. And we are also implementing AI in a variety of contexts that improves the productivity of the functions, whether it is on the coding side or whether it is on the data ingestion or data normalization function, is beneficial from an operational standpoint. And so we do believe that this is supportive of our operating leverage and serves to fund a lot of the investment that we are making in AI. Operator: Next question comes from the line of Andrew Owen Nicholas with William Blair. Your line is open. Andrew Owen Nicholas: Hi, good morning. Appreciate you taking my question. Lee M. Shavel: I wanted to switch gears a little bit and just talk about transactional growth or declines of late. And Elizabeth, if you could speak to the path to recovery there. I appreciate all the commentary on first quarter. But as we think about kind of the acceleration of that line over the course of the year and looking ahead to Andrew Owen Nicholas: to '27, do you feel like that is a Lee M. Shavel: line that can grow organically at some point in '26, or what are the different levers there that we should have in mind? Andrew Owen Nicholas: Thank you. Elizabeth D. Mann: Yes. Thanks for the question, Andrew. In the let me start with, you know, in the fourth quarter itself, really, the primary contributor to that drop is comparison to the Charles Gregory Peters: storm in the prior year, and that makes up far the bulk of that decline. There are other areas of tough comps and some of the temporary factors that we talked about. There are also other areas of strength in that underlying that fourth quarter transactional growth, such as the securitization. If you look at it on a three-year basis, it is still a three-year positive CAGR on the transactional side. And there have been a couple different factors that moved through in 2024. There were challenging comps to the double digits in the prior year. There was also the conversion of transactional revenue to subscription, which was kind of throughout some of '24 and some of '25. And then more recently in '25, we have had some of the tougher comps on weather and lower weather volumes, as well as the auto side. So all those things said, we do expect to work through those through the '25, '26. And do over the long term expect transactional revenue to be a source of strength. Operator: Next question comes from the line of George Tong with Goldman Sachs. Your line is open. For your guidance for 2026 EBITDA margins, it looks like you are Alexander Kramm: looking for not a significant amount of margin expansion. Can you discuss some of the puts and takes you are embedding into your margin outlook for the year in terms of balancing investments with cost efficiencies? Elizabeth D. Mann: Yes. Thanks for the question, George. So first of all, we Charles Gregory Peters: we look at it, we should look at 2025 on a normalized basis. While the reported margins were 56.2%, we did call out that that included 40 basis points of foreign currency translation kind of balance sheet impact that we do not expect to continue. So we view the normalized, the operational baseline, 55.8. The 56 to 56.5 is that guidance is, does show modest but meaningful margin expansion from there, which balances the efficiencies that we are able to get in our business, the operating leverage that we continue to expect, while managing to significantly fund exciting and in some of the AI products that Lee had talked about. Alexander Kramm: Got it. Thank you. Operator: Next question comes from the line of Wenting Zhu with Autonomous Research. Your line is open. Hi. Good morning. Thanks for taking my question. Was wondering if you can talk a little bit more about any recent changes to the broader selling environment or sales cycle that you are seeing as P&C insurance industry transitions from hard to soft markets, think the profitability of the carriers should improve and that should translate to better budget environment for data and analytics. So just curious if you are seeing or hearing that from your customers. Thanks a lot. Lee M. Shavel: Thank you, Kelsey. I am glad to address that. So I would say that cautiously I think we are seeing an improving sales cycle in this. And as you have indicated, as we have seen a normalization in the net written premium growth, there is always a growth motivation from the carriers. There is obviously always a risk and a profitability focus on their part. And in a lower growth environment, I think there is a tendency to look to utilize more tools, whether it is data or analytics, to help them understand where their opportunities for profitable growth are and how their risk assessment can be improved in a more difficult environment. And so I think that, you know, that, along with the heightened profitability that they have experienced, you give them the resources as well as the motivation to explore more interest in selling. And then that ties into, I think, the opportunity on AI side to see how that is additive to their functions from a process and from an efficiency standpoint. So I would say we view that as a net positive from an environmental standpoint. Operator: Next question comes from the line of Gregory Peters with Raymond James. Your line is open. Lee M. Shavel: Good morning, everyone. Alexander Kramm: I guess I am going to focus my question on the annual price increases in OCC. Lee, you mentioned how you have been talking with your customers and I am curious about the feedback they are providing you on the annual Lee M. Shavel: price increases that are embedded into your contracts. And maybe, Elizabeth, you can remind us when we think about '26, or '27, Alexander Kramm: what component of OCC will include or be benefited by the price increases that you expect to get? Yep. Lee M. Shavel: Thank you. Thanks, Greg. Let me start off, and then Elizabeth will follow up. So I think the general comment that I would make, and it is more than what we are hearing, although hearing what we are hearing from clients has been positive. It is also in terms of what we have been able to achieve in our longer-term multiyear contracts with our largest customers. And so what we are hearing is a clear recognition of the value of the investments that we have made to improve and digitize a lot of those datasets, providing more access, more functionality, more insights onto what we are doing, and more connectivity. So I will talk about it first on the underwriting side. The ability to provide more frequent updates, for instance, on our loss experience that we are now providing quarterly within that business is a clear value enhancement for our clients to be able to see the trends more accurately. The broader industry insights within lines of business has been well received. And so they have felt as though they are getting more value. They have seen the investments that we have made. And that has translated into strong renewals with, you know, annual increases that reflect the value that our clients are driving. This goes back to the point, you know, all of our growth is value oriented. And that is what we are hearing, and that is what we are experiencing. You know, similarly, coming off of the Elevate conference in our claims property estimating solutions area, our success in integrating now over 140 ecosystem partners has provided a lot of value and improved connectivity for our clients that has been very well received. It has reduced their costs and effort of purchasing the incremental analytics or functionality that those players provide, which creates value for them, and provides new sources of data to assess their operational performance. And so similarly, notwithstanding the weather dynamics, you know, we have gotten very positive feedback and engagement from clients around how they see the value, and that naturally supports the pricing environment. So that is the way I would describe it, Greg, and I will turn it over to Elizabeth to add her perspective. Elizabeth D. Mann: Yeah. I think that is a great perspective. You know, not too much to add because, Greg, we do not give, you know, sort of specific annual price ranges per year. There is a wide range of outcomes for the carriers. I think, in general, we would comment that after three years of historically very strong pricing environment, it may be modestly coming down versus the prior year, but still historically very strong, reflecting the value of the solutions that Lee talked about. Operator: Next question comes from the line of Scott Wurtzel with Wolfe Research. Your line is open. Alexander Kramm: Hey. Good morning, guys, and thank you for taking my questions. Just wondering if you can give an update on sort of the competitive dynamics on the kind of auto personal line side of things. I know that that has been a little bit of a headwind to growth. But just wondering if you can give an update on some of the maybe actions you are taking to, you know, maybe stem some of those competitive dynamics. Thanks. Lee M. Shavel: Yeah. Scott, thank you very much for the question. I am going to turn over to my colleague, Robert Newbold, who has responsibility for our auto underwriting business to share some color there. Yeah. Thanks, Lee. So Andrew Owen Nicholas: as I have looked at the business, we see the challenges in the business come from first, the one-time revenues that peaked in 2024 and is minimal now due to the lack of Lee M. Shavel: demand for nonrate action products. And then secondly, you know, where we have products that are not differentiated in marketplace, and that is where the competitive challenges come from. And we will work through those challenges through 2026. But where we are focused on is delivering differentiated analytics that drive long-term subscription growth. And to that end, we have launched a new enhancement to our SLAC Jeffrey Silber: coverage verified product that delivers Andrew Owen Nicholas: new readable insights at the point of growth. Jeffrey Silber: Now this is an innovation that is the subject of almost all our client conversations today, and we are encouraged by the interest that they are seeing in this solution. So our focus going forward will be on these differentiated analytics that drive long-term subscription growth. Operator: Next question comes from the line of Jason Daniel Haas with Wells Fargo. Your line is open. Andrew Owen Nicholas: Hi, good morning, and thanks for taking my question. I wanted to follow up on some of the margin commentary. Lee M. Shavel: Correct me if I am wrong, but I was getting about a 60 bps tailwind from the divestiture of VMS. So that would mean that all the Andrew Owen Nicholas: that is right. That would mean basically, all the margin expansion you are guiding to is coming from that. So can you talk about if that is all correct, Lee M. Shavel: can you talk about why there is no Andrew Owen Nicholas: margin expansion X the VMS divestiture for 2026? Is it investment in the business? How should we think about, like, the long-term trajectory of margins going forward? Thank you. Elizabeth D. Mann: Yeah. Thanks. Thanks, Jason, for the question. I am not Charles Gregory Peters: sure where you are getting that VMS comment. We can take that offline with you. But there may be other elements in that in some of the M&A line. There are some acquisitions as well. So let us take that offline. We are still exhibiting operating leverage across our businesses to deliver margin expansion. Operator: Next question comes from the line of David Paige with Rothschild and Company Redburn. Your line is open. Jeffrey Silber: Yeah. Hi, everyone. Thanks for having me on. We had a follow up on the cross Saurabh Khemka: sell environment as carriers are improving their profitability. You mentioned module deployment has been very strong, but any incremental color you could give on adoption of these modules would be very helpful. And then as you move past Core Lines Reimagine, how you are thinking about what drives the leg of pricing and the sustainability of those increases? Lee M. Shavel: Henry. So I will take the first part and then turn it over to Saurabh Khemka on the incremental functionality on the core lines. So in terms of module adoption, I think what we are seeing is that having introduced this, the clients to varying extents have adopted and adjusted that new functionality. But it is a process in some ways of training the clients and their employees on how to utilize it effectively. And so we have been dedicating a lot of time to training for our clients to make certain that they are getting as much value as possible out of those modules. None of that suggests that the clients do not see the value, and we have heard that repeatedly. In fact, clients have told investors, when asked the question, that they have seen significant productivity gains. But we will continue to work to make sure they are getting as much value of those enhancements as possible. At our upcoming Verisk Insurance Conference, we often couple that with extensive training, opportunities for them to understand what is available to them. So I think we will see continued uptake and continued value realization as our clients become more familiar, and we will continue to enhance that as I am sure Saurabh can describe. Saurabh Khemka: Yeah. Absolutely. So two things. One, the original scope of Reimagine is what we are talking about in terms of complete. So we will put all our content on this digitized new platform. And the adoption of that platform will continue, and the adoption of these new analytics will continue. The second thing I would say is that we have really created a culture of continuous innovation through Reimagine. So as we now have this platform, we will continuously innovate on the underlying content and put it on the platform that will drive new use cases for our customers like AI. As Lee mentioned, lot of these use cases drive better insights but also drive productivity gains. So we see continuous opportunities for us to drive value for our customers. Lee M. Shavel: And let me add to that, Henry. One thing that I have to tie in to tie in the AI component, is we have asked Saurabh and our colleague Tim Rayner who runs our UK businesses in the SBS to partner to think about what our enterprise AI strategy is with an orientation to product implementation and understanding how our clients are working with the technology. So many of the lessons, and the successes that we have had in identifying how we can improve that technology, understand what our clients' needs are, are going to drive that close integration of the AI opportunity as well. We think will continue to increase the value of what we have done with core lines. Operator: Next question comes from the line of Jeffrey P. Meuler with JPMorgan. Your line is open. Jeffrey Silber: Hey, guys. This is Justin on for Andrew. Thanks for taking our Lee M. Shavel: questions. First, I just wanted to ask, you know, Lee, when you look at Verisk Analytics, Inc.’s most sophisticated clients in terms of willingness to adopt AI, do you think these clients are using more or less Verisk Analytics, Inc. data today, and why? And then if I could just Jeffrey Silber: follow up quickly on some of the color you provided about the first quarter Lee M. Shavel: revenue guide. I think you are expecting it to be down low single digits on a sequential basis. Could you just help us think through what that might mean on an organic constant currency basis year over year? Thank you. Alexander Kramm: Great. Thanks, Justin. I will let Lee M. Shavel: Elizabeth handle the second part of that on the revenue guide. In terms of your first question, I think the way that we see it and it is very similar to other technology deployments. And if you think about Saurabh Khemka: what Lee M. Shavel: the primary driver of our ability to grow at a faster rate than the insurance industry has been the ongoing adoption of technologies that utilize the data sets that we are able to gather and normalize across the industry. And so when we have these AI strategic alignment discussions, it is clearly founded on a recognition that the underlying data that we are able to provide, one that has kind of industry-wide value, two, is more efficiently gathered through a trusted third party, and which can be integrated easily into processes because of our connectivity, that is fundamentally, as valuable in an AI context if not more so. And that AI is improving the productivity of core underwriting functions, claims functions, risk management functions. And so it becomes an incremental opportunity to use that data set to inform those decisions more effectively. And I think there is an understanding from our clients that that will enhance their value. And in fact, we see an opportunity to expand those data sets in a more connected environment. We have talked in the past about the development of new data sets in the excess and surplus market which I think has been driven by this trend of being better able to connect and associate data sets, leveraging the connectivity that we have with P&C carriers that are writing both admitted lines and excess and surplus lines as well as greater connectivity in the specialty market, where we are beginning to see more requests for data and analytics to support that market. So I think from our perspective, this clearly is an opportunity to utilize that valuable, more efficiently gathered and connected data set to support the implementation of that technology similar to what we have seen in the past. I will turn it over to Elizabeth to talk about your question on the first quarter revenue guide. Elizabeth D. Mann: Yes. Thanks, Justin. And your question, Justin, was on the first quarter OCC revenue growth. We do not give that in specific. We do give you a lot of the ingredients necessary. We talked about the Verisk Marketing Solutions business on a full-year basis. And you can think of that as a quite even quarterly spread, if that is helpful. So we were calling out some of the pressures and the headwind from the temporary factors as continuing in the first quarter from the fourth quarter. In addition, there were some areas of, called out some areas of outperformance and strength in the fourth quarter and the first quarter being, facing some tough comps, particularly on the subscription side. So we just wanted to, between those things, we wanted to call out that we saw the first quarter as the trough from a growth standpoint, with that continuing to improve over the balance of '26. Operator: And our last question comes from the line of David Paige with RBC Capital Markets. Your line is open. Jeffrey Silber: Hi. Good morning. Thank you for taking our question. This is David Paige on for Ashish. Maybe just following up on that last question. Can you remind us what percentage of revenues are derived from contributory data sources? And then maybe at a high level, how should we think about the AI moats across your different business segments, particularly as, I guess, investors are concerned about Vibe coding potentially impact vertical software or just Andrew Owen Nicholas: work? Jeffrey Silber: Or work solution in general? Thank you. Elizabeth D. Mann: Yeah. Thanks a bunch for the question, David. And I think this is something also that we will continue the discussion at Investor Day. In terms of, I think Lee talked about the data that is an input really across most of our businesses. To be very concrete on the contributory data, sometimes said, as you look at our revenues, primarily the forms, rules, and loss costs and the antifraud that are built on those industry-wide contributory solutions. Elsewhere in our business, we have some elements potentially of contributory data, and significant proprietary data and analytics. So we think that, really, most of our business has a lot of defensibility to it with those strong data ingredients. We will talk more about it in a few weeks. Lee M. Shavel: Yep. And it is both the, apart from the contributory data sets, as Elizabeth was describing, there also is an element of proprietary data sets, for instance, in our property estimating solutions, embedded in the value of what we provide, you know, apart from materials and labor costs, which are, you know, located in, that are identified and utilized kind of specifically for estimates, an understanding of what a repair entails in terms of, you know, materials or labor costs is an aspect of that proprietary nature. And there is also an element of it becomes a reference point that the claims professionals at the carriers, the adjusters, and the contractors use to facilitate resolution of that claim. So it becomes an established industry standard that has a valuable proprietary content because all participants understand how that is derived and it is kind of been established as a base point. To your question on Vibe coding, it relates in some way to the question around software that we had earlier. And this is where the nature of our software is one for the delivery of the datasets, you know, not so much the underlying software itself, as well as the connectivity that that software or that platform provides. And so simply the function of AI-driven or Vibe coding does not, in our view, represent a threat to the fundamental data differentiation and connectivity differentiation that we provide. We think that that is a very different software proposition. In some ways, you know, I kind of liken it to the securities exchanges where they are providing connectivity to a large and complex group of market participants. It is a very similar dynamic within our business. But I will also use this as an opportunity to advertise and increase you all to attend our Investor Day, where we will be going through the business and talking about those components from a data, from a software standpoint, from a competitive differentiation for each of our businesses, to a far greater detail and better texture than we can provide in this call. Operator: Ladies and gentlemen, that concludes the question-and-answer session. Thank you all for joining in. You may now disconnect. Everyone, have a great day.
Operator: Hello, and welcome to the SolarEdge conference call for the fourth quarter and year ended December 31, 2025. This call is being webcast live on the company's website at www.solaredge.com in the Investors section on the Events Calendar page. This call is the sole property and copyright of SolarEdge with all rights reserved, and any recording, reproduction or transmission of this call without the expressed written consent of SolarEdge is prohibited. You may listen to a webcast replay of this call by visiting the Event Calendar page of the SolarEdge Investor website. I would now like to turn the call over to J.B. Lowe, Head of Investor Relations for SolarEdge. Please go ahead. John Lowe: Good morning and thank you for joining us to discuss SolarEdge's operating results for the fourth quarter and year ended December 31, 2025, as well as the company's outlook for the first quarter of 2026. With me today are Shuki Nir, Chief Executive Officer; and Asaf Alperovitz, Chief Financial Officer. Shuki will begin with a brief review of the results for the fourth quarter ended December 31, 2025. Asaf will review the financial results for the fourth quarter, followed by the Company's outlook for the first quarter of 2026. We will then open the call for questions. Please note that this call will include forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from management's current expectations. We encourage you to review the Safe Harbor statements contained in our earnings press release and our filings with the SEC for a more complete description of such risks and uncertainties. Please note, during this earnings call we may refer to certain Non-GAAP measures, which are not measures prepared in accordance with US GAAP. The Non-GAAP measures are being presented because we believe that they provide investors with a means of evaluating and understanding how the Company's management evaluates the Company's operating performance. Reconciliation of these measures can be found in our earnings press release and SEC filings. These Non-GAAP measures should not be considered in isolation from, as substitutes for, or superior to financial measures prepared in accordance with US GAAP. Listeners who do not have a copy of the quarter and year ended December 31, 2025 press release may obtain a copy by visiting the Investor Relations section of the Company's website. With that, I will turn the call over to Shuki. Yehoshua Nir: Thank you, J.B. Good morning everyone and thank you for joining us today. A year ago, on my first earnings call as SolarEdge's CEO, I laid out the four key priorities that would drive our turnaround. Today, I would like to focus first on the meaningful progress we have made over the last year. And then on the transformation of SolarEdge that we see coming in 2026. First on the turnaround. We gained momentum last year, delivering strong year-over-year revenue growth and expanding our gross margins in each and every quarter. Our solid fourth quarter results continued this trend. Fourth quarter revenue was up 70% year-over-year without the benefit of any significant one-time pull forward of revenue, and outperformed the typical seasonal decline. We expanded margins for the fifth consecutive quarter, exceeding the top end of our margin guidance, and generated $43 million of free cash flow. This concludes a very successful year of stabilizing our financial situation. We grew revenue by 30% year over year, lifted gross margins from negative territory in 2024 to 23% in the last quarter of 2025. And generated $77 million in free cash flow for the year versus negative $421 million in 2024. In the US we increased our market share in all categories: residential, commercial and storage. And in Europe we gained share in C&I and stabilized our share position in the residential market. And we did so before rolling out our SolarEdge Nexis platform, a remarkable achievement and testament to the strength of our brand and execution of our team. We also introduced the Single SKU concept, which has received extremely positive feedback from our customers. We launched several new products including initial units of our Nexis platform. And we continued to ramp up our US manufacturing, serving domestic demand and exporting our first products late in the year. I am so proud of the progress we achieved last year, which was made possible by our relentless focus on operational excellence and a renewed commitment to delivering a best-in-class customer experience. But 2025 was just the first step in our turnaround journey. It was about defense, restoring discipline, generating strong free cash flow, rebuilding margins. 2026 is about shifting to offense while keeping this discipline intact. We will focus on moving towards profitable growth, gaining share, scaling Nexis, and investing in new high-growth adjacencies such as AI data center power. And I believe 2026 will be a transformational year for SolarEdge that will take the company to the next level. Starting with profitable growth. As you can see from the midpoint of our guidance, we expect Q1 to be another quarter of year-over-year revenue growth and margin expansion, and revenue will once again trend above typical seasonality. If these trends continue, we would be on target to achieve EBIT profitability later this year. We have focused on operational excellence in order to continuously improve our margins and enhance customer experience. For example, we will be selling our products in a more selected number of key markets where we 4 believe we can win and where winning will have a meaningful impact on our results. Such change allows us to roll out the single SKU concept globally, to consolidate warehouses, and to streamline our supply chain. The next area of transformation is market share gains. Starting with the U.S. residential market. The market is expected to change this year as 48E is the only available tax credit in residential solar. We have described how we believe this market evolution plays directly into our strengths as the leading provider to TPOs. We have deep relationships and integrated infrastructure with these customers. And we offer high quality products, designed to be domestic content and FEOC compliant, produce more energy, deliver better economics and provide faster paybacks for our customers. As such, we maintained our number one share position in U.S. residential in the third quarter of 2025, and aim to drive further share gains this year. Moving to the C&I market in the US. We are pressing our advantages here. Out of the three leading manufacturers in this market, we are the only ones whose products are designed to be both domestic content and FEOC compliant, which should provide a significant advantage to our customers. Consequently, in the third quarter of 2025 we achieved the number one share position across the entire U.S. C&I market, even when including ground mount. We believe that we can grow our share further due to the same dynamics. Let's talk about Europe. While the market remains slow, we expect '26 revenue to exceed '25 levels as we spent most of last year clearing channel inventory. This growth potential can be amplified by gaining further market share in 2026, and I believe we have several tailwinds in this market. First, U.S. made products with a lower cost structure that we have started exporting. Second, the introduction of the single SKU. And third, the Nexis rollout enhances our product offering, particularly in the 15 to 30-kilowatt segment, providing a full home backup solution for larger homes. Switching to batteries which impact market share in all regions and segments. Battery attach rates are expected to continue to rise worldwide, and our advantages are very applicable here. Our DC-coupled architecture delivers as much as 6% higher efficiency, which can result in up to 24 more days of energy per year than AC-coupled alternatives. This translates into meaningful savings for system owners and is a major reason we believe our products can continue to take share in the TPO-dominated U.S. market and around the world. In fact, we are already seeing market share gains in the U.S. where we became the #2 supplier for residential batteries in the third quarter of 2025. Our third area of transformation is product innovation and leadership. I am very pleased to say that we are on schedule for the launch of our Nexis platform, with an exciting launch event in Germany on March 19. Our first customers have told us that this is the best SolarEdge product ever. And yesterday my family became part of this group of satisfied customers when the full Nexis system was installed at our house. Nexis is lighter and takes up less wall space. The modularity and stackability of the system offer flexibility both during the sales process and during installation. Our installation and commissioning times are expected to come down, showing that the work we have put in to alleviate installer pain points is on the right track. In the U.S., Nexis batteries will come with an industry leading 185 amps LRA, which is needed for true full home backup. Our meter collar solution includes passive cooling which we think is going to improve reliability in the field. And serviceability itself is a major differentiator. Most issues can be solved by swapping necessary parts without having to remove and take apart entire units. The fourth element of the transformation is investing in AI data center power solutions. As you all know, power is the limiting factor for AI expansion. NVIDIA is guiding the industry to improve this through a transition to 800 volt DC architecture, an architecture that fits perfectly for the technical expertise SolarEdge has refined over the last two decades. We believe this represents a multi-billion dollar addressable opportunity over time. Since our last call we have made progress in our solid-state transformer platform as we pursue a unique system that converts 34.5 kilovolts directly into 800-volt DC with efficiency of over 99%. Our topology is purpose built for direct medium voltage input using a modular high frequency conversion architecture designed to increase efficiency at the data center, and reduce stages, losses, and footprint versus conventional alternatives. We have already engaged with potential customers and ecosystem partners. Based on the feedback and requirements from industry participants, we believe this gives us a structural advantage in efficiency, controllability, and power density. Potential partners also recognize our DC coupled architecture expertise and the system level value we bring. In addition, based on our large-scale power electronics manufacturing experience, we expect to have a clear path to scale production capacity as market demand develops. To summarize, in 2025 we set out to turn the SolarEdge business around, and to lay the foundations for profitable growth. I am very proud of the work we did and the progress we made. But that was last year. 2026 is about execution at scale. We are working towards profitable growth. Our aim is to gain market share globally. We will ship Nexis in high volume. And we will advance our opportunity in AI data center power solutions. We are moving forward with discipline, but with an offense mindset focused on winning in every segment we compete in. I cannot wait to share our progress with you in the coming quarters. With that I will turn it over to Asaf. Asaf Alperovitz: Thank you Shuki, and good morning everyone. Starting with our quarterly results. Non-GAAP revenues for the fourth quarter were $334 million, up 70% year-over-year, and slightly down quarter-over-quarter, outperforming the typical seasonal decline of 10% to 15%. This result does not include any significant one-time or pull forward of revenue from either safe harbor or 25D. Revenues from the U.S. this quarter amounted to $198 million, down 3% quarter-over-quarter, and representing 59% of our revenues. Revenues from Europe were $99 million, down 1% quarter-over-quarter, and representing 30% of our revenues. International Markets revenues were $37 million, up 2% quarter-over-quarter and representing 11% of our revenues. Non-GAAP gross margin this quarter was up significantly to 23.3% compared to 18.8% in Q3, just above the high end of our guidance. The higher gross margin is largely due to higher sales of U.S.-made products and lower seasonal warranty costs. We continue to take actions to streamline our operations and focus on our core businesses. Subsequent to year end, we sold the remainder of our E-Mobility business for a consideration of $12 million. This sale resulted in a GAAP net loss of approximately $8 million. Additionally, in Q4 we recorded a one-time, noncash finance expense of approximately $60 million, related to the closure of the Kokam battery manufacturing division. These actions are a continuation of the process that we began in late 2024 to optimize our portfolio, which included the sale of our tracker business and battery manufacturing facilities in South Korea. We believe these portfolio optimization actions are largely complete, and the expense reduction associated with these moves will allow us to invest and focus more strategically on our core products and businesses, and accelerate the development of our data center offering. Non-GAAP operating expenses for the third quarter were $88.7 million, up slightly from last quarter, and within our guidance range, despite headwinds from the continued strengthening of the New Israeli Shekel, net of hedging. Non-GAAP operating loss for Q4 was $11.0 million, compared to a Non-GAAP operating loss of $23.8 million in Q3, cutting our operating loss by more than half for the second straight quarter. This is a promising result and speaks to the progress we have made in executing on our turnaround plan, and is another step on our journey back to profitable growth. Our non-GAAP net loss was $8.2 million in Q4, compared to a non-GAAP net loss of $18.3 million in Q3, also a reduction of over 50%. Non-GAAP net loss per share was $0.14 in Q4, compared to $0.31 in Q3. The lower operating and net losses, the lowest in 5 consecutive quarters, are largely due to our higher gross profit and margin. Turning now to our balance sheet now. As of December 31, 2025, our cash and equivalent portfolio was approximately $581 million. Our cash and investments portfolio increased by approximately $34 million in Q4. This is the result of our strong positive free cash flow for the quarter of approximately $43 million, which was largely driven by working capital items and our continued CapEx discipline. Despite the volatile tariff environment, we managed to generate $77 million in free cash flow in 2025, a complete turnaround from the negative free cash flow of $421 million in 2024. For Q1, we expect to continue to deliver positive free cash flow, despite our planned investment in working capital to our anticipated support growth. This reflects solid underlying operating performance and continued discipline in managing expenses and capital investments. Turning to our working capital items. We remain hyper focused on improving our cash conversion cycle. Our inventory increased by $22 million as we had higher raw materials procurement to support the launch of our Nexis platform and due to higher battery demand. AR net, decreased this quarter to $267 million compared to $286 million last quarter, driven by our strong collection this quarter. A quick update on disclosures. As we mentioned last quarter, we have discontinued the megawatt shipped disclosure. We are now disclosing the number of inverters, optimizers and megawatt hours of batteries that we recognized as revenue on a quarterly basis. We are also now providing revenue by product type on a quarterly basis. You can find the current quarter data in our press release and supplemental tables, which also include historical quarterly data going back to Q1 2024. We believe that these new metrics will help analysts and investors better understand the underlying dynamics of our business. Turning now to our guidance for the first quarter of 2026. We are expecting revenues to be within the range of $290 million to $320 million, which at the midpoint reflects a better than normal seasonal trend for the first quarter. This range does not include any significant one-time pull forward of revenue. We expect non-GAAP gross margin to be within the range of 20% to 24%. We expect our non-GAAP operating expenses to be within the range of $88 million to $93 million. The quarter-over-quarter increase at the midpoint is largely due to the strengthening of the New Israeli Shekel against the U.S. dollar, net of hedging. I will now turn the call over to the operator to open it up for any questions. Operator? Operator: [Operator Instructions] And we will take our first question from Brian Lee with Goldman Sachs. Brian Lee: Kudos on the solid execution here. Maybe first question on the AI data center opportunity. I mean, it, it sounds like it's starting to crystallize a bit more, so appreciate the additional color this quarter. Can you give us a sense. I know it's not going to impact 2026, but it does sound like it'll be part of your 2027 business plan. What, what kind of needs to happen between now and then? Like, when do you have a product kind of in beta version? How long do you think the qualification cycle will be with, you know, potential customers? And then, I guess, how do you envision, you know, the actual manufacturing of the product? Is that something that you will take on? Is it [ SD Micro ], where you need to build a new factory? Just trying to understand the, maybe the logistics from here to when you fully commercialize the product and get into the market. Yehoshua Nir: Yes. Thank you, Brian. It's really exciting time for the data center opportunity that we have. As we said, we believe this is a multibillion-dollar opportunity for us. And as we shared with you before, NVIDIA is targeting the new generation of the GPUs that require the 800-volt DC architecture for 2027. So assuming there is no -- there are no delays in their roadmap, this is where the market is heading to have initial solution -- initial data centers that are designed to support 800-volt DC. As you know, some of the data centers are looking into hybrid solutions, which is basically taking the AC infrastructure, adding some additional components to it, called the sidecar, and that will give them an 800-volt DC with a lower risk for execution, if you will, but with much lower efficiency. When they look into the SST solution, then that should provide a much higher efficiency, and at the same time, it will require for us and for others to develop the technology, to go through what you refer to as pilot or POCs, or other ways for the data centers to feel comfortable around this solution in order to deploy it in mass. We have started engaging with the ecosystem players, with the different participants, whether it's the hyperscalers, whether it's the other power electronics providers and some other players in the market. The feedback that we've received so far about our technology, about the expertise that we bring to the table, some additional information that we actually bring to the table that some of them were not aware of. The feedback that we've received is that our solution seems to be very attractive for them. The ability to convert 34.5 kilovolts directly into 800-volt DC with efficiency of over 99% is very impressive. We've started the discussions. At this stage, the discussions are at a technical level. The technical teams are under NDA, obviously. They try to understand better how our technology is architectured, how we are implementing the different parts of the solution. And we believe that after that, we will start having discussions about initial real prototype testing. And as you said, we do not expect any revenue before 2027, and the industry is expecting the ramp up to actually start in 2028. That brings another point that many people don't think about, but our ability and our experience in mass production of gigawatt scale inverters or solutions is something that is going to be very important as these data center, AI data center builders and operators are going to consider with whom to partner. That will give us a clear path, we believe, to mass production. Brian Lee: Super helpful. I appreciate all the color. And then just to follow up on the, maybe the guidance in the safe harbor. I know it's not been your, usual policy to, to comment much on safe harbor, and you don't include it in the guidance. But maybe just a question on, you know, the, the sort of, market dynamics here as it relates to safe harbor. You know, you have no safe Harbor per your acknowledgment in Q4 revenues. You're not embedding anything in Q1. I know one of your peers, your major peer, has seen it for several quarters in a row and has also alluded to the fact that, you know, they're seeing it in Q1 and expect it into Q2 and maybe even into Q3. So, how much of this is maybe just a different go-to-market strategy? Or are they just being more aggressive than you? Is there a share shift amongst that part of the market that wants to safe harbor? Maybe speak to that. Or are you actually anticipating safe harbor to positively impact you in Q1 and beyond, but you're just not safe spacing it? Just maybe some thoughts around that and how you're different versus your peers. Yehoshua Nir: Yes. Again, thank you, thank you for bringing it up because there might be some confusion out there about what we're referring to when we say there is no significant pull forward of revenue, and we'd like to emphasize that. When Asaf and I, when we talk about guidance for the quarter or the results of the fourth quarter, we're saying that there was no significant revenue that was recognized, that is safe harbor. At the same time, we've done lots of safe harbor deals based on the physical work test. As we shared in previous calls, what happens over there is the structure of the transaction is such that because of the fact that it's a unique inventory item and there is no revenue recognition until the delivery of the product, and the customers have the ability to actually procure the product at the time that they need it, then we've not recognized revenue associated with that, but we have signed significant safe harbor deals associated with the physical work test. In addition to that, from time to time, we are having the 5% safe harbor deals, and in that case, we recognize them within the quarter. But if they don't fall to the definition of the safe harbor or the pull forward of revenue, then we don't count them towards that. Asaf Alperovitz: Maybe just to complement a couple of points. So, as it relates to the physical work test, for us, it results in a revenue recognition profile, but I would say is more similar to the normal cadence of the way we do business. Again, no forward, no pull forward. We note that no pull forward for Q4, no pull forward for Q1 in terms of guidance. And, an important benefit that we do get is it does provide us with a much better visibility, I would say, and we can entirely optimize the entire supply chain. And of course, from our customer perspective, it's a major benefit because they do not have to put a large upfront amount of the payment, and they can pay for the product as they pull them. I think it's beneficial to both ourselves and our customers. Operator: Our next question comes from Philip Shen with ROTH Capital Partners. Philip Shen: I know you haven't provided an outlook for Q2 and beyond, but was wondering if you could give us some color on how you would expect revenue to trend in Q2 and margins as well. Would you expect the kind of similar historical seasonality with revenues going higher in Q2 versus Q1? And if you can share what the magnitude, directionally, might be, that would be fantastic. Asaf Alperovitz: Thank you for the great question, and good morning. So in terms of, as you know, we do not guide past the next quarter. As you noted, there is of course a positive seasonality driver in Q2. Typically, it's around 15% and 20%. So we do expect it to be up, but we won't comment on beyond Q1. In terms of the overall drivers for the 2026 revenue, I think as Shuki noted in our prepared remarks, in the U.S., as we have said, we see continued shift towards the TPO this year. As you know, the people we work with, all the DPOs, we build designated the infrastructure with them, and we have a multi-year relationship with them, so we certainly see that as a positive. Our new Nexis platform is on track with our rollout plans, and it comes very, as you know, very highly competitive feature set. We do have a better cost structure implemented in these products. We do see in the U.S. significant C&I opportunities. We believe that we have a unique position as a domestic content and FEOC enabler to our customers, including enterprise customers. Now, moving to the E.U. continent. For the first half of 2025, last year, we, as you know, we saw significant inventory clearance in the channel. This will make year-over-year comps fairly achievable to exceed in the first half of this year of 2026. At the same time, the E.U. market remains sluggish and could even go down this year. So, I would say it will be an interplay between a weak market, a new product rollout, you know, market share expansion efforts. We're highly focused on that. As Shuki mentioned, I think we have multiple reasons to be optimistic, including, again, the Nexis, exporting from the U.S. with better cost structure that will enable and allow us to be even more competitive. We're penetrating new segments in Europe with our 20-kilowatt inverter and the single SKU rollout, of course. In terms of margins, so again, we're not guiding beyond the next margin. As it relates specifically for Q1 margin, as you can see in the mid-range of our guidance, it's slightly lower than Q4, mostly because of the lower revenue, because of the seasonality trend that we referred to. This will be partly mitigated or set off by higher sales of U.S. products and efficiencies that we start seeing from the implementation of our single SKU rollout. Talking about the longer horizon, I think you asked about that. So again, we don't give guidance, but there are certain levers that we discussed, which are very relevant now, even more. One would be the higher revenue, of course, Q2 and beyond. If you look at the natural seasonality trend, we expect to follow that. The continuous ramp up of the U.S. production. We are ramping up the U.S. production as we go, preparing for growth. I think I talked about the Nexis and the new products. In terms of the battery, in terms of the Nexis, we are shifting from NMC to LFP, so that's another major cost driver, saver. And of course, I think we talked a lot about the single SKU framework. That's gonna be also a gross margin supportive item for us. So on top of all of that, of course, you need to look at mix and things that we cannot relate to now. But overall, the trend is positive as we move forward. Philip Shen: I was wondering if you could talk through maybe your free cash flow expectations for 2026. The second part of my question is tied to the European market. Was wondering if you could help us understand, you know, give us a better understanding. I know you guys are very enthusiastic about the market out there. And it seems like from a competitive positioning standpoint with the Chinese removing the VAT rebates that might put your products in an even better position. So maybe walk us through kind of the competitive dynamics between the new Nexis platform relative to what's out there today, and then the massive focus on storage and your benefits there. Asaf Alperovitz: So thank you for the question. I'll start with the cash flow, and I'm sure Shuki will be excited to tell you about our actions and focus in the EU market. So, for 2025 Q4, we ended with $43 million, a very strong free cash flow quarter, with overall $77 million for the entire year. So again, we believe it's a pretty strong performance. And again, beyond Q1, we said that we would be free cash flow positive for Q1. We gave actual guidance to that. We're not gonna give anything beyond that. What I can say is that we're always focusing on you know, improving our cash conversion cycle, which would be supportive of our cash generation, of course. That said, in a growth environment where we're anticipating, we would invest in working capital. Considering our work towards improved margin profile, we believe this would be a prudent investment that we're making. Actually, you can look at what we've done in, again, 2025. We transitioned from a massively negative free cash flow position in 2024 to a strong $77 million in 2025, and we were positive in three out of four quarters during 2025. So overall, we're very focused on cash flow and working capital management. Q1 would be positive free cash flow, and beyond that, we'll just have to be a bit patient. Shuki, I'm sure you want to add. Yehoshua Nir: Yes. Thank you, Philip. About Europe, to your question, so yes, at this stage, it seems that -- and again, we're talking about different countries, different dynamics in each of the countries, but overall, the market remains somewhat slow. At the same time, we believe that we have a good opportunity in Europe to gain additional market share, both in the CNI and the resi market. And it starts with the fact that we've started exporting our products from U.S. manufacturing to Europe. These are newly built products designed by SolarEdge, manufactured in the U.S. with a very good cost structure that will allow us to compete, as you said, as you suggested, more aggressively in the market. The second piece is the rollout of Nexis, and as I mentioned, on March 19, we are having a launch event in Germany. We are expecting hundreds of installers to come over to experience firsthand the ease of installation, the speed of the commissioning process. And I couldn't avoid sharing the fact that they installed it in my house, you know, yesterday, and we are very happy with that. The Nexis platform brings -- and we discussed it in previous calls as well, it was designed from the bottom up as a system, so it's not like an inverter that somehow a battery is attached to it. We're actually looking at the entire system, the efficiency, both in the high kilowatts rating. As Asaf said, we're addressing now the 15 kW to 30 kW rating, which is a major segment in the DACH region. But at the same time, also many houses, when they go at night, they go to the battery, they actually consume less than 1 kW. And the efficiency over there is really, really important. Some competitors are boasting some high efficiency rating in the high kilowatts, but when you really test them in the low kilowatts, you get embarrassing results. We are very proud of the expertise that we have in DC architecture, and because of that, and the DC coupling between the inverter and the battery, we can actually have both high efficiency at the high kW rating, but also when the system goes to sub-1 kW, we demonstrate leading efficiency. I can go on and on about the advantages of Nexis, but we are very excited about it. We believe it will help us gain share. The last piece is the operational excellence. We talk about single SKU that really simplifies the work and the cash management and the inventory management and the reliability of the product for us and for our customers. We've also stopped selling our products in many different countries. We are focused on the countries where we can win, where we believe we can win, and where winning is going to make an impact on our, on our results. That allows us actually to, to focus on less countries, but with a much bigger force. On the CNI side, between our storage solution that is taking off and the inverters that we continue selling, we believe that we can gain share over there. So all in all, we are, optimistic about Europe in 2026. Operator: We will move next with David Arcaro with Morgan Stanley. David Arcaro: I was wondering if you could give an update on where channel inventory currently stands, maybe in the U.S. and Europe, how healthy the levels are right now? Asaf Alperovitz: Yes. Thank you, Dave. So as we discussed in past calls, most of our distributors in Europe have resumed normal levels of inventory, and that's the reason that we actually consumed some of our own inventory, and now we've started producing product for Europe in the U.S. So when they need additional product, and they do, they will start buying our newly produced products from the U.S. In the U.S. channel, overall, the channel has normal levels of inventories. Nothing major to report over there. David Arcaro: Got it. Okay. Great. And then, let's see, the megawatts battery storage were strong for this quarter. I was wondering if you could just touch on what you're seeing in terms of the market backdrop and demand for storage, maybe in the near term. You know, how is that trending kind of seasonally into 1Q, and as you look into the first half of the year into 2Q, the direction of that you're expecting for battery storage volumes? Yehoshua Nir: Yes. So, as we said, the need for storage is increasing globally and in both segments, both the residential and the CNI. So what you're seeing almost in every market and every segment is up and to the right when it refers to the attach rates. And as I mentioned earlier, we believe that we are offering a complete solution for our customers, and because of that, and where the market is trending, we expect to see storage becoming a bigger and bigger part of our sales. As I mentioned, with the Nexis, actually, this competitive advantage is significantly higher, and we do expect that to be some sort of a step function, if you will, in terms of the attractiveness of our storage and backup solution. In the CNI side, in Europe and in international markets, we continue to see that more and more customers understand or calculate the return on investment that they can have from adding storage to their solution and we see a major opportunity over there. Now I believe that later in the year we will start also addressing the installed base. We have, as you know, a very large installed base in many markets, and in the ones where it makes sense, we will find a way to actually leverage on that as well. Operator: Our next question comes from Dylan Nassano with Wolfe Research. Dylan Nassano: I just wanted to go back to the solid-state transformer, and maybe approach it from more of a technical perspective. Could you just kind of walk through what you see the relative advantages being, or even differences in application between your planned silicon carbide architecture and something that's like GaN-based, for example? Yehoshua Nir: So thank you, Dylan. This is an excellent question, and I believe that it's too early for us to actually comment on such a question. What we have said is actually we've looked into several potential partners when we develop the architecture that is going to be highly efficient in the conversion. And in a way, if you think about it, in solar, it's about cost is the main driver. While in the AI data center, the cost of our system is obviously important, but it's not the main driver, it's the performance that we can generate. And if we can increase the efficiency from 98% to 99%, it adds significant value. So, it's not like a cost game to the same level. Now, I'm not, you know, a PhD in engineering. I don't have a PhD in engineering, but to the best of my knowledge, GaN are less relevant in AI data center solutions. But let's leave it at that, because I may be wrong. Dylan Nassano: Okay. Fair enough. And then just for a quick follow-up. So your partner there, Infineon, they had some bullish comments on AI data center demand on their call, and they raised their CapEx outlook as a result of that. So just given your earlier comments, can you kind of frame up this ramping demand in terms of, like, incremental R&D spend or even CapEx? And then, sorry if I didn't catch this earlier, but have you decided where you intend to manufacture these, and is there any benefit to doing so in the U.S. versus overseas? Asaf Alperovitz: Yes. So I cannot obviously comment on what Infineon does or doesn't do. I'd like to emphasize two points here. One is we believe that this is a multibillion-dollar opportunity for us, the SST for AI data centers. At the same time, Infineon does support other companies that are larger than SolarEdge as well. So, you know, what they do with regard to CapEx or their comments about the market are not necessarily referring to what we are doing. And to your question about have we chosen where to manufacturing? Not yet. There are some considerations that are favoring the U.S., obviously, and we have the infrastructure that is required and the expertise and the partners that are needed in order to ramp up manufacturing in the U.S., quite quickly. Therefore, it's definitely a region or a location that we may favor. Yehoshua Nir: As it relates to incremental OpEx and CapEx, certainly we believe in the opportunity of the SST, and we plan to invest both CapEx and OpEx. Our investment is incorporated in our guidance for Q1. Beyond that, we will share with you our progress, of course. Operator: We will move next with Mark Strouse with JPMorgan. Mark W. Strouse: Shuki, I wanted to go back to the, the comments that you guys have been making for a while now about, kind of the, the U.S. C&I business and your favorable, competitive advantage with FEOC and domestic content. Just curious, with the initial guidelines that came out from Treasury last week, if you have any comment there, positive or negative, and, and kind of how you're thinking about the, the durability of that advantage over the next, you know, coming quarters or coming years? Asaf Alperovitz: Yes, thank you, Mark. And you're right, we're very optimistic about what we can offer to our customers on the C&I segment in the U.S., as our products have been designed to be both FEOC and domestic content compliant. The recent FEOC guidelines or rules with regard to the materials and the manufacturing are more specific, but at the same time, they've not really changed what we had assumed until now. So from that perspective, we are in compliance with the FEOC. We continue to believe that we're in compliance, our products are in compliance with the FEOC requirements. What remains open is about foreign entity, and on that front, SolarEdge has nothing to be concerned about. We are a U.S. company owned by U.S. shareholders, so we are not concerned about that part. So we continue to follow any development that may happen, but at this stage, the products that we currently have, you know, they were designed to comply with the current ruling and will continue doing so. Mark W. Strouse: Then just a real quick follow-up, if I can, Asaf. The Q1 guide, the 20% to 24% gross margin, I'm sorry if I missed it, but did you say kind of what the impact is on, or what the impact is from tariffs reflected in that? Yehoshua Nir: Actually, we did not quantify the tariff impact. At this point, we see tariffs as simply an additional cost of doing business in the U.S., along, of course, with the labor expenses, component costs, everything related to the U.S. manufacturing. As you know, we don't typically single out any specific cost type, unless they're temporary or one time, and we see tariffs no longer as such. So we'll just report our gross margin going forward. And one important point I wanna make is that, as we increase our exports from U.S.-produced product and sell to global business, which is, of course, a meaningful part of our business, as you know, we get back some of the tariffs through what is referred to a drawback mechanism, which will reduce the net impact to tariffs over time, certainly on a weighted average basis of our overall sales. And just to finalize and say that despite these tariff incremental costs, we can note that we still exceeded the high end of our gross margin guidance for Q4. We are only seeing, I would say, a slight dip at the midpoint in Q1, the 22% that you referred to, despite the decline in seasonality. So I hope I answered you fully. Operator: Thank you. We will move next with Chris Dendrinos with RBC Capital Markets. Christopher Dendrinos: I guess so maybe just to start here, to follow up on that, on that prior comment. As it relates to battery sourcing, and I think you mentioned you're going from NMC to LFP, do you have supply from, from outside of China? And just maybe speak to the security of that supply chain. Asaf Alperovitz: Thank you, Chris, for the question. And as we stated before, what our supply chain team has been doing for years, and definitely in this past year, they've been doing, is we constantly look at the combination of FEOC and domestic content compliance, cost, availability, and cost is inclusive of everything between tariffs and other parameters that impact it. And lastly, but first, is reliability of the product, which obviously we are trying not to compromise on them. So we are going to change from time to time. We have more than one source of battery cells as well as other components that we're using. So we look at that as optimizing the situation as it goes. Christopher Dendrinos: Got it. And then maybe just as a follow-up, as it relates to the Nexis platform, you know, how are you thinking about the kind of full-scale rollout here? And when should we expect the platform to be kind of fully scaled or fully rolled out across the globe? Asaf Alperovitz: Yes. That's an excellent question. So we are going to start in Europe with the DACH region and with the U.S., and then we are going to continue rolling out to different countries in Europe and then to Australia and some other markets. The ramp-up is going to take some time. We are going to start. As we said, we start initial quantity. We've started already initial quantities, but I would say that the high volume is going to start in the third quarter of the year, and we believe that we can finish the transition, you know, in Q1, maybe, of 2027, but that will be already the long sale, I would say. Most of the transition should happen in the second half of this year. Operator: Our next question comes from Julien Dumoulin-Smith with Jefferies. Julien Dumoulin-Smith: Maybe just a quick few follow-up items. First, just in terms of the seasonality commentary from earlier, just to elaborate a little bit further, can you comment on the CNI trend? Is that part of the secular trend that you're seeing, kind of, that performance, and why you didn't want to comment too specifically about through the course of '26? What else is impacting the trends that you're observing, if you can elaborate a little bit more to the earlier question? And I've got a quick follow-up on -- well, I'll ask you the follow-up here as well. Just on 45X, how much of that credit are you expecting here, if you can elaborate just a little bit more on that front, in the quarter itself? When do you expect some of those deferred revenues to unwind? Yehoshua Nir: All right. So, thank you, Julien, and I'll start with the first question, and then Asaf will go to the 45X. So, for the seasonality trend, you know, and you know it as well as anyone, it's -- when we combine storage, resi, CNI, U.S. and Europe, to start talking about seasonality in specific and very precise numbers is kind of hard. When we say historical trends, we're referring to how the industry has trended over the last several years, which includes both CNI and resi. And for that, when we say that we expect Q2 to be higher than Q1, it's a combination of both. Asaf? Asaf Alperovitz: Thank you, Shuki. I think you asked about 45X, so, I think as you know, since the beginning of the year, we don't break our 45X in our press release. The reason we don't is it's an integral part of the U.S. manufacturing cost structure, and 45X is the single most attractive incentive, we believe in the world currently for manufacturing our products. This is why, as you are aware, we moved the shift at about 90% of our production capacity to the U.S. over the last couple of years. And generally, as a company, our strategy is to manufacture in the location that delivers the lowest net cost to us, including incentive, of course. And again, this is currently the U.S., and we expect it will continue to be as such, as long as the 45X is in place. So we're very focused in the U.S., certainly as long as the 45X is there. Operator: We will move next with Colin Rusch with Oppenheimer. Colin Rusch: You talked a lot about taking some market share here, and I'm just curious about your strategy around pricing and balancing margin within that strategy, and how aggressive you expect to be here over the course of 2026.. Yehoshua Nir: Thank you, Colin. We used to say it's the million-dollar question. It's probably the billion-dollar question, you know, how you optimize between margin and market share. We're definitely trying to optimize them both. There are certain things that we need to take into account when we think about pricing and gaining share. The first priority for us is to add value to our customers, whether it's through the product and the benefits that it brings, whether it's through our service, our reliability of the product, and the ease of doing business with us, and we are putting a lot of efforts improving all of these. That being said, we have competition, so while we can have a premium, we have to keep it in check with what we can do with what we can do. And then we are following the share gains as it pertains to the premium that we are charging in the market, and we believe that we are doing a good job so far. Both expanding our margins, increasing our share, and increasing our margins, actually, even. Colin Rusch: Excellent. And then, the follow-up is really around the solid-state transformer and the opportunity in data center and how you're, you know, tracking the competitive landscape. There's obviously a number of folks working on solutions here, and there's a lot of, you know, I guess, figuring out that's happening right now. I guess, how are you approaching benchmarking progress from some of the other folks working on this and keeping track of your own progress and some of the future-proofing that's going to be required to really stay competitive and durable as the equipment provider into that market over time? Yehoshua Nir: Yes. So obviously, we're not the only ones who identified the multi-billion-dollar opportunity that is out there, and there is a bunch of startup companies that are pursuing this opportunity, other companies that have been providers of power electronics to data centers and maybe some additional ones. We believe that what we bring to the table is similar to what we did in solar for the last 2 decades, expertise in what matters the most here, which is the DC architecture, the ability to have highest efficiency, the ability to actually manufacture at scale. We think that if we can bring a superior solution and then continue to innovate and to bring additional solutions to the market, we'll maintain the leadership, and we'll be able to get our fair share of this opportunity. It will require additional investment, additional focus, and luckily for us, it's actually right in our wheelhouse. It's exactly where we are really good. Our team is excellent in this area, and we plan on leveraging on that. Operator: We will move next with Corinne Blanchard with Deutsche Bank. Corinne Blanchard: Most of them have been answered, but maybe can you discuss whether you're considering changing pricing strategy in Europe or in the U.S., this year or, like, in 2027? And then maybe if you can talk as well a little bit about, like, you know, your exposure to the TPO market, and you have less exposure to the 25D. Just what are you seeing here in the TPO market and, you know, peer pressure trying to enter the market? Yehoshua Nir: Yes. So I, I've just covered the pricing in Europe and in the U.S. We are not going to change pricing strategy per se, but our intention is to continue pushing forward our advantages, to continue providing more and more value to our customers, and to have the applicable premium paid to us, and at the same time, look at how we can continue to gain share. And that is applicable in both markets. Even though the competitive landscape is slightly different, the strategy remains the same. The second question was about? Corinne Blanchard: Just how you see, like, the TPO market, and I know it has been already asked, but, like, are you seeing, like, an increased competition, like, of peers trying to enter the TPO market? And how do you, like, see the market evolving for this year and 2027? Yehoshua Nir: So obviously, with 48E remaining the only tax benefit in solar, the market is shifting towards the TPO. And as we said earlier, we feel that over the years, we've partnered with the TPOs. We are providing them with the value that they need, not only at the product level and the additional power that we generate and the best efficiency that we can have in both high kilowatt and low kilowatts, but actually in terms of integration of systems, knowing how to work with them and support them. So we feel that we are there for them, and we are happy that this part of the market is growing. Operator: We will move next with Vikram Bagri with Citi. Vikram Bagri: Shuki, you talked about single SKU, consolidating warehouses, streamlining operations, and a lot of, you know, initiatives you're taking to improve the profitability. Is there a way to quantify the impact of these initiatives on op costs as well as on OpEx? I'm trying to understand the building blocks of how you reach EBIT profitability by year-end 2026. How much of that is operating leverage from, you know, gaining market share, increasing revenues, versus, you know, 45X ramping up, versus, you know, cost saving? If you can quantify or sort of directionally guide us, you know, how these factors will contribute towards, you know, the EBIT profitability by then. And then I have a follow-up. Asaf Alperovitz: Sure. I think on the gross margin levers, I expanded in the last question talking about the main levers, of course, the high revenue, the ramp up U.S. production, introduction of the Nexis, the shift from NMC to LFP, and so on and so forth. I didn't touch about the OpEx much, so maybe it's an opportunity to talk about our OpEx drivers and cost reduction levers. So there are, of course, a couple of moving parts, I would say. As we noted in the prepared remarks, we continued in 2025, and throughout 2025, to optimize our product portfolio. We shut down our Kokam Energy Storage division, we divested our Tracker business, SolarGik, and we sold our e-Mobility operation that just after the year ended. All of these are positive contributors to our expenses, and will enable us to focus more on the core businesses and on the SST. But on the other hand, during 2026, as I said, we plan to increase our investment in OpEx and CapEx in the SST project. Another important factor, maybe the last one to relate to, is the strengthening of the Israeli new shekel, which has been a meaningful headwind for us over the course of the last 12 months. If I remember correctly, it's up to more than 14% over the course of the last 12 months. Yet, with this shekel trend, we've been hedging, of course, but at a less attractive rate. Still, putting all of these factors together, we feel very comfortable with our $88 million to $93 million guidance for Q1. Like I said, it's a pretty good run rate to assume. Of course, assuming current macro environment condition will persist, nobody knows that. So, again, we didn't give specific guidelines as to when we will reach profitability. We are highly focused on returning to profitable growth, sometime within 2026. Vikram Bagri: And then as a follow-up, Asaf, you mentioned investments in working capital this year. And you also mentioned in response to this question and previous questions, potential investments in solid-state transformer product as well. I wanted to ask the free cash flow question slightly differently. Do you expect positive free cash flow this year, or you know, there will be sort of free cash flow draw this year because of all the investments you're making? Asaf Alperovitz: Sure. So again, I think I answered this question before, but for Q1, we gave specific guidance as it relates to being free cash flow positive. Beyond that, we're not guiding. We'll have to wait for the next quarter. We are extremely focused, Shuki, myself, and the entire company, in managing our working capital. I think as the profile margin will improve, and we keep controlling, of course, the discipline around OpEx and CapEx, you will see that. In terms of CapEx, I do have to say that we do expect to have significantly higher CapEx next year. In 2025, if I remember correctly, it was in the neighborhood of $25 million. With the incremental investment associated with the SST, and to ramp up our production, I think we will see higher CapEx next year, in 2026. Operator: And at this time, we have reached our allotted time for questions. I will now turn the call back over to Shuki. Yehoshua Nir: Thank you. Thank you everyone for attending this call. As we said at the beginning, we are very excited about what we did in 2025, and now we are moving into offense. Our intention is to drive into profitable growth, to gain market share, to roll out Nexis, and we're very excited about the opportunity we have in the AI data center power solution. And we can't wait to update you as we make more progress. Thank you. Operator: Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.
Operator: Good morning, and welcome to the Insulet Corporation Fourth Quarter and Full Year 2025 Earnings Call. As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Clare Trachtman, Vice President, Investor Relations. Clare Trachtman: Good morning, and welcome to our Fourth Quarter and Full Year 2025 Earnings Call. Joining me today are Ashley McEvoy, President and Chief Executive Officer; Flavia Pease, Chief Financial Officer; and Eric Benjamin, Chief Operating Officer. On the call this morning, we will be discussing Insulet's fourth quarter and full year results, along with our financial outlook for the first quarter and full year 2026. With that, let me start our prepared remarks by reminding everyone that certain statements, including comments regarding our financial outlook for the first quarter and full year 2026 the anticipated impact of our strategic actions, the potential impact of various regulatory and operational matters and the macroeconomic environment on our results of operations contain forward-looking statements that involve risks and uncertainties. And of course, our actual results could differ materially from our current expectations. Please refer to today's press release and our SEC filings for more detail concerning factors that could cause actual results to differ materially. In addition, on today's call, non-GAAP financial measures will be used to help investors understand Insulet's ongoing business performance, including adjusted operating income, adjusted EPS, adjusted EBITDA, adjusted tax rate and constant currency revenue, which is revenue growth, excluding the effect of foreign exchange. A reconciliation of certain non-GAAP financial measures being discussed today to the comparable GAAP financial measures is included in the accompanying investor presentation and available in our earnings release issued this morning, which are both available on our website. Additionally, unless otherwise stated, all financial commentary regarding dollar and percentage changes will be on a year-over-year reported basis with the exception of revenue growth rates, which will be on a year-over-year constant currency basis. During the Q&A session this morning, Ashley, Flavia, Eric and myself will be available to address any questions. Now I'd like to turn the call over to Ashley. Ashley? Ashley McEvoy: Thank you, and good morning, everyone. I'm pleased to share that we closed 2025 with another strong quarter, recording our 10th consecutive year of 20% or greater constant currency revenue growth. This consistent track record reflects the strength of our durable recurring revenue, profitable business model and the breadth and depth of our competitive moats. Our strong clinical evidence and real-world outcomes continue to earn prescriber and patient confidence and the consistency of our execution, along with the deep commitment of the Insulet team to finding a better way for people living with diabetes has enabled us to deliver enhanced value to all of our stakeholders. I want to start by thanking our Insulet employees around the world. 2025 was a year of significant progress at Insulet and the entire organization delivered on our goals without missing a beat. Your dedication to our mission fills me with confidence today and well into our future. Our results in the fourth quarter are a testament to the reliability, consistency and broad appeal of Omnipod, coupled with the strength of our strategy and execution. Total company revenues were $784 million, advancing 29% constant currency. U.S. revenues of $568 million increased 28% and international revenues of $214 million grew 42% constant currency. This strong finish to the year enabled us to surpass $2.7 billion in revenue for the full year, more than doubling our revenue base over the last 3 years and delivering approximately 30% year-over-year constant currency growth. Our annual performance of $1.9 billion or 27% growth in the U.S. and $754 million or 39% constant currency growth in international markets highlights the progress and the impact we're making as we continue to unlock more of our $30 billion-plus total addressable market. We achieved record new customer starts across both the U.S. and international in the fourth quarter and for the full year, with the vast majority coming from people transitioning from multiple daily injections. This reflects growing provider confidence, which, as I just mentioned, is driven by strong clinical evidence and consistent real-world outcomes. Importantly, it also reinforces that Insulet is not only the market leader in AID, but also the clear driver of overall market expansion, and we intend to maintain this leadership position. Turning to our key markets and starting with our largest, U.S. type 1, where we continue to focus on extending our leadership. The U.S. type 1 market is a more than $9 billion opportunity with AID penetration at just 40%, which is well behind CGM penetration of 70%. In 2025, we delivered year-over-year growth in type 1 new customer starts in both the fourth quarter and the full year, driven by strong patient and prescriber preference for Omnipod. In fact, both type 1 and type 2 users in the U.S. named Omnipod 5 their favorite pump in 2025. Omnipod's strong clinical evidence, broad access, affordability and ease of use are enabling us to expand well beyond traditional endocrinology channels. Our U.S. prescriber base now includes more than 30,000 health care professionals, up approximately 28% year-over-year. The strength and reach of our commercial teams position this segment to remain a meaningful and consistent contributor to our global customer growth. Momentum in the U.S. type 2 continues to build as well. In the fourth quarter, type 2 new customer starts grew significantly, both sequentially and year-over-year, rapidly expanding our type 2 user base. This acceleration reflects strong clinical and real-world outcomes, continued investment in demand generation and the recent ADA guideline update recommending AID for people with type 2 who require insulin. Our type 2 prescriber base grew 62% in 2025 to now more than 6,500 clinicians. Most people with type 2 diabetes are being managed in primary care settings. Therefore, expanding beyond endocrinology represents a meaningful and sustainable growth opportunity. In a type 2 market of more than $12 billion, where AID penetration remains below 5%, which is far behind roughly 55% of CGM adoption, stronger education, improved outcomes and increasing access are already accelerating adoption. Importantly, we are unlocking this opportunity in a strategic and capital-efficient way. Our U.S. sales force, which is the largest in the industry, reaches high-prescribing offices that treat both type 1 and type 2 diabetes, giving us confidence in our ability to unlock the next 5% to 10% of type 2 penetration efficiently. Our growing type 2 customer base continues to surface powerful stories about the impact Omnipod 5 can have including the experience of Verquise. He knew something was wrong when he began experiencing pain in his feet and arms and an urgent care visit led him to an unexpected diagnosis of type 2 diabetes. After reviewing insulin delivery options with this doctor, Verquise chose Omnipod because he shared, I really love the mission and the promise that was exuded from Omnipod to add normalcy to my diabetes and to show that my life can still be balanced and that this brand, this family will always be there and will forever evolve as medical technology does. Stories like Verquise, combined with the growing excitement among both health care professionals and people with type 2 diabetes, continue to strengthen our conviction in this significant type 2 market opportunity. Looking ahead, we expect to expand penetration even further with the launch of our fully closed-loop offering planned in 2028, which will enable us to reach and serve the broader primary care population. Additionally, pharmacy access remains a critical differentiator in the U.S., making it easier for people with diabetes to start and stay on therapy. Over the past decade, we've built strong relationships with payers and PBMs across the U.S., backed by clinical and economic evidence that continues to resonate. We have the broadest access in the market available in approximately 48,000 U.S. pharmacies and covered for more than 90% of insured lives or about 300 million of the 317 million insured people. Our offering is affordable with most users paying about $1 a day through our pay-as-you-go model and preferred formulary position. And we continue to invest in programs designed to further reduce the remaining barriers to access, including efforts to simplify the prior authorization process for providers, particularly among primary care prescribers who treat large numbers of people with type 2 diabetes. Omnipod also continued to drive standout international performance, fueled by strong year-over-year and sequential growth in new customer starts, along with continued positive price/mix realization driven by conversion from Omnipod DASH to Omnipod 5. We continue to see solid performance across our established European markets, supported by new sensor integrations such as our launch with Dexcom G7 in Germany. Our Omnipod 5 launches in Canada and Australia also delivered robust growth. In Canada, we secured reimbursement, recognizing Omnipod 5's value in half of all provinces, helping drive more than 60% growth in new customer starts. And in Australia, new customer starts more than tripled following the launch of Omnipod 5. Our global expansion will continue in 2026 with Omnipod 5 and Omnipod Discover recently launching in the Middle East. In addition, Spain, our newest market, is expected to launch Omnipod 5 later this year. Volume remains the primary driver of our international growth and the ongoing transition from Omnipod DASH to Omnipod 5 will continue to support positive price/mix realization. Pricing contributed high single-digit growth in both the fourth quarter and the full year 2025. Our international growth runway remains substantial. The type 1 market alone exceeds $10 billion, yet only 1 in 4 people with diabetes outside the U.S. is using AID therapy, even as CGM penetration reaches around 65%. As adoption of AID accelerates worldwide, our proven commercial playbook, expanding product portfolio and growing geographic footprint position us extremely well to continue capturing share, delivering value and driving sustained international growth. To bring this all together, we have a large underpenetrated TAM across U.S. type 1, U.S. type 2 and international markets with significant runway to unlock additional growth in one of the fastest-growing categories in MedTech. And our proven track record reinforced by our performance this year underscores our ability to continue to deliver top-tier growth and value creation for shareholders. Notably, this top-tier growth has allowed us to deliver meaningful margin expansion even as we continue to invest thoughtfully to extend our competitive advantages in innovation, clinical outcomes, access, brand and manufacturing. For the year, we achieved record gross and operating margins, delivering 180 basis points of gross margin expansion and 270 basis points of operating margin expansion. We remain committed to investing with discipline, ensuring we sustain the strong growth we are delivering today while also driving continued improvements in profitability. The investments funded by our durable recurring revenue, profitable business model and strong financial position fueled significant progress across every aspect of our strategy in 2025. We expanded our global scale this year with launches in 9 new countries, launched our G7 CGM integration, increased full phone control adoption to more than 60% of U.S. users and continued building the foundation for our next-generation systems. We also advanced our clinical programs in meaningful ways. We published results from SECURE-T2D and RADIANT, completed the STRIVE study for Omnipod 6 and moved into the next phase of our EVOLUTION study supporting our fully closed-loop system for adults with type 2 diabetes. Collectively, these programs further strengthen the scientific foundation behind Omnipod, advancing our algorithms for optimal performance, fortifying the case for broader AID adoption and enabling continued global expansion. We invested in market development in new, more visible and impactful ways. Our expanded sales force is now more than 25% larger than our nearest competitor. Our DTC campaigns are generating record lead volume and activating new prescribers. And our enhanced insights and analytics capability are helping us optimize our cost to acquire and cost to serve, driving continued expansion in customer lifetime value. These advances and efforts have solidified Omnipod's status as the most requested, most preferred and most prescribed AID system. Among new customers, 70% of those who walk into a prescriber's office request a brand ask for Omnipod 5. And among existing users, Omnipod 5 maintains the highest Net Promoter Score in the category. Now I want to take a few minutes to walk through how we will continue advancing the long-term strategy we outlined at our 2025 Investor Day to extend our leadership and strengthen patient and physician choice for Omnipod. Innovation remains central to our strategic approach. And in 2026, we will deliver a steady cadence of highly requested enhancements to reinforce our leadership in automated insulin delivery. This includes algorithm updates that enable a 100 set point target for tighter glycemic control, increased time in automated mode and improve responsiveness to enhance both the user experience and clinical outcomes. We will also expand our CGM integrations to include FreeStyle Libre 3 Plus, making Omnipod 5 compatible with every major sensor, and we will roll out Omnipod Discover globally. Omnipod Discover is a new data platform that delivers clear streamlined insights to support efficient health care professional review of Omnipod 5 data and enable more confident prescribing. Discover provides users with actionable guidance and reassurance, strengthening engagement and adherence. It also simplifies onboarding, reducing efforts for new users and accelerating the start-up experience. Collectively, these enhancements reduce day-to-day effort with fewer device interactions, broader CGM choice and more actionable insights that help patients and clinicians with confidence. In 2026, we will continue to purposely increase R&D investment to advance our next-generation platforms, including Omnipod 6 as well as our fully closed-loop system for type 2 diabetes and future innovations. This also includes continued progress across our clinical programs with ongoing work in STRIVE and EVOLUTION. Let me take a moment to share more on our next-generation platform, starting with Omnipod 6. This system is designed to address the critical needs of users by meaningfully reducing day-to-day burden and increasing flexibility through improved connectivity, expanded flexibility in on-body placement, real-time software updates and more personalized automation. It will feature a smarter algorithm to further personalize insulin delivery with pivotal data to be presented at ADA in June. Importantly, we are designing a single updatable Pod platforms that will be compatible across all CGM systems. These capabilities not only improve outcomes and the wear experience, but also accelerate our innovation cycle as we prepare for launch in 2027. Turning next to our fully closed-loop system for people with type 2 diabetes, which is designed to make AID accessible to virtually everyone. As the market leader in AID, it's important that we define what fully closed loop truly means for patients and providers. It is a system that delivers therapy effortlessly, adapting automatically without any user intervention. No dosing, no mealtime actions and no required adjustments while the Pod is worn. For us, fully closed loop also means redefining the provider experience, requiring no clinician-defined settings to start and simple enough for a patient to initiate on their own. Reflecting this definition, we believe our fully closed-loop system will help address a significant unmet need for the 5.5 million people with type 2 diabetes who are on insulin, only about 25% of whom achieve recommended glucose targets today. We expect to initiate our pivotal EVOLUTION study this year, supporting a regulatory filing in 2027 and a commercial launch in 2028. Finally, operational excellence remains a core focus as we work to expand margins in 2026, while continuing to fund our R&D and commercial investments. In 2025, we delivered significant margin expansion driven by scale and ongoing manufacturing productivity with our Acton and Malaysia facilities ramping ahead of plan. In 2026, we expect additional leverage as we invest in more capacity and further automation. And with the help of AI, we are increasingly tapping into our unique cloud-based data ecosystem to enhance customer service efficiency and satisfaction, reducing our cost to serve while strengthening retention. Taken together, these priorities position us extremely well to execute on our long-term strategy and continue strengthening and driving choice for Omnipod among patients and providers worldwide. All of these investments, strategies and consistent execution come together in the financial growth algorithm we introduced at our 2025 Investor Day. Our 2026 guidance aligns fully with this growth outlook, and Flavia will walk through the details in a moment. This outlook is supported by our continued investment in innovation, science, market development, demand generation and manufacturing, balanced with the discipline that has defined our execution over the past several years. We remain committed to delivering market-leading financial performance while investing in the next wave of transformative innovation. We entered 2026 with strong momentum and clear priorities that position us well and give us confidence in achieving our financial goals. To close, 2025 was a year of tremendous growth for Insulet, financial, strategic and organizational. We expect to build upon this in 2026 as we lighten the burden of living with diabetes for hundreds of thousands of people and in doing so, drive penetration, increase our scale and create value for our shareholders. We operate from a position of strength with durable competitive advantages, a large and underpenetrated market and a purpose-driven, highly motivated team committed to finding a better way. We look forward to extending our leadership in the year ahead and beyond. Thank you for your continued support and interest in Insulet. I'll now turn the call over to Flavia to walk through the financials and guidance in more detail. Flavia Pease: Thank you, Ashley, and good morning, everyone. The Insulet team had another strong year in 2025 and closed with an impressive fourth quarter, delivering over $780 million in total revenue, an increase of 31.2% at reported rates and 29% at constant currency rates. During the quarter, total Omnipod grew 31.3% on a constant currency basis. We generated total revenue of over $2.7 billion in 2025, an increase of 30.7% at reported rates and 29.5% at constant currency rates. For the year, total Omnipod grew 30.3% on a constant currency basis, showcasing sustained global demand for Omnipod 5. Across both fourth quarter and full year, we achieved record new customer starts in the U.S., international markets and company-wide, with growth accelerating on both a year-over-year and sequential basis. In the U.S., during the fourth quarter, over 85% of new customer starts came from MDI and type 2 represented over 40% of all starts, underscoring the significant expansion of this customer segment. Our estimated global utilization and annualized retention rate remained roughly stable for the fourth quarter and the full year. Now turning to our performance in greater detail. U.S. Omnipod revenue grew 28% in the fourth quarter and 27.2% for the year, above the high end of our guidance range, driven by continued demand for Omnipod 5 across type 1 and type 2 customers. As we commented last quarter, U.S. revenue growth during 2025 was impacted by rebate timing and prior year inventory stocking dynamics. Normalizing for these impacts, U.S. growth in the fourth quarter was approximately 30 basis points higher, representing an acceleration from normalized third quarter growth levels. Our international Omnipod business grew 50.7% on a reported basis and 41.7% on a constant currency basis for the fourth quarter. For the full year, international Omnipod revenue grew 44.1% on a reported basis and 39.3% on a constant currency basis. Volume was the primary driver of international Omnipod growth, while positive price/mix realization continued to contribute as customers shift from Omnipod DASH to Omnipod 5. As in prior quarters, we witnessed strong growth in the U.K., Germany and France, in addition to the other countries where we have launched Omnipod 5. In 2025, our 9 expansion markets collectively delivered growth in line with the U.K. and Germany combined, reflecting the broad market appeal of Omnipod 5 and benefits to patients globally. Continuing down the P&L, our fourth quarter gross margin was 72.5%, reflecting a 40 basis point expansion year-over-year. Our full year 2025 gross margin of 71.6% reflected a 180 basis point expansion year-over-year. This improvement was fueled by robust top line growth, continued manufacturing productivity gains at our Acton and Malaysia facilities, supported by positive pricing and increased volumes. As mentioned last quarter, Malaysia became margin accretive just 1 year after coming online. Turning to OpEx. We continue to make purposeful investments to both maintain and extend our leadership. We are fortunate to be in a position where we can meaningfully fund our innovation pipeline and ensure we are first to deliver truly transformational technology to the market. In line with this commitment, we increased R&D spending by 50% in the fourth quarter and 37% for the full year as we advanced our innovation road map and clinical development programs, including our STRIVE and EVOLUTION studies. At the same time, we remain disciplined and targeted in our SG&A investments. We continue to prioritize market development initiatives to unlock AID penetration and demand generation efforts, including expanding our commercial and customer experience teams to drive share and increase retention of our leading AID technology across both type 1 and type 2 diabetes. For the year, we successfully optimized both our cost to acquire and our cost to serve, 2 key metrics we remain focused on improving as we enhance customer lifetime value. Fourth quarter adjusted operating margin of 18.7% reflected robust revenue growth, strong gross margins and continued investment to advance innovation and key commercial strategies. Our full year adjusted operating margin was 17.6%, ahead of our most recent guidance and representing 270 basis points of expansion versus the prior year. As Ashley mentioned, we are well positioned to continue investing robustly for future growth while delivering meaningful margin expansion for years to come. Fourth quarter net interest expense was $9.2 million, an increase of $11 million relative to prior year, primarily driven by the debt refinancing. Full year net interest expense was $24.7 million, an increase of $22 million compared to the prior year, again, primarily driven by impact of our senior unsecured notes issued in March. Our fourth quarter non-GAAP adjusted tax rate was 22%, and our full year non-GAAP adjusted tax rate was 22.3%. Fourth quarter adjusted EPS was $1.55, increasing 35% from $1.15 in the prior year comparable period, while full year 2025 adjusted EPS was $4.97, up 53% from $3.24 in the prior year. During the year, we repurchased approximately 184,000 shares for $59.6 million. Turning to cash and liquidity. We ended the quarter with $716 million in cash and the full $500 million available under our credit facility. We delivered more than $375 million in free cash flow for 2025, a 24% increase over last year. 2025 free cash flow included approximately a $70 million tax benefit related to the One Big Beautiful Bill. As a reminder, free cash flow includes capital expenditures, which grew meaningfully in the fourth quarter to $135 million, reflecting our continued investment in manufacturing capacity. This included further expansion of our Malaysia operations with additional lines coming online as well as the start of development of our new facility in Costa Rica, which is expected to be operational in 2029. These investments strengthen our global footprint, advanced our automation initiatives and position us to support industry-leading growth while continuing to expand margins over time. Now turning to our outlook for the first quarter and full year 2026. For the first quarter, we expect Omnipod revenue to grow 28% to 30% with total company growth of 25% to 27%. On a reported basis, foreign currency is expected to provide a favorable impact of about 200 basis points to both measures. In the U.S., we anticipate Omnipod growth of 24% to 26%. And in our international business, we expect Omnipod growth of 37% to 39%. On a reported basis, foreign currency is expected to contribute a favorable impact of roughly 1,100 basis points to international growth. Turning to our full year 2026 outlook. We expect our total Omnipod revenue to grow 21% to 23% and our total company revenue to grow 20% to 22%. We expect a favorable impact of 100 basis points from foreign currency for the year. Our guidance reflects continued top-tier market-leading growth, but I know you will all ask me why is growth decelerating? Just a couple of quick notes on this. First, this year, we will be anniversarying the first full year of the U.S. launch of Omnipod for type 2, which was a significant contributor to last year's performance. In addition, we're beginning to annualize several of our international launches, which continue to ramp well, but create more challenging year-over-year comparisons. These year-over-year comp dynamics are reflected in our 2026 guidance. For U.S. Omnipod, we expect our revenue to grow 20% to 22%, driven by increased penetration from MDI users and competitive gains. We expect year-over-year growth in U.S. new customer starts for the year, and we assume similar trends in pricing, utilization and retention as we saw in 2025. For international Omnipod, we expect 2026 revenue to grow 24% to 26%. On a reported basis, we expect a favorable impact of approximately 300 basis points from foreign currency. We expect year-over-year growth in international new customer starts for the year as we penetrate further in current markets and expand Omnipod 5 into new markets. Omnipod 5 is now available in 19 countries, including 5 recent additions in the Middle East, and we will continue to broaden our reach and plan to enter Spain by late 2026. While volume remains the primary driver of our international revenue growth, our guidance also reflects a benefit from positive price/mix realization as customers continue to transition from Omnipod DASH to Omnipod 5. Overall, our international growth guidance assumes stable utilization and slightly improving retention from 2026 relative to 2025. Turning to 2026 operating margin. In line with the annual guidance we provided at our recent Investor Day, we expect to drive approximately 100 basis points of operating margin expansion for the full year, reflecting strong top line growth, modest gross margin expansion, a significant step-up in R&D investments to fuel our innovation pipeline and leverage SG&A spend. Looking at a few items below our operating income. We expect 2026 net interest expense to total approximately $40 million, primarily due to lower interest income, and we expect 2026 non-GAAP tax rate to be in the range of 22% to 23%. Our team is actively focused on assessing potential opportunities to optimize our interest expense and tax rate over time. Turning to shares outstanding and EPS. I'm pleased to share that the Board has approved an additional $350 million share repurchase authorization. We expect to deploy approximately $300 million of this authorization into the first quarter of 2026. Our strong balance sheet gives us the flexibility to continue allocating capital in line with our long-standing principles, investing for growth while delivering long-term value for our shareholders. Based on our current share count and repurchase plans, we expect the 2026 ending balance of our diluted share count to be around 70 million shares. Based on these factors, we expect 2026 adjusted EPS to increase by more than 25%. We expect free cash flow to be approximately flat from 2025 levels, supported by robust growth and continued margin expansion, partially offset by a ramp-up in capital expenditures to support our continued global manufacturing expansion plans. As I just mentioned, 2025 free cash flow included approximately $70 million related to a tax benefit from the One Big Beautiful Bill. Our team remains steadfast in its commitment to driving top-tier growth, expanding margins and increasing profitability and free cash flow. These efforts are central to our long-term value creation strategy and enable us to reach and serve more people with diabetes around the world. With that, operator, please open the line for questions. Operator: [Operator Instructions] Your first question today comes from the line of Jeff Johnson from Baird. Jeffrey Johnson: Congratulations on a strong close to the year. Ashley, I just want to start from a high level maybe with the first question here. You're a couple of months away from your 1-year anniversary leading Insulet. Stock has had a great run in the first 6 months of your tenure. It's faced maybe some challenges here in the last 5 or 6 months. What do you think is the most underappreciated part of the Insulin story at this point, especially from an investor perspective? Ashley McEvoy: Yes. Jeff, thanks for the question, and it's great to see Insulet continue to execute and live into our commitments that we shared in November at our Investor Day. I would highlight 4 key areas. Number one is our tech lead, which we'll continue to innovate off of. I'll come back to that. I would say number two is our growing commercial prowess. I'll come back to that. Three is our manufacturing at scale; and four is our financial strength. So I'll start with just our tech lead. As we shared, we've invested over $3 billion to get here. Omnipod 5, we're just 3.5 years into the launch, into the U.S., 2.5 years in places like the U.K. and Germany, and we continue to post record NCS. This knowledge, this experience and this tech lead really continue to prove the leadership that's resulted in, number one, most prescribed and number one most requested. And importantly, in my opening remarks, I really shared how we've built this meaningful pipeline that really addresses the biggest unmet needs in the market. And you heard us touch around really 2 algorithm improvements starting this actually weekend, we launched a limited market release with Omnipod 5 with a lower set point, advanced automated mode. It connects with Libre 3. We're going to be launching our new data platform. So that will be going out into full market release in a couple of months. We will be launching our third-generation algorithm with Omnipod 6. As we mentioned in our opening remarks, we're going to be posting the data and the algorithm at the ADA. This is a meaningful advancement in personal automation as well as over-the-air connectivity as well as on the bod placement with a lot of variability, which is important for patients as well as the 1 pod. And you're going to hear us talk about -- there's been a lot of noise, if you will, in the industry, which is really good things for patients around this fully closed loop. We believe that we are in a class by ourselves of how we're going to define what fully closed loop really means. I'll come back to that in inquiry. But it's a very strong pipeline. And then our commercial prowess, I think, is really underappreciated. We have the largest sales force in the industry. We are going to evolve that sales force for messaging from selling on simplicity and ease of use and our highly differentiated technology to our strength of clinical performance. I'll come back to that. And then as Flavia was mentioning in her opening remarks, 30,000 prescribers with Omnipod, which is up 28%. Very strong brand loyalty, and we continue to have unparalleled access and affordability. We manufacture at scale. It's one thing to get regulatory approval, it's different than to manufacture. We produce tens of millions of Pods with high-quality medical-grade quality at consumer electronic scale. And when we say something, we execute on what we're going to say. I'm really pleased the team is building out Malaysia. We're already margin accretive in Malaysia. In Acton, we've improved productivity, and we've already started to break ground on Costa Rica. And last is just the financial wherewithal and, you know, not only our recurring revenue model, 70% gross margin, expanding operating margin, EPS above revenue and cash flow positive. So those are perhaps underappreciated tenets of the Insulet company. Thanks for the question, Jeff. Operator: Your next question comes from the line of Robbie Marcus from JPMorgan. Robert Marcus: Congrats on a good quarter. I wanted to ask -- I guess it's limited to 1. I wanted to ask on new patient start trends, U.S. and outside the U.S. And we've seen some of your competitors stumble a bit on new patient adds recently. How are you thinking -- you mentioned record new patient starts, I believe that's a U.S. and outside the U.S., but you could clarify that if I'm wrong. How are you thinking about finding sources of sustainability in the new patient growth? Type 2 is clearly a home run for you in the U.S. How do you keep that growing and getting larger and larger and continuing to win there? And then same question outside the U.S., you've been moving into new geographies. How do you sustain your #1 share there and continue to grow that over time? Ashley McEvoy: Thank you, Robbie. Yes, we did -- as I mentioned before, I think in Investor Day, we enjoy very balanced growth from the U.S. and OUS. We did enjoy record new customer starts in the U.S. as well as OUS. And our role as a category leader, as we shared, we've generated about 65% of the market growth has come from Insulet. And that really is the primary source of our volume are coming from people not in the category, and those are people on multiple daily injections. And so we engineer our innovations to address -- to bring new customers into the market. We do enjoy about 10% of ours comes from switching, and we are switching from competitive AID, but our primary source is coming from MDI. And that we can go into type 1, where we continue to improve new customer starts and post new records in type 1, both in the U.S. as well as OUS. In the U.S., that's backed by strong ADA guidelines. We mentioned that 40% of people on AID therapy, there's still a lot of room when CGM has 70% penetration. There's a 30-point spread. So backed by science, making the education to really educate on our very strong clinical performance as well as just kind of the unparalleled access and affordability in type 1. Type 2, Robbie, you mentioned we're at the nascent stages, 5% penetration. We have a very strong value proposition. We have very strong science. You're going to hear us talk more about kind of our strategic pivot, taking advantage of the largest channel of the #1 sales force in the U.S. of migrating from really sharing our differentiated technology into proven clinical outcomes. It's something, quite frankly, we own. There's a bit of a misperception in the marketplace that we have to correct and stand and set the record straight, which is in addition to our, if you will, preferred form factor and preferred user experience, we have very robust clinical performance on A1c reduction and improved time and range, not just in our clinical trials, but importantly, in 2 independent studies just recently that compared AID systems, Omnipod's A1c was unsurpassed and our time and range was similar. So we're going to take that message and that science to the largest channel of our P&L, which is our field force. Thanks for the question, Robbie. Operator: Your next question comes from the line of David Roman from Goldman Sachs. David Roman: Maybe just sort of follow up on Robbie's question here. Can you help us reconcile script trends to what you're seeing in reported revenue? I think this is a dynamic that caused quite a lot of noise intra-quarter. So can you maybe size up how new patient start trends and volume growth compares to revenue? And if script data is not the right barometer, what should investors be using to track performance? And I have one financial follow-up. Ashley McEvoy: Sure. Let me just turn to Flavia. Go ahead, Flavia. Flavia Pease: David, thank you for the question. Yes, we know there had been a lot of questions around script data during the fourth quarter. So I think as a reminder, and we talked a little bit about this in -- at the JPMorgan conference in January. The best -- if you were going to use script data, the best would be to use total Pods as that's the best reflection of the future revenue outlook. If not -- if the total Pod data is not available, you can use total scripts. It will not capture potential changes to longer script fills, going from a 30-day to a 60-day to a 90-day, but it's also a good second best option. And then finally, you can use NBRx, but there is a little bit of noise on NBRx because of samples and also different channels. Specialty channel was not captured there as you use IQVIA data. And then finally, in the fourth quarter, there's a little bit of, I would say, seasonality where you see higher volume going through wholesale with specialty pharma than in other quarters, which is not necessarily captured in script data, but affects revenue. So there are a few items that folks have to take into consideration when they extrapolate from scripts into dollars of revenue. David Roman: Okay. And then are you willing to provide the difference between new patient start growth and overall revenue performance? Flavia Pease: No. We'll continue to provide, I would say, qualitative commentary on our -- the strength of our new customer starts, and we talk about them. Ashley just mentioned the strong performance in both U.S. and OUS and the continued growth that we see as we continue to expand penetration of AID, but we're not going to provide specificity on new customer start growth rates. Operator: Your next question comes from the line of Larry Biegelsen from Wells Fargo. Larry Biegelsen: Congrats on the strong finish here. Yes, I'm going to ask, I think Jeff's question maybe a little bit differently. So Ashley, you're guiding to 21% to 23% Omnipod growth for 2026, and you gave a 3-year LRP of 20% recently. So my question is, how are you feeling about being able to sustain the 20% growth in light of new competition? And anything new you can offer on why you think investor concerns around competition are overblown? Do you think it's going to be harder for new companies to scale or compete directly with Insulet in the patch pump market? Or do you think their entries will have a rising tide effect? Ashley McEvoy: Thank you, Larry, for the question. And again, I'm really pleased to see the confidence in the company even increased since our Investor Day that we shared in November. As we come as a company out of stealth mode to the position of market leadership, performance trumps everything. And again, I'll go back to some elements that I think are maybe underappreciated. Getting regulatory approval is not really the definition of impact. And we have this 25-year head start with, again, $3 billion of investment that's enabled us a lot of knowledge, a lot of tech know-how, a lot of experience on scale. And I think in this marketplace, if you look at history, there's been a lot of attempts because it is an attractive market. But I will tell you, there are a lot of barriers to entry. And those really come down to manufacturing at scale with high quality, it has to go to continuing to innovate with clinical performance and really unlocking the TAM. What's going to enable us to deliver the top-tier performance is by continuing to bring new users into this category. And our pipeline is specifically designed to bring new users from MDI into the category. And I think the biggest unmet need for us is to really start to improve the acumen among the clinical base, particularly in the U.S. of our strong clinical performance. So in addition to being #1 prescribed and #1 most requested predominantly because of our differentiated form factor and user experience, we also want them to know and be well aware of just the strong proven clinical performance, both efficacy and safety and unsurpassed in the category. I think that will be new information for many more clinicians. And then I'm going to come back to just continuing to build on our commercial prowess as we go, Larry. Again, I think this company has been known as being really good at technology and really good at the supply chain. What's perhaps underappreciated is this evolving commercial of having the largest sales force, selling on science, very strong. We're bringing new prescribers into the category. We have this beloved brand that we are activating. When we activate DTC, we generate record new leads into the category. We're converting those leads into brand loyalty. They become new Omnipod Podders. And then we continue to have unparalleled access and affordability. We've been at this pharmacy for 9 years, and we've built remarkable relationships with the payers and the PBMs because we have very strong clinical and economic evidence. And we're going to take that strength and continue because 100% of our portfolio is in pharmacy. So while others may be at the 10% or 30%, Omnipod has been at this for 9 years, and we'll continue to have unparalleled access and affordability. So thank you for the question, Larry. Flavia, go ahead. Flavia Pease: Maybe -- just one final add is also the financial strength that we have. We have best-in-class gross margin, which has built through these investments that Ashley talked about over the years. We are free cash flow positive. And that strength allow us to continue investing in the business while at the same time being able to expand margins. And that investment is in innovation. It is in unlocking the market with AID penetration and it's also in capacity to invest ahead of demand when you are in a disposable form factor construct. Ashley McEvoy: Yes, Eric sitting here, as we shared, Larry, we've got $1 billion that we're going to invest in R&D in just the next 3 years. And we also are planning new next-generation platforms beyond the 3-year window to stay ahead. Operator: Your next question comes from the line of Michael Polark from Wolfe Research. Michael Polark: I have a question on one of your sensor partners. So G7 is moving to 15-day from 10-day. Is this a different Pod for Insulet? Or is this the same Pod? And if it's a different Pod, can you comment on the company's readiness to provide integration with the 15-day sensor? I'm just -- I'm remembering back to 2024, it took some time for the G7 Pod to become widely available and it kind of, I think, suppressed starts for a period of time before it was widely available. And so I'd like to understand the dynamics around the move from Dexcom to 15-day. Ashley McEvoy: Thank you, Mike. And here's Eric, why don't you talk about our sensor integration? Eric Benjamin: Mike, thanks for the question. As a reminder, we were actually ready with the 15-day launch day 1 with Dexcom. So Omnipod 5 is compatible with the 15-day G7 now, and that's a great experience for customers. And one of the key things we've been focused on, as you know, Mike, is accelerating sensor integration for customers. We were ready day 1 with 15-day. As Ashley mentioned earlier, we began the limited market release of our Freestyle Libre Plus integration just recently, and we're excited to bring that to market in the first half of 2026. And then looking ahead to Omnipod 6, recognizing this need to evolve even faster with the market, it's part of why we're designing one Pod that can be updated in market for faster innovation so that with Omnipod 6, we can always push the latest technologies directly to Pods that customers have. So we're accelerating innovation and sensor integrations now. Pleased to be on market with Dexcom 15-day and assuring that we're positioned to do that going forward. Operator: Your next question comes from the line of Travis Steed from Bank of America. Travis Steed: You talked about changing your guidance philosophy. So I just wanted to make sure we had understanding of how you kind of set this year's guidance versus prior years and kind of what's been baked in into 2026 versus what's left for upside? And also, do you expect record new starts in Q1 as well? Ashley McEvoy: Thanks, Travis. Flavia, over to you. Flavia Pease: Yes. Travis, we continue to set guidance with a full intent to deliver. That has not changed. The guidance that we provided today reflects a balanced view of our outlook at this point. And we will experience normal seasonality in the first quarter, which has been the case historically between fourth quarter and first quarter. But outside of that, we are very confident and pleased to be able to provide an outlook of 25% to 27% for the first quarter and 20% to 22% for the full year. Operator: Your next question comes from the line of Joanne Wuensch from Citigroup. Joanne Wuensch: ADA is going to be here before we know it. Is there anything in particular that we should look forward to there? And I'm also trying to key in on when are we going to get a line of sight on some of the clinical steps for Omnipod 6? Ashley McEvoy: Yes. Thank you, Joanne, for the question. So let me maybe just tee up one of the things that we'll be sharing at the ADA, which is our -- from our -- data from our feasibility study EVOLUTION, which is around what we're calling our fully closed loop, which not all fully closed loops meet the definition of our definition. And I think it's important, I'm going to spend a little bit of time on this quickly, and then Eric will cover the others. We are designing as the market leader with our big eyes focused on the underserved type 2 market in the United States, where we have 5% penetration and there's 5.5 million people on insulin, that we would like to be on AID therapy since the ADA guidelines recommended AID therapy as the standard of care. We have designed our fully closed loop to address the biggest barriers for those patients with type 2 to get on to AID therapy. It starts with our algorithm, which will be including no user intervention. It requires no dosing. It has no meal time interactions, no adjustments while the Pod is worn. There's 2 other areas that are really important to the type 2 user base who -- one is the clinicians. And the clinicians, this will require no defined settings at start, which is a big barrier right now to the primary care prescribing base that just don't have the time to go input all of those settings. And then third, Joanne, the big unlock is patients don't have to do 2-hour training. This is something that they can initiate on their own. So our combination of really modernizing the training so that they can do it at home on their own time without 2 hours, really unlocking prescriber adoption, not having to put in settings, really important for the primary care audience, which is really who's going to be managing patients who have type 2 diabetes. And then third, really a very CGM-like experience for people with type 2 diabetes. So we're going to be sharing our data from our feasibility in -- at the ADA. But in addition to that, we have some -- our third-generation algorithm and Omnipod 6 that Eric will touch on. Eric Benjamin: Joanne, just building on Ashley's comments about what's coming at the upcoming congresses. So at ATTD, we'll be showing the evolution data, as Ashley just described, on our way towards that truly transformative fully closed loop system to unlock primary care. We'll also be showing some health economics data showing favorable outcomes in ER visits for the unique fully exposable experience that is Omnipod as compared to tube pumps. So really excited for what's coming at ATTD. Looking ahead to ADA, that's where we'll be publishing the pivotal results from STRIVE. That's the pivotal study that supports Omnipod 6, excited to be reporting that out. And in addition, Ashley mentioned this earlier, but there are more independent third-party studies comparing clinical results of on-market AID systems coming out. And in 2 recent of those, Omnipod has shown unsurpassed A1c and similar time and range to those reporting time and range using an iCGM sensor. And so one of the other things that we're paying attention to is that it's really important to interpret clinical data based on A1c, and it's hard to compare across studies that don't use an iCGM sensor for time and range. And so there's more of those studies coming out, and you'll see us talking about those too. Operator: Your next question comes from the line of Richard Newitter from Truist. Richard Newitter: Congrats on the quarter. Maybe the first one, just your type 2 mix, I think you said you exited the year at about 40% of new patient starts. I guess that would seem to imply that your type 1 segment maybe saw moderating growth leveling off in the single-digit range. I guess, is that the right way to think of it going forward? And if so, what is that? Is that share? Is that just the market kind of starting to moderate and we're getting near maturity? And then I have a follow-up. Flavia Pease: Yes, I'll start and maybe Eric can add. So yes, we had very strong type 2 performance in the fourth quarter, and there was a continuation of that strength throughout the year. We had record new customer starts for both U.S. and international, both year-over-year and sequentially. To your point, Richard, type 1, it grew nicely year-over-year, and it was comparable to the third quarter, which was a record quarter for us in NCS. The level of penetration, obviously, in type 1 is higher than type 2. And as we continue to bring AID into those markets, you will see accelerating growth in type 2, just given that it's 5% today versus type 1 at 40% penetration of AID. But we continue to source a lot of our volume from MDI, as we talked about, 85%. And that's really our strategy to drive that penetration in those customer segments and internationally, which is also still very underpenetrated. Eric? Eric Benjamin: Yes, Richard, thanks for the question. I think as Flavia described, type 1 in the U.S. is more penetrated and the level of new customer starts in the market is high. And so it continues to be a significant driver of growth. Ashley described it well. We've got a balanced growth portfolio and type 1 is a big part of that. Type 2, the level of new customer starts in the market has been low, and we are accelerating that as we launch Omnipod 5 with type 2 and did so over the course of 2025, which is why you saw mix grow. You also saw our type 1 new customer starts outside the U.S. grow significantly year-over-year. And those 3 levers, U.S. type 1, U.S. type 2, international type 1 are going to contribute a balanced contribution to our growth over time. Richard Newitter: Okay. That's helpful. And maybe can you -- following up to Travis' question, can you put some assumption bars or around the upper and lower ends of your range? Or maybe said another way, what would have to happen to the biggest needle mover in your assumption set to be at the upper end or above? Flavia Pease: Well, we provided a guidance range. So to me, that is the upper and lower end of the bar that you're describing, Richard. And I think we obviously, as I said earlier, we continue to set guidance with the full intent of delivering, and this is our best outlook at this point, given where we are in the year. Obviously, if we can advance AID penetration even further and faster, that will translate into us being closer to the top end of the range. Operator: Your next... Ashley McEvoy: We have time for one more question. Operator: Certainly. Your final question comes from the line of Danielle Antalffy from UBS. Danielle Antalffy: Congrats on a strong end to the year, ladies plus Eric. So my question is on the competitive moat. Ashley, you touched on this earlier. I do think it's underappreciated. I specifically wanted to see if you could talk a little bit about the sampling at the physician's office and sort of if you could walk through how this works, like who trains the patient to ensure they get the optimal experience? And I appreciate it's still early, but what are you seeing for capture rates with that program? Ashley McEvoy: Thank you, Danielle, for the question. And I guess just for context, again, I think the company is best known for just having really differentiated technology and investing ahead of the curve in supply chain and maybe pioneering this pharmacy pay-as-you-go model. And what I would like to see at the end of this year is a better appreciation of the commercial prowess that we've been building over the past couple of years. So we have been expanding our sales force. We expanded it around 25% last year. We're continuing to do that. We call on over 17,000, so full coverage of the endos, really 10,000 of the highest prescribers. And what we're evolving is our messaging, as I mentioned earlier, in addition to selling what they've come to love, which is really this differentiated technology platform that's simple and easy to use. It's why it's the gateway to the category to new users, it's easy for them to explain. It's also coming to educate on our really strong clinical performance, and we will continue that messaging in 2026. To make it easy to get people on Pod, we're really the only AID offering that can get people on a sample. So in -- right in the practice, they can go put a Pod. It's a very capital-efficient way for us to initiate trial. We've gotten a lot of really good feedback both from young children as well as grandparents around once -- it's kind of that moment of delight. Once they try it on, they get the, wow factor, and we have very strong conversion ratios. In addition to the called on universe, we also have this darling brand is what I say that I think is a bit underappreciated where we activate directly to consumer, make them aware of the category, make them aware of Omnipod 5 and people go in and ask their doctors for that. And they specifically ask for Omnipod, and that's a new category user. And we -- those then become new patients, but they also become new prescribers. And that's why you heard us talk about when we ended the year, we had 30,000 prescribers writing for Omnipod, which is up 28%. And we're going to continue that flywheel of really creating the market and creating demand for Omnipod. Thank you for the question, Danielle. Operator: And this concludes our question-and-answer session and today's conference call. We thank you for your participation, and you may now disconnect.
Jacobus Loots: Good morning to all of you, and welcome to our 2026 interim results presentation. Thank you very much for taking time out of your schedules to join us today. We will keep the presentation fairly brief with an opportunity for questions afterwards. Joining me in presenting today will be Marileen Kok, our Financial Director. A special word of thanks to our finance department and also to the rest of the amazing Pan African team for excellent work in putting these results together. You are welcome to refer to our SENS and RNS announcements and to the supplementary information available on the Pan African website should you require detail not dealt with in today's presentation. Please note the disclaimers and information on forward-looking statements on Slides 2 and 3. Reflecting on the half year past, Pan African could not have chosen a better time in the last 100 years or more to be in the gold business and furthermore, to increase our gold production by 50%. Pan African has again made excellent progress in our strategy of positioning ourselves as a safe and sustainable, high-margin and long-life gold producer with very attractive future prospects. Not many gold producers are able to successfully commission 2 new transformational projects within the space of 18 months. Today, we are also announcing sizable near-term expansions to these projects. It is a pleasure to present this set of results. However, I'm even more excited about our future, about further growth in production and importantly, to continue making a tangible and real positive difference to all stakeholders in the regions that we operate. A lot has been said about the gold price, and we have to give credit to the rise in the fortunes of the yellow metal, which is, to some extent, reflected in the set of results. Suffice to say that if the current gold price is maintained, we can expect an even better second half to the financial year with increased production also. Last year, we set some records. This half year was also a busy one for Pan African. We are again breaking records with the following worthwhile noting. We moved to the London main market and were included in the FTSE 250 Index. Pan African is now one of the largest gold miners listed in London. We achieved record half-year production results. We are reporting record profits, record headline earnings per share and record cash flows. We are initiating an attractive interim dividend to our shareholders, and we should be pretty much ungeared from a net debt perspective before the end of this month. Over the last year, we reduced debt by more than $180 million, demonstrating the cash flow generating ability of our portfolio. By financial year-end, at prevailing gold prices, we should have accumulated a very healthy cash balance despite investing meaningfully in all of our growth initiatives. Pan African is now incredibly well positioned to capitalize on current gold prices and on our increasing production profile. And I look forward to sharing some thoughts and further detail on many of our initiatives and plans in the following slides. On Slide #4, an overview of the presentation. We will start with Pan African's health and safety performance, which is obviously critical in our business. And then provide an overview of the group and our operating environment, some key features from the half year with detail on asset performance as well as our cost and capital outlook. We will then spend a couple of minutes on ESG before allowing Marileen the opportunity to highlight elements of the group's financial performance for the period. The presentation will then conclude by outlining focus areas for the year ahead. If we then proceed to Slide #6, our safety performance and our journey to zero harm. We continue to focus on safety initiatives and interventions and on maintaining our industry-leading record. We can also celebrate a number of safety milestones achieved during the reporting period. I would like to specifically mention the achievements of our surface business, now including Tennant, with these operations again achieving zero lost time and reportable injuries for the half year. My commitment is that we will continue to do our utmost to ensure the safety of our people and operations in order to realize our goal of a zero harm working environment. Slide #8. We believe Pan African offers a compelling investment proposition. We operate a well-diversified portfolio of producing gold assets in 2 jurisdictions with outstanding mining pedigrees. We have a high margin and stable operating base, generating very attractive cash flows, growing ever closer to 300,000 ounces of gold production per annum. We expect production to grow by almost 40% in the next year, driven primarily by the ramp-up of MTR and Tennant Mines. Our assets are long life and the group has a huge reserve and resource base for further expansion with some very exciting projects that we will discuss later. We have a proven track record of project delivery, excellent capital allocation and a sector-leading dividend, now also with an interim dividend. And we have the ability to leverage the existing portfolio for further attractive growth. No need for us to go out and buy expensive assets at high valuations at this stage. Slide #9, the proof is in the pudding or in the numbers in this case. An investment in Pan African in 2009 when the group in its current form came into being, would have increased some 75-fold versus gold price increase also attractive of around 6x. We've also received an attractive dividend over this period, further increasing returns on Pan African stock. The company is now well covered by local and international analysts and has a diversified shareholder base. Slide #10. We have built a unique portfolio of surface remining and underground assets. The addition of MTR and Tennant mines means that we now have 3 large mining complexes in South Africa and 1 in Australia, all contributing towards a material increase in gold production in the years ahead. Surface operations to reduce unit costs and turn legacy liabilities into profits, whilst the underground mines provide long life of mines, solid returns on investment as a result of a large sunk capital base and also attractive optionality, which we are bringing to account in a circumspect and considered manner, always thinking about the best way to allocate capital and generate returns for our shareholders. Slide 12, a bit more detail on our current portfolio of assets. I think what is very helpful is that all of our operations now have extended lives with the shortest life being the BTRP at 6 years, excluding Royal Sheba. If we compare ourselves with the sector, many producers are running out of life on their assets or have to invest significant capital for future production, not the case for Pan African. We do not have to go and acquire more assets to maintain and grow production. Slide 13, our operating environment. We continuously seek ways of making our business less susceptible to adverse external impacts in South Africa. We have now seen an extended period without any load-shedding. We are rapidly expanding our renewable energy footprint. Our mining rights are long dated, and we have multiyear wage agreements in place at most operations. At Pan African Resources, we characterize our labor relations as constructive and stable, underpinned by a proactive consultative approach with recognized unions and structured engagement forums. Pan African has in the past, consistently pursued longer-term collective agreements. And as I've said, we have multiyear wage agreements in place at most operations. Some of the other focus areas include employee health and engagement initiatives. We are also very proud of our interactive smartphone app, which we are currently implementing for all employees, creating a unique employee value proposition for a more engaged workforce. Pan African's track record demonstrates that we can operate and grow in South Africa and do so very successfully. Our experienced Australian team will ensure the same success in that jurisdiction. We have found Australia's Northern Territory government very welcoming and supportive of our operation. It is a great place to do business, and we look forward to further expanding in that jurisdiction. If we then proceed to key production cost and financial features from the half year past on Slide 15. Gold production was up more than 50%. Our guidance for the full financial year is 275,000 ounces or more, with production weighted to the second half of the financial year as MTR's expansion is completed, Tennant mines start mining higher grades from open pits, and we are firmly established in Evander's very-high-grade 24 level B-Line. We are expecting production for our next financial year to be even closer to 300,000 ounces. Our all-in sustaining cost for the half was $1,874, above previous guidance. The primary reasons for overshooting on all-in sustaining cost was the rand-dollar exchange rate, employee option expenses as well as increased royalties and processing of third-party material. For the full financial year, with increased production, we expect all-in sustaining costs to decrease to between $1,820 to $1,870 per ounce. We expect to be net debt free by the end of this month. And importantly, the group remains entirely unhedged. And despite all of the growth and capital reinvestment, we are able to maintain our sector-leading dividend to shareholders, also now initiating an interim dividend. Slide 16 should be an interesting one for our investors, demonstrating how nicely we have expanded margins in recent years, now with meaningful contributions from MTR and Tennant Mines and also the full impact of prevailing record gold prices not yet fully reflected. Slide 18. I think it is fair to say that Pan African has a record second to none in terms of conceptualizing construction and operation of tailings retreatment projects, now complemented by Tennant Mines also. These long-life assets form the cornerstone of our business. And we have further room to grow in this space detailed in the next slide, which presents a very compelling investment proposition. If we then move on to more detail on the performance per operation, starting with Elikhulu on Slide 19. Clearly, a flagship asset for the group, just under 9 years of production remaining, producing at $1,200 per ounce, currently the lowest cost in the group. Elikhulu delivered an excellent performance for the half year, production up 15%, and we look forward to another great year and clearly excellent cash flow generation in the current gold price environment. The asset generated $78 million of EBITDA for the half year, basically the same as for the full previous financial year. We are also now constructing the Winkelhaak pump station ahead of when required. This will enable us to feed material from both Leslie/Bracken and Winkelhaak in the next financial year. Slide 20, the BTRP, another good performance from our first gold tailings retreatment plant commissioned in 2013. As previously flagged, we have extended the life of this operation from surface remining only to 6 years. The capital requirements for this life extension, a relatively modest $4 million for the new Bramber pump station has now been spent and the pump station commissioned. The BTRP will, therefore, continue to form an integral part of Pan African's tailings retreatment and the Royal Sheba story for many more years. MTR on Slide 21. We commissioned the plant in October 2024, ahead of schedule and below budget. We have now also successfully completed the CIL and reactor expansion in December and already achieved the expanded nameplate capacity in the same month. Production from MTR was approximately 10% lower than anticipated for the half as a result of processing an area with lower grades and recoveries. However, we expect a nice pickup in H2, which will also positively impact unit costs. Going forward, MTR should deliver 55,000 to 60,000 ounces of annual production. We are completing construction of a water treatment plant on site and should also start construction of a 20-megawatt solar facility before the end of the calendar year. On Slide 22, we cannot say enough about the socio-economic and environmental benefits of this project. Concurrent rehabilitation is in progress. We are uplifting local communities, providing much needed economic and employment opportunities and working with law enforcement to eradicate illegal mining. Also a special mention to our MTR team for winning the Best ESG project in Mining Award at December's Resourcing Tomorrow Conference in London. Slide 23, Tennant. We could not have chosen a better time to make this acquisition, which is now fully integrated into the group with the Nobles plant running at steady state. The Tennant Creek Mineral Field was historically one of Australia's highest grading gold provinces, located in a Tier 1 mining jurisdiction and through our wholly owned tenements and the exploration joint venture with Emmerson Resources, we control some 1,700 square kilometers of very prospective ground in this mineral field. The initial life of mine at Nobles is 8 years. However, strategic exploration and studies are underway to improve this to more than 15 years, especially when considering our Warrego copper and gold deposit, containing 16.5 million tonnes of ore at 1.3% copper and 1.1 gram per tonne gold. Historically, exploration in this area was only focused to near surface mineralization with less than 8% of drilling being done at depths greater than 150 meters. Slide 24. The construction of the Nobles plant was completed in April 2025, with the first gold produced only 1 month later. The project was completed ahead of schedule and within budget. Soon thereafter, in July 2025, full nameplate capacity of 70,000 tonnes was achieved. This has been carried through into the reporting period's production with Tennant mines producing almost 16,000 ounces, mainly from processing the Crown Pillar Stockpile, which is on surface and next to the plant. It is expected for production to improve significantly in the second half as higher grade ore from the Rising Sun open pit with an average grade of 5.8 grams per tonne and from the Nobles open pit at approximately 2 grams per tonne are mined and processed. The forecast for Tennant Mines in FY '26 is to produce between 46,000 to 50,000 ounces of gold. The all-in sustaining cost achieved in the first half was impacted by the lower unit production from the low-grade Crown Pillar Stockpile and working costs incurred for the pushbacks at the relevant pits. This cost is anticipated to reduce in H2 as the unit production increases. The initial life of mine of 8 years from current sources is targeted to increase to more than 15 years through systematic regional exploration around known mineralization, such as the Juno and Golden Forty deposits, along with more than 10 additional previously unknown targets that were identified through geophysical programs over the last 6 months. Juno contains resources of 262,000 ounces at a grade of 4.16 grams per tonne with a further large deposit successfully drilled below the Juno resources. This deposit remains open at depth, while the deeper load is also open at depth and on strike. Similarly, the Golden Forty deposit, which is part of the Small Mines Joint Venture, holds some 114,000 ounces of gold at a grade of 7.25 grams per tonne, while multiple high-grade drill intersections occur close to the known resource and will be targeted for additional exploration and resource growth. About 6 months ago, we promised growth from Australia, and here it is. The group will invest further by increasing the throughput of the plant from 840,000 to 1 million tonnes per year. This will be done by adding 2 additional CIL tanks, a fixed crusher front end and a flash float circuit to minimize the effects of low-grade copper ingress into the circuit. The accelerated development into the ore deposits at Juno and Golden Forty, which will both be mined underground utilizing a trackless decline system will form part of this strategic investment. Additional to these deposits mentioned is the White Devil shallow deposit of more than 600,000 ounces at 4.1 grams per tonne from where open pit mining can extract almost 400,000 ounces from the asset at an average stripping ratio of 20. The deposit at White Devil outcrops on surface and is open on strike and at depth. Initial oxide mining at White Devil will come in at an even lower stripping ratio of less than 10. We are in the process of finalizing the Major Mines Joint Venture agreement with our partner, Emmerson. All of these developments will see the production of Tennant Mines grow from 50,000 ounces to approximately 100,000 ounces per annum over the next 3 years. Slide 26, the Evander underground, a much better performance for the period with production up by almost 90% and further improvements expected in the second half. The new infrastructure is fully commissioned and functioning as expected. All-in sustaining cost has also reduced nicely with the ramp-up in production. If we then proceed to Slide #27, dealing with Fairview, our flagship underground operation at the Barberton Mines Complex, a good performance with gold production up by 10% with mostly ore from the MRC and Rossiter orebodies. We continue to build more flexibility at this operation and will invest in further development and refrigeration in the next years to support the operation's very extended life of mine of more than 20 years. The smaller underground operations at Barberton on Slide 28. In terms of Consort, the rehabilitation of the PC shaft has been completed and now enables the contractor to recommence mining on the high-grade 41 to 45 level mining sections. Additional development is ongoing on the MMR and the PC shaft to access mineral reserve blocks, which will give us access to more ground to mine. Much better performance from Consort in the half with production up by 20%. As far as our Sheba mine is concerned, production was impacted by lower grades mined, and we again continue to develop in order to improve flexibility. Slide 30, the section dealing with all-in sustaining costs. Almost 90% of our portfolio produced at an all-in sustaining cost of $1,700 per ounce. Slide 31 illustrates that our cost performance continues to be very much in line and better than the average for the global sector with most producers having experienced significant pressure in terms of costs in the last couple of years. On Slide 33, group capital projects. We continue to invest into our assets and into growth. For the full financial year, sustaining capital is fairly subdued in terms of growth in the next financial year. We are, however, using increased cash flow margins in fast-tracking developments, principally at Tennant and MTR. On the next slide, it is great to discuss some further near-term growth opportunities. Slide 35, the Soweto cluster at MTR. As we have said before, the Soweto cluster consists of more than 100 million tonnes of tailings with a mineral reserve of more than 500,000 ounces of recoverable gold. The pre-feasibility yielded some very attractive results. We can be producing between 30,000 to 35,000 ounces of gold annually at a very competitive all-in sustaining cost for an initial capital investment of some $160 million. The definitive study will be complete in the next months, whereafter our Board will finally assess the way forward. Slides 36 and 37, some very attractive growth at Tennant also. Historically, the Warrego mine produced 41.3 tonnes or 1.3 million ounces of gold. 91,500 tonnes of copper and 12,000 tonnes of bismuth between 1973 and 1998. This project is a wholly owned asset, which contains a further resource of 219,000 tonnes of copper at 1.3% and 582,000 ounces of gold at 1.1 grams per tonne and remains open at depth. By itself, this is a large deposit with multiple exploration targets to the north and south of the current mine. A feasibility study is underway on the copper and gold strategy with results expected early in the new calendar year. This study targets the production of 10,000 to 15,000 tonnes of copper per year, along with an additional 20,000 to 30,000 ounces of gold, while extending the life of Tennant mines past 15 years. Other third-party copper and gold sources in the region could support a hub-and-spoke strategy also. And finally, on growth, the Poplar project at Evander almost forgotten. Poplar is one of the largest remaining unmined projects in the Witwatersrand Basin and hosts more than 6 million ounces of gold at around 7 grams per tonne in mineral resources within Pan African's existing Evander mining right. It is a shallow 500 meters below surface, high-grade Kimberly Reef system defined by extensive historic drilling that confirms reef continuity and structural definition. Poplar represents the northwest extension of the proven Kimberly Reef orebody currently being mined at Evander's 8 shaft, materially reducing geological and execution risk. An existing pre-feasibility study is being updated and is targeting 100,000 ounces per annum underground operation, utilizing conventional Witwatersrand mining methods and leveraging existing Evander metallurgical infrastructure, significantly enhancing capital efficiency and shortening the potential route to production. Poplar does not represent exploration upside. It is a delineated high-grade underground growth platform within our existing operating footprint with a scale to materially strengthen the group's future cash generation and drive sustained shareholder returns. ESG on Slide 40. We continue to be very proud of our achievements on this front, particularly on progress with renewable energy, water retreatment and social projects. We really do make a positive difference where we operate. To elaborate further on our renewable energy road map on Slide 41, we are targeting more than 60% renewable energy in the next years. I will now hand over to Marileen, who will provide an overview of the financial results for the 6 months. Marileen Kok: Thank you, Cobus. On Slide 43, you will notice the positive impact of the 62% increase in the average U.S. dollar gold price received and the increase of 59% in gold sold for the reporting period on the financial results. Revenue increased by 157% period-on-period to USD 487 million, with the group fully benefiting from the record high spot gold price throughout the reporting period, whereas hedging was still in place for the prior period. The increase in revenue also resulted in an increase in adjusted EBITDA of 323% and an increase in earnings of 207% to $148 million. Headline earnings increased by 541% to $149 million and headline earnings per share increased by 512% to $0.0734 per share. Earnings per share increased by 192% to $0.073 per share. In the prior period, the gain on bargain purchase of $28 million as a result of the Tennant Mines acquisition was included in earnings per share, but not headline earnings, which explains the difference between earnings per share and headline earnings per share. There are no material differences between earnings and headline earnings in the current reporting period. Production costs and all-in sustaining costs in U.S. dollar terms were impacted during the current reporting period, mainly as a result of the appreciation of the rand relative to the U.S. dollar by 3.2% and the increase in share-based payment expenses as a result of the increase in the share price by more than 140%. Further cost increases included higher royalty payments as a result of the higher gold price and increased profitability of the operations and payment for third-party material treated at the Evander and MTR operations. Although the cost of production from these third-party sources is higher than the cost of the group's own production, the margin is still very attractive at prevailing gold prices and ensures that we utilize the group's full processing capacity. The impact of a full 6 months of production from the Tennant Mines and MTR operation should also be taken into account when comparing the absolute cost of production as these operations were not fully commissioned in the corresponding reporting period. Tennant Mines and MTR contributed to increases of 25% and 19%, respectively, to the total group cost of production. Unit cost of production are expected to decrease during the second half of the financial year as a result of an increase in production, given that the group's production cost consists of a large fixed cost component. This will ensure that full year unit cost of production will be between $1,820 and $1,870 per ounce as per the revised cost guidance at an exchange rate of ZAR 17 to the U.S. dollar. The very substantial increase in cash flows from operating activities before dividend, tax, royalties and net finance costs of 588% to USD 260 million demonstrates the impact of growing gold production by more than 50% while controlling cost increases in this high gold price environment. These cash flows assisted the group in paying the record net dividend in December of $44 million and to de-gear the balance sheet by reducing net debt by 80% from $229 million to $46 million. The reduction in net debt included the settlement of the 4 SO1 bonds, which was part of the group's inaugural issuance in the debt capital markets and also early repayments of the MTR term loan facility. Slide 44 demonstrates the ability of the group to generate exceptional cash flows at prevailing gold prices. At current gold prices, the group will be fully de-geared from a net debt perspective by the end of the month. The expected debt redemption profile is obviously well ahead of contractual requirements. The MTR term loan facility was fully settled in January 2026, well in advance of the contractual repayment date of 31st of July 2029. The group's revolving credit facility and general banking facilities is undrawn, and the group is currently busy finalizing the extension of the maturity dates of these facilities as they constitute a key component of our core working capital facilities. A number of very attractive banking proposals are currently being considered for the extension of these facilities. The group's remaining outstanding debt facilities currently consists of the listed corporate bonds in South Africa, combined with the funding facilities for the Australian operations from the Northern Territory government and a private financial institution. I'm also pleased to report that we are in the process of settling the Australian debt facilities, and this will be completed before the end of the financial year. Slide 45 tracks the group's historical dividend payments and attractive returns to shareholders. The record dividend of $0.37 per share for the 2025 financial year resulted in a net payment of USD 44 million during December 2025. This dividend represented an increase of 68% compared to the dividend for the 2024 financial year. The group has also now initiated interim dividends with a ZAR 0.12 per share dividend approved by the Board for payment in March 2026. We are very comfortable that Pan African has sufficient available liquidity after payment of dividends to fund operations, together with further renewable energy initiatives and our very attractive growth projects. Thank you. I will now hand back to Cobus to conclude today's presentation. Jacobus Loots: Thank you, Marileen. If we conclude on Slide 47 and to again reinforce some key points. We now have the tailwinds from the highest gold prices in history, and the group is completely unhedged and pretty much ungeared. We are expecting further production growth in the half year ahead, and we have a pipeline of very attractive growth projects. Clearly, in this environment, the group is generating very significant cash flows. Let me reassure shareholders that, as always, we will continue to be incredibly prudent in capital allocation and investment decisions. We have an outstanding track record in terms of generating sector-leading shareholder returns on an absolute and per share basis, and we will not compromise on this metric. Thank you very much for your time this morning. We look forward to continue mining for a future and expanding our horizons in the period ahead. Hethen Hira: Thank you again for joining us this morning. And there definitely is a bit of time for questions. So let's do the conference call first, if you don't mind. Operator: [Operator Instructions] At this stage, we have no questions from the telephone lines. I will now hand back for questions from the webcast. Hethen Hira: Thank you very much. We have a few questions on the webcast. The first one from Dylan Griffiths of Foord Asset Management. I appreciate the updates to guidance for FY '27. You've given us a range of 50,000 to 54,000 ounces of official guidance for Evander, but noticed the presentation slide on Evander suggests circa 70,000 ounces. I understand you're into some good grades at 24, 25 level. Could you reconcile these 2 estimates for us? Jacobus Loots: Thanks, Dylan. Yes. So 100%, we're mining the B-Line on 24 level. It really is exceptional grades. And that's partly the reason for the really nice increase in production from the Evander underground during this period. You're 100% also correct, 70,000 ounces, if one looks at the life of mine is not an unreasonable expectation from the underground. And as we continue into 25 level and we ramp up 25, definitely, we can expect an uptick in production from the underground. For next year, we want to be a little bit conservative still in terms of the production. So we're quite comfortable 50,000-54,000. Hopefully, we can do better. But again, we're quite excited about the prospects for the Evander underground. As we said, the infrastructure is working well and a lot of scope to grow. So you can expect increases from Evander in the coming years from a production perspective. Hethen Hira: Thank you, Cobus. The next question is from Herbert Kharivhe of Absa. Please comment on the state of the cyanide market. Some of your competitors are reporting supply challenges. Is the current supply from Sasol sufficient to service increasing demand as gold mining activity increases across the country, especially from cyanide-intensive operations like tailings? Jacobus Loots: Yes, I can't comment on our competitors or peer companies. But fortunately, Pan African had the foresight to install briquetting plants for cyanide at all of our operations, which means we can import cyanide if so required. So that was very good planning from our perspective. Obviously, it's well spoken about it. There was a shortage in the South African market given challenges from our supplier. But Pan African is very well set up in that we have flexibility. So generally, we don't see those shortages impacting our operations. And also from a cost perspective, over the recent years, because of the large increase in the sort of cost of cyanide, it's pretty much sitting at import parity at this point. Hethen Hira: Thanks, Cobus. Nkateko Mathonsi from Investec asked about, please give us color on Tennant all-in sustaining cost. And where is it likely to land in H2 FY '26 when production is double that achieved in H1 FY '26? And following on Tennant, Arnold asked, will you have to make any additional payments at Tennant to buy out partners or property holders? Jacobus Loots: Well, the all-in sustaining cost, we've guided will come down in Tennant as we produce more ounces. There's a lot of fixed costs. Obviously, also, we spend a bit of money on accessing open pits, et cetera. But units of production always reduces costs. So you can expect lower costs from Tennant. And in life of mine, the cost should be a lot lower as we ramp up. And you would have seen that we have given a lot of guidance in terms of moving to 100,000 ounces of production at Tennant in the next 3 years, which I think will be very good. And that excludes any growth from Warrego, which can give us a lot of copper and gold. So it's quite exciting. In terms of payments, Marileen, there are some payments still to be made, which we factored into all of our numbers. Marileen Kok: Yes, yes. All of the royalty payments and everything is included in all of our numbers. And yes, there's no additional payments for any expansion included in the current numbers. Hethen Hira: Thank you very much. And Arnold again from Nedbank. What is your underlying year-on-year all-in sustaining cost inflation. If we strip out the impact of royalties and share-based payments, will you be able to keep a lid on cost given the high -- given the current high gold price? Marileen Kok: Thanks, Hethen. So if you look at our current cost base, and as you've rightly pointed out in your question, Arnold, and we strip out the exceptional items for the appreciation of the rand, the share-based payment, and then also the surface sources, you'll see that our all-in sustaining cost is then very close to what it actually was last year. The biggest cost base we have is in rand with the Australian operations just coming on board in the last 6 months. So if you look in absolute rand terms, the costs are very well controlled. It's basically only electricity where our increases are above inflation. All of our other cost increases is in line with inflation now. And we also managed to get some good savings there through the use of our renewable energy and after the restructure of the Barberton workforce following the Section 189. So those savings actually offset some of the electricity increases, resulting in our rand cost base increasing in line with inflation only. Hethen Hira: Thanks, Marileen. Chris Reddy from All Weather Capital asks regarding your point on the potential for strong cash balances should gold prices hold, what is your view on buybacks versus special dividends? Jacobus Loots: Chris, it's always a controversial one. Some people love buybacks and some investors don't like them at all. So we try and, I guess, balance the views from investors. But the bottom line is, I mean, in this environment, we -- despite spending a lot of money, obviously, in expanding production so significantly over the last years, we should have no debt by the end of this month. And that's obviously, we're sort of rewarding shareholders now with an interim dividend. You expect -- can expect increased dividend payments, and we'll continue to assess the opportunity for buybacks as we have in the past and balance that obviously against also the very exciting and value-accretive growth that we have in the portfolio and that we've discussed and outlined. Hethen Hira: Thanks for this. There are 2 questions regarding the third-party material. Bruce Williamson from Integral asks, how secure and sustainable is the third-party material you are processing and could it grow? And Arnold wants to know how do we ensure this material comes only from legitimate sources? Jacobus Loots: Well, I'll ask, firstly, on the first bit. Look, it's not -- it's obviously it's quite profitable at this gold price. It's not something that we're banking on long term to sustain our operations. It's good when it happens. And obviously, it ensures efficiency in terms of keeping our plants full. We think there's a lot of scope, specifically on the West Rand from the cleaning up. It's such a huge area. So I mean, we're even sort of investigating the merits of putting up a hard rock circuit as part of MTR. So that could be a very good development in the next year or so. We're not banking on it continuing, but it is very good if it does. In terms of compliance, we take compliance very seriously. Marileen, do you? Marileen Kok: Yes, we've got a legal team checking all of the permitting and licensing of anyone who supplies material to us to make sure that they've got the necessary documentation in place and that we only procure from legitimate sources. Hethen Hira: Thanks very much. Herbert Kharivhe from Absa again. With such a strong project pipeline, is it accurate to say production will likely be closer to 400,000 ounces by FY '29 with tailings accounting for approximately 250,000 ounces? Jacobus Loots: Herbert, I think, sort of -- look, we're in a very fortunate position from an organic project perspective, and we've outlined the really exciting Soweto development. We've outlined what we're doing at Tennant and obviously also a bit medium, longer term Poplar. So I mean Pan African is in the enviable position that we can grow and we don't have to go buy anything at this very expensive gold price. About the 400,000, I mean, we certainly will continue to look to grow production as we have been. There's no reason why we can't materially increase production over the medium term, I think. And in the next while, we'll sort of look at the medium and longer-term plans and outline where we see things going. But most definitely, you can expect further production growth into the future. Hethen Hira: Thanks a lot. The final 2 questions, one from Nkateko at Investec. Is hedging not attractive at current gold price and prevailing volatility, particularly considering the number of potential projects in the pipeline? Marileen Kok: Thanks, Hethen. So yes, although it is very attractive to lock in margins at these gold prices, our shareholders have indicated to us that they especially like the exposure to the gold price, and that's why they invest in a single commodity company like Pan African Resources. Historically, we've used hedging only as a risk mitigation tool if we've got a big capital project or if there's big debt payments. But Cobus said, being fully de-geared now and giving the shareholders that exposure to the gold price that they want, we don't currently contemplate any hedging, no. Hethen Hira: Thanks a lot, Marileen. Finally, a question from Sven Lunsche at Miningmx. Your Barberton and Mintails operations are in areas with high Zama Zama activities. Can you provide more details on your measures to reduce their impact? Jacobus Loots: Yes. We have an excellent security team. It's really a core function. And again, maybe it's the right forum to thank our security team for all the excellent work they do in keeping our people and our assets safe. There's definitely an increased focus and there's an onslaught, most definitely, and we see a lot of influx illegal immigrants from Mozambique in the light of Barberton. But that's part of what we do is we keep it under control. We work with law enforcement. We'll continue to do so and make sure that we can mine for many more years. Hethen Hira: Thanks very much, Cobus. There are no more questions on the webcast. I understand there are 2 on Chorus Call. Jacobus Loots: So we move to the conference call. Operator: At this stage, we have one, which comes from Jasper Mainwaring of Berenberg. Jasper Mainwaring: Thanks for the update and the color provided on the FY '27 CapEx guidance. Looking ahead, as you move into FY '28, how should we be thinking about CapEx given the number of the growth projects you mentioned today and as you move into a net cash position? Jacobus Loots: Thanks. Well, our forecast, is that by the end of this financial year, we'll already be in a net cash position. So there is an increase in capital in FY '27 as we've guided. To take a step back, FY '26 capital is pretty much in line with what we've said before. But I mean, the primary increase in '27 relates to MTR and even more importantly, to Australia. We're going to spend $100 million in Australia. But in exchange for that, we're growing production to 100,000 ounces, excluding copper gold from Warrego. I think that's really fantastic growth. So the bottom line is in this gold price and even at a lower gold price, I mean, we can afford to continue to increase dividends, and we can grow, as we've indicated. And yes, we'll still be net cash. So that's a very enviable and good position for us to be in. In terms of capital for FY '28, all things being equal, you can expect the number to come down. I mean I look at our portfolio, I mean, we're spending the last bit of money now on Elikhulu for the life. Evander underground capital will reduce further as we go further into steady state. Barberton, we continue to spend, but that is very sensible spend at this point. And MTR, a bit of money still on tailings. But the bottom line is most of the capital we're going to be spending in the next years will be on increasing our production profile for many years to come into the future. Hethen Hira: Thank you. There are no more questions. Jacobus Loots: Thank you to everybody that's taken the time to dial in and to join us today. And if there are any further questions, you know where to find us. Thank you very much.
Operator: Good morning, and welcome to the Sonic Automotive Fourth Quarter 2025 Earnings Conference Call. This conference call is being recorded today, Wednesday, February 18, 2026. Presentation materials, which accompany management's discussion on the conference call can be accessed at the company's website at ir.sonicautomotive.com. At this time, I would like to refer to the safe harbor statement under the Private Securities and Litigation Reform Act of 1995. During this conference call, management may discuss financial projections, information or expectations about the company's products or market or otherwise make statements about the future. Such statements are forward-looking and subject to a number of risks and uncertainties that could cause actual results to differ materially from the statements made. These risks and uncertainties are detailed in the company's filings with the Securities and Exchange Commission. In addition, management may discuss certain non-GAAP financial measures as defined by the Securities and Exchange Commission. Please refer to the non-GAAP reconciliation tables in the company's current report on Form 8-K filed with the Securities and Exchange Commission earlier today. I would now like to introduce Mr. David Smith, Chairman and Chief Executive Officer of Sonic Automotive. Mr. Smith, you may begin your conference. David Smith: Thank you very much, and good morning, everyone. Welcome to the Sonic Automotive Fourth Quarter 2025 Earnings Call. Again, I'm David Smith, the company's Chairman and CEO. Joining me on today's call is our President, Jeff Dyke; our CFO, Heath Byrd; our EchoPark Chief Operating Officer, Tim Keen; and our VP of Investor Relations, Danny Wieland. I would like to open the call by thanking our amazing teammates for continuing to deliver a world-class guest experience for our customers. 2025 marked the third consecutive year of delivering all-time record customer satisfaction scores for our franchise dealership guests. And EchoPark once again retained the highest guest satisfaction rating among pre-owned vehicle retailers. We believe our strong relationships with our teammates, guests and manufacturer and lending partners are key to our future success. And as always, I would like to thank them all for their continued support and loyalty to the Sonic Automotive team. Turning now to our fourth quarter results. Reported GAAP EPS was $1.36 per share. Excluding the effect of certain items as detailed in our press release this morning, adjusted EPS for the fourth quarter was $1.52 per share, a 1% increase year-over-year. Consolidated total revenues were $3.9 billion, down 1% year-over-year. Fourth quarter record consolidated gross profit grew 4% and consolidated adjusted EBITDA was flat compared to the prior year fourth quarter. For the full year, reported GAAP EPS was $3.42 per share, and adjusted EPS was $6.60 per share, an 18% increase from 2024. Consolidated total revenues were an all-time annual record of $15.2 billion, up 7% year-over-year, and consolidated total gross profit was an all-time annual record of $2.4 billion, up 9% year-over-year. For 2025, consolidated adjusted EBITDA grew 10% to $615 million. Moving now to our fourth quarter franchise dealership segment results. We generated reported revenues of $3.4 billion, flat year-over-year and down 5% on a same-store basis, driven by an 11% decrease in same-store new vehicle retail volume, offset partially by a 5% increase in the same-store used vehicle retail volume year-over-year. Fourth quarter new vehicle volume faced headwinds from pull-forward consumer demand for electric vehicles ahead of the expiration of the federal tax credit in the third quarter, combined with strong luxury demand in the prior year fourth quarter. Reported franchise total gross profit was a fourth quarter record, up 4% and declined 2% on a same-store basis. Our fixed operations gross profit was a fourth quarter record, and F&I gross profit set an all-time quarterly record, up 8% and 6% year-over-year, respectively, on a reported basis. These two high-margin business lines continue to increase their share of our total gross profit pool, once again contributing over 75% of total gross profit for the fourth quarter, mitigating the tariff headwinds on new vehicle volume and margin to our overall profitability, while also leveraging our SG&A expenses more efficiently than incremental vehicle-related gross profit. Same-store new vehicle GPU was $3,033 per unit, down 7% year-over-year, but up 6% sequentially due to a higher luxury mix in the fourth quarter. On a reported basis, new vehicle GPU was $3,209 per unit, down 1% year-over-year and up $208 or 7% sequentially from the third quarter. On the used vehicle side of the franchise business, same-store used GPU decreased 2% year-over-year and decreased 10% sequentially from the third quarter to $1,379 per unit. Our F&I performance continues to be a strength with fourth quarter record franchised F&I GPU of $2,624 per unit, up 8% year-over-year and up 1% sequentially. Turning now to EchoPark. Adjusted segment income was a fourth quarter record $3.6 million, up 300% year-over-year, and adjusted EBITDA was a fourth quarter record $8.8 million, up 110% year-over-year. For the fourth quarter, we reported EchoPark revenues of $481 million, down 5% year-over-year and fourth quarter record gross profit of $54 million, up 9% year-over-year. EchoPark segment retail unit sales volume for the quarter decreased 6% year-over-year, and EchoPark segment total GPU was a fourth quarter record $3,420 per unit, up 15% per unit year-over-year and up 2% sequentially from the third quarter. For the full year, EchoPark segment adjusted EBITDA was an all-time record $49.2 million, up 78% year-over-year. Going forward, we remain focused on increasing our mix of non-auction sourced inventory to benefit consumer affordability and retail sales volume and GPU. When combined with the strategic adjustments we have made to our EchoPark business model, we believe we are well positioned to resume a disciplined store opening cadence for EchoPark beginning in late 2026, assuming used vehicle market conditions continue to improve. In the long term, we intend to expand our EchoPark platform to reach 90% of U.S. car buyers, selling over 1 million vehicles annually while continuing to provide a superior guest experience. We believe investment in brand marketing will be key to our long-term EchoPark growth plan, and we expect to begin to invest in this effort during 2026, potentially increasing advertising expense by $10 million to $20 million this year. Turning now to our Powersports segment. We generated fourth quarter record revenues of $36 million, up 19% year-over-year and fourth quarter record gross profit of $9 million, up 25% year-over-year. Fourth quarter combined new and used retail volume was up 18% year-over-year, and we are beginning to see the benefits of our investment in modernizing the Powersports business and the future growth opportunities it may provide. Finally, turning to our balance sheet. We ended the quarter with $702 million in available liquidity, including $306 million in combined cash and floor plan deposits on hand. Our focus on maintaining a strong balance sheet and liquidity position allows us to strategically deploy capital in a variety of ways to deliver value to our shareholders. During the fourth quarter, we repurchased approximately 600,000 shares of our common stock for approximately $38 million, bringing the full year share repurchase to 1.3 million shares for approximately $82 million. In addition, I'm pleased to report today that our Board of Directors approved a quarterly cash dividend of $0.38 per share payable on April 15, 2026, to all stockholders of record on March 13, 2026. We continue to work closely with our manufacturer partners to understand the potential impact of tariffs on vehicle production, pricing and volume forecast, vehicle affordability and consumer demand going forward. The full year 2026 outlook and guidance on Page 13 of our investor presentation considers these uncertainties and represents our current expectations for 2026 financial results. As always, our team remains focused on executing our strategy and adapting to ongoing changes in the automotive retail environment while making strategic decisions to maximize long-term returns. This concludes our opening remarks, and we look forward to answering any questions you may have. Thank you very much. Operator: [Operator Instructions] Our first question is from Jeff Lick with Stephens Inc. Jeffrey Lick: Congrats on a standout quarter. It's pretty impressive results relative to the others in Q4. I was wondering if you could talk a little bit about EchoPark. I was just curious, if you think about the -- the used car options that are out there right now, and there's obviously big players like Carvana, CarMax, [indiscernible]. I'm just wondering, as you're starting to understand the EchoPark business better, where do you guys see how you fit into the used car ecosystem in terms of when someone is looking to buy a new car, a used car, where do you guys view as like where you really kind of over-index and solve a problem for a customer. Where do you fit in the used car ecosystem? Frank Dyke: This is Jeff. We've always kind of looked at EchoPark as the Costco sort of the pre-owned world. There are 35 million to 40 million pre-owned cars sold every year in this country. And if you look at what Carvana is doing 500,000, 600,000, you look at CarMax in the 800,000, 900,000 range, there's a lot of room for us. And prior to COVID, we said we'd be at 90% coverage of the country and sell over 1 million vehicles. We feel very comfortable over the last 3 or 4 years. We worked very hard on the model. We can slowly and accurately build stores. Like we said, we're going to open 1 or 2 in the fourth quarter of this year. We'll open more in '27, and we will methodically grow the EchoPark business. But we're the low-cost provider in this arena. And when you look at how we price our vehicles and you compare to those two competitors, we're anywhere from $3,000 to $6,000 cheaper than those guys. And it gives us the ability to sell a lot of vehicles on a per rooftop basis versus our competitive set. And we're seeing that. We see it in the 17 stores that we have opened now. And we believe that being that low-cost provider and really taking care of our guests like we do with our great guest satisfaction scores, which are industry-leading, that combination is just going to be really hard to beat as we slowly begin to grow this brand. Heath R. Byrd: And Jeff, this is Heath. I'll add one point is exactly what Jeff was alluding to is that, that objectively, we are the lowest cost provider. You can look at the data and the facts are there. Objectively, we have the best customer experience. We've won for the last 16 quarters with reputation.com comparing to Carvana, CarMax and others. And now that we are starting the expansion again in a disciplined way where we still have profitability going forward. You combine that with our brand initiative, which we mentioned earlier in the press release and in the statements. Now people know. I mean, I think the biggest thing is that we get our name out there, and you've got the two main things that people are looking for, and that's just going to give additional tailwinds to EchoPark, especially as the inventory is returning, it's going to be a really nice situation for growth for EchoPark. Jeffrey Lick: Yes. Just a quick follow-up. You talked about non-auction sourcing. I'm just curious, you had a little bit of a hiccup with the commercial rental car fleet returns and that gumming up sourcing a little bit. Just any updates on where you're sourcing non-auction related and then how you see the sourcing unit availability for your business model in 2026? Frank Dyke: Yes. We are. We're incentivizing our team to buy vehicles all over the country. And we're finally beginning to leverage our new car franchised dealerships for inventory. We've always kind of kept that separate. And we have found a way, we believe, to leverage the heck out of that as lease returns begin to come back as we can trade for more cars out of those 111 franchise stores. And we'll begin to see. The beginnings of all this and the inventory sort of feeding into EchoPark will start in March and April time frame of this year. And so we're very excited about that and reducing our dependence on the auction lanes. And that's happening, but it's methodically happening with a very strategic plan around that. And buying more cars off the street certainly is happening and engaging our experience guides in that kind of model is going to make a big difference for EchoPark as we go forward. It's a very important part of our growth plan. Operator: Our next question is from John Babcock with Barclays. John Babcock: I guess just first question while we're on EchoPark. When do you plan to do the advertising spend? And then also, is that going to be more focused on building the brand or driving trade-ins? How are you thinking about that? And then also, if you could just talk regionally about whether you're going to target certain regions or if this is going to be more of a broad-based nationwide type advertising? Frank Dyke: Yes. That $10 million to $20 million is brand-based and focused on that -- strategically focused on that. We'll start spending that money, call it now, beginning of second quarter, somewhere in that time frame. And we've got to build commercials and do different things. We've got a lot of fun ideas that we'll present to the public. But I wouldn't expect any of that to be put into action for the public and you guys to see until the fourth quarter as we begin to launch stores again. So that will all kind of come together. Unfortunately, you guys start spending some money now, so the return doesn't come until fourth quarter or '27. And then that will be focused on our markets. But then as we move into '27, we'll even start marketing our brand in markets that we don't exist in. We've seen some of our competitors do that, and they've done a great job with that. So as Heath was saying earlier, we're going to bring the EchoPark brand to life, and we're going to start sharing with the world what our pricing model is and how great our guest experience is. And that's a one-two punch is going to be very difficult to deal with on top of an amazing selection of inventory. So put all that together, and we think we're sitting in the catbird seat, and we've got a lot of runway in front of us, and there's a lot of pre-owned cars being sold in this country. So we're very excited about it. David Smith: And this is David. And something to note is that, remember, the first EchoPark store opened in 2014. So this is something that factually we know that when people know us, like in markets like Denver, that we get a far higher market share. We get more for our cars. They know about us. They refer their friends and family to us. We've got a lot of people who bought from us over and over again. So it's not something that we're wondering, well, what if we advertise, will it work? It absolutely works. They just need to know about us. John Babcock: All right. That's very helpful. And then my last question, just on GPUs, fared pretty well in the fourth quarter. Just kind of curious how you're thinking about the cadence of that in '26. Frank Dyke: Yes. From -- this is Jeff. From a new car perspective, we put it out there in our franchise segment of $2,700 to $3,000 a copy, could be a little stronger than that in the first quarter of the year, maybe April, tax return season, all the good things. We're going to see what happens with tariffs. I mean, thank God for our manufacturer partners last year in '25, they made up -- you saw their balance sheets and what they all lost and what they've done for our industry. They are going to pass those expenses on. Our average retail selling price just got to $60,000 in the third quarter, over $62,000 in the fourth quarter. These are all-time record high prices. So the affordability issue, while maybe not being felt in '25, we believe as you get into May, June, July, August, you're going to start feeling it as new car prices have nowhere to go but up, and that's a difficult situation. It's a great situation for us with EchoPark because it's going to put us in the catbird seat with affordability from an EchoPark perspective and our used car business on the franchise side. That's exciting for us. But I think that everybody needs to keep a real close eye out on the inflationary effects and what's going to happen with new car pricing as we move into the early parts of the summer, late spring here and these -- our manufacturer partners start moving that cost on to the consumer in a more -- in a way that we did not see in 2025. John Babcock: Actually, as a quick follow-on to that, are you starting to see indications that the OEMs are planning to push on more costs? I don't know if you have any additional commentary there. Frank Dyke: Absolutely. They're lowering margin rebates that we get. The prices are going up. There's no question that you're going to see that. They're not going to sit back and lose billions and billions of dollars. They can't. It's just not going to happen. And so it's going to be really interesting to see the elasticity in new car pricing as we move forward over the next 6 months. And look, January was a hell of a month. Without the snowstorms, it would have been a magnificent month. So we'll see. I don't know if it's the tax stuff that's helping that. But definitely, prices are higher. And so maybe there's some great elasticity, but it does bring in the affordability discussion, and it really rings the bell from a used car perspective. We're going to have that gap that we've been missing between new car and pre-owned cars again. And that's just going to be fantastic for the industry and really, really good for EchoPark. Operator: Our next question is from Rajat Gupta with JPMorgan. Rajat Gupta: I just wanted to quickly follow up on the EchoPark commentary. Just given the store openings later this year, the increase in advertising, it looks like the year-over-year growth should accelerate in the back half. Are you setting up for 2027 to be an even stronger year from a growth rate perspective than the high single digits this year? Is that the right takeaway from these investments? Frank Dyke: Yes. 100%. Rajat Gupta: Got it. Okay. That's helpful. And maybe I want to pivot to like parts and services. Understandably, warranty comps were tough here in the fourth quarter. Could you give us an update on where you ended up with respect to same-store technician growth? And any targets for 2026 that you're going after there? I would be curious. Frank Dyke: I think since March of '24, where we started our technician focus, we're now plus 400 technicians from that original date that we started talking about this. And that's been a big part of our success since then from a fixed operations perspective. We're all in Houston right now at our annual meeting, and our whole annual meeting today is focused on fixed operations and our ability to grow this business significantly. We think we've got $100 million a month in fixed operations gross that we can do. That's $1.2 billion. We did a little over $1 billion in '25. So we're really excited about the opportunity here. There's just too many customers that -- and for the industry that don't come back to a new car store to have their vehicle serviced. And it's like 50-50. And we think we can attract a lot of customers. We've got the time to sell. We've got the base. We've got the technicians, and we're going to take advantage of that as we move forward here over the next year or 2. Rajat Gupta: Understood. And then just on your balance sheet leverage, just a question on capital allocation. It looks like the way you define it, it's 2.1 in terms of net debt to EBITDA based on the add-backs are allowed from rating agencies. I'm curious how much could you stretch? And would you plan to stretch that in '26 or in the medium term to maybe deploy more capital into either more M&A or buybacks? Heath R. Byrd: Yes. If you look at that rate, I think we are the first or #1 or #2 in leverage ratio, and we're comfortable with that. We want to have a very strong balance sheet. We would be comfortable going to a 3.5, but there's -- we can actually execute our plans for next year and still maintain that low leverage ratio. If a nice acquisition shows up that requires some debt funding, then we could do that as well. We have plenty of room. But we've got enough dry powder to implement our plan for '26. You can see we had a big acquisition in 2025. That was the majority of our capital spend. You can see that from a returning capital to shareholders, dividend, that's been increased by $200 plus over the last several years. And so that's always something we want to stay within 20% to 25% payout on the dividend. That's our target. And share repurchase, that's one of the things that when we see opportunity, when we have a price that pencils out and it's the best return, we're going to continue that as well. And then the last piece is returning -- basically investing back in the business. And as we start growing EchoPark, you'll see that bucket fill up a little bit more as we build new EchoPark stores. So very comfortable with our balance sheet, all of our covenants and got the dry powder we need to execute for '26 and forward into '27. David Smith: And Rajat, this is David. I think just on M&A, just to note that these opportunities in our industry come along and they can come along quickly and just -- and we're excited so far about our big acquisition of the JLR stores last year. It's been a great acquisition. And that one came along pretty darn quickly, and it was a great one. So hopefully, we'll see some more like that and some great opportunities to grow the business and grow earnings. Operator: Our next question is from Bret Jordan with Jefferies. Bret Jordan: Slide 13, I guess -- down in '26 roughly by the amount of your marketing advertising expense. Do you see that inflecting positively in '27? Or is there sort of ongoing rollout expense as you start rebuilding the business? Frank Dyke: You broke up right there at the beginning. Is that on EchoPark? Heath R. Byrd: Yes, Slide 13. Bret Jordan: Yes. I was wondering, do you see that in '27 accelerating as you're sort of passing this initial marketing expense? Frank Dyke: Yes. That's exactly how you should look at it. We're going to have some initial spend here while we get prepared for launch. That's really not going to happen until the fourth quarter as we begin to open a few stores. And then we'll have a cadence of stores that we can open next year and a different level of spend that we'll talk about as we begin to grow the brand across the country and focus on driving our $1 million-plus sales and our 90% coverage. And as we go through the quarters, we'll continue to update you guys on where we are in the progress that we're making. We gave you a $10 million to $20 million range, kind of we can narrow that gap a little bit as we get towards the fourth quarter for you, but that's exactly how you should look at it. Danny Wieland: And just to add to that, Bret, this is Danny. We guided to high single-digit volume growth for EchoPark in '26. But as Jeff said earlier, that really doesn't reflect any benefits from this brand investment. So you can look at that as accelerating in '27 and beyond as we get the benefits of the brand investment and increase our store base. So that will help drive both the volume-based growth that we're projecting as well as some EBITDA leverage in '27 and beyond. Bret Jordan: Okay. Great. And then a question on Q4, some of your peers talked about luxury consumers acting a little softer than normal for that seasonal period. And you guys didn't mention that. Do you see any behavioral change, whether it's people pushing back on these high ASPs in luxury or in the parts and service? Or is there any move to decline recommended services? Anything at the consumer we should read through? Frank Dyke: Yes. That's what I was saying earlier. I'm concerned about the tariffs and from a pricing perspective, what's going to happen as we get into the early summer. If you'd have sat been with us and you were looking at October and November and the cadence, you'd gone, holy, cow, you guys better have a big December. This is going to be a rough fourth quarter. And then December came along, and it was just -- it was one of those great Sonic Decembers that we always count on, and it was just amazing. We sold a lot of everything, in particular in our luxury segment. And surprisingly, 62-plus-thousand average selling price as that mix change to luxury, and we were prepared. We've been doing this for so long together as a team. We had the right inventory mix, our manufacturer partners stepped up. And so we had a great quarter, we think was a great quarter and an amazing December. And then we came in and had a really good January. When we report, we can talk about it on the first quarter, but the snowstorm slowed things down a little bit, but it was still a great January even with the damn snowstorm. David Smith: If we've not had that, right? Frank Dyke: No, had we not had that, wow. And so we'll see. I am cautioning and concerned about what is going to happen, how far, how much elasticity can we deal with or can the consumer deal with from a new car perspective. And something is going to have to give here. The prices are getting -- are just getting too high. And now didn't show up in January. It's really not showing up in February. We'll see. I think a lot of people are counting on big tax returns. We'll learn a lot this summer. Great news is the service business is great and has lots of upside. The F&I business is great. And then the used car business should just be fantastic as that gap widens. You really want your average retail selling price for a used car to be half that of a new car, and we're beginning to see that gap come back. And during COVID, it got all the way to 80%, 90%, sometimes 100% depending on the brand. So a lot of great opportunities as we move into the year, but a big caution on exactly what's going to happen from a pricing perspective on new. Bret Jordan: Do you have visibility as to what the OEs are going to pass through in higher price -- sort of on a same SKU basis? If the BMW X Series was 50, is it now 55 with the pass-through? Frank Dyke: I don't -- I mean I'm -- from based on what I've been seeing, we're seeing 3% to 5% increases and that can be a 1% to 2% increase on a normalized basis, right? So they're definitely passing on. But they're also doing a great job of cutting spending where they don't need to spend and cutting programs that were nice to have. And so -- and I've spent a lot of time on a bunch of different dealer boards, and that's a great topic of conversation with the manufacturer partners. So they are making some really good decisions on spend so that they don't have to impact pricing and they don't have to impact margin. But the tariffs are too high on some of these brands, and you're going to -- they're going to pass pricing on. It's already happening. They're going to cut margin. It's already happening. And they paid for it all in '25, and that's a big point here. They really paid for it, and you can see it in their reported numbers and the amount of money that some of these manufacturers were losing in the billions of dollars. That's just not going to -- that's unaffordable. That's not going to continue to happen and something is going to change as we move into this year, and we'll see. It's -- we've got to really pay close attention. I was calling this out, if you all remember, in the third and fourth quarter, watch these numbers. And I'm telling you, watch these numbers, watch new car pricing as we move forward, in particular, on luxury. Luxury buyer will push back at some point. Operator: Our next question is from Chris Pierce with Needham & Company. Christopher Pierce: Just kind of looking at fixed ops. I was just wondering if maybe you could speak to possibly like the subscription nature of this business? Or -- I mean, I know I guess you're trying to bring people back into the funnel. But when people buy cars, I know there's a prebuy option for 3 years of service, that type of thing. Is that something you're seeing and that gives you confidence in growing this business? Or is that so small right now that it's not really a factor? Frank Dyke: No. I mean I think that we have an opportunity to sell more products like that for sure to bring the customer back. But the industry as a whole is doing something wrong if 10 customers come in and buy cars and 5 of them don't come back to a dealership to have their vehicle service. And some manufacturers high as 70%. This is something as an industry we must address. Why would you not come back to a dealership where you have ASE-certified technicians, you've got the best equipment, the best parts, the best service you can get and they're going to mom-and-pop store, half of them are going to a mom-and-pop store down the street. That would indicate that there's a pricing opportunity from my perspective. And there's an opportunity. We fill the bucket up with technicians and the amount of hours that are available. Now we need to put that to work for us. And that's where we are at this point in time of our journey is really sharpening our pencils, making sure that we've got the right pricing out there and that we're bringing customers and the marketing, and we're bringing customers into our service drives. There's more out there to get, a lot more out there to get a lot of upside, and we're just scratching the surface from my perspective. David Smith: We've got to get the perception versus reality where the customer knows that our prices are actually competitive or better than the independent down the street. Heath R. Byrd: And I was going to say literally, the marketing is a new concept from the Sonic perspective. We have a focus to sales force. We have a focused campaign now, which we used to never have that on the service side. So that, coupled with having products, warranty products that drive the consumer back to the franchise dealer, those two things are going to help our market share. Danny Wieland: And one other point there. We guided to mid-single-digit percent growth in fixed ops on a same-store basis. Fourth quarter, our warranty was only up 2% year-over-year. That had been growing 20%, 30%, 40% year-over-year for the last several quarters. So we're finally seeing kind of a normalized level there. But we think that these opportunities on the customer pay side are what's going to drive sustained mid-single-digit growth above that long-term 2%, 3% average, but continued opportunity with the additional technicians, the marketing efforts, the efficiency of selling the hours and loading the base. There's some real upside there in that piece of the business. That just crested $1 billion in gross for the first time this year. So it's the larger numbers with a mid-single-digit percentage is significant opportunity from a gross profit growth perspective. Christopher Pierce: And just on that, is it something -- I know you guys have to take the ball and run with it, but it's something the OEMs can help with as well? I know the cars are getting smarter. You don't just see a check engine light, you can actually push a message what needs to happen, maybe the price. Like do the OEMs help on this front as well with the cars getting smarter? Or is it 100% you guys have to kind of take this and execute here? Frank Dyke: Yes, 100%. You sit down and talk with many of our OEM partners. They see the exact same issue, and it's at the top of discussion with all of them is how do we drive more customers that we're selling cars to now back into our service drive and what products do we need to use in order to make that happen. I had this exact conversation with the leadership of Toyota and Lexus not too long ago. It is a big, big focus point. And we need to drive more customers that we're selling cars to back into our service drive. And we can do it. The industry needs to do it, but we're certainly going to make that happen at Sonic Automotive. And it's awareness, as David was saying earlier, it's making sure that our door rates and our pricing are in the right areas in terms of being competitive with the mom-and-pops up and down the street. That data is readily available for us all now, and I think you'll see us make a big impact as we move forward. David Smith: And I think it sounds like you're also thinking of the technology side of it where the customers will have apps for their BMW and Mercedes, Porsche, et cetera. And the app will tell them, okay, come on in, and that's going to drive a lot of business for us. Christopher Pierce: Okay. So that's something that's not quite happening now, but can get better. Okay. Got it. 100%. Okay. And then just one on EchoPark. Do you feel like you need like a buy button on EchoPark given what digitally only like what Carvana is seeing as far as growth in units? Or is it just about convey the value to customers, convey the price and then versus peers. And from there, that should get the customers in the store, and that has consistently got the customers in the store in your older locations? Frank Dyke: Part of that $10 million to $20 million spend is you will see a launch of the EchoPark app, which we're incredibly excited about. And we're building and investing in a digital retail solution that we think will be industry-leading once complete. We've got a great team that's dedicated to that. And we're very, very excited about that exact opportunity for EchoPark. Yes, we need it. We need in an omnichannel environment, whether the customer wants to come in and test drive the car or sit at home in their underwear and buy a car. We need to be in a position where we can take care of that guest all the way through that buying journey. And it's great because at EchoPark, they can come, they can test drive a car. Many of our competitors, you can't even test drive a car, you just got to buy it. And we want to put ourselves in a position where they can do all of that, and that is part of that spend. So great, great question, much appreciated. Operator: Our next question is from Michael Ward with Citi. Michael Ward: What are -- you mentioned some variables that are giving you confidence. I don't know if they're internal or external to step up the growth again at EchoPark. Can you talk about some of those? Heath R. Byrd: This is Heath. One of them is obvious, the external triggering is the inventory returning. That's going to be a big part of it. And we've said that from the beginning that once that inventory starts returning, and I think we all believe it's going to take the [ 28 to 29 ] to get back to the 2019 number, but that's the external. And the other -- the internal is the fact that we've seen we can actually make really good EBITDA even at these lower units that are being sold. And so a lot of the efficiencies that we have seen and done internally gives us confidence that now we can grow and the branding that David was mentioning at our older locations, we can command a higher price and get a higher GPU because it's been there long enough that the word-of-mouth branding is working. So that, coupled with the inventory coming back, coupled with the things we've learned with this lower unit environment are the things that give us confidence that it's time to grow again. Michael Ward: To do that number -- go ahead, I'm sorry. Frank Dyke: Well, we've said for the last few years, as soon as inventory begins to return, you're going to see us methodically start and strategically growing. Inventory is returning, and we're going to start methodically and strategically growing. Heath R. Byrd: And one of the things that's most impressive because of the environment we were in, we got a lot better of finding alternate sources to buy, better buying off the street. And so all of that is going to help us as we grow as well. David Smith: This is David. Also, the economics of what a new EchoPark location and the money we're going to spend on those is going to be far less than some of the locations we've had, some of our current locations. So it's going to be a lot easier. We have to sell a lot fewer cars at those locations to actually break even. So you're going to see those locations are going to be highly profitable. Michael Ward: Did I hear the number right, your goal is to get to 1 million units? Frank Dyke: That is correct. David Smith: Over 1 million. Frank Dyke: Yes. It's 1 million-plus units. And so that's not a new number. If you go back and you look at our growth trajectory from '18, '19 before COVID hit, we were saying this exact same thing. We're on our way to making that happen. And we were well on our way and the whole world changed. Now methodically and strategically, we're on our way again, and we darn well believe that, that is something that we can do. And we know we've got the pricing methodology. We've got the inventory management, and we've got the guest experience. We're adding technology, our branding. We've been doing this for a long time, and we're very excited about this day. It's a long time in coming. Michael Ward: Yes. It's a big deal. Secondly, two of the headwinds that kind of hit in 3Q were BEVs and JLR. You didn't mention you had a JLR acquisition. What's the inventory situation like with JLR? And how did the -- what's the latest trend on the BEV side? Frank Dyke: Yes. So we saw a lot of BEVs because of the tax credit going away in the third quarter, that significantly dropped. And we'll see what happens in this upcoming calendar year, but maybe settle in, in the 5% to 7% range, who knows. JLR's inventory was impacted by a multitude of things, but coming back now. And we're right on plan with our acquisition there, which is great. We were real green with those guys, really understand that brand. And the acquisitions that we made in California, I mean, JLR, Beverly Hills, it all goes together. That's a great in Newport. That's a great fit for us. And so yes, we're very excited about that acquisition. Their inventory is returning. But there are another one that are going to be faced with the tariff issue, right? There's not a plant here and they're faced with this, as is Porsche, as is Audi. These are all things that they're going to pass on expense to the consumer, but fantastic product and our inventory is improving as every month goes on with them. David Smith: Yes. Unfortunately, the JLR customers, people love those cars. We've got multiple customers that have more than one in the garage. So it's a great brand. We're excited about that acquisition. Danny Wieland: And Mike, on the BEV mix, we saw north of 12% of our sales mix in the third quarter was EV with the pull forward demand from the federal tax credit expiration, but it was only about 4% of our mix in the fourth quarter. And you've seen our inventory mix of EV become more in line with that kind of 4%, 5%. So it's benefiting GPUs relatively speaking. BEVs are still $100 headwind in the fourth quarter to blended GPU, but that was down from $300 in the third quarter. And so as we go forward, if the OEMs can continue to produce the right BEVs for the right markets as importantly, I think that becomes less of a headwind for us going forward. Operator: [Operator Instructions] Our next question is from Glenn Chin with Seaport Research Partners. Glenn Chin: Just revisiting the pricing discussion. Jeff, you mentioned a few times OEMs cutting margins. Can you just clarify, is that a reference to dealer margin? Frank Dyke: Both. I mean you've got dealer margin in some manufacturers being cut. You've got price increases, 1%, 2%, 3%. You've got all kinds of different things going. And then you've got manufacturer partners doing a great job from my perspective on their part, cutting spend where the dealer and the manufacturer got together and said, we really didn't need this program. And so they're doing everything they can to fight this tariff battle. But again, if you go back to '25 and you look at some of the losses that some of our manufacturers took, it was a lot and they did an amazing job fighting this battle. They're not going to fight that battle by themselves forever. It's just not going to happen. They're going to have to pass on. And I just -- we'll see what happens from a pricing perspective, from a margin perspective. We're working incredibly close with all of them. And everybody's got the right mindset. Everybody wants to do the right thing, but there's only so much room before you have to start passing on price increases to the consumer. Glenn Chin: Yes. And on a related note, are you seeing any signs of them decontenting, taking out equipment? Frank Dyke: Absolutely. I mean everybody is looking at it is what can we do to pare down the price of a vehicle, whether it's wheels, you name it. That's something that is a topic of conversation across the board. Glenn Chin: Any items in particular, Jeff, that stand out to you? Frank Dyke: No. I mean I could probably go get you some detail, but not off the top of my head. I mean wheels definitely are part of that. The infotainment systems are certainly changing. And really, we're heading in one direction when BEV first launched because of the amazing technology in those vehicles. I think that's being tightened up and more to come. We're really sort of at a crossroads, an inflection point as manufacturers put their arms up and say, enough is enough. Dealers certainly can absorb those kinds of hits and pricing is going to have to change or something is going to have to change. Glenn Chin: Interesting times. Okay. And then just a question on the outlook. You're expecting a 10% increase in floor plan interest expense. Is this a function of higher store count? I know you guys acquired those JLR stores last year. Or is that a function of you expecting to carry higher inventory levels or both? Danny Wieland: It's really on store count and brand mix as well as the inflationary cost of vehicles. Our floor plan is based on the dollar value of the invoice cost. And if the OEMs are going to pass along with the model year '26 increases we've seen as well as what we expect in '27. And then compound that with -- we carried a higher floor plan offset balance for most of the last year, depending on what we do from a capital deployment perspective going forward, you could reduce the benefit that we see against floor plan somewhat. So it's a combination of factors. Glenn Chin: Okay. Yes, that makes sense. But just to confirm, your floor plan rates are variable. So any reduction in rate -- right, the rate environment should be a favorable offset to that. Is that accounted for in your outlook? Danny Wieland: Yes, and that's accurate. Operator: There are no further questions at this time. I'd like to hand the floor back over to David Smith for any closing comments. David Smith: Thank you very much, everyone. We'll speak to you next quarter. Operator: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Welcome to the Icade Full Year 2025 Results Conference Call. [Operator Instructions] Now I will hand the conference over to the speakers. Nicolas Joly, CEO; and Bruno Valentin, CFO. Please go ahead. Nicolas Joly: Good morning, Nicolas Joly speaking. Thank you all for joining us today. With Bruno Valentin, we are pleased to present Icade's 2025 full year results. After the presentation, we will, of course, open the floor for questions. I will begin with the main development of the year, both operational and strategic, Bruno will then walk you through the financial results and the balance sheet in more detail. Then I'll conclude with the 2026 outlook. Let's start by summarizing the key highlights for 2025. 2025 was a year of full progress in the execution of our ReShapE plan with strong financial discipline. Three elements stand out. First, disposals. 2025 was a record year with significant milestones in offices and in healthcare, allowing us to crystallize value in a selective investment market. Second, operations. Across both businesses, performance was solid. In Property Investments, despite declining revenues, we achieved a record year in terms of square meter leased contributing to an improved financial occupancy rate. In Property Development, we delivered solid activity with stable reservation volumes driven by a rebalanced customer portfolio and restored margins on new operations. And third, discipline. Throughout the year, we maintain tight capital allocation, controlled debt levels and strong liquidity while advancing selectively into student housing and data centers. If you turn now to Slide 6 and 7, you will find the key financial metrics for 2025. Net current cash flow amounted to EUR 3.57 per share, in line with the guidance. Cash flow from strategic activities, namely Property Investment and Property Development came in at EUR 2.89 per share compared to EUR 2.94 per share in 2024. NTA NAV declined by around 11% to EUR 53.3 per share, mainly reflecting the decrease in value of the property portfolio and the dividend payment. Loan-to-value ratio stood at 39.6% at the end of December. This does not yet include the Marignan disposal, which will have a positive effect of minus 3 percentage points. The net debt-to-EBITDA ratio improved to 9.1x, supported by the recovery in development margin in the second half. Interest coverage remains solid at 6.6x and the average cost of debt is stable at 1.7%. If we look more closely at each business on Slide 7. In Property Investment, gross rental income was EUR 347 million, down 4.2% like-for-like, mainly due to tenant departures recorded in 2024. The gross asset value of the portfolio stood at EUR 6.1 billion, reflecting a 4.5% decline on a like-for-like basis. The EPRA net initial yield increased at 5.6%. The Property Development business economic revenue declined to EUR 1.1 billion versus EUR 1.2 billion the year before. However, the operating margin turned positive again reaching 2.4%. The volume of orders was broadly stable at approximately 5,400 units outperforming the market. Before diving further into operations, let me briefly share our initial view for 2026 on Slide 8. In an uncertain environment, we expect group net current cash flow to decline in 2026 mainly due to continued pressure on property investment revenues and only gradual recovery in the development business. That said, thanks to strict selectivity in the operations we launched and continued control of our cost structure, we expect 2026 to mark the low point for net current cash flow from strategic activities. I will come back to this when we discuss guidance in more detail. But before that, let me briefly set the broader market context on Slide 10. In 2025, we continue to navigate a challenging environment marked by macroeconomic uncertainties, political instability in France and persistently high interest rates, which continue to worry on the real estate sector. In the rental market, pickup was down around 9%, while vacancy level and incentives remain significant. The investment market was slightly better oriented than in 2024 with improved liquidity and value-add assets and a return of interest in the office segment in the best locations. Against this backdrop, Icade moved forward with the disciplined execution of its ReShapE plan. Let's move on to Slide 12. With regard to the disposal, Icade recorded an exceptional year with nearly EUR 850 million disposal completed or signed. All these transactions were carried out with strict financial discipline allowing us to crystallize value creation. We will maintain this trigger going forward. In Property Investments, EUR 640 million of disposal was secured or signed. This includes EUR 240 million of mature or noncore assets sold in very good conditions with capital gain of around 5% versus end 2024 NAV. In December 2025, we signed the sale agreement for the iconic Marignan Champs-Elysees asset. This asset was acquired 20 years ago and we were able to create value through building a project, injecting tenant and obtaining the permit. We took advantage of an increased market interest for this type of value-add asset to conduct a highly competitive bidding process, which allowed us to achieve 20% premium above NAV. With these achievements, we've reached more than half of the EUR 1.3 billion disposal target set under ReShapE. Regarding healthcare, we acknowledge that the exit is taking more time. Nevertheless, in 2025, we achieved a major milestone with EUR 210 million (sic) [ EUR 240 million ] of disposal driven notably by the sale of the majority of our Italian exposure. The volumes sold in 2025 represented just under 20% of our total remaining exposure. We're targeting a full exit from healthcare over the horizon of the strategic plan meaning by the end of 2028. In the meantime, this portfolio benefits from solid fundamentals and generates significant returns which are attractive for group net current cash flow. We're, therefore, pursuing a progressive disposal not at any price with a clear focus on protecting value. Another pillar of ReShapE is to protect and enhance the value of our core businesses, both Property Investment and Development. And once again, this year, we are delivering on that objective. Protecting value starts with operational performance. And in 2025, leasing activity was particularly strong, as shown on Slide 16. We indeed signed or renewed approximately 217,000 square meters, up above 60% versus 2024. This transaction represents EUR 63 million in annual rental income with a WALB of 6.6 years. They enabled us to improve the occupancy rate by around 2 percentage points over 2025, reaching approximately 90% at year-end from well positioned and light industrial assets. As illustrated on Slide 17, Icade secured some of the largest transactions in the market including leases with the Seine-Saint-Denis departmental council with KPMG at Eqho for more than 41,000 square meters and with the Hauts-de-Seine Prefecture at Quito for a further 15,000 square meters. The tenant portfolio remains very solid, with nearly 85% of annualized revenues coming from large listed companies, public sector entity and mid-size companies. Looking ahead, Slide 18 details the lease expiries for 2026. The challenges we successfully addressed in 2025 will continue into 2026 with EUR 16 million of leases set to expire. We expect around EUR 30 million of departures during the year, notably reflecting the still significant share of assets to be repositioned. This represents the last major wave of expiries for this asset class. The impact of this departure will be reflected rapidly in both the financial occupancy rate and revenues with around 2/3 expected in the first half of the year. Reversion potential remains negative at minus 11.6% on well-positioned offices, broadly stable year-on-year. It will decrease in 2027 by circa 2 percentage points after the effective renewal of the KPMG lease. In this context, as shown on Slide 19, Icade has continued to make target investments in high-quality office assets. First, with the delivery of Edenn, an iconic asset that is fully pre-let to Schneider Electric for its new headquarters. Offering a very high level of services and strong ESG credentials, this asset achieves prime rents in the Nanterre market. Beyond Edenn, Slide 20 presents another targeted development which is Seed & Bloom in Lyon. This redevelopment project includes additional floor area, enabling further value creation on land acquired through the ANF transaction in 2017. It completes the transformation of the area following the delivery of Next in 2024. The yield on cost stands at 7.4% fully in line with the returns we target on new developments. All these asset management and refurbishment work contribute to protecting the value of our portfolio. Having reviewed this targeted project, let me now turn to Slide 21 and 22, focusing on the assets to be repositioned. Over the past 2 years, this asset has been actively managed through residential conversion, sold off plan, 2 targeted refurbishments with controlled CapEx and opportunistic long-term re-lettings. Following the asset management works around EUR 200 million of to-be-repositioned assets should move into our core bucket. At the end 2025, this segment represented a limited share of the portfolio, EUR 29 million in revenue and less than EUR 500 million in assets. From 2026 onwards, Icade will revise this segmentation to reallocate the to-be-repositioned assets into core and noncore categories. Let's move on to Slide 23. In Property Development, the team also delivered solid operational performance reflected in stable order volumes. This performance was supported by a successful diversification of the customer base with a growing share of first-time buyers and institutional investors. The development teams have also selectively resumed new projects, although overall volumes remain relatively low. This momentum is reflected in our key indicators with building permit applications up 66% year-on-year and with approval increasing by 32%. Activity has also been supported by the acquisition of projects ready to develop. As a result, the backlog remains fairly resilient at EUR 1.7 billion, while maintaining a high pre-commercialization rate of 77%. Following last year's portfolio cleanup, we are rebuilding products with restored margins. Profitability is gradually improving, although some other lower-margin projects continue to widen on overall results. In 2026, we expect to rebalance the mix between all the projects and new projects with restored margin with a more significant shift taking place from 2027 onwards. With this solid operational base in place, let me now turn to the last priority of our ReShapE strategic plan, which refers to diversification. Icade is assuring its diversification in sectors where it can leverage its long-standing expertise and development capabilities. We are moving forward with selected projects particularly in student housing and data centers, always with a strong focus on value creation. Let me lay the emphasis on student housing turning to Slide 27. In this segment, we have launched 2 projects, bringing together our property investment and development teams, representing a total investment of EUR 100 million. Located right next to Paris, this project will deliver approximately 500 beds by 2028. We're also getting value creation of around 20% with yield on cost above 5.5%. Compared with current prime yield ranging between 4.25% and 4.5%. Looking ahead, our ambition remains to deliver between 500 and 1,000 beds per year from 2028 onwards. Regarding data centers, we are evolving our business model to further enhance returns on large projects through equity partnerships aiming to reach circa 10% yield. This approach could be applied to the 130-megawatt hyperscale project in Rungis, for which we obtained a building permit at the end 2025. The JV partner selection process is currently underway with completion scheduled for 2031. Now beyond the pricing performance and strategic diversification, our ReShapE plan is also driven our ESG commitment, which is a core element of our model. As part of its ReShapE strategic plan, Icade has indeed reaffirmed its strong commitment to the low-carbon transition and biodiversity preservation detailed in Slide 30 and 31. In 2025, the group updated its low-carbon trajectory to align with the new SBTi standard for the real estate sector, confirming its ambition to remain a leading player in the fight against climate change. Icade has now set 2030 targets aligned with the 1.5 essential degree pathway across all 3 Scopes with threatened ambition across each perimeter. At the same time, we maintain our objective of achieving net zero carbon emissions by 2050. This trajectory is already translating into tangible loss. Between 2019 and 2025, Icade has significantly reduced its greenhouse gas emissions in line with new objective and total absolute emissions are down by 52%. These results demonstrate that our climate strategy is not only in wishes, but firmly embedded in our rational execution. And with that, I will now hand over to Bruno who will present the 2025 financial results in greater detail. Bruno Valentin: Thank you, Nicolas, and good morning, everyone. Moving to Slide 34. The group's net current cash flow amounted to EUR 3.57 per share. It is between EUR 2.99 per share from strategic operations and EUR 0.69 per share from discontinued operations. Net current cash flow from strategic activity decreased slightly to EUR 2.99 per share compared with EUR 2.94 per share in 2024. Looking at net current cash flow from strategic operations, the main takeaways are a drop in net rental income from property investment of minus EUR 0.39 per share, a raise in property development margin of plus EUR 0.63 per share and a decline in finance income of minus EUR 0.44 per share. When looking in detail, starting with the property investment division on Slide 35. On a like-for-like basis, gross rental income declined by 4.2% in mainly due to tenant departures recorded since 2024 and the gradual capitalization of negative lease renewals. The perimeter effect has a negative impact of 1.9%, mainly reflecting asset disposals. This factor were partly offset by positive indexation which still contributed 3.3% as well as by early termination fees, mainly related to offices to be repositioned. It is worth noting that net rental income was affected by higher vacancy costs. Now turning to property development on Slide 36. Economic revenue reached EUR 1.2 billion in 2025, down by 7% year-on-year. This decrease mainly reflects a sharp decline in the commercial segment with revenues down by 48% year-on-year, following the completion of major projects at the end of 2024 and the low volume of new contracts signed in 2025. In fact, residential revenues increased slightly. This performance was driven by stronger sales and an acceleration in consistent start in Q4 2025, which was an exceptional active quarter. The net property margin improved mechanically in 2025 following the impairments booked in 2024. However, decline in volume and the continued margin pressure on certain project launch prior to 2024 have been negatively impacted the overall margin of the business. Turning to 2025, financial discipline remains a key priority for the group with continuous effort to control the cost base as explained on Slide 38. Over the past 2 years, we have implemented significant measures in process optimization, cost rationalization and headcount reduction generating approximately EUR 20 million in savings, including the impact of inflation. Finally, Slide 39 focuses on the financial results, another closely monitored item. Current finance income decreased by EUR 59 million but it's required carefully analyzed. On the strategic activity side, the decline mainly reflects lower investment income after a record year in 2024, which benefited from high interest rates and an average group cash position above EUR 1 billion. The cost of debt remained controlled at 1.7% as the projected debt for 2026 is fully recovered. Regarding discontinued operation, which corresponds to the Healthcare segment, dividend income declined. Approximate also decrease is due to a timing effect as Prime share did not pay dividend at the end of 2025, resulting in a shift of the payment from 2025 to 2026. Now let's move to our operational performance and financial results and turn to the balance sheet and portfolio valuations. Slide 41 focuses on the evolution, the property investment portfolio's value. At year-end, the portfolio was valued at EUR 6.1 billion, representing a 4.5% decrease on like for like basis. The EPRA net initial yield increased slightly to 5.6% compared with 5.2% in 2024, while the EPRA total net initial yield stood at 6.5%. Turning to Slide 42, at EPRA NAV. As of December 2025, EPRA NAV per share stood at EUR 53.3, down approximately 11% year-on-year. This change is mainly explained by the lower valuation of the property investment portfolio, which accounts for EUR 3.9 per share as well as the 2024 dividend paid amounted to EUR 4.3 per share. Let me now turn to debt management on Slide 43, another key pillar of our financial project. 2025 was marked by strong financial achievements. Since January 2025, we raised more than EUR 1.1 billion on financing, including notably EUR 500 million 10-year green bond issuance. Altogether, these transaction are extending the average maturity of our debt and further reinforce our liquidity position enabling us to anticipate upcoming maturities with confidence. If you look at Slide 44, you can see that our debt maturity profile remains well spread over time. At the end of December, Icade had a solid liquidity buffer with EUR 0.8 billion in net cash and EUR 1.8 billion in ongoing committed revolving facilities. This comfortably covers the group's debt maturities through 2030. Slide 45 outlines the updated direction of our Green Financing Framework published in February 2026. This new version introduced Icade's aligned with the highest market standards. The aim is to ensure full alignment with the EU taxonomy and the CRREM trajectory based on forward-looking 5-year approach. The framework was assessed by a sustainable Fitch and received an excellent rating underscoring both the robustness of the criteria and the ambition of the eligible project. With that, I will hand over back to Nicolas for the conclusion and the outlook for 2026. Nicolas Joly: Many thanks, Bruno. So let me conclude with our 2026 outlook. Slide 47 sets out the main drivers for the year ahead. In 2026, we will continue to execute the ReShapE plan with rigor and discipline, maintaining a clear and consistent course. First, we will continue to focus on supporting office occupancy and protecting the value of our portfolio in a complex environment marked by negative reversion and lower indexation on rents. Second, we will continue to rebalance the developed portfolio towards project restored margin in a year that will nevertheless be affected by municipal deadlines in the first half. Third, we will maintain a selective allocation of capital towards targeted and profitable operations across both businesses while accelerating cost reductions through the implementation of an additional EUR 15 million in annual savings on a full year basis. Fourth, we will pursue our disposal program with pragmatism and discipline. And finally, we will maintain a strong balance sheet and controlled cost of debt expected to remain around 2% in 2025 -- 2026, sorry. In this context, we expect group net current cash flow to range between EUR 2.90 and EUR 3.10 per share in 2026. Given the discipline, we will continue to apply in the coming months, 2026 is expected to mark a low point in net current cash flow from strategic activities. The 2026 guidance includes net current cash flow from strategic operations between EUR 2.25 and EUR 2.45 per share, and net current cash flow from discontinued operations of approximately EUR 0.65 per share. Given the group's ambition to transform its activities, Icade intends to limit the distribution amount in order to preserve its deployment capabilities and finance its future growth. The group will submit for approval at the General Meeting a cash distribution of EUR 1.92 per share which will be fully paid in June 2026. In conclusion, we delivered robust operational performance in 2025 both in property investment and property development. While the environment remains complex, we are continuing our transformation with rigor, discipline and clear strategic focus. This year will still present challenges that will weigh on revenues, but we will strive to deploy what is necessary to make 2026 the low point on strategic net current cash flow. I would like to sincerely thank all Icade teams for their daily dedication and I reaffirm my full confidence in their ability to execute in the months ahead. And with that, we are now ready to take your questions. Thank you very much. Operator: [Operator Instructions] The next question comes from Florent Laroche-Joubert from ODDO BHF. Florent Laroche-Joubert: I would have maybe 2, 3 questions. I can ask one by one. My first question will be what does give you comfort that 2026 will be your low point for your net recurring cash flow. Nicolas Joly: Okay. Thank you, Florent. Thanks for your question. Well, about the low point on strategic cash flows, yes, we are confident on the low points. Of course, regarding investment revenues, we are facing headwinds. There will be negative reversion, a low level of indexation, so pressure will continue and we'll keep on securing what we can. But to mitigate that, as for the development, we've reached the low point in the business, and we made the impairments needed in 2024. The trends, as you saw in the presentation, are improving through customer mix rebalancing, launching restore margin operation. So clearly, there is room for improvement. We still don't know the exact pace. And on top of development, internally, we activate all levers to secure lower fixed costs through cost reduction plan, I remind you this target of an additional EUR 15 million over full year and a cost of debt which is contained around 2%. So all in all, clearly, we do not aim to control the cycle or the broader market environment, of course, particularly in this context. But what we do control is how the group operates through this phase with a clear focus on our side on capital allocation, cost discipline, balance sheet management and investment selectivity. So that's the reason why we are confident of reaching a low point in '26 on the strategic cash flows. Florent Laroche-Joubert: Okay. That's very clear. Maybe a question on the valuation of assets. So we have been able to see that you have still seen a negative evolution on a constant term on a like-for-like basis. So could you give us maybe more color on your discussions with appraisers maybe for the next appraising exercise? Nicolas Joly: Well, as for the asset value, you saw that in 2025, while the value went slightly down on offices, they went up on the other side for light industrial. And well, clearly, values decrease is slowing down year after year. On top of that, we are, on a daily basis, demonstrating the resiliency of the portfolio through this year, a record year in terms of new signature. What I can say is that clearly, I think we and the appraisers are waiting for new transaction to confirm that we've reached the bottom on most of those assets. Florent Laroche-Joubert: Okay. So that's there. And maybe last question on -- maybe on your view on your break option for 2027 and maybe also for 2026. So for 2026, how many do you think that you will be able to relate the break option. So the list that comes to end and that has to be re-let. And for your break options for 2027, have you any break option still at risk after maybe what you have been able to do at the Eqho Tower. Nicolas Joly: Well, if we take a look back, maybe 2025, you saw that the teams were able to secure major deals, which allowed us to reach a financial occupancy rate around 90%. As usual, we are transparent about the expiries in 2026. As you can see, we are still facing some challenges ahead with EUR 60 million of potential lease expiry. As I said, we expect this EUR 30 million departure by the end of 2026, mostly driven by the last wave of the to-be-repositioned asset departure, thinking notably of [ Renault ] and Placeron, example, normalizing on the other assets. It will happen quite early in 2026 because 2/3 of the departures will take place in H1. What we can see in the market is that, of course, all the discussions take more and more time, clearly. But thanks to the close relationships we have with our major tenants and long-term relationship we have with them. We try to anticipate as much as possible, which allows, for example, the success we had with KPMG 2 years in advance on the Eqho Tower. So clearly, we are very pragmatic taking everything deal by deal, asset by asset in order to keep on achieving what we achieved on the past year. Operator: The next question comes from Ana Escalante from Morgan Stanley. . Ana Taborga: My question is regarding shareholder remuneration, particularly in the context of the delayed timing of the healthcare disposal because apart from reducing leverage, the planned disposal of the Healthcare business would have generated a significant special dividend distribution. And now that's delayed even further. And although as you say, the healthcare business generates significant financial returns, these are below the potential shareholder return from disposal. So in this context, I would like to understand how you think about shareholder remuneration in terms of your priorities for capital allocation. Nicolas Joly: Yes. Maybe first, thanks for your question. Maybe firstly a word on the way we are addressing the healthcare disposal. I mean, we haven't changed our strategy for the beginning, the strategic decision has been made to the business, but not at any cost. There is no intention for us to sell under unfavorable condition with a large discount because we are committed to value creation, clearly, and we want to protect the value. Still, this is a significant pillar of ReShapE as we know, but this asset class is supported by strong fundamental, generating some attractive yields. So when we find the right opportunity, such as we did in '25 was Italy, we are happy to crystallize the value and sell at the NAV level like what we did. So our objective remains clearly a gradual exit from our minority stake over the ReShapE plan horizon. I would say that more specifically, maybe the focus currently is more on the Portuguese assets, which are really stabilized and attractive. But clearly, that's what we do. Once said that, on the capital allocation, as you saw, we are keeping a balance once again, between the protection and reinforcement of the balance sheet and being able to allocate capital in development that are accretive, like the one we've shared on the presentation regarding office or data centers or student housing to maximize the value creation in the mid long term for the shareholder. In the meantime, we are still able to propose satisfactory distribution, as you saw with this EUR 1.92 per share because we are comfortable with the overall trajectory of our financial ratios and this allows us to perfectly fit with the balance and equation we have on our capital. Operator: [Operator Instructions] The next question comes from Stephane Afonso from Jefferies. Stéphane Afonso: I think it's better to ask them one by one. So first, it's a follow-up question. You are calling for trust in the core cash flow this year. Could you share your main assumptions, particularly on your marginal cost of debt and also your normative occupancy rate. In particular, it would be very helpful to understand how do you take into account large renewals with Veolia and AXA. It's true that those maturities are more around 2028, 2030 but it will be useful to understand your ambitions since you expect the -- of 2026. That's my first question. Nicolas Joly: Okay. Well, thank you, Stephane. Well, as I said regarding the low EUR 0.26 on strategic cash flows, clearly, there will still be some downward pressure on the investment revenues, as I said, through negative reversion, even if we are able to crystallize new deals, we are crystallizing lease by lease this negative reversion. The main fuel for growth is indexation and it's a very low level today. And we have this departure that will widen, of course, the cash flows and the occupancy ratio. As I said, we are facing some departures in '26 especially on the to be reposition. So clearly, this will widen the occupancy ratio. We expect that to be lowered down from the Q1 given the fact that, as I said, 2/3 of the departure are expected in H1. But after this lowering down in Q1 '26, we expect a gradual recovery after that. And if we take a bit of look ahead after '26, you were mentioning AXA and Veolia, as I said to Florence, that's the exact same thing we've done with KPMG. Those are major tenants. We have, of course, there are potential break options in sight. We have a close relationship with them and keep on having discussion to try to anticipate and secure as soon as possible those potential break expiries. On top of that, some come also with some financial penalty. So this has to be taken into account. And regarding the cost of debt, as I said, it will remain contained with a cost update to around 2% in 2026. So all in all, that's the reason why we are confident in reaching a trough in 2026 regarding the strategic ratios. Stéphane Afonso: But just if I can say something. When I'm talking about marginal cost of debt that when you will refinance bonds at which cost of debt you assume to refinance those bonds. So it's 4%, 5% and also on Veolia and AXA on your business plan, what is your occupancy rate target on those tenants. Nicolas Joly: Well, as for the refinancing, clearly, that's something we have in mind, but let me remind you that we have a strong liquidity at the end of December 2025. Bruno was highlighting that. Debt refinancing is not a concern, clearly, we have multiple sources to reimburse or refinance future debt. And we've demonstrated in 2025 that we have a very good access to credit liquidity. We've issued in May, the 10-year EUR 500 million green bond. And this cost was 4.5%. So that's, in our view, is a good proxy on what to expect in the coming months or years. And regarding AXA or Veolia, clearly, as for our major tenants, our intention is to secure a long-term relationship and extension of leases with them. So that's what we are assuming and the way we intend to have discussions with them like we did with KPMG. Stéphane Afonso: Okay. And I have also a question regarding capital gains. And could you share the capital gains from the Marignan disposal that you expect to? Nicolas Joly: Yes. Well, as for Marignan, well, this is an asset we've owned since '24. So of course, this will generate tax capital gains. But we don't disclose any figures for now because the distribution obligation, this is related to capital gain, depends on the year-end loans, as you know. Because those capital gains may be offset totally or partially against other potential transactions. So that's the reason why on our side, we don't think that makes any sense to share some figures with the market right now. But clearly, of course, there are some significant capital gains because we've been owning the asset for 20 years. And as you know, we run quite a successful open bid process with fair competition and a nice premium on the NAV at the end. Stéphane Afonso: Okay. But maybe can we have a range? Is it about EUR 200 million, EUR 300 million because I understand the -- between their statement that it's important to have this in mind because we don't know what will be your disposal base and at what discount. So at this stage, if you were not to sell any other assets, what could be the capital base to distribute regarding Marignan disposal. Nicolas Joly: Well, I mean, we are in February. It's a bit early to have some full visibility on that, be sure when it would be relevant, we'll be able to share some figures. So that's the reason why we don't disclose any figures today, but I'm sure you can have quite a guess about what it could be. Stéphane Afonso: Okay. I hope I have a good guess. And maybe could you remind us the remaining distribution -- capital gain -- given that Eqho escalation continue to decline. Nicolas Joly: The remaining capital gain. We haven't shared the proper figure. But on the nonsale asset, the assumptions that we've shared during ReShapE was remaining distribution requirement of roughly EUR 300 million related to the EUR 1 billion that is to be sold. Stéphane Afonso: Okay. And maybe one last question regarding noncore cash flow -- regarding non-cost cash flow expected in 2026. My understanding is that the forecasts go back beyond 2026. And given this, what is the status regarding the deferred dividends of -- I understand that assurance hasn't distributed dividends for the past 2 years due to losses. But there is a statutory distribution requirements. So if I'm correct, the situation allows for 1 year deferral for distribution. So could you please clarify this? Nicolas Joly: Well, at this stage, we haven't assumed any potential dividend for ReAssure, and there is no requirement to distribute such an amount if the results is negative, for example, or anything. So that is not systematic. And in the EUR 0.65 we've assumed in the guidance for 26, this rely only on the dividend to be paid on Praemia healthcare. Stéphane Afonso: Okay. And do you expect the vehicle to stay on deficit this year again? . Nicolas Joly: Well, the assumption we've made is no dividend coming from ReAssure. Operator: The next question comes from Aboulkhouatem Amal from Degroof Petercam. Amal Aboulkhouatem: First question would be on the new labeling of the asset to be positioned. Can you give us some color on what would be the criteria because what you would assume as core and noncore? And what will be the indication on the CapEx or disposal strategy for these assets, please? Nicolas Joly: Yes, sure. Well, on the to be repositioned, I said that a category we flagged 2.5 years ago in order to give you more insight on the portfolio. 2 years after that, we've done most of the job. We've sold some. We've repositioned some. We've relet on a long-term lease basis some assets. So clearly, we've reached a point where the remaining noncore part is very small compared to the whole portfolio. So the idea now, as we've shown on the presentation is from 2026 onwards to communicate on some core asset categories. And when I say core, I say core to our strategy, it's not type of asset or investment is really core to Icade's key strategies. So globally, what you will expect for '26 is now in the segmentation, having some core assets mostly offices. So the actual well positioned offices plus the EUR 200 million coming from the former to be repositioned asset. Also core added from light industrial and a bunch of small bucket of non-core assets mostly coming from the remaining EUR 300 million of the to be repositioned assets that are to be repositioned and won't be core to our strategy. That's globally how we will communicate in the coming semester. I hope it is clearer now. Amal Aboulkhouatem: Is it fair to assume that the noncore to be repositioned assets on the market for sale. Nicolas Joly: Yes, yes, clearly. There are non strategic. So clearly, we would be happy to sell those assets. But as we said for the to be repositioned asset, globally, there is currently no liquidity because most of them are an attractive office building, former office building, I say unattractive because they are in areas that are not well connected or those assets are not filling the right criteria, ESG or standard or so. So globally, there are no investors to buy them, and I would say even whatever the price. So in order to -- we create liquidity, we have to go through a repositioning scenario and we've demonstrated that we are able to do so, and it can be in residential, can be in hotel anything office in the way. And the idea is to secure those scenario and once for example, we secured a building permit, then we create liquidity and then we will sell the asset. But clearly, we do not intend to pay some additional CapEx on this noncore and nonstrategic buckets. Amal Aboulkhouatem: Okay. My second question would be on the partnership for the data centers. So I just wonder what has led you to change your mind? I recall when you present the ReShapE strategy 2 years ago, the strategy for data center was very clear. You just delivered the building and then you let it to an operator. What has changed your mind? And if you can just confirm that for the Equinix data center in Portes de Paris, it's still a normal investment in the building, and we are not partnering with Equinix on that will be completed in 2026. Nicolas Joly: Yes. Thanks for the question. Well, sorry, if I haven't been clear 2 years ago, we are bang in line with what we shared in terms of our strategic priorities regarding data centers. And if I remind well, there was a dedicated slide where we were trying to explain the way of having some exposure to this business. I would say the usual way for real estate investors is exactly where we stand today on our 5 existing data centers, plus indeed, the one we'll be delivering to Equinix in a few months. This is powered shell model. So basically, we secure the power, we build the shell and we lease it through a commercial lease. So I would say pure real estate model. And that's also the reason why we are on yield around 6.5% globally. But what we were also saying during the strategic plan is that this is not suitable for very large projects. Because for data centers, the global amount of investment is very huge, as is EUR 12 million per megawatt IT globally for the power shell and the fit-out. And the power shell only represents 25%, 30% of the investment. So when we talk about projects like Transit, we are talking here about EUR 1 billion, EUR 1.5 billion investment in total, solely EUR 300 million for the power share. But in total, it's a huge investment. So operators are not keen on investing EUR 700 million or EUR 800 million for just the sake of securing a commercial lease. So once said that, you have basically 3 options, either you are a property developer and once you secure the land, the power and the building permit, you sell and you secure some capital gain. Interesting, but most of the value creation is still ahead. The other way of doing it on the opposite side is like, I would say, like what Marignan does in Spain is build a full-fledged operator. So the one building, operating, leasing to the hyperscalers, i.e., Microsoft or Amazon, the data center and be a fully fledged operator. We do not intend to do so given the fact that there's some risk coming with the operations. We don't have yet the special relationship with the farm and so, so. So we rather prefer a half way of doing that, which is the JV. We go to the operators, we structure a JV, retain a minority stake, which is roughly the same amount of investment as building a power share. But through this JV, we'll get more exposure to the business, which allows us to be more exposed also to the total value creation of the business. That's how we are able to reach like 10% yield on cost on such development. So clearly, we are not saying that we won't be doing power share anymore but we just need to have a proper strategy depending on the size of the investment. I hope it's a bit clearer now. Amal Aboulkhouatem: Yes. Very clear. And if I may, a last question on my side, just on the dividend policy. How should we look at it going forward? I understand that given the current uncertainties, it's difficult to have an outlook. But going forward, how do you see it for 2026 and beyond. Nicolas Joly: Well, our philosophy, once again is to secure as much cash as possible. Clearly, as I said, we are comfortable with the actual trajectory of our financial ratio, allowing us balance between balance sheet and this distribution. As you see the proposed distribution represented roughly 50% on the group net current cash flow, which is pretty in line with the payout ratio of the past 2 years. Of course, if we exclude the dividend related to the healthcare disposal. So this has been our philosophy from around 2, 3 years since the beginning of ReShapE, which is consistent with what we intend to do is accelerate the transformation of the model. Operator: The next question comes from Veronique Meertens from Van Lancschot Kempen. Veronique Meertens: Some questions around the development segment. So I think since half year reporting last year, you don't split out all these separate contributions to net current cash flow. So first of all, what was exactly the rationale behind that? And then secondly, can you give an indication if you are already back to positive territory in terms of net NCCF contribution from the development business? Or is it purely only a profit margin that's positive yet? Nicolas Joly: Okay. Veronique, thanks for your question. Well, the rationale of not splitting any more of the cash flows, I mean, it's just be consistent between there are financial KPIs and our strategic positioning. I mean we are an integrated player, and you saw also in the presentation that we are focusing on this model more than having on the one side the investment and on the other side, the development. So that's the main rationale with that, we align our financial communication with who we are and who we intend to be. Regarding profits, indeed, you are highlighting the fact that through stabilization of volume and a gradual recovery of margin with this year is better than '24. Of course, it is still impacted on the margin by the fact that there's very low activity in the commercial division, which is usually the part of the business which used to have the highest margin. So this contribution is even less. I mean, the revenues from commercial division on property development was cut by half. But on the core business being the residential, it's getting better, as Bruno highlighted, driven by the fact that we have more and more operation with restored margins. Of course, this will keep on going this way. I would say that there's no major strong recovery expected before 2027. But no deterioration, as I said. I would say that we've reached the trough in property development. The main question might be the pace of improvement in the market, which still remains, of course, is uncertain. Veronique Meertens: Okay. That's clear. So if I understand you correctly then probably in '26 and potentially even '27, we would still see a negative impact on -- or a negative contribution on your net current cash flow from the development business. So has there ever been an internal discussion if this is a business line that should be seen as noncore as well? Or is that not up to debate at all? Nicolas Joly: No, no. We expect, clearly, as I said, recovery, so going in the positive way on property development. The main question, honestly being the pace of this improvement. So it won't be going the negative path. And to be crystal clear, once again on property development. Since my arrival at Icade, I keep on saying that it's critical for the business and it's the core of ReShapE. And as we just said before, being an integrated player between property development and investment division is a key advantage in tomorrow's market. That's my deep conviction clearly. So this business is more than core in our strategy. Veronique Meertens: Okay. That's very clear. And then 2 small questions for Bruno. I noticed that there's a number of the net income from other activities from the property investments went up quite significantly to almost EUR 13 million. So I was wondering what's in there. And at the same time, the other financial income and expenses is only EUR 23 million despite, I think, already EUR 37 million from Praemia dividends. So could we get some color on those 2 figures, please. Bruno Valentin: Sorry, Veronique, I didn't catch the first part of the question. We're talking about property development or finance. Veronique Meertens: Yes, there's a net income from other activities for property investments of EUR 13 million, which was flat last year. So that's why I was wondering what's in that number. But we can also take it off-line if that's easier. Bruno Valentin: Yes. We'll come back to you on that, yes. . Operator: The next question comes from Celine Huynh from Barclays. Celine Huynh: I only have one question, please. On the EUR 1.92 cash distribution, can you confirm if there is still some capital gains on disposal to be returned to shareholders next year? And following this, my understanding is that there is no dividend on recurring activities proposed this year. Otherwise, you would have called the EUR 1.92 a dividend. Can you comment whether you see it returning next year? And what will be the criteria for you to be comfortable to pay a dividend again on recurring activities? And what kind of payout do you see. Nicolas Joly: Celine, thanks for your question. Well, maybe some opportunity to clarify that. But I mean, it's named -- technically speaking, it's named distribution because it will be taken on premiums. So technically speaking, you know that to be dividend must be paid from profits, retained earnings of or reserve account. So clearly, it's just a technical word. But if we regard the amount, the EUR 1.92, this -- the intent to pay an amount equivalent to the SIC distribution requirements. So not only 70% of capital gain on disposal, but also including 95% of the recurring income from securities and 100% of dividend from subsidiaries. And the reason we decided for such an amount, as I said previously, that we are comfortable with the trajectory of our financial ratios. And as I said, allows us to be balanced between the balance sheet and the investments we make, the remuneration -- keeping a remuneration of our shareholder at an attractive yield with this EUR 1.92. Celine Huynh: Okay. This EUR 1.92, can you break this down, which -- what is coming from capital gain, what is coming from recurring activities so that we can calculate a payout on the back of this. Nicolas Joly: Well, we don't communicate the split. But just to be clear, the EUR 1.92 is really equivalent to the 95% of direct income, 70% of the capital gain on disposal last year and 100% on dividend from subsidiary. And about payout, of course, we don't give payout policy, but as I said previously, you can see that this proposed cash distribution represents roughly 50% of the group net current cash flow. And if we look in the rear mirror over the past 2 years, excluding, of course, the part related to healthcare, which was the average payout ratio -- equivalent payout ratio that was observed, roughly 40% to 50%. Celine Huynh: Okay. I'll take the other questions offline. Nicolas Joly: Okay. Thank you very much, Celine. . Operator: There are no more questions at this time. So I hand the conference back to the speakers for any closing comments. Nicolas Joly: Well, thank you very much for your time and your questions. Happy to have shared that with you. You saw that all the teams at Icade are really committed to deliver our strategic plan, and I thank them once again for that. So we'll leave you with that. And good day and looking forward to seeing soon some of you. Have a good day. Bye-bye.
Jacobus Loots: Good morning to all of you, and welcome to our 2026 interim results presentation. Thank you very much for taking time out of your schedules to join us today. We will keep the presentation fairly brief with an opportunity for questions afterwards. Joining me in presenting today will be Marileen Kok, our Financial Director. A special word of thanks to our finance department and also to the rest of the amazing Pan African team for excellent work in putting these results together. You are welcome to refer to our SENS and RNS announcements and to the supplementary information available on the Pan African website should you require detail not dealt with in today's presentation. Please note the disclaimers and information on forward-looking statements on Slides 2 and 3. Reflecting on the half year past, Pan African could not have chosen a better time in the last 100 years or more to be in the gold business and furthermore, to increase our gold production by 50%. Pan African has again made excellent progress in our strategy of positioning ourselves as a safe and sustainable, high-margin and long-life gold producer with very attractive future prospects. Not many gold producers are able to successfully commission 2 new transformational projects within the space of 18 months. Today, we are also announcing sizable near-term expansions to these projects. It is a pleasure to present this set of results. However, I'm even more excited about our future, about further growth in production and importantly, to continue making a tangible and real positive difference to all stakeholders in the regions that we operate. A lot has been said about the gold price, and we have to give credit to the rise in the fortunes of the yellow metal, which is, to some extent, reflected in the set of results. Suffice to say that if the current gold price is maintained, we can expect an even better second half to the financial year with increased production also. Last year, we set some records. This half year was also a busy one for Pan African. We are again breaking records with the following worthwhile noting. We moved to the London main market and were included in the FTSE 250 Index. Pan African is now one of the largest gold miners listed in London. We achieved record half-year production results. We are reporting record profits, record headline earnings per share and record cash flows. We are initiating an attractive interim dividend to our shareholders, and we should be pretty much ungeared from a net debt perspective before the end of this month. Over the last year, we reduced debt by more than $180 million, demonstrating the cash flow generating ability of our portfolio. By financial year-end, at prevailing gold prices, we should have accumulated a very healthy cash balance despite investing meaningfully in all of our growth initiatives. Pan African is now incredibly well positioned to capitalize on current gold prices and on our increasing production profile. And I look forward to sharing some thoughts and further detail on many of our initiatives and plans in the following slides. On Slide #4, an overview of the presentation. We will start with Pan African's health and safety performance, which is obviously critical in our business. And then provide an overview of the group and our operating environment, some key features from the half year with detail on asset performance as well as our cost and capital outlook. We will then spend a couple of minutes on ESG before allowing Marileen the opportunity to highlight elements of the group's financial performance for the period. The presentation will then conclude by outlining focus areas for the year ahead. If we then proceed to Slide #6, our safety performance and our journey to zero harm. We continue to focus on safety initiatives and interventions and on maintaining our industry-leading record. We can also celebrate a number of safety milestones achieved during the reporting period. I would like to specifically mention the achievements of our surface business, now including Tennant, with these operations again achieving zero lost time and reportable injuries for the half year. My commitment is that we will continue to do our utmost to ensure the safety of our people and operations in order to realize our goal of a zero harm working environment. Slide #8. We believe Pan African offers a compelling investment proposition. We operate a well-diversified portfolio of producing gold assets in 2 jurisdictions with outstanding mining pedigrees. We have a high margin and stable operating base, generating very attractive cash flows, growing ever closer to 300,000 ounces of gold production per annum. We expect production to grow by almost 40% in the next year, driven primarily by the ramp-up of MTR and Tennant Mines. Our assets are long life and the group has a huge reserve and resource base for further expansion with some very exciting projects that we will discuss later. We have a proven track record of project delivery, excellent capital allocation and a sector-leading dividend, now also with an interim dividend. And we have the ability to leverage the existing portfolio for further attractive growth. No need for us to go out and buy expensive assets at high valuations at this stage. Slide #9, the proof is in the pudding or in the numbers in this case. An investment in Pan African in 2009 when the group in its current form came into being, would have increased some 75-fold versus gold price increase also attractive of around 6x. We've also received an attractive dividend over this period, further increasing returns on Pan African stock. The company is now well covered by local and international analysts and has a diversified shareholder base. Slide #10. We have built a unique portfolio of surface remining and underground assets. The addition of MTR and Tennant mines means that we now have 3 large mining complexes in South Africa and 1 in Australia, all contributing towards a material increase in gold production in the years ahead. Surface operations to reduce unit costs and turn legacy liabilities into profits, whilst the underground mines provide long life of mines, solid returns on investment as a result of a large sunk capital base and also attractive optionality, which we are bringing to account in a circumspect and considered manner, always thinking about the best way to allocate capital and generate returns for our shareholders. Slide 12, a bit more detail on our current portfolio of assets. I think what is very helpful is that all of our operations now have extended lives with the shortest life being the BTRP at 6 years, excluding Royal Sheba. If we compare ourselves with the sector, many producers are running out of life on their assets or have to invest significant capital for future production, not the case for Pan African. We do not have to go and acquire more assets to maintain and grow production. Slide 13, our operating environment. We continuously seek ways of making our business less susceptible to adverse external impacts in South Africa. We have now seen an extended period without any load-shedding. We are rapidly expanding our renewable energy footprint. Our mining rights are long dated, and we have multiyear wage agreements in place at most operations. At Pan African Resources, we characterize our labor relations as constructive and stable, underpinned by a proactive consultative approach with recognized unions and structured engagement forums. Pan African has in the past, consistently pursued longer-term collective agreements. And as I've said, we have multiyear wage agreements in place at most operations. Some of the other focus areas include employee health and engagement initiatives. We are also very proud of our interactive smartphone app, which we are currently implementing for all employees, creating a unique employee value proposition for a more engaged workforce. Pan African's track record demonstrates that we can operate and grow in South Africa and do so very successfully. Our experienced Australian team will ensure the same success in that jurisdiction. We have found Australia's Northern Territory government very welcoming and supportive of our operation. It is a great place to do business, and we look forward to further expanding in that jurisdiction. If we then proceed to key production cost and financial features from the half year past on Slide 15. Gold production was up more than 50%. Our guidance for the full financial year is 275,000 ounces or more, with production weighted to the second half of the financial year as MTR's expansion is completed, Tennant mines start mining higher grades from open pits, and we are firmly established in Evander's very-high-grade 24 level B-Line. We are expecting production for our next financial year to be even closer to 300,000 ounces. Our all-in sustaining cost for the half was $1,874, above previous guidance. The primary reasons for overshooting on all-in sustaining cost was the rand-dollar exchange rate, employee option expenses as well as increased royalties and processing of third-party material. For the full financial year, with increased production, we expect all-in sustaining costs to decrease to between $1,820 to $1,870 per ounce. We expect to be net debt free by the end of this month. And importantly, the group remains entirely unhedged. And despite all of the growth and capital reinvestment, we are able to maintain our sector-leading dividend to shareholders, also now initiating an interim dividend. Slide 16 should be an interesting one for our investors, demonstrating how nicely we have expanded margins in recent years, now with meaningful contributions from MTR and Tennant Mines and also the full impact of prevailing record gold prices not yet fully reflected. Slide 18. I think it is fair to say that Pan African has a record second to none in terms of conceptualizing construction and operation of tailings retreatment projects, now complemented by Tennant Mines also. These long-life assets form the cornerstone of our business. And we have further room to grow in this space detailed in the next slide, which presents a very compelling investment proposition. If we then move on to more detail on the performance per operation, starting with Elikhulu on Slide 19. Clearly, a flagship asset for the group, just under 9 years of production remaining, producing at $1,200 per ounce, currently the lowest cost in the group. Elikhulu delivered an excellent performance for the half year, production up 15%, and we look forward to another great year and clearly excellent cash flow generation in the current gold price environment. The asset generated $78 million of EBITDA for the half year, basically the same as for the full previous financial year. We are also now constructing the Winkelhaak pump station ahead of when required. This will enable us to feed material from both Leslie/Bracken and Winkelhaak in the next financial year. Slide 20, the BTRP, another good performance from our first gold tailings retreatment plant commissioned in 2013. As previously flagged, we have extended the life of this operation from surface remining only to 6 years. The capital requirements for this life extension, a relatively modest $4 million for the new Bramber pump station has now been spent and the pump station commissioned. The BTRP will, therefore, continue to form an integral part of Pan African's tailings retreatment and the Royal Sheba story for many more years. MTR on Slide 21. We commissioned the plant in October 2024, ahead of schedule and below budget. We have now also successfully completed the CIL and reactor expansion in December and already achieved the expanded nameplate capacity in the same month. Production from MTR was approximately 10% lower than anticipated for the half as a result of processing an area with lower grades and recoveries. However, we expect a nice pickup in H2, which will also positively impact unit costs. Going forward, MTR should deliver 55,000 to 60,000 ounces of annual production. We are completing construction of a water treatment plant on site and should also start construction of a 20-megawatt solar facility before the end of the calendar year. On Slide 22, we cannot say enough about the socio-economic and environmental benefits of this project. Concurrent rehabilitation is in progress. We are uplifting local communities, providing much needed economic and employment opportunities and working with law enforcement to eradicate illegal mining. Also a special mention to our MTR team for winning the Best ESG project in Mining Award at December's Resourcing Tomorrow Conference in London. Slide 23, Tennant. We could not have chosen a better time to make this acquisition, which is now fully integrated into the group with the Nobles plant running at steady state. The Tennant Creek Mineral Field was historically one of Australia's highest grading gold provinces, located in a Tier 1 mining jurisdiction and through our wholly owned tenements and the exploration joint venture with Emmerson Resources, we control some 1,700 square kilometers of very prospective ground in this mineral field. The initial life of mine at Nobles is 8 years. However, strategic exploration and studies are underway to improve this to more than 15 years, especially when considering our Warrego copper and gold deposit, containing 16.5 million tonnes of ore at 1.3% copper and 1.1 gram per tonne gold. Historically, exploration in this area was only focused to near surface mineralization with less than 8% of drilling being done at depths greater than 150 meters. Slide 24. The construction of the Nobles plant was completed in April 2025, with the first gold produced only 1 month later. The project was completed ahead of schedule and within budget. Soon thereafter, in July 2025, full nameplate capacity of 70,000 tonnes was achieved. This has been carried through into the reporting period's production with Tennant mines producing almost 16,000 ounces, mainly from processing the Crown Pillar Stockpile, which is on surface and next to the plant. It is expected for production to improve significantly in the second half as higher grade ore from the Rising Sun open pit with an average grade of 5.8 grams per tonne and from the Nobles open pit at approximately 2 grams per tonne are mined and processed. The forecast for Tennant Mines in FY '26 is to produce between 46,000 to 50,000 ounces of gold. The all-in sustaining cost achieved in the first half was impacted by the lower unit production from the low-grade Crown Pillar Stockpile and working costs incurred for the pushbacks at the relevant pits. This cost is anticipated to reduce in H2 as the unit production increases. The initial life of mine of 8 years from current sources is targeted to increase to more than 15 years through systematic regional exploration around known mineralization, such as the Juno and Golden Forty deposits, along with more than 10 additional previously unknown targets that were identified through geophysical programs over the last 6 months. Juno contains resources of 262,000 ounces at a grade of 4.16 grams per tonne with a further large deposit successfully drilled below the Juno resources. This deposit remains open at depth, while the deeper load is also open at depth and on strike. Similarly, the Golden Forty deposit, which is part of the Small Mines Joint Venture, holds some 114,000 ounces of gold at a grade of 7.25 grams per tonne, while multiple high-grade drill intersections occur close to the known resource and will be targeted for additional exploration and resource growth. About 6 months ago, we promised growth from Australia, and here it is. The group will invest further by increasing the throughput of the plant from 840,000 to 1 million tonnes per year. This will be done by adding 2 additional CIL tanks, a fixed crusher front end and a flash float circuit to minimize the effects of low-grade copper ingress into the circuit. The accelerated development into the ore deposits at Juno and Golden Forty, which will both be mined underground utilizing a trackless decline system will form part of this strategic investment. Additional to these deposits mentioned is the White Devil shallow deposit of more than 600,000 ounces at 4.1 grams per tonne from where open pit mining can extract almost 400,000 ounces from the asset at an average stripping ratio of 20. The deposit at White Devil outcrops on surface and is open on strike and at depth. Initial oxide mining at White Devil will come in at an even lower stripping ratio of less than 10. We are in the process of finalizing the Major Mines Joint Venture agreement with our partner, Emmerson. All of these developments will see the production of Tennant Mines grow from 50,000 ounces to approximately 100,000 ounces per annum over the next 3 years. Slide 26, the Evander underground, a much better performance for the period with production up by almost 90% and further improvements expected in the second half. The new infrastructure is fully commissioned and functioning as expected. All-in sustaining cost has also reduced nicely with the ramp-up in production. If we then proceed to Slide #27, dealing with Fairview, our flagship underground operation at the Barberton Mines Complex, a good performance with gold production up by 10% with mostly ore from the MRC and Rossiter orebodies. We continue to build more flexibility at this operation and will invest in further development and refrigeration in the next years to support the operation's very extended life of mine of more than 20 years. The smaller underground operations at Barberton on Slide 28. In terms of Consort, the rehabilitation of the PC shaft has been completed and now enables the contractor to recommence mining on the high-grade 41 to 45 level mining sections. Additional development is ongoing on the MMR and the PC shaft to access mineral reserve blocks, which will give us access to more ground to mine. Much better performance from Consort in the half with production up by 20%. As far as our Sheba mine is concerned, production was impacted by lower grades mined, and we again continue to develop in order to improve flexibility. Slide 30, the section dealing with all-in sustaining costs. Almost 90% of our portfolio produced at an all-in sustaining cost of $1,700 per ounce. Slide 31 illustrates that our cost performance continues to be very much in line and better than the average for the global sector with most producers having experienced significant pressure in terms of costs in the last couple of years. On Slide 33, group capital projects. We continue to invest into our assets and into growth. For the full financial year, sustaining capital is fairly subdued in terms of growth in the next financial year. We are, however, using increased cash flow margins in fast-tracking developments, principally at Tennant and MTR. On the next slide, it is great to discuss some further near-term growth opportunities. Slide 35, the Soweto cluster at MTR. As we have said before, the Soweto cluster consists of more than 100 million tonnes of tailings with a mineral reserve of more than 500,000 ounces of recoverable gold. The pre-feasibility yielded some very attractive results. We can be producing between 30,000 to 35,000 ounces of gold annually at a very competitive all-in sustaining cost for an initial capital investment of some $160 million. The definitive study will be complete in the next months, whereafter our Board will finally assess the way forward. Slides 36 and 37, some very attractive growth at Tennant also. Historically, the Warrego mine produced 41.3 tonnes or 1.3 million ounces of gold. 91,500 tonnes of copper and 12,000 tonnes of bismuth between 1973 and 1998. This project is a wholly owned asset, which contains a further resource of 219,000 tonnes of copper at 1.3% and 582,000 ounces of gold at 1.1 grams per tonne and remains open at depth. By itself, this is a large deposit with multiple exploration targets to the north and south of the current mine. A feasibility study is underway on the copper and gold strategy with results expected early in the new calendar year. This study targets the production of 10,000 to 15,000 tonnes of copper per year, along with an additional 20,000 to 30,000 ounces of gold, while extending the life of Tennant mines past 15 years. Other third-party copper and gold sources in the region could support a hub-and-spoke strategy also. And finally, on growth, the Poplar project at Evander almost forgotten. Poplar is one of the largest remaining unmined projects in the Witwatersrand Basin and hosts more than 6 million ounces of gold at around 7 grams per tonne in mineral resources within Pan African's existing Evander mining right. It is a shallow 500 meters below surface, high-grade Kimberly Reef system defined by extensive historic drilling that confirms reef continuity and structural definition. Poplar represents the northwest extension of the proven Kimberly Reef orebody currently being mined at Evander's 8 shaft, materially reducing geological and execution risk. An existing pre-feasibility study is being updated and is targeting 100,000 ounces per annum underground operation, utilizing conventional Witwatersrand mining methods and leveraging existing Evander metallurgical infrastructure, significantly enhancing capital efficiency and shortening the potential route to production. Poplar does not represent exploration upside. It is a delineated high-grade underground growth platform within our existing operating footprint with a scale to materially strengthen the group's future cash generation and drive sustained shareholder returns. ESG on Slide 40. We continue to be very proud of our achievements on this front, particularly on progress with renewable energy, water retreatment and social projects. We really do make a positive difference where we operate. To elaborate further on our renewable energy road map on Slide 41, we are targeting more than 60% renewable energy in the next years. I will now hand over to Marileen, who will provide an overview of the financial results for the 6 months. Marileen Kok: Thank you, Cobus. On Slide 43, you will notice the positive impact of the 62% increase in the average U.S. dollar gold price received and the increase of 59% in gold sold for the reporting period on the financial results. Revenue increased by 157% period-on-period to USD 487 million, with the group fully benefiting from the record high spot gold price throughout the reporting period, whereas hedging was still in place for the prior period. The increase in revenue also resulted in an increase in adjusted EBITDA of 323% and an increase in earnings of 207% to $148 million. Headline earnings increased by 541% to $149 million and headline earnings per share increased by 512% to $0.0734 per share. Earnings per share increased by 192% to $0.073 per share. In the prior period, the gain on bargain purchase of $28 million as a result of the Tennant Mines acquisition was included in earnings per share, but not headline earnings, which explains the difference between earnings per share and headline earnings per share. There are no material differences between earnings and headline earnings in the current reporting period. Production costs and all-in sustaining costs in U.S. dollar terms were impacted during the current reporting period, mainly as a result of the appreciation of the rand relative to the U.S. dollar by 3.2% and the increase in share-based payment expenses as a result of the increase in the share price by more than 140%. Further cost increases included higher royalty payments as a result of the higher gold price and increased profitability of the operations and payment for third-party material treated at the Evander and MTR operations. Although the cost of production from these third-party sources is higher than the cost of the group's own production, the margin is still very attractive at prevailing gold prices and ensures that we utilize the group's full processing capacity. The impact of a full 6 months of production from the Tennant Mines and MTR operation should also be taken into account when comparing the absolute cost of production as these operations were not fully commissioned in the corresponding reporting period. Tennant Mines and MTR contributed to increases of 25% and 19%, respectively, to the total group cost of production. Unit cost of production are expected to decrease during the second half of the financial year as a result of an increase in production, given that the group's production cost consists of a large fixed cost component. This will ensure that full year unit cost of production will be between $1,820 and $1,870 per ounce as per the revised cost guidance at an exchange rate of ZAR 17 to the U.S. dollar. The very substantial increase in cash flows from operating activities before dividend, tax, royalties and net finance costs of 588% to USD 260 million demonstrates the impact of growing gold production by more than 50% while controlling cost increases in this high gold price environment. These cash flows assisted the group in paying the record net dividend in December of $44 million and to de-gear the balance sheet by reducing net debt by 80% from $229 million to $46 million. The reduction in net debt included the settlement of the 4 SO1 bonds, which was part of the group's inaugural issuance in the debt capital markets and also early repayments of the MTR term loan facility. Slide 44 demonstrates the ability of the group to generate exceptional cash flows at prevailing gold prices. At current gold prices, the group will be fully de-geared from a net debt perspective by the end of the month. The expected debt redemption profile is obviously well ahead of contractual requirements. The MTR term loan facility was fully settled in January 2026, well in advance of the contractual repayment date of 31st of July 2029. The group's revolving credit facility and general banking facilities is undrawn, and the group is currently busy finalizing the extension of the maturity dates of these facilities as they constitute a key component of our core working capital facilities. A number of very attractive banking proposals are currently being considered for the extension of these facilities. The group's remaining outstanding debt facilities currently consists of the listed corporate bonds in South Africa, combined with the funding facilities for the Australian operations from the Northern Territory government and a private financial institution. I'm also pleased to report that we are in the process of settling the Australian debt facilities, and this will be completed before the end of the financial year. Slide 45 tracks the group's historical dividend payments and attractive returns to shareholders. The record dividend of $0.37 per share for the 2025 financial year resulted in a net payment of USD 44 million during December 2025. This dividend represented an increase of 68% compared to the dividend for the 2024 financial year. The group has also now initiated interim dividends with a ZAR 0.12 per share dividend approved by the Board for payment in March 2026. We are very comfortable that Pan African has sufficient available liquidity after payment of dividends to fund operations, together with further renewable energy initiatives and our very attractive growth projects. Thank you. I will now hand back to Cobus to conclude today's presentation. Jacobus Loots: Thank you, Marileen. If we conclude on Slide 47 and to again reinforce some key points. We now have the tailwinds from the highest gold prices in history, and the group is completely unhedged and pretty much ungeared. We are expecting further production growth in the half year ahead, and we have a pipeline of very attractive growth projects. Clearly, in this environment, the group is generating very significant cash flows. Let me reassure shareholders that, as always, we will continue to be incredibly prudent in capital allocation and investment decisions. We have an outstanding track record in terms of generating sector-leading shareholder returns on an absolute and per share basis, and we will not compromise on this metric. Thank you very much for your time this morning. We look forward to continue mining for a future and expanding our horizons in the period ahead. Hethen Hira: Thank you again for joining us this morning. And there definitely is a bit of time for questions. So let's do the conference call first, if you don't mind. Operator: [Operator Instructions] At this stage, we have no questions from the telephone lines. I will now hand back for questions from the webcast. Hethen Hira: Thank you very much. We have a few questions on the webcast. The first one from Dylan Griffiths of Foord Asset Management. I appreciate the updates to guidance for FY '27. You've given us a range of 50,000 to 54,000 ounces of official guidance for Evander, but noticed the presentation slide on Evander suggests circa 70,000 ounces. I understand you're into some good grades at 24, 25 level. Could you reconcile these 2 estimates for us? Jacobus Loots: Thanks, Dylan. Yes. So 100%, we're mining the B-Line on 24 level. It really is exceptional grades. And that's partly the reason for the really nice increase in production from the Evander underground during this period. You're 100% also correct, 70,000 ounces, if one looks at the life of mine is not an unreasonable expectation from the underground. And as we continue into 25 level and we ramp up 25, definitely, we can expect an uptick in production from the underground. For next year, we want to be a little bit conservative still in terms of the production. So we're quite comfortable 50,000-54,000. Hopefully, we can do better. But again, we're quite excited about the prospects for the Evander underground. As we said, the infrastructure is working well and a lot of scope to grow. So you can expect increases from Evander in the coming years from a production perspective. Hethen Hira: Thank you, Cobus. The next question is from Herbert Kharivhe of Absa. Please comment on the state of the cyanide market. Some of your competitors are reporting supply challenges. Is the current supply from Sasol sufficient to service increasing demand as gold mining activity increases across the country, especially from cyanide-intensive operations like tailings? Jacobus Loots: Yes, I can't comment on our competitors or peer companies. But fortunately, Pan African had the foresight to install briquetting plants for cyanide at all of our operations, which means we can import cyanide if so required. So that was very good planning from our perspective. Obviously, it's well spoken about it. There was a shortage in the South African market given challenges from our supplier. But Pan African is very well set up in that we have flexibility. So generally, we don't see those shortages impacting our operations. And also from a cost perspective, over the recent years, because of the large increase in the sort of cost of cyanide, it's pretty much sitting at import parity at this point. Hethen Hira: Thanks, Cobus. Nkateko Mathonsi from Investec asked about, please give us color on Tennant all-in sustaining cost. And where is it likely to land in H2 FY '26 when production is double that achieved in H1 FY '26? And following on Tennant, Arnold asked, will you have to make any additional payments at Tennant to buy out partners or property holders? Jacobus Loots: Well, the all-in sustaining cost, we've guided will come down in Tennant as we produce more ounces. There's a lot of fixed costs. Obviously, also, we spend a bit of money on accessing open pits, et cetera. But units of production always reduces costs. So you can expect lower costs from Tennant. And in life of mine, the cost should be a lot lower as we ramp up. And you would have seen that we have given a lot of guidance in terms of moving to 100,000 ounces of production at Tennant in the next 3 years, which I think will be very good. And that excludes any growth from Warrego, which can give us a lot of copper and gold. So it's quite exciting. In terms of payments, Marileen, there are some payments still to be made, which we factored into all of our numbers. Marileen Kok: Yes, yes. All of the royalty payments and everything is included in all of our numbers. And yes, there's no additional payments for any expansion included in the current numbers. Hethen Hira: Thank you very much. And Arnold again from Nedbank. What is your underlying year-on-year all-in sustaining cost inflation. If we strip out the impact of royalties and share-based payments, will you be able to keep a lid on cost given the high -- given the current high gold price? Marileen Kok: Thanks, Hethen. So if you look at our current cost base, and as you've rightly pointed out in your question, Arnold, and we strip out the exceptional items for the appreciation of the rand, the share-based payment, and then also the surface sources, you'll see that our all-in sustaining cost is then very close to what it actually was last year. The biggest cost base we have is in rand with the Australian operations just coming on board in the last 6 months. So if you look in absolute rand terms, the costs are very well controlled. It's basically only electricity where our increases are above inflation. All of our other cost increases is in line with inflation now. And we also managed to get some good savings there through the use of our renewable energy and after the restructure of the Barberton workforce following the Section 189. So those savings actually offset some of the electricity increases, resulting in our rand cost base increasing in line with inflation only. Hethen Hira: Thanks, Marileen. Chris Reddy from All Weather Capital asks regarding your point on the potential for strong cash balances should gold prices hold, what is your view on buybacks versus special dividends? Jacobus Loots: Chris, it's always a controversial one. Some people love buybacks and some investors don't like them at all. So we try and, I guess, balance the views from investors. But the bottom line is, I mean, in this environment, we -- despite spending a lot of money, obviously, in expanding production so significantly over the last years, we should have no debt by the end of this month. And that's obviously, we're sort of rewarding shareholders now with an interim dividend. You expect -- can expect increased dividend payments, and we'll continue to assess the opportunity for buybacks as we have in the past and balance that obviously against also the very exciting and value-accretive growth that we have in the portfolio and that we've discussed and outlined. Hethen Hira: Thanks for this. There are 2 questions regarding the third-party material. Bruce Williamson from Integral asks, how secure and sustainable is the third-party material you are processing and could it grow? And Arnold wants to know how do we ensure this material comes only from legitimate sources? Jacobus Loots: Well, I'll ask, firstly, on the first bit. Look, it's not -- it's obviously it's quite profitable at this gold price. It's not something that we're banking on long term to sustain our operations. It's good when it happens. And obviously, it ensures efficiency in terms of keeping our plants full. We think there's a lot of scope, specifically on the West Rand from the cleaning up. It's such a huge area. So I mean, we're even sort of investigating the merits of putting up a hard rock circuit as part of MTR. So that could be a very good development in the next year or so. We're not banking on it continuing, but it is very good if it does. In terms of compliance, we take compliance very seriously. Marileen, do you? Marileen Kok: Yes, we've got a legal team checking all of the permitting and licensing of anyone who supplies material to us to make sure that they've got the necessary documentation in place and that we only procure from legitimate sources. Hethen Hira: Thanks very much. Herbert Kharivhe from Absa again. With such a strong project pipeline, is it accurate to say production will likely be closer to 400,000 ounces by FY '29 with tailings accounting for approximately 250,000 ounces? Jacobus Loots: Herbert, I think, sort of -- look, we're in a very fortunate position from an organic project perspective, and we've outlined the really exciting Soweto development. We've outlined what we're doing at Tennant and obviously also a bit medium, longer term Poplar. So I mean Pan African is in the enviable position that we can grow and we don't have to go buy anything at this very expensive gold price. About the 400,000, I mean, we certainly will continue to look to grow production as we have been. There's no reason why we can't materially increase production over the medium term, I think. And in the next while, we'll sort of look at the medium and longer-term plans and outline where we see things going. But most definitely, you can expect further production growth into the future. Hethen Hira: Thanks a lot. The final 2 questions, one from Nkateko at Investec. Is hedging not attractive at current gold price and prevailing volatility, particularly considering the number of potential projects in the pipeline? Marileen Kok: Thanks, Hethen. So yes, although it is very attractive to lock in margins at these gold prices, our shareholders have indicated to us that they especially like the exposure to the gold price, and that's why they invest in a single commodity company like Pan African Resources. Historically, we've used hedging only as a risk mitigation tool if we've got a big capital project or if there's big debt payments. But Cobus said, being fully de-geared now and giving the shareholders that exposure to the gold price that they want, we don't currently contemplate any hedging, no. Hethen Hira: Thanks a lot, Marileen. Finally, a question from Sven Lunsche at Miningmx. Your Barberton and Mintails operations are in areas with high Zama Zama activities. Can you provide more details on your measures to reduce their impact? Jacobus Loots: Yes. We have an excellent security team. It's really a core function. And again, maybe it's the right forum to thank our security team for all the excellent work they do in keeping our people and our assets safe. There's definitely an increased focus and there's an onslaught, most definitely, and we see a lot of influx illegal immigrants from Mozambique in the light of Barberton. But that's part of what we do is we keep it under control. We work with law enforcement. We'll continue to do so and make sure that we can mine for many more years. Hethen Hira: Thanks very much, Cobus. There are no more questions on the webcast. I understand there are 2 on Chorus Call. Jacobus Loots: So we move to the conference call. Operator: At this stage, we have one, which comes from Jasper Mainwaring of Berenberg. Jasper Mainwaring: Thanks for the update and the color provided on the FY '27 CapEx guidance. Looking ahead, as you move into FY '28, how should we be thinking about CapEx given the number of the growth projects you mentioned today and as you move into a net cash position? Jacobus Loots: Thanks. Well, our forecast, is that by the end of this financial year, we'll already be in a net cash position. So there is an increase in capital in FY '27 as we've guided. To take a step back, FY '26 capital is pretty much in line with what we've said before. But I mean, the primary increase in '27 relates to MTR and even more importantly, to Australia. We're going to spend $100 million in Australia. But in exchange for that, we're growing production to 100,000 ounces, excluding copper gold from Warrego. I think that's really fantastic growth. So the bottom line is in this gold price and even at a lower gold price, I mean, we can afford to continue to increase dividends, and we can grow, as we've indicated. And yes, we'll still be net cash. So that's a very enviable and good position for us to be in. In terms of capital for FY '28, all things being equal, you can expect the number to come down. I mean I look at our portfolio, I mean, we're spending the last bit of money now on Elikhulu for the life. Evander underground capital will reduce further as we go further into steady state. Barberton, we continue to spend, but that is very sensible spend at this point. And MTR, a bit of money still on tailings. But the bottom line is most of the capital we're going to be spending in the next years will be on increasing our production profile for many years to come into the future. Hethen Hira: Thank you. There are no more questions. Jacobus Loots: Thank you to everybody that's taken the time to dial in and to join us today. And if there are any further questions, you know where to find us. Thank you very much.
Operator: Welcome to the Icade Full Year 2025 Results Conference Call. [Operator Instructions] Now I will hand the conference over to the speakers. Nicolas Joly, CEO; and Bruno Valentin, CFO. Please go ahead. Nicolas Joly: Good morning, Nicolas Joly speaking. Thank you all for joining us today. With Bruno Valentin, we are pleased to present Icade's 2025 full year results. After the presentation, we will, of course, open the floor for questions. I will begin with the main development of the year, both operational and strategic, Bruno will then walk you through the financial results and the balance sheet in more detail. Then I'll conclude with the 2026 outlook. Let's start by summarizing the key highlights for 2025. 2025 was a year of full progress in the execution of our ReShapE plan with strong financial discipline. Three elements stand out. First, disposals. 2025 was a record year with significant milestones in offices and in healthcare, allowing us to crystallize value in a selective investment market. Second, operations. Across both businesses, performance was solid. In Property Investments, despite declining revenues, we achieved a record year in terms of square meter leased contributing to an improved financial occupancy rate. In Property Development, we delivered solid activity with stable reservation volumes driven by a rebalanced customer portfolio and restored margins on new operations. And third, discipline. Throughout the year, we maintain tight capital allocation, controlled debt levels and strong liquidity while advancing selectively into student housing and data centers. If you turn now to Slide 6 and 7, you will find the key financial metrics for 2025. Net current cash flow amounted to EUR 3.57 per share, in line with the guidance. Cash flow from strategic activities, namely Property Investment and Property Development came in at EUR 2.89 per share compared to EUR 2.94 per share in 2024. NTA NAV declined by around 11% to EUR 53.3 per share, mainly reflecting the decrease in value of the property portfolio and the dividend payment. Loan-to-value ratio stood at 39.6% at the end of December. This does not yet include the Marignan disposal, which will have a positive effect of minus 3 percentage points. The net debt-to-EBITDA ratio improved to 9.1x, supported by the recovery in development margin in the second half. Interest coverage remains solid at 6.6x and the average cost of debt is stable at 1.7%. If we look more closely at each business on Slide 7. In Property Investment, gross rental income was EUR 347 million, down 4.2% like-for-like, mainly due to tenant departures recorded in 2024. The gross asset value of the portfolio stood at EUR 6.1 billion, reflecting a 4.5% decline on a like-for-like basis. The EPRA net initial yield increased at 5.6%. The Property Development business economic revenue declined to EUR 1.1 billion versus EUR 1.2 billion the year before. However, the operating margin turned positive again reaching 2.4%. The volume of orders was broadly stable at approximately 5,400 units outperforming the market. Before diving further into operations, let me briefly share our initial view for 2026 on Slide 8. In an uncertain environment, we expect group net current cash flow to decline in 2026 mainly due to continued pressure on property investment revenues and only gradual recovery in the development business. That said, thanks to strict selectivity in the operations we launched and continued control of our cost structure, we expect 2026 to mark the low point for net current cash flow from strategic activities. I will come back to this when we discuss guidance in more detail. But before that, let me briefly set the broader market context on Slide 10. In 2025, we continue to navigate a challenging environment marked by macroeconomic uncertainties, political instability in France and persistently high interest rates, which continue to worry on the real estate sector. In the rental market, pickup was down around 9%, while vacancy level and incentives remain significant. The investment market was slightly better oriented than in 2024 with improved liquidity and value-add assets and a return of interest in the office segment in the best locations. Against this backdrop, Icade moved forward with the disciplined execution of its ReShapE plan. Let's move on to Slide 12. With regard to the disposal, Icade recorded an exceptional year with nearly EUR 850 million disposal completed or signed. All these transactions were carried out with strict financial discipline allowing us to crystallize value creation. We will maintain this trigger going forward. In Property Investments, EUR 640 million of disposal was secured or signed. This includes EUR 240 million of mature or noncore assets sold in very good conditions with capital gain of around 5% versus end 2024 NAV. In December 2025, we signed the sale agreement for the iconic Marignan Champs-Elysees asset. This asset was acquired 20 years ago and we were able to create value through building a project, injecting tenant and obtaining the permit. We took advantage of an increased market interest for this type of value-add asset to conduct a highly competitive bidding process, which allowed us to achieve 20% premium above NAV. With these achievements, we've reached more than half of the EUR 1.3 billion disposal target set under ReShapE. Regarding healthcare, we acknowledge that the exit is taking more time. Nevertheless, in 2025, we achieved a major milestone with EUR 210 million (sic) [ EUR 240 million ] of disposal driven notably by the sale of the majority of our Italian exposure. The volumes sold in 2025 represented just under 20% of our total remaining exposure. We're targeting a full exit from healthcare over the horizon of the strategic plan meaning by the end of 2028. In the meantime, this portfolio benefits from solid fundamentals and generates significant returns which are attractive for group net current cash flow. We're, therefore, pursuing a progressive disposal not at any price with a clear focus on protecting value. Another pillar of ReShapE is to protect and enhance the value of our core businesses, both Property Investment and Development. And once again, this year, we are delivering on that objective. Protecting value starts with operational performance. And in 2025, leasing activity was particularly strong, as shown on Slide 16. We indeed signed or renewed approximately 217,000 square meters, up above 60% versus 2024. This transaction represents EUR 63 million in annual rental income with a WALB of 6.6 years. They enabled us to improve the occupancy rate by around 2 percentage points over 2025, reaching approximately 90% at year-end from well positioned and light industrial assets. As illustrated on Slide 17, Icade secured some of the largest transactions in the market including leases with the Seine-Saint-Denis departmental council with KPMG at Eqho for more than 41,000 square meters and with the Hauts-de-Seine Prefecture at Quito for a further 15,000 square meters. The tenant portfolio remains very solid, with nearly 85% of annualized revenues coming from large listed companies, public sector entity and mid-size companies. Looking ahead, Slide 18 details the lease expiries for 2026. The challenges we successfully addressed in 2025 will continue into 2026 with EUR 16 million of leases set to expire. We expect around EUR 30 million of departures during the year, notably reflecting the still significant share of assets to be repositioned. This represents the last major wave of expiries for this asset class. The impact of this departure will be reflected rapidly in both the financial occupancy rate and revenues with around 2/3 expected in the first half of the year. Reversion potential remains negative at minus 11.6% on well-positioned offices, broadly stable year-on-year. It will decrease in 2027 by circa 2 percentage points after the effective renewal of the KPMG lease. In this context, as shown on Slide 19, Icade has continued to make target investments in high-quality office assets. First, with the delivery of Edenn, an iconic asset that is fully pre-let to Schneider Electric for its new headquarters. Offering a very high level of services and strong ESG credentials, this asset achieves prime rents in the Nanterre market. Beyond Edenn, Slide 20 presents another targeted development which is Seed & Bloom in Lyon. This redevelopment project includes additional floor area, enabling further value creation on land acquired through the ANF transaction in 2017. It completes the transformation of the area following the delivery of Next in 2024. The yield on cost stands at 7.4% fully in line with the returns we target on new developments. All these asset management and refurbishment work contribute to protecting the value of our portfolio. Having reviewed this targeted project, let me now turn to Slide 21 and 22, focusing on the assets to be repositioned. Over the past 2 years, this asset has been actively managed through residential conversion, sold off plan, 2 targeted refurbishments with controlled CapEx and opportunistic long-term re-lettings. Following the asset management works around EUR 200 million of to-be-repositioned assets should move into our core bucket. At the end 2025, this segment represented a limited share of the portfolio, EUR 29 million in revenue and less than EUR 500 million in assets. From 2026 onwards, Icade will revise this segmentation to reallocate the to-be-repositioned assets into core and noncore categories. Let's move on to Slide 23. In Property Development, the team also delivered solid operational performance reflected in stable order volumes. This performance was supported by a successful diversification of the customer base with a growing share of first-time buyers and institutional investors. The development teams have also selectively resumed new projects, although overall volumes remain relatively low. This momentum is reflected in our key indicators with building permit applications up 66% year-on-year and with approval increasing by 32%. Activity has also been supported by the acquisition of projects ready to develop. As a result, the backlog remains fairly resilient at EUR 1.7 billion, while maintaining a high pre-commercialization rate of 77%. Following last year's portfolio cleanup, we are rebuilding products with restored margins. Profitability is gradually improving, although some other lower-margin projects continue to widen on overall results. In 2026, we expect to rebalance the mix between all the projects and new projects with restored margin with a more significant shift taking place from 2027 onwards. With this solid operational base in place, let me now turn to the last priority of our ReShapE strategic plan, which refers to diversification. Icade is assuring its diversification in sectors where it can leverage its long-standing expertise and development capabilities. We are moving forward with selected projects particularly in student housing and data centers, always with a strong focus on value creation. Let me lay the emphasis on student housing turning to Slide 27. In this segment, we have launched 2 projects, bringing together our property investment and development teams, representing a total investment of EUR 100 million. Located right next to Paris, this project will deliver approximately 500 beds by 2028. We're also getting value creation of around 20% with yield on cost above 5.5%. Compared with current prime yield ranging between 4.25% and 4.5%. Looking ahead, our ambition remains to deliver between 500 and 1,000 beds per year from 2028 onwards. Regarding data centers, we are evolving our business model to further enhance returns on large projects through equity partnerships aiming to reach circa 10% yield. This approach could be applied to the 130-megawatt hyperscale project in Rungis, for which we obtained a building permit at the end 2025. The JV partner selection process is currently underway with completion scheduled for 2031. Now beyond the pricing performance and strategic diversification, our ReShapE plan is also driven our ESG commitment, which is a core element of our model. As part of its ReShapE strategic plan, Icade has indeed reaffirmed its strong commitment to the low-carbon transition and biodiversity preservation detailed in Slide 30 and 31. In 2025, the group updated its low-carbon trajectory to align with the new SBTi standard for the real estate sector, confirming its ambition to remain a leading player in the fight against climate change. Icade has now set 2030 targets aligned with the 1.5 essential degree pathway across all 3 Scopes with threatened ambition across each perimeter. At the same time, we maintain our objective of achieving net zero carbon emissions by 2050. This trajectory is already translating into tangible loss. Between 2019 and 2025, Icade has significantly reduced its greenhouse gas emissions in line with new objective and total absolute emissions are down by 52%. These results demonstrate that our climate strategy is not only in wishes, but firmly embedded in our rational execution. And with that, I will now hand over to Bruno who will present the 2025 financial results in greater detail. Bruno Valentin: Thank you, Nicolas, and good morning, everyone. Moving to Slide 34. The group's net current cash flow amounted to EUR 3.57 per share. It is between EUR 2.99 per share from strategic operations and EUR 0.69 per share from discontinued operations. Net current cash flow from strategic activity decreased slightly to EUR 2.99 per share compared with EUR 2.94 per share in 2024. Looking at net current cash flow from strategic operations, the main takeaways are a drop in net rental income from property investment of minus EUR 0.39 per share, a raise in property development margin of plus EUR 0.63 per share and a decline in finance income of minus EUR 0.44 per share. When looking in detail, starting with the property investment division on Slide 35. On a like-for-like basis, gross rental income declined by 4.2% in mainly due to tenant departures recorded since 2024 and the gradual capitalization of negative lease renewals. The perimeter effect has a negative impact of 1.9%, mainly reflecting asset disposals. This factor were partly offset by positive indexation which still contributed 3.3% as well as by early termination fees, mainly related to offices to be repositioned. It is worth noting that net rental income was affected by higher vacancy costs. Now turning to property development on Slide 36. Economic revenue reached EUR 1.2 billion in 2025, down by 7% year-on-year. This decrease mainly reflects a sharp decline in the commercial segment with revenues down by 48% year-on-year, following the completion of major projects at the end of 2024 and the low volume of new contracts signed in 2025. In fact, residential revenues increased slightly. This performance was driven by stronger sales and an acceleration in consistent start in Q4 2025, which was an exceptional active quarter. The net property margin improved mechanically in 2025 following the impairments booked in 2024. However, decline in volume and the continued margin pressure on certain project launch prior to 2024 have been negatively impacted the overall margin of the business. Turning to 2025, financial discipline remains a key priority for the group with continuous effort to control the cost base as explained on Slide 38. Over the past 2 years, we have implemented significant measures in process optimization, cost rationalization and headcount reduction generating approximately EUR 20 million in savings, including the impact of inflation. Finally, Slide 39 focuses on the financial results, another closely monitored item. Current finance income decreased by EUR 59 million but it's required carefully analyzed. On the strategic activity side, the decline mainly reflects lower investment income after a record year in 2024, which benefited from high interest rates and an average group cash position above EUR 1 billion. The cost of debt remained controlled at 1.7% as the projected debt for 2026 is fully recovered. Regarding discontinued operation, which corresponds to the Healthcare segment, dividend income declined. Approximate also decrease is due to a timing effect as Prime share did not pay dividend at the end of 2025, resulting in a shift of the payment from 2025 to 2026. Now let's move to our operational performance and financial results and turn to the balance sheet and portfolio valuations. Slide 41 focuses on the evolution, the property investment portfolio's value. At year-end, the portfolio was valued at EUR 6.1 billion, representing a 4.5% decrease on like for like basis. The EPRA net initial yield increased slightly to 5.6% compared with 5.2% in 2024, while the EPRA total net initial yield stood at 6.5%. Turning to Slide 42, at EPRA NAV. As of December 2025, EPRA NAV per share stood at EUR 53.3, down approximately 11% year-on-year. This change is mainly explained by the lower valuation of the property investment portfolio, which accounts for EUR 3.9 per share as well as the 2024 dividend paid amounted to EUR 4.3 per share. Let me now turn to debt management on Slide 43, another key pillar of our financial project. 2025 was marked by strong financial achievements. Since January 2025, we raised more than EUR 1.1 billion on financing, including notably EUR 500 million 10-year green bond issuance. Altogether, these transaction are extending the average maturity of our debt and further reinforce our liquidity position enabling us to anticipate upcoming maturities with confidence. If you look at Slide 44, you can see that our debt maturity profile remains well spread over time. At the end of December, Icade had a solid liquidity buffer with EUR 0.8 billion in net cash and EUR 1.8 billion in ongoing committed revolving facilities. This comfortably covers the group's debt maturities through 2030. Slide 45 outlines the updated direction of our Green Financing Framework published in February 2026. This new version introduced Icade's aligned with the highest market standards. The aim is to ensure full alignment with the EU taxonomy and the CRREM trajectory based on forward-looking 5-year approach. The framework was assessed by a sustainable Fitch and received an excellent rating underscoring both the robustness of the criteria and the ambition of the eligible project. With that, I will hand over back to Nicolas for the conclusion and the outlook for 2026. Nicolas Joly: Many thanks, Bruno. So let me conclude with our 2026 outlook. Slide 47 sets out the main drivers for the year ahead. In 2026, we will continue to execute the ReShapE plan with rigor and discipline, maintaining a clear and consistent course. First, we will continue to focus on supporting office occupancy and protecting the value of our portfolio in a complex environment marked by negative reversion and lower indexation on rents. Second, we will continue to rebalance the developed portfolio towards project restored margin in a year that will nevertheless be affected by municipal deadlines in the first half. Third, we will maintain a selective allocation of capital towards targeted and profitable operations across both businesses while accelerating cost reductions through the implementation of an additional EUR 15 million in annual savings on a full year basis. Fourth, we will pursue our disposal program with pragmatism and discipline. And finally, we will maintain a strong balance sheet and controlled cost of debt expected to remain around 2% in 2025 -- 2026, sorry. In this context, we expect group net current cash flow to range between EUR 2.90 and EUR 3.10 per share in 2026. Given the discipline, we will continue to apply in the coming months, 2026 is expected to mark a low point in net current cash flow from strategic activities. The 2026 guidance includes net current cash flow from strategic operations between EUR 2.25 and EUR 2.45 per share, and net current cash flow from discontinued operations of approximately EUR 0.65 per share. Given the group's ambition to transform its activities, Icade intends to limit the distribution amount in order to preserve its deployment capabilities and finance its future growth. The group will submit for approval at the General Meeting a cash distribution of EUR 1.92 per share which will be fully paid in June 2026. In conclusion, we delivered robust operational performance in 2025 both in property investment and property development. While the environment remains complex, we are continuing our transformation with rigor, discipline and clear strategic focus. This year will still present challenges that will weigh on revenues, but we will strive to deploy what is necessary to make 2026 the low point on strategic net current cash flow. I would like to sincerely thank all Icade teams for their daily dedication and I reaffirm my full confidence in their ability to execute in the months ahead. And with that, we are now ready to take your questions. Thank you very much. Operator: [Operator Instructions] The next question comes from Florent Laroche-Joubert from ODDO BHF. Florent Laroche-Joubert: I would have maybe 2, 3 questions. I can ask one by one. My first question will be what does give you comfort that 2026 will be your low point for your net recurring cash flow. Nicolas Joly: Okay. Thank you, Florent. Thanks for your question. Well, about the low point on strategic cash flows, yes, we are confident on the low points. Of course, regarding investment revenues, we are facing headwinds. There will be negative reversion, a low level of indexation, so pressure will continue and we'll keep on securing what we can. But to mitigate that, as for the development, we've reached the low point in the business, and we made the impairments needed in 2024. The trends, as you saw in the presentation, are improving through customer mix rebalancing, launching restore margin operation. So clearly, there is room for improvement. We still don't know the exact pace. And on top of development, internally, we activate all levers to secure lower fixed costs through cost reduction plan, I remind you this target of an additional EUR 15 million over full year and a cost of debt which is contained around 2%. So all in all, clearly, we do not aim to control the cycle or the broader market environment, of course, particularly in this context. But what we do control is how the group operates through this phase with a clear focus on our side on capital allocation, cost discipline, balance sheet management and investment selectivity. So that's the reason why we are confident of reaching a low point in '26 on the strategic cash flows. Florent Laroche-Joubert: Okay. That's very clear. Maybe a question on the valuation of assets. So we have been able to see that you have still seen a negative evolution on a constant term on a like-for-like basis. So could you give us maybe more color on your discussions with appraisers maybe for the next appraising exercise? Nicolas Joly: Well, as for the asset value, you saw that in 2025, while the value went slightly down on offices, they went up on the other side for light industrial. And well, clearly, values decrease is slowing down year after year. On top of that, we are, on a daily basis, demonstrating the resiliency of the portfolio through this year, a record year in terms of new signature. What I can say is that clearly, I think we and the appraisers are waiting for new transaction to confirm that we've reached the bottom on most of those assets. Florent Laroche-Joubert: Okay. So that's there. And maybe last question on -- maybe on your view on your break option for 2027 and maybe also for 2026. So for 2026, how many do you think that you will be able to relate the break option. So the list that comes to end and that has to be re-let. And for your break options for 2027, have you any break option still at risk after maybe what you have been able to do at the Eqho Tower. Nicolas Joly: Well, if we take a look back, maybe 2025, you saw that the teams were able to secure major deals, which allowed us to reach a financial occupancy rate around 90%. As usual, we are transparent about the expiries in 2026. As you can see, we are still facing some challenges ahead with EUR 60 million of potential lease expiry. As I said, we expect this EUR 30 million departure by the end of 2026, mostly driven by the last wave of the to-be-repositioned asset departure, thinking notably of [ Renault ] and Placeron, example, normalizing on the other assets. It will happen quite early in 2026 because 2/3 of the departures will take place in H1. What we can see in the market is that, of course, all the discussions take more and more time, clearly. But thanks to the close relationships we have with our major tenants and long-term relationship we have with them. We try to anticipate as much as possible, which allows, for example, the success we had with KPMG 2 years in advance on the Eqho Tower. So clearly, we are very pragmatic taking everything deal by deal, asset by asset in order to keep on achieving what we achieved on the past year. Operator: The next question comes from Ana Escalante from Morgan Stanley. . Ana Taborga: My question is regarding shareholder remuneration, particularly in the context of the delayed timing of the healthcare disposal because apart from reducing leverage, the planned disposal of the Healthcare business would have generated a significant special dividend distribution. And now that's delayed even further. And although as you say, the healthcare business generates significant financial returns, these are below the potential shareholder return from disposal. So in this context, I would like to understand how you think about shareholder remuneration in terms of your priorities for capital allocation. Nicolas Joly: Yes. Maybe first, thanks for your question. Maybe firstly a word on the way we are addressing the healthcare disposal. I mean, we haven't changed our strategy for the beginning, the strategic decision has been made to the business, but not at any cost. There is no intention for us to sell under unfavorable condition with a large discount because we are committed to value creation, clearly, and we want to protect the value. Still, this is a significant pillar of ReShapE as we know, but this asset class is supported by strong fundamental, generating some attractive yields. So when we find the right opportunity, such as we did in '25 was Italy, we are happy to crystallize the value and sell at the NAV level like what we did. So our objective remains clearly a gradual exit from our minority stake over the ReShapE plan horizon. I would say that more specifically, maybe the focus currently is more on the Portuguese assets, which are really stabilized and attractive. But clearly, that's what we do. Once said that, on the capital allocation, as you saw, we are keeping a balance once again, between the protection and reinforcement of the balance sheet and being able to allocate capital in development that are accretive, like the one we've shared on the presentation regarding office or data centers or student housing to maximize the value creation in the mid long term for the shareholder. In the meantime, we are still able to propose satisfactory distribution, as you saw with this EUR 1.92 per share because we are comfortable with the overall trajectory of our financial ratios and this allows us to perfectly fit with the balance and equation we have on our capital. Operator: [Operator Instructions] The next question comes from Stephane Afonso from Jefferies. Stéphane Afonso: I think it's better to ask them one by one. So first, it's a follow-up question. You are calling for trust in the core cash flow this year. Could you share your main assumptions, particularly on your marginal cost of debt and also your normative occupancy rate. In particular, it would be very helpful to understand how do you take into account large renewals with Veolia and AXA. It's true that those maturities are more around 2028, 2030 but it will be useful to understand your ambitions since you expect the -- of 2026. That's my first question. Nicolas Joly: Okay. Well, thank you, Stephane. Well, as I said regarding the low EUR 0.26 on strategic cash flows, clearly, there will still be some downward pressure on the investment revenues, as I said, through negative reversion, even if we are able to crystallize new deals, we are crystallizing lease by lease this negative reversion. The main fuel for growth is indexation and it's a very low level today. And we have this departure that will widen, of course, the cash flows and the occupancy ratio. As I said, we are facing some departures in '26 especially on the to be reposition. So clearly, this will widen the occupancy ratio. We expect that to be lowered down from the Q1 given the fact that, as I said, 2/3 of the departure are expected in H1. But after this lowering down in Q1 '26, we expect a gradual recovery after that. And if we take a bit of look ahead after '26, you were mentioning AXA and Veolia, as I said to Florence, that's the exact same thing we've done with KPMG. Those are major tenants. We have, of course, there are potential break options in sight. We have a close relationship with them and keep on having discussion to try to anticipate and secure as soon as possible those potential break expiries. On top of that, some come also with some financial penalty. So this has to be taken into account. And regarding the cost of debt, as I said, it will remain contained with a cost update to around 2% in 2026. So all in all, that's the reason why we are confident in reaching a trough in 2026 regarding the strategic ratios. Stéphane Afonso: But just if I can say something. When I'm talking about marginal cost of debt that when you will refinance bonds at which cost of debt you assume to refinance those bonds. So it's 4%, 5% and also on Veolia and AXA on your business plan, what is your occupancy rate target on those tenants. Nicolas Joly: Well, as for the refinancing, clearly, that's something we have in mind, but let me remind you that we have a strong liquidity at the end of December 2025. Bruno was highlighting that. Debt refinancing is not a concern, clearly, we have multiple sources to reimburse or refinance future debt. And we've demonstrated in 2025 that we have a very good access to credit liquidity. We've issued in May, the 10-year EUR 500 million green bond. And this cost was 4.5%. So that's, in our view, is a good proxy on what to expect in the coming months or years. And regarding AXA or Veolia, clearly, as for our major tenants, our intention is to secure a long-term relationship and extension of leases with them. So that's what we are assuming and the way we intend to have discussions with them like we did with KPMG. Stéphane Afonso: Okay. And I have also a question regarding capital gains. And could you share the capital gains from the Marignan disposal that you expect to? Nicolas Joly: Yes. Well, as for Marignan, well, this is an asset we've owned since '24. So of course, this will generate tax capital gains. But we don't disclose any figures for now because the distribution obligation, this is related to capital gain, depends on the year-end loans, as you know. Because those capital gains may be offset totally or partially against other potential transactions. So that's the reason why on our side, we don't think that makes any sense to share some figures with the market right now. But clearly, of course, there are some significant capital gains because we've been owning the asset for 20 years. And as you know, we run quite a successful open bid process with fair competition and a nice premium on the NAV at the end. Stéphane Afonso: Okay. But maybe can we have a range? Is it about EUR 200 million, EUR 300 million because I understand the -- between their statement that it's important to have this in mind because we don't know what will be your disposal base and at what discount. So at this stage, if you were not to sell any other assets, what could be the capital base to distribute regarding Marignan disposal. Nicolas Joly: Well, I mean, we are in February. It's a bit early to have some full visibility on that, be sure when it would be relevant, we'll be able to share some figures. So that's the reason why we don't disclose any figures today, but I'm sure you can have quite a guess about what it could be. Stéphane Afonso: Okay. I hope I have a good guess. And maybe could you remind us the remaining distribution -- capital gain -- given that Eqho escalation continue to decline. Nicolas Joly: The remaining capital gain. We haven't shared the proper figure. But on the nonsale asset, the assumptions that we've shared during ReShapE was remaining distribution requirement of roughly EUR 300 million related to the EUR 1 billion that is to be sold. Stéphane Afonso: Okay. And maybe one last question regarding noncore cash flow -- regarding non-cost cash flow expected in 2026. My understanding is that the forecasts go back beyond 2026. And given this, what is the status regarding the deferred dividends of -- I understand that assurance hasn't distributed dividends for the past 2 years due to losses. But there is a statutory distribution requirements. So if I'm correct, the situation allows for 1 year deferral for distribution. So could you please clarify this? Nicolas Joly: Well, at this stage, we haven't assumed any potential dividend for ReAssure, and there is no requirement to distribute such an amount if the results is negative, for example, or anything. So that is not systematic. And in the EUR 0.65 we've assumed in the guidance for 26, this rely only on the dividend to be paid on Praemia healthcare. Stéphane Afonso: Okay. And do you expect the vehicle to stay on deficit this year again? . Nicolas Joly: Well, the assumption we've made is no dividend coming from ReAssure. Operator: The next question comes from Aboulkhouatem Amal from Degroof Petercam. Amal Aboulkhouatem: First question would be on the new labeling of the asset to be positioned. Can you give us some color on what would be the criteria because what you would assume as core and noncore? And what will be the indication on the CapEx or disposal strategy for these assets, please? Nicolas Joly: Yes, sure. Well, on the to be repositioned, I said that a category we flagged 2.5 years ago in order to give you more insight on the portfolio. 2 years after that, we've done most of the job. We've sold some. We've repositioned some. We've relet on a long-term lease basis some assets. So clearly, we've reached a point where the remaining noncore part is very small compared to the whole portfolio. So the idea now, as we've shown on the presentation is from 2026 onwards to communicate on some core asset categories. And when I say core, I say core to our strategy, it's not type of asset or investment is really core to Icade's key strategies. So globally, what you will expect for '26 is now in the segmentation, having some core assets mostly offices. So the actual well positioned offices plus the EUR 200 million coming from the former to be repositioned asset. Also core added from light industrial and a bunch of small bucket of non-core assets mostly coming from the remaining EUR 300 million of the to be repositioned assets that are to be repositioned and won't be core to our strategy. That's globally how we will communicate in the coming semester. I hope it is clearer now. Amal Aboulkhouatem: Is it fair to assume that the noncore to be repositioned assets on the market for sale. Nicolas Joly: Yes, yes, clearly. There are non strategic. So clearly, we would be happy to sell those assets. But as we said for the to be repositioned asset, globally, there is currently no liquidity because most of them are an attractive office building, former office building, I say unattractive because they are in areas that are not well connected or those assets are not filling the right criteria, ESG or standard or so. So globally, there are no investors to buy them, and I would say even whatever the price. So in order to -- we create liquidity, we have to go through a repositioning scenario and we've demonstrated that we are able to do so, and it can be in residential, can be in hotel anything office in the way. And the idea is to secure those scenario and once for example, we secured a building permit, then we create liquidity and then we will sell the asset. But clearly, we do not intend to pay some additional CapEx on this noncore and nonstrategic buckets. Amal Aboulkhouatem: Okay. My second question would be on the partnership for the data centers. So I just wonder what has led you to change your mind? I recall when you present the ReShapE strategy 2 years ago, the strategy for data center was very clear. You just delivered the building and then you let it to an operator. What has changed your mind? And if you can just confirm that for the Equinix data center in Portes de Paris, it's still a normal investment in the building, and we are not partnering with Equinix on that will be completed in 2026. Nicolas Joly: Yes. Thanks for the question. Well, sorry, if I haven't been clear 2 years ago, we are bang in line with what we shared in terms of our strategic priorities regarding data centers. And if I remind well, there was a dedicated slide where we were trying to explain the way of having some exposure to this business. I would say the usual way for real estate investors is exactly where we stand today on our 5 existing data centers, plus indeed, the one we'll be delivering to Equinix in a few months. This is powered shell model. So basically, we secure the power, we build the shell and we lease it through a commercial lease. So I would say pure real estate model. And that's also the reason why we are on yield around 6.5% globally. But what we were also saying during the strategic plan is that this is not suitable for very large projects. Because for data centers, the global amount of investment is very huge, as is EUR 12 million per megawatt IT globally for the power shell and the fit-out. And the power shell only represents 25%, 30% of the investment. So when we talk about projects like Transit, we are talking here about EUR 1 billion, EUR 1.5 billion investment in total, solely EUR 300 million for the power share. But in total, it's a huge investment. So operators are not keen on investing EUR 700 million or EUR 800 million for just the sake of securing a commercial lease. So once said that, you have basically 3 options, either you are a property developer and once you secure the land, the power and the building permit, you sell and you secure some capital gain. Interesting, but most of the value creation is still ahead. The other way of doing it on the opposite side is like, I would say, like what Marignan does in Spain is build a full-fledged operator. So the one building, operating, leasing to the hyperscalers, i.e., Microsoft or Amazon, the data center and be a fully fledged operator. We do not intend to do so given the fact that there's some risk coming with the operations. We don't have yet the special relationship with the farm and so, so. So we rather prefer a half way of doing that, which is the JV. We go to the operators, we structure a JV, retain a minority stake, which is roughly the same amount of investment as building a power share. But through this JV, we'll get more exposure to the business, which allows us to be more exposed also to the total value creation of the business. That's how we are able to reach like 10% yield on cost on such development. So clearly, we are not saying that we won't be doing power share anymore but we just need to have a proper strategy depending on the size of the investment. I hope it's a bit clearer now. Amal Aboulkhouatem: Yes. Very clear. And if I may, a last question on my side, just on the dividend policy. How should we look at it going forward? I understand that given the current uncertainties, it's difficult to have an outlook. But going forward, how do you see it for 2026 and beyond. Nicolas Joly: Well, our philosophy, once again is to secure as much cash as possible. Clearly, as I said, we are comfortable with the actual trajectory of our financial ratio, allowing us balance between balance sheet and this distribution. As you see the proposed distribution represented roughly 50% on the group net current cash flow, which is pretty in line with the payout ratio of the past 2 years. Of course, if we exclude the dividend related to the healthcare disposal. So this has been our philosophy from around 2, 3 years since the beginning of ReShapE, which is consistent with what we intend to do is accelerate the transformation of the model. Operator: The next question comes from Veronique Meertens from Van Lancschot Kempen. Veronique Meertens: Some questions around the development segment. So I think since half year reporting last year, you don't split out all these separate contributions to net current cash flow. So first of all, what was exactly the rationale behind that? And then secondly, can you give an indication if you are already back to positive territory in terms of net NCCF contribution from the development business? Or is it purely only a profit margin that's positive yet? Nicolas Joly: Okay. Veronique, thanks for your question. Well, the rationale of not splitting any more of the cash flows, I mean, it's just be consistent between there are financial KPIs and our strategic positioning. I mean we are an integrated player, and you saw also in the presentation that we are focusing on this model more than having on the one side the investment and on the other side, the development. So that's the main rationale with that, we align our financial communication with who we are and who we intend to be. Regarding profits, indeed, you are highlighting the fact that through stabilization of volume and a gradual recovery of margin with this year is better than '24. Of course, it is still impacted on the margin by the fact that there's very low activity in the commercial division, which is usually the part of the business which used to have the highest margin. So this contribution is even less. I mean, the revenues from commercial division on property development was cut by half. But on the core business being the residential, it's getting better, as Bruno highlighted, driven by the fact that we have more and more operation with restored margins. Of course, this will keep on going this way. I would say that there's no major strong recovery expected before 2027. But no deterioration, as I said. I would say that we've reached the trough in property development. The main question might be the pace of improvement in the market, which still remains, of course, is uncertain. Veronique Meertens: Okay. That's clear. So if I understand you correctly then probably in '26 and potentially even '27, we would still see a negative impact on -- or a negative contribution on your net current cash flow from the development business. So has there ever been an internal discussion if this is a business line that should be seen as noncore as well? Or is that not up to debate at all? Nicolas Joly: No, no. We expect, clearly, as I said, recovery, so going in the positive way on property development. The main question, honestly being the pace of this improvement. So it won't be going the negative path. And to be crystal clear, once again on property development. Since my arrival at Icade, I keep on saying that it's critical for the business and it's the core of ReShapE. And as we just said before, being an integrated player between property development and investment division is a key advantage in tomorrow's market. That's my deep conviction clearly. So this business is more than core in our strategy. Veronique Meertens: Okay. That's very clear. And then 2 small questions for Bruno. I noticed that there's a number of the net income from other activities from the property investments went up quite significantly to almost EUR 13 million. So I was wondering what's in there. And at the same time, the other financial income and expenses is only EUR 23 million despite, I think, already EUR 37 million from Praemia dividends. So could we get some color on those 2 figures, please. Bruno Valentin: Sorry, Veronique, I didn't catch the first part of the question. We're talking about property development or finance. Veronique Meertens: Yes, there's a net income from other activities for property investments of EUR 13 million, which was flat last year. So that's why I was wondering what's in that number. But we can also take it off-line if that's easier. Bruno Valentin: Yes. We'll come back to you on that, yes. . Operator: The next question comes from Celine Huynh from Barclays. Celine Huynh: I only have one question, please. On the EUR 1.92 cash distribution, can you confirm if there is still some capital gains on disposal to be returned to shareholders next year? And following this, my understanding is that there is no dividend on recurring activities proposed this year. Otherwise, you would have called the EUR 1.92 a dividend. Can you comment whether you see it returning next year? And what will be the criteria for you to be comfortable to pay a dividend again on recurring activities? And what kind of payout do you see. Nicolas Joly: Celine, thanks for your question. Well, maybe some opportunity to clarify that. But I mean, it's named -- technically speaking, it's named distribution because it will be taken on premiums. So technically speaking, you know that to be dividend must be paid from profits, retained earnings of or reserve account. So clearly, it's just a technical word. But if we regard the amount, the EUR 1.92, this -- the intent to pay an amount equivalent to the SIC distribution requirements. So not only 70% of capital gain on disposal, but also including 95% of the recurring income from securities and 100% of dividend from subsidiaries. And the reason we decided for such an amount, as I said previously, that we are comfortable with the trajectory of our financial ratios. And as I said, allows us to be balanced between the balance sheet and the investments we make, the remuneration -- keeping a remuneration of our shareholder at an attractive yield with this EUR 1.92. Celine Huynh: Okay. This EUR 1.92, can you break this down, which -- what is coming from capital gain, what is coming from recurring activities so that we can calculate a payout on the back of this. Nicolas Joly: Well, we don't communicate the split. But just to be clear, the EUR 1.92 is really equivalent to the 95% of direct income, 70% of the capital gain on disposal last year and 100% on dividend from subsidiary. And about payout, of course, we don't give payout policy, but as I said previously, you can see that this proposed cash distribution represents roughly 50% of the group net current cash flow. And if we look in the rear mirror over the past 2 years, excluding, of course, the part related to healthcare, which was the average payout ratio -- equivalent payout ratio that was observed, roughly 40% to 50%. Celine Huynh: Okay. I'll take the other questions offline. Nicolas Joly: Okay. Thank you very much, Celine. . Operator: There are no more questions at this time. So I hand the conference back to the speakers for any closing comments. Nicolas Joly: Well, thank you very much for your time and your questions. Happy to have shared that with you. You saw that all the teams at Icade are really committed to deliver our strategic plan, and I thank them once again for that. So we'll leave you with that. And good day and looking forward to seeing soon some of you. Have a good day. Bye-bye.
Operator: Good day, and thank you for standing by. Welcome to Sonic Healthcare's Financial Half Year Ended 31 December 2025 Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker, Dr. Jim Newcombe, CEO and Managing Director of Sonic Healthcare. Please go ahead. James Newcombe: Thank you, and good morning. My name is Dr. Jim Newcombe. I'm the CEO and Managing Director of Sonic Healthcare. I'm joined by Mr. Chris Wilks, Chief Financial Officer of Sonic Healthcare; and Mr. Paul Alexander, Deputy Chief Financial Officer of Sonic Healthcare. We will be available for questions after the presentation. It's my pleasure this morning to give the financial and operational review for Sonic Healthcare for the half year ended 31st of December 2025. In the first half of FY 2026, Sonic Healthcare had revenue of $5.445 billion with EBITDA of $907 million and net profit of $262 million. Earnings per share were AUD 0.531. We are on track to achieve full year earnings guidance with strong revenue growth, including organic growth of 5%. EPS is improving and remains a top management priority, which will drive improvements in return on invested capital. Operating leverage and synergy realization are demonstrated by EBITDA margin enhancement for the majority of the business. Management has an ongoing focus on cost control across the business, including labor. An operating review of the U.S. business is underway, including rationalization of anatomical pathology operations. Several capital management initiatives are progressing, which we will update you on today. Today, we are maintaining EBITDA guidance previously issued in August and reaffirmed in November of $1.87 billion to $1.95 billion on a constant currency basis. In other guidance, depreciation expense is forecast to be $770 million to $780 million on a constant currency basis, which has been reduced from previous guidance. Interest expense has been tightened to be an increase of 15% on a constant currency basis versus the prior year with an effective tax rate of 27%. This guidance excludes any gains from sale of properties, includes completed acquisitions only with no regulatory changes assumed and current interest rates assumed to prevail. Operating leverage and synergy realization is demonstrated by EBITDA margin enhancement for the majority of the business. This table shows adjusted EBITDA margins when accounting for, first, acquisition costs of $8 million in the first half of 2026; second, the German KV fee quota minimum level change, which took effect from 1 January 2025 and is now cycling through as of 2026 calendar year; the LADR acquisition, which settled on 1 July and has had a lower initial margin than Sonic's average as expected and previously advised. The HWE, Herts and West Essex contract margin is improving, but still dilutive as expected and also previously advised. We experienced a margin decline in the U.S. operations due to low organic revenue growth and restructuring costs. This has less impact on the group margin expected to take place in the second half of this financial year, and we will provide further details later on in the slides. Overall, the adjusted EBITDA margins show a 30 basis point increase from first half 2025 to first half 2026. Our capital management priorities remain: first, to maintain an investment-grade balance sheet; then to maintain a progressive dividend with medium-term target dividend payout ratio of 70% to 80% of net profit. We are focused on strategic selective synergistic acquisitions; and finally, on share buybacks using surplus capital, for example, from sale and leaseback or other property sales. Today, we announced a progressive dividend of AUD 0.45, an increase of 2.3% on the previous financial year interim dividend. This interim dividend is 60% franked with a record date of 5th of March and a payment date of 19th of March. Our credit metrics remain strong with a debt cover ratio at historic levels of 2.5x. Recent increases in net debt relate to the acquisitions of the LADR Group and Cairo Diagnostics. Our currently available headroom is at $1 billion before the interim dividend payment. We would like to advise of several capital management initiatives, including a series of sale and leaseback transactions. A process is underway for the sale and leaseback of our Brisbane hub laboratory with a targeted completion of June 2026. We are expecting a significant gain on sale with potential tax capital gain partially sheltered by past capital losses. Further property sale and leaseback transactions are under consideration also with potential gains on sale. In addition, we have a conditional heads of agreement in place to sell a separate surplus Australian property with expected settlement next financial year. These capital management initiatives present an opportunity to use proceeds from property transactions to fund a possible on-market share buyback in the future. Our first half FY 2026 revenue split highlights the diverse global portfolio of medical practices in Sonic Healthcare. All of our positions are leading in stable and growing markets, which all present attractive growth opportunities. In Germany, we achieved 40% revenue growth on a constant currency basis with organic growth of 5%. Organic growth was impacted by the change to the minimum KV quota for statutory insurance fee schedule, or EBM, effective from the 1st of January with a 1% revenue impact as expected. Our LADR Laboratory Group acquisition settled on 1st of July, and integration is proceeding well across 16 separate work streams and proceeding to plan, including our first laboratory merger completed in Berlin. A large cycle of laboratory infrastructure investments has now been completed with the new Bremen National Reference Laboratory go-live planned for April 2026, and this follows laboratory projects and mergers in Biovis, Hamburg, and Munich. The combination of strong organic growth, synergy capture and strict cost control is driving significant margin expansion in our German market. We are successfully diversifying into high-value medically led direct-to-consumer testing through our dedicated [indiscernible] brand, which importantly is leveraging existing national infrastructure. We are aware of the proposed reform of the GOA private fee schedule. At this point, there is no certainty that reform will proceed nor its potential timing or impact. Moving to Australian Pathology, where we achieved strong organic revenue growth of 5% in H1. Annual indexation of 2.4% occurred on 30% of the Medicare schedule fees for Pathology from the 1st of July. and we have had successful ongoing implementation of private billing for selected tests, including vitamin B12. We are showing particularly strong growth in the specialist and hospital segments with the commencement of services at Australia's largest private hospital, the Hollywood Private Hospital in Perth from this month. We have recently acquired and commenced fit out of our new hub laboratory in the Docklands region of Melbourne, which will consolidate 4 Sonic Healthcare facilities and create vital capacity for future growth in this important market. A major laboratory platform procurement process was completed in this half, delivering substantial savings, which will continue into the future. We are awaiting the final determination from the Fair Work Commission's gender undervaluation review. Our industry association is in good faith discussions with the Department of Health on offsetting funding options. In the U.S., underlying organic growth once adjusted for the Alabama major payer contract loss and planned restructuring of anatomical pathology operations was 2%. An operating review with multiple improvement initiatives is underway across all U.S. operations. This includes the rationalization of 9 anatomical pathology practices with the aim of improving profitability and completing this financial year. Our wind down of Alabama operations has now been completed. The enhanced revenue collection system previously advised to the market is delivering benefits, but this is slower and likely less than previously expected. We are very excited to discuss our expanded advanced diagnostics division, which combines Cairo Diagnostics, ThyroSeq and other highly specialized reference and esoteric testing, which is maturing to a nationwide product offering. In addition, our ongoing digital pathology rollout is supporting optimization of workload distribution and productivity and proceeding according to schedule. Over 60% of our dermatopathology volume is now on our proprietary PathologyWatch platform. Finally, PAMA fee cuts were recently deferred and industry group lobbying for a permanent solution continues. In Switzerland, we achieved organic growth of 2% on a constant currency basis. Important to remember, there was a very strong organic growth of 6% in the previous comparison period due to respiratory illness epidemic at that time. Synergy realization in Switzerland is proceeding to plan with margin expansion achieved following the acquisitions of Synlab Suisse and the Dr. Risch Group. This includes laboratory mergers already completed in Geneva, Lausanne, Zurich and Ticino. The 2 largest mergers in this schedule for the hub laboratories in Berne and Lucerne are on schedule, including Berne in the second half of this financial year and Lucerne next financial year. And these include major upgrades to laboratory infrastructure and automation. As in Australia, we had continued strength in the specialist and hospital segments in Switzerland, including winning a new hospital contract in Zurich last month. We have harmonized core IT platforms, including our laboratory information system and ERP, standardized instruments and our logistics network, all of which lay the foundation for further integration and ongoing organic growth. In the United Kingdom, strong organic growth of 24% was driven by the Hertfordshire and West Essex NHS contract, which commenced in March with integrations proceeding well to plan. Our new hub lab in Watford is expected to go live in July, servicing the HWE contract and creating additional capacity for further growth in this important region. We continue to successfully bid for new pathology contracts in both the public and private sectors. For example, the prestigious Royal National Orthopaedic Hospital, where we commenced service for another 11-year term in November, and we won a large private specialist outpatient group contract from October. We announced the acquisition of Cellular Pathology Services, a small anatomical pathology laboratory in London, which completed in November. This creates important capacity for growth in the private AP market moving into the future. In our Radiology division, we achieved organic revenue growth of 7% with EBITDA growth of 5% once normalized for IT cost reallocation. Annual Medicare fee indexation of 2.4% occurred from 1st of July, and we continue to have an ongoing focus on higher-value growing modalities such as CT, MRI and PET/CT. 7 greenfield sites opened last financial year and a further 3 are planned for this financial year with one already completed in H1, all of which are initially margin dilutive as expected. 23 of our existing MRIs became fully licensed from July 2025 following changes to Medicare licensing. We are very proud to partner with the Australian government on the National Lung Cancer Screening Program, which has added to CT revenue growth from July 2025 and already has shown life-saving benefits for our population. We continue to invest in AI and other systems to drive productivity gains across radiology, including in CT chest scans. Finally, Sonic Clinical Services showed revenue growth of 5%, primarily driven by the recent acquisition of the National Skin Cancer Clinics and EBITDA growth of 20% off a low base. National Skin Cancer Clinics are now integrated with our existing skin business and performing well. Recent increases to Medicare funding for general practice from November are showing initial benefits to revenue and consultation numbers in general practice and increasing accessibility of general practice across our population. Within Sonic Clinical Services, a range of cost management initiatives underway, including site rationalizations and realization of operational synergies, including in back-office functions. To conclude, I'd like to discuss Sonic Healthcare's value proposition. Our value proposition is centered around our unique medical leadership culture. First, Sonic Healthcare's focus on and delivery of personalized service for doctors and patients makes us a trusted partner for doctors, patients and health care systems around the world. Respect for our people leads us to being an employer of choice, including in highly competitive specialized labor markets and creates a passion for service excellence that helps our people go the extra mile. Sonic Healthcare's company conscience is our mission to care for our global communities, making us an integral part of our communities and a critical component of health care systems. Our well-known operational excellence drives operating leverage through organic growth, efficiency gains and innovation at a global scale. And finally, our unmatched professional and academic expertise creates a leading position in highly specialized diagnostics and personalized medicine, both of which are high-growth areas in a time of rising complex and chronic health care needs. Before we go to questions, I would like to take a moment to thank our management teams and 45,000 staff for their dedicated service and commitment to patient care. Our amazing people care for our communities' day in and day out and have delivered these excellent results. Thank you for your attention, and over to you for questions. Operator: [Operator Instructions] And I show our first question comes from the line of Andrew Goodsall from MST Marquee. Andrew Goodsall: Welcome, Jim. Just starting with phlebotomist wages. I know you're still waiting on details there. Your competitors have given us a little bit of detail talking about the 1.8% impact in the fourth quarter. They've got variation between because of where their current EBAs are. I was wondering if you could talk to where your EBAs are versus Fair Work Commission, just talking more broadly. James Newcombe: Yes. Thank you, Andrew, for that question. So there's a few things to unpack there in that question. The first thing is to say that we have particular strength and growth in the specialist market in Australia, and that does mean that our volume and revenue growth are less tied to collection centers than perhaps our competitors are. And we have gone through a strategic rightsizing of our ACC network, which has continued through H1 but slowed down. And during that process, significantly improved the productivity of our collection centers, including through our supercenter strategy. And then finally, we do have a higher baseline of pay for our phlebotomists, and that comes from really valuing their contributions. They're very important frontline workers for us, caring for our communities. And we've also significantly invested in their skills training and development over decades. So all of that leads to our expected impact for this financial year for the phlebotomist changes being sub-$2 million, and that includes a one-off readjustment for leave provisions. So that has been taken into account with the guidance we've just talked about. And we believe the impact is proportionately lower than competitors because of the reasons that we've just gone through. Andrew Goodsall: And sorry, just to stick with that a little bit. Obviously, there's still the health service professionals to pick up. Are they sort of reasonably material to you? And I think that's more of a '27 impact. And just flagging overnight, I think we have a bit of crossover with an award that the Victorian government has generously made to their health services professionals of about 12.5% over 2.5 years. So just any color you can add there would be great. James Newcombe: Yes, it's a good question. As has been mentioned earlier in the week, we don't have a final determination from the Fair Work Commission on the health professionals component of the gender undervaluation review. We know it won't affect this financial year, as you've rightly said. So we await that determination before we can model out the impact and particularly the phasing of it is up in the air. As we talked about, our industry body is in discussion with the Department of Health about possible offsetting funding options, and we know they've done that for other industries with similar changes. Andrew Goodsall: And final one for me. Just maybe this one for Paul, but just trying to get a sense of FX impacted spot, just what that might look like in the second half, obviously, being a lot of movement in some of the key peers. Paul Alexander: Andrew, yes, there certainly has been some movement in the exchange rates. So if we were to assume current rates prevail for the rest of the year, we certainly won't see the level of tailwind that we've seen in the first half. But we haven't sort of tried to express that in our presentation, et cetera, because the rates are moving around quite a bit. more recently. But yes, the tailwind will be less for the full year than it has been in the half based on current rates. Operator: And I show our next question comes from the line of Sacha Krien from Evans & Partners. Sacha Krien: Can I just clarify that answer to that last question, Paul. Are you saying that it will still be a tailwind. I think you were talking about a $70 million tailwind in August. It sounds like it's still going to be a tailwind, but a more modest one. Paul Alexander: That's correct. Tailwind for the full year. I can just reiterate based on current rates, which can move every day, of course. Sacha Krien: Yes, sure. My main question was just on some of the proposed German private market reforms. I'm just wondering if you can take us through some of the potential range of outcomes there. And is it fair to say this is going to be a bigger risk for you than the changes that came through for the public market on 1 Jan '25? James Newcombe: Yes. I mean thank you for the question. And to reiterate, there really is no certainty at the moment that, that reforms of the GOA, if we're talking about the GOA will proceed. And underlying that is also total uncertainty about any timing or potential impact. These are broader changes for health care remuneration than just pathology. They have much broader implications for other health care professionals as well. And there's a political process underlying that, that needs to play out. So at this time, it is -- it will be premature to speculate on what those impacts might be. Operator: And I show our next question comes from the line of Craig Wong-Pan from RBC. Craig Wong-Pan: Just wanted to ask about the German and Switzerland businesses. In the slide, it talks about margin expansion. I know you don't like disclosing actual margins, but could you talk about what sort of margin expansion you've seen in those markets? Christopher Wilks: Yes, Craig, you're right, we don't normally disclose that sort of information. And so I guess in this Q&A, we don't want to be providing information that hasn't been provided more broadly. But I think what we have said is in both of those countries that the synergies that we expected to achieve are on target for both Switzerland and for the LADR acquisition in Germany. And when we did announce those transactions, we gave some indication of where we're aiming to get to. So I think probably I'd head you back to some of those previous disclosures and our confirmation now that we're on target to achieve those outcomes. Craig Wong-Pan: Could you remind us, when you expect to achieve those? I mean, I guess, I'm trying to get a sense of how much did you achieve in the second half [indiscernible] how much. Christopher Wilks: Yes. Look, there are some early wins that you get from things like procurement by bringing these businesses onto our purchasing contracts. I think with LADR, we said that we would get to an after-tax ROIC of something like 11% within 3 years. That's still our plan with that one. With Switzerland, it's a bit more complicated because there's 2 acquisitions there, and they've each got kind of 3-year plans. We've spelled out in the slides a little bit about what we're doing there with mergers. Again, there's some benefits that come from procurement quite early, although in Switzerland, there needed to be some changes to platforms to achieve those. So that takes a little longer. But look, I probably don't really want to be drawn into talking about margins, but all of that's on track, and you'll see more of it flow through into the second half, which then flows into our guidance. Craig Wong-Pan: Just second question, the sale and leaseback for the Brisbane site, I just wanted to understand why that site and yes, I guess, the potential for other ones? And what kind of, I don't know, details for that sale and leaseback, like kind of is like the time frame for that? Yes, if you could provide any color around that, that would be great. Christopher Wilks: Yes. Look, the Bowen Hills is one of our largest property holdings. We recently just spent $80 million doing an extension to that. So it's pretty -- that finished in 2024. And the project, the sale and leaseback process will be launched early next week. We've been preparing for it. You might see some press about it next week. And it comes down to just a broader capital management strategy with properties like this. There's yields of kind of circa 5%. I think our view is that with that extra capital, we should be able to get a much better return than that. And with things like triple net leases, we can still effectively control the building. It's any repairs, maintenance. It's kind of like ownership without the capital tied up. So that's the first one. We alluded to the fact that there could be others. I think you're probably aware that we've bought the old Costco site at Docklands. So that did have an effect on our CapEx in this period because it settled on the 1st of July, circa $100 million for the site. The builders FDC are in there now. That's something like an $80 million spend between now and April, May '27. So that's another site when it's finished that we -- that might be a sale and leaseback. And likewise, with our site up here in New South Wales. So we've had a fair bit of property on the balance sheet for a while. And I guess we've made a decision that we can control them as we need to operationally without having to own them and that will provide some nice capital to hopefully drive better returns to the shareholders over time. Operator: And I show our next question comes from the line of David Stanton from Jefferies. David Stanton: Perhaps we could talk to the U.S. Firstly, how much is anatomical pathology as a percentage of total U.S. revenue? Would you be willing to give us that number? Paul Alexander: David, it's about 1/3 of our U.S. revenue. So something like $400 million out of $1.4 billion-ish. David Stanton: And what's the longer-term view of those U.S. operations? Where do you see that going over the medium to longer term in terms of the splits and willingness to earn, please? James Newcombe: So our focus, as we've said today, is on the operating review there. There's a lot of work, really positive work going on there on that, including already completed work in terms of withdrawing from loss-making operations in Alabama, a lot of work in rationalizing those AP operations as well. Important to point out, we've got a lot of strength there in advanced diagnostics with the recent Cairo acquisition, and we're expanding that in that advanced diagnostics division, cross-selling that in our geographic regions and markets to make sure we get this more national penetration of that offering, and it really is market-leading what we offer there in those areas. So there's a lot of opportunity for top line growth there. The digital pathology rollout is really successful and a positive thing, not just in terms of quality of the medicine that we deliver, which is, of course, really critical in terms of particularly the AI tool with PathologyWatch, but also workload optimization. It's a great marketing tool as well to enable dermatologists in the U.S. to themselves see the slides virtually through the PathologyWatch platform. So we're seeing a lot of really good success there. And again, just to go back to the organic growth, we've reported at 0% constant currency, but the underlying organic growth is still at 2%, and that's after adjusting for that Alabama major payer contract loss and the restructuring costs that we're doing there, and we expect that will continue to -- in terms of the impact of those changes, we'll continue to see improvements in terms of margin impact moving forward. So we're invested in that operating review and moving forward on that basis. David Stanton: Understood. And I guess moving on to radiology, which I must admit I don't ask about that often, but organic revenue growth of 7%. But I do note that Medicare is talking to -- with a caveat here, review, Medicare is talking to a growth of 9% in the Medicare market in the 6 months. Firstly, where do you think you'll -- are you growing in line to above market? Or -- and if not, is it because the MRIs, you have less MRIs, as a percentage of total revenue in that space than perhaps your peers? James Newcombe: So we have seen strong growth in MRI revenue as well, and we'd say that 7% is in line with long-term growth rates for the industry. And we are, as you would know, cycling much stronger organic growth in recent years. So we still see a lot of positivity. We believe the change in MRI licensing has effectively grown the market and not impacted our business negatively. And as I said, we actually are growing in that space as well. David Stanton: Understood. And would you be willing to give us some CapEx guidance then, Chris, for the full year, please? Christopher Wilks: Yes. Look, in answer to a previous question, I've mentioned a few things. So our CapEx for this year was higher than the PCP, mainly because of property-related costs, the Docklands acquisition, which I mentioned, also some costs associated with building out the Watford facility for HWE in the U.K. and some of the Swiss lab work as well. I think in the second half, there will still be some effect from property, particularly the build-out of Docklands. So over the course of the next 6 months, I don't know exactly know what that is, but it's probably $20 million, $30 million, something like that in the next 6 months. But underlying CapEx, if you adjust for those properties, those property transactions, underlying CapEx is kind of growing at about the rate of the growth of the business. So I think that's probably the -- that's it in a nutshell. And I think going forward, as we alluded to with the focus on some sale and leasebacks, the property cost side of things will probably start to in future years drop off a bit, and you probably get a bit more transparency on the underlying CapEx, the maintenance CapEx, if you like. David Stanton: Understood. Sorry, just a follow-up just to make it clear for me. So first half is going to be slightly above second half, it sounds like in terms of CapEx, , total CapEx. Christopher Wilks: Yes, quite a bit above because it had the $100-plus million for the purchase of the Docklands site. Operator: And I show our next question comes from the line of Laura Sutcliffe from Citi. Laura Sutcliffe: One on the U.S. to start with, please. You mentioned you're expecting margin improvement in the second half and you've mentioned a few things connected to that. But is that expected improvement mainly driven by the closure of the anatomical pathology centers that you've mentioned? Or are some of those other factors material? I'm just keen to understand the scope of the review in the U.S. and just to confirm that it's an operational review rather than a strategic review, where you might consider divesting all of the U.S. James Newcombe: Yes. Thank you for that question. There's a bit to unpack there. I think the first thing to say is that we it is indeed an operating review of the U.S. operations, and that's our focus. In terms of the particulars, what we're talking about is less -- what we've unpacked in that slide in the presentation today is a decrement in margins impacted the group margins. And I think for not just for the U.S., but for the other points listed in that slide. And the point we really want to make there is to really expose just how strong the majority of our business is in terms of operating leverage that we are exercising and that we are -- we have grown adjusted EBITDA margins of 30 basis points in the majority of those operations outside of those adjustments. Looking at the U.S., what we're -- the point we're trying to make is that the decrement moving forward is expected to be significantly less because of that work that's been done in Alabama, and that's not just AP in Alabama, it's pretty much all operations because of the loss of that major payer contract loss. Two of those AP practices were in Alabama, but 7 were not. And the important point to make there is that there may be some closures there, but really, what we're doing is rationalizing moving that work to other centers and retaining the top line as much as possible, whilst doing the cost control at the bottom. So that will have significant benefits to margin, as you would expect. In terms of the top line, we are seeing great growth in the Advanced Diagnostics division that's really driving top line growth and margin growth. So they're all important. They're all reflective of great discipline in our management teams. And the operating review is widespread. We're telling you today about some details, which have happened and are happening. So you have some detail around that, but it is across all U.S. operations as we've advised. Laura Sutcliffe: And if I may, one on the possible buyback that you've mentioned. Would you plan to put most of the cash from any property transactions that you could achieve towards a possible buyback? And if you don't know, what are the main decision-making factors for defining that? Christopher Wilks: Yes. Good question, Laura. Look, we haven't come to a landing on that, and that's something that would need to be discussed with our Board, obviously, once that transaction has completed, but that's a possibility that the majority of that could be used for that purpose. But as things unfold, there might be -- we mentioned some of the prior capital management priorities. There might be acquisitions that we're considering that might change our view on the scale of a buyback. So it will be considered at the time when the cash is in the bank. And -- but we just thought it was worthwhile letting the market know what we're planning with this because it will become public about the sale pretty quickly and to let people -- let the market know one of the thoughts we had in terms of the use of the proceeds. And balancing the investment-grade structure of our balance sheet is also important. And I think our gut feeling is that with what we're expecting in the second half that we're going to be in good shape on that front. So it should probably free up that capital for the purpose we've mentioned. Operator: And I show our next question comes from the line of Davin Thillainathan from Goldman Sachs. Davinthra Thillainathan: Jim, maybe a question for you to start off with. Clearly, you've made some changes here with the U.S. review property sale and leaseback changes as well. But curious sort of what other observations you've perhaps come out with having looked at the business as CEO over the last few months? James Newcombe: Yes. Thank you for that question. I think the first thing to say, which is remarkable is that going around and meeting people and seeing our operations around the world, just how strong our medical leadership culture is and what a great competitive differentiator that is. I think so much of our value medically comes from our values internally and our culture, which drives this incredible contribution we make to our communities around the world. And it really is kind of humbling to go around and see the amazing work that we're -- that all of our staff are doing for their communities. And building on that, really, our focus has to be -- has always been and has to be continuing delivering that high-value medicine, and that will drive continuing financial value and shareholder returns. I think as long as we're focused on that and looking after our people and looking after the medicine, the rest will flow. But we are prioritizing margin accretion, as we mentioned at the AGM, which, of course, will drive EPS growth and improve return on invested capital. We've talked a lot today about the work that -- some details about the work ongoing in that area, which is really exciting and promising, and I've seen it firsthand in going into the operations that we're realizing the synergies from the past acquisitions, that we're having great organic growth. We're partnering with governments and other health care systems around the world in a really positive way. And we're focusing on that operating leverage, which I think has been the cornerstone of Sonic Healthcare's success through cost control and a focus on innovation. And you mentioned capital management, and again, that's -- we've talked a bit about that today. I think that's very important to understand that we have a very disciplined focus on capital management and looking at maximizing shareholder return through that capital management strategy as well. Davinthra Thillainathan: And my next question is -- if I look at the EBITDA margin -- sorry, EBITDA guidance for the year, consensus numbers would suggest you would land towards the top end of that range. Can you perhaps sort of help us understand what drivers we should be thinking about from a half-on-half split for that guidance range, please? Christopher Wilks: Yes. Look, we don't want to put too much more detail into the guidance that we've already given. But I think you're probably well aware that there's a seasonality to our business, particularly with our Northern Hemisphere operations, where the summer period is fully in the first half. And so look, I probably don't want to add too much more than the detail we've already given. We've given a bit more below the EBITDA line, some more detailed guidance on depreciation and interest. than we had -- have in the past. But look, we remain confident that we should be in for a solid second half with the various initiatives. Jim has talked about some of the stuff that's happening in the U.S. Australia is looking very solid with its growth rates and some of them move to some private billing. So I probably don't really want to add any more than what we have given. Otherwise, we'd be changing the guidance we've set out in the deck. Paul Alexander: Certainly, the biggest factor in terms of where we might end up within our range is, as usual, organic growth. If we see even stronger organic growth in markets, then that has -- the operating leverage will add that to the bottom line. And so that's probably the biggest swinger, if you like, in terms of where exactly we'll end up across the different markets. Operator: And I show our next question in the queue comes from the line of Steve Wheen from Jarden. Steven Wheen: I just wanted to go back to the U.S. At the time when it was originally raised that the Alabama contract was going to be lost. It was indicated that New Jersey was a potential offset to that. Just wondering what has played out within that state and whether you are actually seeing some offsetting factors there from that payer contract? James Newcombe: Yes. Thank you for that and for raising New Jersey. So we have won that contract, as you pointed out, and we're really excited about the growth in that quite large state, which has a fantastic location in terms of our operations there already with a lot of automation there that's looking for -- that can handle increased capacity. So our local teams are really focused on that in the Northeast. We have a lot of business development efforts going on, particularly in the northern part of the state that we're excited about. So it's absolutely a focus there, and we're building up to move strongly into that state based on that contract win. Steven Wheen: Can you give us an indication as to timing when we might actually see some benefit from that? James Newcombe: I think it's fair to say that we can't expose more at the moment in terms of exact timing. I think we just have to say that, listen, it's a real focus. We're seeing some early gains there in terms of contracts, but I can't give you more detail around that at this point. Christopher Wilks: Pretty fair to say, Jim, that it will take a little time to build up. One is lost immediately. The other one takes some time to build up. So it will take a little while before there's an offset there. Steven Wheen: Second question was also in the U.S. And again, just sort of going back to earlier sort of commentary, there's been a fairly strong expectation that the revenue collection system was going to generate USD 20 million to USD 25 million of earnings benefit, which you're now, I guess, going a little bit more cautious on since the review. Just -- if you could help us understand why you're backing away from that guidance and what the issue is? And is this something that's even longer dated or it's just not going to happen? Christopher Wilks: Look, it is happening, Steve. It's taking a bit longer than we'd expect, and some of the benefits are offset by some other little changes that are happening in the market that affect PPA as well. So the team -- we just spent some time over there a few weeks ago. The team is working with -- it's a product called [indiscernible] that I think we've probably mentioned before to work out the best ways to continue to push those benefits and optimize them. It's quite -- it's not just a matter of using the software. It's a matter of us setting up customer portals and directing patients to those portals. So information is made available more easily. So it's quite an implementation process, and it's probably just taking in our biggest lab, CPL, which was the last to go live. It's taking a bit longer than we thought. But we still remain optimistic that, that sort of benefit will ultimately flow through, but it will probably be more into '27 than what we're hoping was going to be into '26. Steven Wheen: So we're not -- that's not part of the reason why you've got expectations of a stronger second half in '26. I just -- Christopher Wilks: It's a little bit of -- but I think there's lots of initiatives. There's multiple initiatives that are happening. Even the acquisition of Cairo, which is performing well, we'll own that for the whole second half. So that will be contributing to the second half performance as well. Growth in ThyroSeq, there's multi factors that probably give us confidence that the second half should be reasonably strong. Steven Wheen: Just while I got you, I wonder if with this sale and leaseback focus, I'm just curious as to [ your thoughts ] on what you're anticipating with regards to the terms of those arrangements. what that will do to the AASB 16 accounting for rent in FY '27. Is that likely to change the depreciation and right-of-use asset interest costs? Christopher Wilks: It's a good question. It's -- in terms of the -- Paul Alexander: The short answer is yes. I mean, clearly, part of the sale and leaseback is that we're taking on a significant lease in the case of the Bowen Hills one -- Christopher Wilks: It's pretty -- it's circa $25 million is the rent. But I think the way we'll be structuring it is that I don't think there's not going to be an adverse impact on the AASB 16, but there will be more cost than we're currently paying because we own it now. And so there's just the interest associated to the cost. So there will be an impact going through that effect. But then we'll have the benefit of a chunk of money in the bank as well. So there's offsetting benefit. Steven Wheen: Yes, that's clear. So roughly, we'd be anticipating $25 million for that lease alone potentially being a delta shift in depreciation and interest in FY '27? Christopher Wilks: The way AASB 16 works is that in the early years of a lease, your actual expense through the D&I lines is higher than the rent you pay. It obviously evens out over the period of the lease. But initially, the impact will actually be higher than the [indiscernible]. Operator: And I show our next question comes from the line of Andrew Paine from CLSA. Andrew Paine: Just coming back to previous guidance that you had, I think, at the AGM where you were talking about a 45% to 46% split for EBITDA in the first half. Just wondering if that's still the case? And is that in relation to constant currency or reported expectations? Christopher Wilks: It's definitely on a constant currency basis. That's the basis of all of our guidance. And we said at the time, approximately 45%, 46%. And if you work on either of those 2 numbers and the result from the first half, you'll get a constant currency number that is within our guidance range. So yes, probably not much more to say. Andrew Paine: Could I also just ask about -- I know you've touched on it, but the FX there. And just you mentioned before it will still be a tailwind for FY '26. But does that mean it's flat or negative or a little bit of a tailwind in the second half? Are you able to give any insights there? Paul Alexander: It's -- you can look at the rate -- like we've given you the rates in the first half. It is a headwind in the second half, which is why the tailwind for the full year will be less than the tailwind in the first half if rates continue, where they are today. Andrew Paine: And just on depreciation and interest, are you able to give us an indication of the magnitude of the FX there as well? Paul Alexander: We -- again, you can look at what's happened in the first half, and we obviously do have our natural hedge in place, where our borrowings are largely in the currencies of our operations. And so the effect of the FX at net line is significantly less than at revenue or EBITDA, but we haven't given any specific numbers around that. So I probably can't help you too much further. Andrew Paine: And just on the Swiss acquisitions, I know you didn't want to get drawn into margins around these businesses. But just keen to know how far you have progressed in terms of the integration of those businesses there. I believe you said there was a 0% margin business or acquisition to begin with. So just really trying to understand the ramp-up and the ramp-up into our outlook and get a sense of if you're a quarter way there, halfway there or further progressed in terms of that contribution to margin? James Newcombe: So yes, thank you for that. So the -- I think we said at the time that we would like to see the EBITDA margin heading towards 20% over 3 years for each of those acquisitions, and we are tracking to target on that. That's the 3-year time frame as advised and everything is proceeding on track. Andrew Paine: Are you able to give us -- are you halfway there or more? Or you want to be drawn into that. James Newcombe: I think it depends on the acquisition. So I mean, Chris alluded to earlier that there's not a totally linear process. It's punctuated as well as probably weighted forwards rather than towards the front rather than the end. So it's really hard to give you that total detail. But in terms of the broad analysis of it, we're tracking to target on track for that 3-year time frame for each of those acquisitions. And we've given you some detail today about some punctuations in terms of lab mergers and new hub labs, which will be important on that journey. Christopher Wilks: I think maybe just to add, Jim, that we mentioned in the slide that the 2 biggest mergers are still yet to come. So you probably appreciate that that's probably where you're going to get more bang for your back out of those larger mergers. And so there's one in late in the second half of '26. and then in '27. So there's still a bit of a journey to go. Operator: And I show our next question comes from the line of Lyanne Harrison from Bank of America. Lyanne Harrison: Thank you very much for solid result today. I was wondering if I could come back to the United States, 2% organic growth there. Do you think that's reflective of the market? And also with some of your initiatives that you have in place in the United States around operating review, do you think you could grow ahead of that for the second half? James Newcombe: I think -- thank you for that question. And of course, our focus is on driving organic growth. We do have a lot of -- in the U.S. and across the business, we do have some tailwinds, as we mentioned, in terms of our Advanced Diagnostics division, which is performing really well and the dermatopathology division. So it's -- we're not forecasting to organic growth, but certainly, we'd like that to grow over the 2%. And the efforts that we're making both at top line, in particular, will, we think, drive that. Paul Alexander: I think it's probably worth mentioning that Quest and LabCorp sort of quote larger organic growth numbers, but we don't know for sure, but they also do quite a lot of hospital deals. And I think there's some aspects of those that find their way into organic growth that it might be the specialist referral testing and the like. So I don't think to the extent that you're looking at some of their growth numbers, you should think of that as necessarily the market growth. Lyanne Harrison: And if I could come to Australia, 5% organic growth, that was certainly ahead of your peers, they reported this week. Can you comment on your pathology trading to date? I know some of your peers in their results commented on maybe some softness in January. Are you seeing the same thing? Or are you seeing solid growth through the first part of this half? James Newcombe: Well, I think we have -- we're very, very happy with the organic growth that we've seen. There's nothing to change in terms of that story that we can see. It does come, we believe, from a few different initiatives, which are really bearing fruit. I think at base, it's the fact that we are focused on the quality of the medical diagnostics that we deliver, and that's a true competitive differentiator. But it also comes back to our logistics and operational excellence. Our collection center network and particularly that focus on supercenters in terms of a great patient experience has been a real differentiator in the market. And so, we continue down that strategy. But that specialist market growth, we talked about the hospital market today and our partnership with Ramsay at -- in Perth is really exciting. And that's a real trend that we're seeing continuing and not slowing down at all. In fact, the opposite. So we're excited about that because we're focusing on that high-value medicine, and that's really delivering that growth that we're confident about into the future. Operator: And I show our next question comes from the line of David Bailey from Morgan Stanley. David Bailey: Just a very quick one for me. Paul, you mentioned those currency impacts. If I run the average of the second half, I'm getting an EBITDA headwind of $20 million in the second half. If I run spot, it's about a $35 million headwind. So can you just confirm for the full year, we should be thinking of an FX impact to EBITDA in the range of flat to maybe up [indiscernible]. Paul Alexander: We're not guiding to that. So I won't be drawn on a precise number. You've done the numbers yourself. Christopher Wilks: I think those are a bit overcooked. I think -- Paul Alexander: Well, I don't know what today's rates are. Christopher Wilks: I guess, it moves around. But if you're using today's rates or the last few days rates, I think that sort of headwind for the second half is a bit more than I think we were thinking. David Bailey: But just to be clear, it's a headwind in the second half versus a benefit of [indiscernible] in the first half. Paul Alexander: Yes. Christopher Wilks: Yes. Correct. Operator: And I show our next question comes from the line of Saul Hadassin from Barrenjoey. Saul Hadassin: Just a quick question for me as well. The revenues that you generate in Germany, can you remind me what percentage is now funded through EBM versus the GOA? Paul Alexander: So the GOA represents about 30% of our German revenue with the EBM more like 40% to 45%. And then the balance is a bucket, if you like, of work where we can effectively set or negotiate prices, hospital outsourced contracts, clinical trial works, work we source from outside Germany, et cetera. So that's kind of the split. Saul Hadassin: Sorry, Paul, you're a bit soft when you mentioned the GOA percentage. Can I just check what you said there for GOA? Paul Alexander: About 30%. Operator: And I show our next question comes from the line of David Low from UBS. David Low: Jim, you commented on the Fair Work Commission and talking with the government. I mean, the impression I got from your answer was that you're pretty confident that the government will step up and help fund the additional wage pressure. Just wondering whether that's the right interpretation. James Newcombe: Thanks, David. Listen, I think that the -- these are good faith discussions. It's positive that there's engagement there from our industry body. I can't speculate about outcomes. I think it'd be very premature. We are focused on doing the right thing by our employees, always have been and we'll continue to do so. We are focused also on the high-quality medicine and sometimes that will require increased funding in order to deliver that. So we're making those points. But at the moment, they're just good faith discussions. Christopher Wilks: I think you alluded to the fact there were some precedents in aged care and child care, but whether or not that's relevant, who knows? Time will tell. David Low: Would you care to put a time frame on it? I mean, you said it's premature at the moment. I mean, are we talking about this budget coming up? James Newcombe: I honestly can't say. We're not -- personally in those discussions, they're being led by Australian Pathology, which is our industry group, and I think it would be unfair of me to speculate on those. David Low: But the wage pressure come through pretty much back end of this financial and into next year. So frankly, if you're going to get -- if the industry is going to receive it, presumably, it needs to come in FY '27 for not to lead to that reduced quality of medicine that you've spoken about. James Newcombe: Yes. I mean that's the facts of the Fair Work Commission decision. We know the phlebotomist change comes in from 1 April and it's phased through 1 January next year. And then the facts as they are is that the health professionals is likely to come in on 1st of July this year and then be phased in an unknown way. So we do have some uncertainty still around that, as we mentioned, in terms of the timing and impact. But absolutely, the initial impact that we know of is going to happen this financial year, and we've quantified that. So yes, it's something which we're keen to progress, but I can't comment on how that's progressing. David Low: Just changing topics. Slide 5 sets out 140 basis points of headwinds, can I need to talk to what we should expect second half go forward? I mean, which of those items is going to no longer be a headwind? I think in particular, the U.S. looks like a 350 basis point or margin hit roughly on my numbers, but some of it's restructuring. So it's a little hard for me to unpick what's ongoing and what's perhaps really weighted towards the first half. James Newcombe: Yes, it's a great question, David. So we can go through them in turn. Clearly, acquisition costs were particularly high in H1 because of the LADR acquisition, in particular. The German KV quota change is cycled through. So we don't expect any margin decrement in H2. The LADR acquisition, we've talked about some of the great synergy realization work that we're doing and there's improvements in margin there. And similarly, with the Herts and West Essex contract. So in the U.S., we've unpacked a lot today about what we're doing there. So all of them, we expect to improve in terms of the year-on-year margin decrement. I'm not sure if Paul or Chris, you want to comment. Christopher Wilks: Yes, that's a good summary. David Low: Can I just push a little bit more on the U.S. because given there's a restructuring charge, are we going to see restructuring charges in the second half? Or is that done? James Newcombe: Yes is the answer to that. There is still work to do there that we're working hard to do. And so there will be some restructuring costs in H2. Paul Alexander: But it's probably fair to say de minimis in the scheme of Sonic so. James Newcombe: Yes. Paul Alexander: It's a few millions rather than anything more significant. David Low: And that could commence on the first half or just on the second half? Paul Alexander: That's the second half. Operator: And I show our last question in the queue comes from the line of Sacha Krien from Evans & Partners. Sacha Krien: Look, I just got a question on the balance sheet. It looks like net debt, excluding lease liabilities, is come in a fair bit above market expectations, and it looks like it's working capital and CapEx. I think you touched on the CapEx question. But if you could maybe remind us what you think maintenance CapEx is for the business mix you now have? And then also address the big step-up in working capital as a percentage of sales, if there's anything that might reverse out there? Or is that just the new business mix? James Newcombe: Just maybe on the maintenance question. Look, I talked a bit about it in answer to a previous question, but I think the maintenance percentage of revenue, maintenance CapEx percentage of revenue ignoring properties is probably kind of somewhere between 3%, 3.5%, excluding intangibles as well. So that's probably kind of a little bit of a rule of thumb without excluding any property investments. Just your second part of the question, just remind me. Sacha Krien: Just looks like -- it just looks like working capital has stepped up and really on a big decent decline in payables. Just wondering if there's something that's going to reverse there? Or is that the sort of new normal? Paul Alexander: Yes. So there are -- obviously, we've had the growth of the company, including the addition of LADR. But the other thing, and you'll see some discussion about this in the 4D in relation to cash flow, there is this Change Healthcare issue that is ongoing in our U.S. business, where Change Healthcare, which is an outsourced billing and payments provider that we use for a large part of our anatomic pathology business and in fact, has some connections with our clinical pathology business as well in the U.S. had a cyber breach way back in February 2024, which meant that parts of our business were unable to bill and/or collect revenue for a very extended period of time. And so, our debtors balances and to some extent -- and so Change Healthcare and its related parties loaned us funds to offset that loss of debtors collections and those advances are sitting as a liability in our creditors. We've repaid part of it, as you'll see in the commentary, but we've still got some sitting there. And our debtors balance is still inflated in relation to that. So we think that situation will resolve itself by 30 June, but that is an issue affecting the balance sheet at the moment. Sacha Krien: And do you think that's still a drag on the organic growth of the U.S. business, that Change Healthcare issue? Paul Alexander: There's no doubt it upset our referrers during that period when we couldn't bill. And so patients would get a bill late and they'd be upset by that and they complain to their referrers, et cetera. So it hasn't been helpful that that's true, but we're probably moving on from that now. Christopher Wilks: We've pretty much cycled collections and the effect that, that would have had. Operator: This concludes the Q&A session and today's conference call. Thank you all for attending. You may all disconnect at this time.
Operator: Good afternoon, and welcome to the Edison International Fourth Quarter 2025 Financial Teleconference. My name is Michelle, and I will be your operator today. [Operator Instructions] Today's call is being recorded. I would now like to turn the call over to Mr. Sam Ramraj, Vice President of Investor Relations. Mr. Ramraj, you may begin your conference. Sam Ramraj: Thank you, Michelle, and welcome, everyone. Our speakers today are President and Chief Executive Officer, Pedro Pizarro; and Executive Vice President and Chief Financial Officer, Maria Rigatti. Also on the call are other members of the management team. Materials supporting today's call are available at www.edisoninvestor.com. These include our Form 10-K, prepared remarks from Pedro and Maria and the teleconference presentation. Tomorrow, we will distribute our regular business update presentation. During this call, we'll make forward-looking statements about the outlook for Edison International and its subsidiaries. Actual results could differ materially from current expectations. Important factors that could cause different results are set forth in our SEC filings, please read these carefully. The presentation includes certain outlook assumptions as well as reconciliation of non-GAAP measures to the nearest GAAP measure. During the question-and-answer session, please limit yourself to one question and one follow-up. I will now turn the call over to Pedro. Pedro Pizarro: Well, thanks a lot, Sam, and good afternoon, everyone. Edison International's 2025 core earnings per share of $6.55 was above our guidance range, that extends our 2-decade track record of meeting or exceeding annual EPS guidance. Importantly, this also marks the successful delivery of the long-term core EPS growth target that we established in 2021. Our performance reflects disciplined execution across the enterprise and continued focus on cost management, operational performance and capital efficiency. Maria will provide more details in her remarks. Today, I'll focus on three themes: Our commitments to customers, communities and investors, our strength in regulatory visibility and our confidence in our multiyear plan. Starting with the first theme. We are committed to the customers and communities who count on safe, reliable and increasingly clean energy. Safety remains our top value. And SCE continues to carry out extensive work to strengthen the electric system and reduce wildfire risk. We are proud that in the Q4 2025 residential customer engagement survey by Escalent, SCE had the highest absolute brand trust score among the large California investor-owned Utilities. Customers and public trust remain the core of SCE's mission. The utility has now installed more than 7,000 miles of covered conductor in high fire risk areas, representing over 90% of its planned grid hardening effort. This work continues to play a critical role in reducing ignition risk and strengthening reliability for the communities we serve. SCE now has fast-curve settings on 93% of its distribution circuits in high fire risk areas, a prime example of how it is using technology to reduce risk by detecting and addressing faults even more quickly. All of this work demonstrates SCE's ongoing wildfire risk reduction leadership. This progress benefits not just the utility's own customers and communities who fund this critical work, but also many peers across the nation. Safety and affordability remain at the core of our commitment to customers. Earlier this year, SCE announced a 2.3% rate decrease for residential customers and a 5.3% decrease for small- and medium-sized business customers. This is starting from a place of having the lowest system average rate by a margin of 20% among California's major investor-owned utilities. SCE has invested more than $12 billion for customer safety and reliability over the last two years. Currently, a typical non-CARE residential customer pays about $188 per month, which is modestly higher than the $180 paid two years ago. This reflects the utility's disciplined cost management to support customer affordability. We will continue to work to keep rates affordable for customers. We are also committed to the investors whose capital makes it possible to build the infrastructure that is essential to deliver safe, reliable, affordable electricity. Our commitment begins with a regulatory framework that enables SCE to consistently earn its authorized returns, which supports a strong investment-grade balance sheet and lower financing costs for customers. Our capital contributors, including pension funds, mutual funds and insurers, depend on stable, transparent long-term performance. Credit rating agencies continue to evaluate California specific risk factors, underscoring the importance of maintaining a durable and predictable regulatory environment that provides confidence for long-term investment and protects customers from higher costs. To that end, we are actively engaging with policymakers and state leaders to reinforce the value of a stable framework and the SB 254 process will be a central venue in 2026 for strengthening the regulatory durability that supports both capital contributors and customers. SCE remains committed to resolving wildfire-related claims fairly prudently and responsibly. To date, more than 2,300 claims have been submitted under the wildfire recovery compensation program with associated payments underway. As always, we are guided by our commitment to transparency, accountability and customer trust. Building upon this, today, SCE announced enhancements to the program, providing stronger support for displaced renters and increasing coverage for legal expenses. Regarding the Eaton fire, as you see on Page 4, the investigations remain ongoing. To recap our prior statements, while SCE has not conclusively determined that its equipment caused the ignition of the Eaton fire, a viable explanation is that the energized idle SCE transmission facility in the preliminary area of origin was associated with the ignition of the fire, and SCE is not aware of evidence pointing to another possible source of ignition. Absent additional evidence, SCE believes that it is likely that its equipment could have been associated with the ignition of Eaton Fire. Given the complexities associated with estimating damages, we currently are unable to reasonably estimate a range of potential losses. Nonetheless, based on the information we have reviewed thus far, we remain confident that SCE will be able to make a good faith showing that its conduct with respect to its transmission facilities in the Eaton Canyon area was consistent with actions of a reasonable utility. The company continues to prioritize a recovery of impacted community members. Edison International is donating $2 million to the Pasadena Community Foundation to help meet the needs of community members in the Altadena area recovering from the Eaton fire. My second theme today is our strength in regulatory visibility given 2025 was a significant regulatory year for SCE, which you see on Page 5. With the GRC cost of capital proceeding, TKM and Woolsey settlement agreements and other wildfire proceedings concluded, SCE enters 2026 with substantially greater clarity into capital plans, revenue requirement and operational priorities, not only for the GRC period but into the next decade. Our team members across Edison International and SCE continue to demonstrate their ability to execute, through complexity, respond to the evolving conditions and stay focused on long-term goals. Turning to the legislative front. The upcoming session will be pivotal for shaping the next phase of California's energy and resiliency policy. A central focus this year is the SB 254 natural catastrophe resiliency study being authored by the California Earthquake Authority and subsequent legislation. Our focus remains on a whole-of-society solution to mitigate and respond to catastrophic wildfires that enhances public safety, improves affordability and supports predictable long-term investment in a clean, reliable energy system for California. In December, SCE and the other IOUs jointly submitted white papers along with dozens of other stakeholders, providing input into the CEA's process. We continue to be actively engaged with relevant stakeholders, the governor's office and legislative leaders about the potential for enhancements to the policy framework. Moving on to my third theme today. Our confidence in our multiyear financial outlook. We are introducing core EPS guidance for 2026 and 2027, reaffirming our 2028 outlook and extending our expected core EPS growth rate target through 2030. Maintaining the 2028 target while extending the horizon underscores the growing clarity and stability in our multiyear plan, supported by a constructive regulatory foundation and a robust pipeline of necessary investments of the utility. With an attractive dividend yield of approximately 5%, and a long-term core EPS growth target of 5% to 7%, EIX shares offer a compelling case for total shareholder returns of 10% to 12%. This combination of income and growth reflects the strength of our regulated business model and our commitment to delivering sustainable value for customers and capital providers. Let me close where I began with commitment. Our commitment to communities and customers and to the capital contributors whose support makes our work possible. Our commitment to strengthening the grid, enhancing safety, improving reliability and supporting affordability. Our commitment to clarity and transparency as we move into a period of greater regulatory stability and our commitment to deliver on the objectives we have shared with you today. We have the right strategy, the right plan and the right team in place, and we are confident in our ability to execute that plan for 2030. With that, Maria, let me turn it over to you. Maria Rigatti: Thanks, Pedro. In my comments today, I will discuss fourth quarter and full year financial results. Our focused areas for 2026, provide an update on our refreshed capital, rate base and EPS growth guidance and discuss other financial topics. For the fourth quarter, EIX reported core EPS of $1.86. Full year 2025 core EPS of $6.55 exceeded the high end of our EPS guidance range. Pages 6 and 7 provide the year-over-year variance analysis. I would like to note two items embedded in our results. First, fourth quarter core EPS includes $0.06 of costs attributed to the preferred stock tender offers and redemption at EIX and SCE completed in December. Second, we recorded a $0.46 true-up following the final decision in the Woolsey cost recovery proceeding. Excluding the Woolsey true-up, EIX's full year 2025 core EPS still exceeded the midpoint of our guidance. I will echo Pedro's comments that this marks the successful delivery of the long-term core EPS target we established for 2021 through 2025. Over that period, we successfully managed a number of unforeseen headwinds. Record inflation, the first rising interest rate environment in over 15 years, growing wildfire claims related debt, several changes to SCE's authorized cost of capital and additional cost pressures, yet we delivered on our commitment. Today, we are reaffirming our 2028 guidance and extending our 5% to 7% EPS growth target to 2030. You should share this leadership team's confidence that we will continue to deliver on these commitments and build on your trust. You can see on Page 8 that delivering strong financial results was just one accomplishment and another year of strong execution in 2025. Page 9 summarizes the key management focus areas for 2026. SCE continues to execute its wildfire mitigation plan and its focus on operational excellence to reduce costs for customers. Utility also plans to execute on its $7 billion capital plan for the year to meet customers' needs. As Pedro mentioned, the legislative process will be a major focus for the year. In the regulatory area, the utility will be driving toward a final decision on its NextGen ERP program and filing an application for its Advanced Metering Infrastructure or AMI 2.0 program. Both of these are large programs that provide significant long-term customer benefits. Lastly, we look forward to another year of delivering on our annual core EPS guidance and executing efficient financings across the enterprise. Let's turn to SCE's updated capital and rate base forecast shown on Pages 10 and 11. The extended capital plan of $38 billion to $41 billion from 2026 through 2030, continues the company's essential work in load growth-driven programs, infrastructure replacement and wildfire mitigation. Additionally, our updated forecast now includes nearly $1.5 billion of capital expenditures through 2030 from SCE's upcoming AMI 2.0 application. The total request will exceed $3 billion with spending expected to continue through 2033. We forecast a step up in our capital deployment opportunities to as high as $9 billion per year in the next GRC cycle. This is driven by the essential investments in the grid to meet customer needs and support California's clean energy objectives. The resulting projected rate base growth is approximately 7% from 2025 to 2030. Page 12 shows our 2026 and 2027 core EPS guidance. We have also provided modeling considerations on Page 15. Our core EPS guidance for 2026 is $5.90 to $6.20, and for 2027, it is $6.25 to $6.65. As you're aware, Edison's core EPS over the years has not been linear. Let me provide some additional insight into our outlook and trajectory towards achieving our longer-term targets. You will see that 2026 core EPS represents growth of about 3.5% at the midpoint compared to the $5.84 baseline. We have provided a bridge on Page 13 to help you understand the puts and takes. This muted growth is driven by three items, which amount to $0.25. First, SCE has fewer regulatory decisions in 2026 than last year. Therefore, the associated earnings contribution from recognizing prior year earnings is about $0.11 lower. Second, asset mix differences versus the original GRC forecast creates depreciation and property tax related variances of about $0.07. Third, financing-related variances, tax law changes and other items reduced core EPS by approximately $0.07. The drivers behind the $0.25 impact are baked into 2026 and thus are not expected to result in negative variances in later periods. Consequently, we expect EPS growth in 2027 to be at the high end of our 5% to 7% range. This is supported by SCE's 7% rate base growth, and we do not expect any large discrete variances from the rest of SCE's operations. Turning to Page 16. We are extending our 5% to 7% EPS growth target to 2030. We are also reaffirming our 2028 guidance and both of these are measured from the $5.84 baseline for 2025. On the financing front, I want to emphasize that we project no equity needs for the next five years through 2030. Our balance sheet remains strong, and we continue to finance the business efficiently within our 15% to 17% FFO to debt framework. Last month, the utility filed its Woolsey Securitization application with the CPUC. Once approved, the utility will securitize about $2 billion in costs associated with the approved Woolsey settlement agreement. SCE's proposed schedule would allow for this transaction to close in mid-2026. As we have shared before, proceeds from this transaction would be used to offset normal course debt issuances at SCE rather than paying down specific issuances. I will conclude by echoing Pedro's earlier comments about commitment and trust. Deploying capital for the resilience, reliability and readiness of the grid helps deliver on our commitments to customers and maintain their trust. We are committed to collaborating with stakeholders to advance a clear, durable and predictable framework. And to our capital contributors, you have seen us deliver consistently on our annual and long-term commitments to earn your trust. This leadership team remains committed and confident in continuing to do just that going forward. That concludes my remarks. Back to you, Sam. Sam Ramraj: Michelle, please open the call for questions. As a reminder, we request you to limit yourself to one question and one follow-up so everyone in line has the opportunity to ask questions. . Operator: [Operator Instructions] Our first caller is Nick Campanella with Barclays. Nicholas Campanella: So I guess just -- on the Eaton losses, I think you disclosed that you recorded about $1.1 billion of losses so far, just from the settlements under the wildfire recovery compensation program. And I guess just as you're continuing to get more visibility on the total liability, like when do you think you would potentially have the low end of losses for the total event? And what is kind of the complicating factor at this point? If you could kind of maybe expand on that at all? Pedro Pizarro: Yes. Thanks, Nick, for the question. I'll start on this one. Let me share some -- reinforce some numbers for perspective. I think I mentioned that we've had -- SCE has had over 2,300 claims submitted so far. There are 18,000 properties that are eligible for the program. You might have multiple claimants per property. For example, if you have a multiple tenant kind of property. So we could certainly see a few tens of thousands of claims ultimately, if everybody wants to participate through the program. And so in that context, 2,300 claim applications, and we're -- now I think I checked this morning, SCE has now crossed the 590 offer mark. That's a really good strong start. Those are good numbers for just three months into the program, but it's just a minuscule number compared to the potential pool here. And so in terms of when we would be able to estimate, we really don't have an estimate for that yet because it really depends on the pace of this. Maria Rigatti: And Nick, maybe just a clarification. You referenced $1 billion or so that we've recorded. That's a combination of what we paid under the WRCP program, which Pedro just described, that is a very minor part of the total. The rest of it is associated with subrogation claim settlements that the company has entered into. So it's both of those things. Pedro Pizarro: Yes. Thanks, really clarification, Maria. We've announced a couple of subrogation settlement so far. So that's what -- on the insurance side, the subrogation side, similarly, there's been two settlements at around an average of $0.55 in the dollar, but there's many more insurance companies in that. So we really can't estimate when we might have enough critical volume to be able to have even a low end of the [ estimated ] range with the confidence required by GAAP. Nicholas Campanella: Okay. And then just maybe expanding on the comments about the 5% to 7% and being at the high end '27. I know your rate base growth is 7%, and you're not issuing any equity, which is great, but I assume you do have some financing drag. Just what are kind of the consideration the nonlinearity to think about for '28 and '29? Do you kind of plan to be at the high end in those years in the 5% to 7% range? Or are there just further considerations there? Maria Rigatti: Thanks, Nick. So you can see sort of like through the '28 period, again, 2026, some muted growth due to variances that are now in the year and will not create variances on a go-forward basis, which then does mean that we're at the high end of the range for the next couple of years. We don't really see any large discrete activities that are driving things in one direction and the other over the course of the years, it's really rate base growth. . Obviously, we still continue to see things like AFUDC come through. We're going to continue to manage the business across all the different elements and areas, similar to what we've done in the past. Then as you get out to '29 and '30, again, right back down to rate base growth. I mean, that is really the driver here, and you can see the potential step-up in '29 and '30 as we file for a new General Rate Case decision. That will be filed actually in May of 2027. So we're closing in on that now. Operator: And the next question comes from Carly Davenport with Goldman Sachs. Carly Davenport: Maybe just on some of the updates on the capital plan through 2030. On the AMI 2.0 application, just once you file that what do you anticipate to be the timing on clarity of approvals? And then just how does that interplay with the timing of the capital dollars that are embedded in the plan through 2030? Maria Rigatti: Sure. So we'll be filing later next few months likely. And we'll ask for a typical schedule, which would get us a decision hopefully in about 18 months or so. The capital that's embedded in the forecast right now, the total request will be in the neighborhood of $3 billion. About $1.5 billion is in the period that we have portrayed here through 2030 with another $1.5 billion that would get spent post that by and large through 2033. So that's sort of the pace of what we're anticipating. Carly Davenport: Great. Okay. That's super helpful. And then maybe just on the SB 254 processes getting closer to the April 1 CEA report deadline. Any updates that you'd call out in terms of thematics that are coming out of the updates we've gotten so far? And just how you feel we're progressing into that deadline and what that could mean for timing of getting some clarity on legislation? Pedro Pizarro: Yes. Thanks, Carly. I'd say the process is certainly underway. It's good to see robust participation from so many stakeholders across the economy. The legislature set this up, they set it up to be truly across economy sort of exercise. And so that engagement is important. It's been important to see the approach that the CEA is taking in marshaling the process, making sure that there's good participation, good engagement, good transparency into the various positions that different parties are bringing in. It is certainly in the process. So really not able to comment on specific solutions or potential solutions yet. But seeing the recognition that this is an economy-wide issue, that really needs to touch all sectors, everything from upstream, securing of buildings, hardening of buildings, decreasing the risk of ignition, decreasing the risk of spread and a consequence focusing as well on shoring up the insurance market, focusing on having ultimately solutions that if heaven forbid, there's another catastrophic fire in the state that there's a way to equitably socialize that impact across the economy. Those are all constructive, our themes that keep coming up. I would also point to the report that the CPUC issued a couple of weeks ago. We thought that, that was very constructive, and acknowledged that central theme that ultimately utilities, and therefore, their customers and shareholders simply cannot continue to be the insurers of last resort, the bearers of all this risk that even if you have a catastrophe that starts with the utility ignition, the catastrophe has so many other components, right? The tragedy can include, weather conditions, can include, challenges in mitigating the fire can include issues that led to faster spread. And so recognizing those kind of things is really important, and it was good to see that show up in the CPUC's conclusions. Maria, anything you'd add? Maria Rigatti: Maybe just one other thing, Carly, and it's really not an add. It's just -- it's underscoring. Pedro talked about sort of the focus on safety and risk reduction on timely and fair recovery for the people who are impacted by an event. But also, it's very important and part of the conversation that we're having is that you need a predictable framework that supports access to well-priced capital. Because at the end of the day, it's about affordability for customers. And so having that conversation and making sure that we are emphasizing that is a really important part of what the IOUs are doing. Operator: And the next question comes from Paul Zimbardo with Jefferies. Paul Zimbardo: The first one I had was just a follow-up on Nick's question a little bit. If I have the maths right, and it's late in the day, so I might not. But if I have the maths right, it looks like about an 8% rate base growth from that '28 to 2030. So I don't know if there's any other factors we should be considering, because kind of your rate base growth is translating into the net income and earnings growth. Should we think about a potential faster trajectory in the back end of that plan from 2028 to 2030? Maria Rigatti: Paul, I think you know how we approach this. We definitely run a lot of different scenarios. We plan conservatively. Looking at all various outcomes and how they play together allows us to have confidence in the 5% to 7%. I would focus on that now. I think we're not seeing anything other than rate base growth as we move out in time. We're always going to be doing things to help benefit the growth, but -- and also benefit affordability. So we'll be focusing on efficient financing. We'll be focusing on over time, further operational excellence efforts. But I think that's how I really view the entire five-year period. It's based on a lot of scenarios, a lot of scenario planning, a lot of scenario analysis and some conservative valuations. Paul Zimbardo: Okay. That is clear. And then I do want to follow up a little bit on the 2026 drivers and the variances you mentioned. I understand on the regulatory true-up. But could you elaborate a little bit on why we shouldn't think about the depreciation and kind of those tax other items that $0.14 is recurring, that would be helpful. Maria Rigatti: Sure. So while they are variances in this year like relative to '25, but now that they're built in, they're just going to -- they continue on a go-forward basis, but they won't actually be affecting or diminishing the growth year-over-year. So maybe that's a clarification that might be helpful. What are they with more specificity as you get into any rate case cycle, and I know we've chatted about this in the past, you can start to deploy assets or invest in assets at a slightly different pace or in slightly different buckets than are in the GRC authorized revenue requirement. You get those depreciation and then also property tax-related variances. Again, built in now. So on a go-forward basis, they don't expect the year-over-year trajectory. Tax and financing. There were some tax law changes last year around charitable contributions. There's a couple of pennies around that. And then because year-over-year, we have more wildfire debt outstanding, you see just a variance in the financing cost, again, because the average amount outstanding changes as we continue -- as we continue to pay claims back in 2025. Again, now built in. We also have a lot of visibility into that with the settlements behind us, so not a variance going forward, which brings you back to rate base growth as the driver for our earnings growth. Paul Zimbardo: Okay. They're very comprehensive and thank you for giving the 2027 as well. Operator: And the next question comes from Ryan Levine with Citi. Ryan Levine: As the compensation program continues to execute, would you look to continue to tweak the program to achieve your objectives? And any color you could share around the rationale for the recently announced changes? Pedro Pizarro: I had a little hard time picking up. Maria Rigatti: Yes. So Ryan, we did -- Pedro did mention earlier some small changes or some changes we're making in the program. I think all of that ties to the information gathering and the community feedback we continue to get. But I think, Pedro, if you want to... Pedro Pizarro: I'm sorry, Ryan, it was just a little bit of static when you're asking the question, so I had a hard time picking it up. Yes. So we made a couple of modifications to the WRCP program. One is to provide some added support for tenants. The original protocol provided three months of compensation at the actual rent level that the tenants were paying prior to the event. But as we dug into this more and got more feedback, it became clear that there was at least some number of tenants in Altadena, who perhaps have been longer-term tenants, and were continuing to pay rents that were under market levels. So now we are making an adjustment to use the calculator or the engine that we have to calculate or estimate fair market value for rent, and allowing tenants to recover three months of either the higher of their actual rent payments or that fair market value rent. The second adjustment we made was you might recall that the program provided support for attorney fees, voluntary program, you can participate without an attorney, but if claimants choose to use an attorney, then the program provided 10% of net damages as an increment to help cover attorney fees. We were also hoping that the attorney community would recognize that this program represents a fairly straightforward approach and hopefully, less work for -- less effort for them, and perhaps they could provide lower fees for clients. But as we got feedback from the clients themselves, from the claimants themselves, we decided there was appropriate to increase the -- what we're providing for legal fees to 20% from the 10% of net damages. Both of these changes will be applied retroactively as well. So we have claimants who have already received their compensation or -- we've already received an offer, we'll be making the adjustment for them automatically and won't require effort on their part. Maria Rigatti: And Ryan, I think you asked about what we continue to tweak to meet our objectives. The objective here is to have fair timely compensation, which also helps preserve the funds in the wildfire fund, reducing interest costs, reducing escalation, et cetera. The objective -- that is the objective. And then in terms of additional changes, we really are trying to respond to the community, but we think we've gotten a lot of feedback at this point. Pedro Pizarro: I think our advisors on this. Also I've highlighted the importance of having a stable, understandable program. So I don't think it would be helpful to have a constant stream of changes either. Operator: The next question comes from Aidan Kelly with JPMorgan. Aidan Kelly: Just wanted -- just wondering if you could elaborate a bit more on the L.A. District Attorney's investigation to determine whether criminal violations occurred. I noticed the new 10-K disclosure here. So I'd appreciate any color on how you think about the scope of this investigation. Any thoughts on the potential magnitude? Pedro Pizarro: Yes. Thanks for the question. And as you might imagine, investigations, I think are often to be expected when you have events of the scale of the Eaton fire. We don't have a lot of visibility into timing, et cetera. Certainly, our team will be collaborating with the attorney's office as they ask for any steps. But importantly, as we continue our investigation, and I think as I said earlier, as we look at the events here, we continue to be confident that SCE will be able to make a good faith showing that its actions were those of a reasonable utility operator. And so that gives us a lot of comfort as we look at whether it's that investigation you mentioned or just the broader investigations into the event and looking ahead to ultimately looking for the CPUC to affirm -- CPUs -- SCE's prudency in the future. Aidan Kelly: Understood. And just one last one for me. Can you confirm whether the out-of-service transmission tower in Eaton is grounded or not? Pedro Pizarro: We have shared before that transmission line, the idle line was grounded at both ends. We have also shared that we had photographic evidence at the far end of the line that showed some anomalies and potential issues with that grounding and we've been transparent about all this from early on. We have also shared that as you take a look at practices across the utility industry, there really is no common practice or standard for grounding of idle lines. In fact, we've identified at least a couple of utilities that choose not to ground idle lines at all. In an abundance of caution and in the spirit of continuous improvement, and it's one of our values as a company, as we continue to learn and or hypothesize too about what may or may not have happened here, you might also recall that probably it's like a month or two after the event, we also disclosed publicly that we were going -- in fact, we already did this, change SCE's protocols and policies to now require the grounding of idle lines at not only the endpoints, but for longer lines at least every two miles. And that could be shorter depending on the particular topography of any line. It's probably more than you wanted on idle lines there, but I want to make sure you have the complete picture. Operator: And that was our last question. I will now turn the call back over to Sam Ramraj. Sam Ramraj: Thank you for joining us. This concludes the conference call. Have a good rest of the day. You may now disconnect. Operator: Thank you. This concludes today's conference call. You may now disconnect at this time, and have a good rest of your day.
Operator: Thank you for standing by, and welcome to Zip Co Limited Half Year '26 Results. [Operator Instructions] I would now like to hand the conference over to Director of Investor Relations and Sustainability, Vivienne Lee. Please go ahead. Vivienne Lee: Good morning, and thank you for joining Zip's 2026 Half Year Results Briefing. To open, I'd like to begin by acknowledging the traditional owners of the land on which we meet today, the Gadigal of the Eora Nation and pay our respects to elders past and present. This conference call is also being webcast and will be available on Zip's website. I'm joined today by Zip's Group CEO and Managing Director, Cynthia Scott; Group CFO, Gordon Bell; and U.S. CEO, Joe Heck. We will start this call with some prepared remarks and then open up for Q&A. With that, I'll now hand over the call to Cynthia. Cynthia Scott: Thanks, Vivienne, and good morning, everyone. On behalf of the Zip team, we're pleased to be reporting another very strong set of results, delivering financial performance within each of our full year guidance ranges provided in August. For the half, we delivered record cash earnings of $124.3 million and significant operating margin expansion, underpinned by accelerated momentum across both markets. These results, together with 10 quarters of consistent group profitability, reinforce the strength of our platform and our ability to deliver long-term value creation. Zip today is a high-growth, efficient and sustainably profitable business with clear strategic differentiators. We operate a scaled 2-sided network with strong customer engagement, growing merchant penetration and increasingly diversified distribution networks. We take a customer-first approach to innovation with a proven track record as a responsible lender backed by more than 12 years' experience delivering flexible credit solutions to millions of customers. Our AI-powered decisioning capabilities built on significant sets of proprietary data, deliver responsible lending outcomes and exceptional experiences for our customers and merchants. This capability is a core competitive advantage and increasingly important as we continue to scale. Moving to the next slide. Our results demonstrate the power and momentum of our platform in action. Total transaction volume reached a record $8.4 billion, up 34% year-on-year, driven by 55 million transactions. Active customer numbers increased 4.1% to 6.6 million as we delivered on our strategy for customer growth while deepening customer engagement, demonstrating the demand for our products and the trust customers place in Zip. Merchant growth also accelerated, up more than 10% to over 90,000 merchants, supported by expanded channel partnerships, including Stripe. Turning to the next slide. We've continued to deliver top line growth while importantly, maintaining the strong unit economics and the operating leverage that we've developed. Gross profit increased 33.5%, reflecting lower funding costs and strong credit discipline. Net bad debts remained comfortably within management targets, while active customers grew by 10% in the U.S. A key highlight was record cash earnings of $124.3 million, up 86%, driven by significant operating margin expansion to 18.7%. As well as strong cash earnings in the first half, on a statutory basis, we also delivered net profit after tax of $52.4 million. Moving to Slide 8, which demonstrates we're now driving outstanding earnings growth in both markets. In the U.S., which represents around 80% of divisional earnings, cash EBITDA increased 70%, which is 1.5x the rate of revenue growth. In ANZ, cash earnings more than doubled as revenue in Australian receivables returned to growth and excess spread expanded 241 basis points, a material improvement. The performance across both regions reflects the strength and scalability of our model. Moving to Slide 9. We're executing with discipline against our FY '26 strategic priorities. Across both markets, we strengthened customer engagement, delivered record outcomes through the peak holiday period and signed large merchants in targeted verticals. We continue to innovate and expand our products, unlocking greater flexibility and value for our customers and merchants. Joe and I will cover these highlights in more detail in the regional updates. We've also continued to strengthen our platforms to support long-term scale. During the half, we completed the $100 million on-market share buyback, optimized and diversified our funding programs and strengthened our core systems and processes, including through scaling AI, which is firmly embedded in how we operate, how we build and how we differentiate. Turning to Slide 10. Our ESG focus remains aligned to long-term value creation. In the U.S., we partnered with Opportunity Knocks, a PBS television series supporting underestimated Americans through hands-on financial guidance, reflecting our commitment to financial inclusion. Across the group, 100% of our team have been equipped with secure enterprise versions of generative AI tools and training to support engagement and accelerate innovation. We also continue to invest in carbon offsetting projects with the aim to offset our greenhouse gas emissions. Turning to the next slide. Dual listing on the U.S. stock exchange continues to make strategic sense for Zip given the scale of our U.S. business and the material growth opportunity ahead of us in that market. As we announced late last year, we submitted a confidential draft registration statement to the U.S. Securities and Exchange Commission in November 2025. We'll continue to monitor market conditions, and we'll only undertake a dual listing when it's in the best interest of Zip shareholders. The potential dual listing still remains subject to a number of required processes, including regulatory and Zip Board approvals. So with that, I'll hand over to Joe to cover our U.S. performance in more detail. Joe Heck: Thanks, Cynthia. I'm now on Slide 13. The U.S. delivered another outstanding set of results for the half. We now have a larger and more efficient platform that drove record TTV and revenue while adding over 400,000 customers and over 2,300 merchants. With over $4 billion in TTV and $292 million in revenue for the half, growth accelerated to 44.2% and 46.4%, respectively, and we set a record day and month during the holiday period. Our results reflect deeper customer engagement with customers now transacting over 11x per annum, up 20% on year. We continue to innovate and evolve our offering to meet real customer needs, including making our Pay-in-2 solution available to all customers in February of 2026, providing greater flexibility and choice for smaller everyday purchases. We're piloting a my Bills feature in app to support customers with recurring payments. And we're progressing our Money Coach, our agentic guided cash flow management experience, which we piloted with U.S. zibsters. These initiatives will continue to be rolled out in the second half. Our platform is converting top line growth at a stronger operating margin, and we deliver credit outcomes within our target range and operating leverage at scale. Turning now to Slide 14. We have a compelling and exciting market opportunity in the U.S. where BNPL represents less than 2% of the $12.8 trillion total payments market and 6% of e-commerce, far below more established markets. Zip serves a unique customer, the everyday American, of which we estimate there to be over 100 million nationally. This group has been underestimated by traditional services -- financial services providers and are increasingly using short-term installment products such as Zip to smooth their everyday cash flow. Moving on to the next slide. Our product design and experiences are built to meet our customers needs and preferences, supporting increased usage of our products. Since FY '24, we've invested in personalization and enhanced customer experiences, which has delivered quarter-on-quarter growth of transactions and spend per customer. This represents annualized growth of 24% and 31%, respectively. Moving to the next slide. Slide 16 shows how we're able to leverage our experience with everyday Americans. As we underwrite more customers and transactions, we're able to rightsize spending power faster and accelerate customer engagement in newer cohorts. In fact, our most recent July 2025 customer cohort experienced a 21% increase in average spend over 6 months. The 18- and 24-month data points on the right demonstrate these trends continue over longer-term horizons. Turning to Slide 17. A key highlight for the half was the acceleration in active customer growth, up 10% year-on-year, which compared to growth of 6% at this time last year. Importantly, we continue to acquire customers efficiently, especially as our merchant network and channel partnerships grow, which increases awareness and adoption of our products. Our new brand campaign "in you we trust" reflects our belief that people deserve financial tools that work with them, not against them. Double-clicking into our experience with our customer base, we've decisioned and processed more than $23 billion in installments across 177 million transactions to date. Our proprietary credit models leverage 1.4 billion unique data points from over 13 million first-party customer records, delivering strong credit outcomes when compared to traditional approaches to underwriting. Turning to Slide 18. We've successfully expanded our channel partnerships, which is driving merchant growth, customer acquisition and increased customer engagement. We reached general availability in Stripe in August of 2025, meaning any of the millions of merchants on Stripe can enable Zip in less than 30 seconds on their dashboard. This enables us to scale efficiently, both distribution costs and shorter sales cycles through a one-to-many approach. While it's still early days, we've added over 1,400 Stripe merchants in the first half alone, noting we've only been live for 4.5 months. To increasingly meet our customers where they live, work and entertain, we've signed large enterprises such as JD Sports, Goat Group and also went live with Temu. We also launched a new customer activation initiatives, including collaborations with national brands like Major League Baseball. Our integration with Autofill on Google Chrome serves as a customer acquisition and engagement tool. Customers can now find Zip at checkout when using the Chrome browser and if approved through their acquisition flow, are prompted to save their Zip details in their browser, delivering a more seamless experience of repeat usage. Customer feedback to date has been positive with 86% of surveyed Zip customers expressing intent to use the feature again. On to Slide 19. We are constantly listening to our customers to understand how they want to pay and manage their everyday spend. Our TTV is increasingly derived from nondiscretionary categories with health, education, auto and transport, representing some of our fastest growing. Our Pay-in-2 product is another example of how we're empowering customers with alternatives to traditional high-interest credit products, enabling customers to split a purchase into 2 installments paid over 2 weeks. The product has been well received with future use centered on everyday needs like groceries and bills and 95% of surveyed pilot customers expressing intent to use Pay-in-2 again. Turning to the next slide. We've actively pursued and achieved very strong TTV and customer growth while managing losses comfortably within our 1.5 to 2.0 target range. Given the short duration of our product, we remain well placed to proactively manage our portfolio outcomes. We will continue to drive new customer growth initiatives, which position us well to deliver future profitable growth underpinned by our strong unit economics. Given recent performance in our portfolio, we are confident net bad debts will remain stable within the top half of our targeted range in the second half. Moving to the next slide. We have an efficient and capital-light business, which is driving significant operating margin expansion as our platform scales. This half, we've converted every incremental dollar of revenue into $0.34 of cash earnings. Turning to Slide 22. We are strategically set to deliver our next phase of growth by capitalizing on structural tailwinds with digital payments and BNPL adoption set to increase, growing our customer base and increasing Zip share of wallet, expanding our distribution and merchant network to enhance the efficiency of our growth engine and evolving our product set to meet more of our customers' cash flow management needs. Digging deeper into this on Slide 23. We see a tremendous opportunity to lean further into everyday nondiscretionary spend, given the mismatch between the income structures and the rising essential costs that everyday Americans are facing. While we are supporting customers today in the point-of-sale installment credit market, there are additional opportunities for us to meet even more of our customers cash flow needs. An example of this is my Bills, which I mentioned earlier and is due to roll out in the coming months. We will continue to explore other product adjacencies that resonate with our customers, complement our short duration portfolio and expand our revenue streams such as rent and earned wage access. We are excited and energized by what we can unlock for our customers, merchants and partners as we capture our growth potential and reshape how everyday Americans manage their cash flow. With that, I'll now hand back over to Cynthia. Cynthia Scott: Thanks, Joe. Turning now to Slide 25. The ANZ business delivered an excellent performance this half, achieving 138% increase in cash earnings. This was driven by a material improvement in excess spread and strong momentum in Zip Plus, which as of this month, is now being offered to new customers at higher limits of up to $20,000. We added several large enterprise merchants to the platform, including Didi, Australian Outdoor Living and White Fox Boutique and executed strategic integrations, including with Xero via Stripe and Mint Payments. Our customer value proposition has been enhanced through new Google Wallet features, which have been adopted by more than 170,000 customers. Our AI-powered chatbot Ziggy is providing increasingly personalized experiences and is now resolving 65% of interactions without human intervention. Turning to Slide 26. Excess spread expanded by 241 basis points, underpinning strong earnings growth. This reflects very strong outcomes on receivables financing over the last 2 years as well as net bad debts remaining at their lowest levels since FY '23. Arrears rates, a leading indicator of future bad debts, continues to perform well, down 21 basis points year-on-year. With portfolio yield remaining healthy, the business is well positioned to continue to deliver profitable growth. Moving to the next slide. Our comprehensive product suite provides flexibility and choice, driving strong customer engagement and satisfaction. Transactions and TTV per customer increased 23% and 20%, respectively. This performance was driven by enhancements to our app and in-store experience, along with new strategic go-to-market initiatives, as shown on the right-hand side of this slide. We achieved a record number of transactions and Zip Anywhere open loop spend during Black Friday, Cyber Monday. Consistent with our increasing frequency, we're seeing strong growth in everyday spend categories such as groceries, health care, education and utilities. We're also seeing higher spend across all age cohorts with the strongest growth amongst more mature customers, including in discretionary categories such as restaurants, travel and entertainment. Turning to Slide 28. We're very pleased with the momentum in ANZ and are investing in future growth. We've undertaken strategic go-to-market initiatives, including around peak trading events. We've also simplified and strengthened the resiliency of our core technology systems, including our credit decisioning platform, enhancing our speed to market. These investments support both top line growth and cost efficiency, positioning the business to deliver sustainable long-term value. I'll now hand over to Gordon to cover our financial performance. Gordon Bell: Thank you, Cynthia, and good morning, everyone. I'll start with Slide 30. Zip has had a very strong start to the year. We've achieved material new active customer growth in the U.S. and converted substantial top line revenue growth at an increased operating margin. Our financial results for the first half are all within the full year 2026 target ranges provided to the market in August 2025. A key highlight was our primary metric, the group's operating margin, which expanded 569 basis points to 18.7%. This has been a focus in the year-to-date, and we're really pleased with the outcome and the momentum. On a statutory or GAAP basis, our net profit after tax more than doubled to $52.4 million, an outstanding result. Moving to the income statement on Slide 31. Our focus on operating leverage, disciplined cost management and ongoing investment in our business drove the following outcomes: a 33.5% increase in cash gross profit to $314.3 million, an 85.6% increase in cash EBITDA to $124.3 million and a 127.6% increase in statutory net profit to $52.4 million. On an underlying basis, we delivered $54 million of improvement in net profit after tax with no one-off items recorded for the period. Further details are in the appendix to the presentation. Slide 32 covers our unit economics. The group had another fantastic half, growing TTV in both regions to a combined $8.4 billion or up 34.1%, while maintaining a strong cash net transaction margin of 3.8%. Interest expense as a percentage of TTV improved 38 basis points year-on-year to 1.3%, primarily driven by lower margins on over $2 billion of receivables refinanced in Australia over the past 18 months. Net bad debts were 1.7% of TTV, reflecting our targeted approach to balancing top line growth and losses. Turning to Slide 33, which covers the accounting provision for ECL or expected loss for the U.S. business. In alignment with International Financial Reporting Standards, we recognize expected credit losses for our customer receivables book. This is a noncash item in our P&L. For our short duration U.S. products, this provides a useful leading indicator of future portfolio performance and loss trajectory. Commensurate with our strong momentum through Q1 and Q2, we saw a nominal increase in our U.S. provision. This shift is a direct reflection of our strong volume growth and delivery of new active customer growth of circa 10% year-on-year, both in line with our U.S. strategy. The lower U.S. provision as a percentage of receivables at the end of the second quarter reflects both seasonality and continued proactive management of our short duration book to deliver profitable growth and to deliver actual losses within the management target ranges. Moving to operating efficiency on Slide 34. Our prioritization of cost discipline has supported material operating margin expansion of 569 basis points to 18.7%, whilst also growing group TTV and revenue north of 30%. This has been achieved while continuing to invest in attractive opportunities that support our growing businesses in both regions. The increased investment in people, processes and information technology was driven mainly by the U.S. to support additional scale. During the period, we invested in marketing to drive strategic growth by building brand and product awareness across both markets. Total marketing spend remained at approximately 0.4% of TTV. At the corporate level, costs increased in the first half due to spend on activities announced associated with our potential dual listing as well as innovation initiatives through our [indiscernible] lab to drive the next horizon of growth in our businesses. The next few slides, starting with Slide 35, cover the group's liquidity, funding and capital management. We have a very strong balance sheet with available cash and liquidity of $239 million at 31 December, materially up on the full year '25. This outcome reflects Zip's strong cash flow generation, driven by continued operating results. Cash inflows for the first half totaled $178.3 million, which accounted for CapEx, working capital and funding requirements. Nonoperating cash flows of $77.1 million included on-market capital management activities. Slide 36 outlines the financing facilities in place for Zip's receivables and the capacity for future growth. In Australia, we continue to benefit from constructive funding markets, a significant increase in investor interest and strong corporate performance. Our $400 million 2-year public ABS term deal priced at BBSW plus 1.37% in November 2025. Pricing was well inside levels achieved in previous public transactions. In early February 2026, we took the opportunity to further extend portfolio duration with an innovative $300 million 5-year public ABS term deal, which priced at BBSW plus 1.62%. This transaction was supported by domestic and global investors and highlights the significant investor appetite for Zip's longer duration issuance. In the U.S., we established a $283 million warehouse facility. The 2-year facility provides enhanced capacity for future growth, delivers a material improvement in funding costs and further diversifies our funding program. We continue to assess opportunities to optimize our U.S. funding portfolio with work well progressed to refinance our $300 million warehouse later in the second half of the year. Moving to Slide 37. This slide outlines our capital management framework, which establishes principles for the allocation of financial resources to maximize long-term shareholder returns. We executed 2 key initiatives during the half. Firstly, we completed our $100 million on-market share buyback program in December with 34.9 million shares repurchased at an average price of $2.86. Secondly, we acquired 5.9 million shares on market via our employee share trust to neutralize the impact of share-based incentive programs. Looking ahead, we will continue to focus on investing capital efficiently to drive long-term value guided through a lens on risk, expected return and strategic alignment. Slide 38 provides a snapshot of our key group performance metrics, demonstrating the outstanding results achieved this half. This financial information is further detailed in the appendix of the presentation as well as the Appendix 4D financial statements lodged with the ASX this morning. I'll now hand back to Cynthia to cover the group strategy and the FY '26 outlook. Cynthia Scott: Thanks, Gordon. I'm now on Slide 14. Our FY '26 strategic priorities remain unchanged. In the second half, we'll continue to enhance our customer and merchant value propositions, including scaling Pay-in-2 in the U.S. and unlocking greater spending for Zip Plus customers in Australia. We'll drive innovation across our portfolio -- excuse me, across our products, people and processes through leveraging our in-house capabilities and AI advantage. We're really excited to execute on future growth opportunities and to meet our customers' evolving cash flow management needs. In the U.S., as Joe outlined, this includes the rollout of My bills and our Agentic Experience Money Coach as well as continuing to assess new product adjacencies. In ANZ, we've advanced capital-light propositions through our Fearless Frontiers team led by Peter Gray and expect to have a new offering in market during the second half. As part of our announcements today, we've also shared my intention to relocate to the U.S. This move reflects our growing presence and significant growth opportunity in the U.S. market, our primary earnings driver. I look forward to deepening engagement with key U.S. stakeholders, including our customers, merchants, strategic partners and investors. Moving to our upgraded FY '26 outlook on Slide 41. Firstly, we reconfirm our guidance for revenue margin and cash NTM ranges. Following a strong performance in the first half, we've upgraded our operating margin expectation to be greater than 18% and for cash EBITDA as a percentage of TTV to now be above 1.4%. Taking into account these targets, we expect second half cash EBITDA to be broadly in line with the first half. In closing, the first half of FY '26 has been a period of accelerated momentum for Zip. We're confident in the continuation of our growth momentum, supported by our U.S. business delivering strong TTV growth of more than 40% across 4 consecutive quarters. Our ANZ business having successfully returned to growth, having the right strategic settings and scalable platforms in place to drive increased profitability and significant opportunities in both markets to unlock further value. On behalf of the group executive team, I'd like to thank our incredible Zipsters for their passion and focus and our shareholders for your ongoing support. That concludes our formal presentation, and we'll now open the call for Q&A. Operator: [Operator Instructions] And your first question comes from the line of Jonathon Higgins with Unified Capital Partners. Jonathon Higgins: Congratulations on the U.S. growth there and also good luck for your forthcoming move to the U.S. Cynthia. Just a couple from me today. Firstly, probably just on Pay-in-8, Pay-in-2 and some of the things that are occurring there. I think there's probably quite a few questions, I'd imagine coming through just on the bad and doubtful debt performance. You've guided for the second half there. Can you talk about some of the moving parts on that guide into the second half towards those sort of targeted levels, please? Cynthia Scott: Yes. Thanks, Jon. Look, I'll make some initial comments, and I will ask Joe to give a little bit more detail. So you're right, we launched Pay-in-2 -- sorry, excuse me, Pay-in-8 more than a year ago. So we've now had it in market, and we've now seasoned it. So we've been able to see what the performance of Pay-in-8 has been. And as you've noted, it's been really well received by customers and now represents about 20% of our portfolio. It does come with higher losses, as we've talked about, given the longer duration of the product and the larger AOV of the product. So we have indicated that in terms of portfolio construction, we are comfortable keeping Pay-in-8 no greater than 20% of the portfolio. Now that we've launched Pay-in-2, that obviously, the proportion of Pay-in-8, Pay-in-2 and Pay-in-4 in the portfolio will again change. I might ask Joe just to give you some color given that we've now got Pay-in-2 out in market, just to give you some perspectives on how we're thinking about portfolio construction and also the loss performance that we're seeing or what we're expecting going forward. Joe Heck: Yes. Thanks, Cynthia. I'll just reiterate a couple of things Cynthia just said is like as we now have a full year of Pay-in-8 under our belt, and it represents about 20% of the portfolio. It does run just to the longer duration risk. It does run a higher loss rate. But we've also put on significant new customer growth as well. And always the first transaction with new customers is always our risk is transaction. But I'll reiterate maybe the tightening of our range. We feel very comfortable we're going to stay under the 2% I'll go back to the chart on losses where even early-stage delinquency is down 10% quarter-over-quarter. And so feel good that the tightening of the range is really the maturity of the portfolio and feel like we're in a good spot there. And then to maybe go towards Pay-in-2, it's an exciting rollout that we see really strong early signs of success with, both from a customer uptake and credit performance standpoint. It's an even shorter duration product than we have. So I'll just reiterate again what we said on the call is the 1.75 to 2-point range is we feel very confident we will be under that 2% moving forward. Jonathon Higgins: Understand. I appreciate the context. Maybe just a couple more that are sort of around as well in terms of portfolio composition. So on your outlook, you've retained the 3.8% to 4.2% cash NTM margin guidance coming at 3.8%. I think second quarter is always a little bit lower because of revenue yield. This might also help a little bit with expectations in the future. But evidently, with U.S. losses probably moving a little bit higher as guided by you guys, but a little bit of a headwind on interest rates and the U.S.A. business is dominating growth, which has a lower blended NTM margin. In terms of on the revenue yield side of things with the new products in the U.S. portfolio, like would we expect potentially some reasonable sort of additive growth in revenue margins in the U.S. so that we can get up to that cash NTM guidance? I suppose asking in a roundabout way, obviously, losses are a little bit higher on the back of Pay-in-8, but do we get better margins out of them at the top line? Cynthia Scott: Yes, John, I'll throw to Gordon. I mean, as you've noted, there's actually a lot of moving parts. You're talking about the change in the portfolio construction. Obviously, losses on Pay in 2 are lower than on Pay-in-4 and Pay-in-8. Typically, it's a shorter duration product. So that will also have an impact over the second half and going forward. We would still indicate to you an overall portfolio revenue yield in the U.S. of 7% is the right number to think about. But Gordon, do you want to add anything in relation to cash MTM guidance? Gordon Bell: Yes. Thank you, John. I'll just run through the components because I think you're on the right direction there. So the bad debt is a portion of that. Joe has outlined where we're at and the range that we are targeting specifically for the second half to balance what we feel is growth and margin. So we're comfortable there. On the interest cost side, the other big component of cost of sales, we've got some really nice tailwinds from the refinancing of our facilities, both in Australia. And now we're starting to see the benefit of the refinancings coming through in the U.S. So you do have to take that into account with the bad debt sort of percentage going the other way, and hence, why we're comfortable with that range of 3.8% to 4.2%. And then what I would say is, and I think you called out in one of your notes, you've also got to take into account the weighting there, where the U.S. is a lower MTM business compared to the Australian business. And as the volumes grow there at a faster rate, that also has an impact, too. So those are all the component parts, but comfortable with that range for the full year. Jonathon Higgins: I might grab one last one, sorry, I'll give the call to everyone else. But -- in regards to the new product mix and the like, I mean, if I sort of think back 12 months ago, we didn't have a lot of new product iteration sort of in market. We're at the beginning of new active customer growth, and we've had some large partnerships come through. And like many of those things like Pay-in-2, you publicly said it's gone live this calendar year. Pay-in-8 has obviously gone out of the customer base. And then you've got things like the Stripe partnership. I mean, is there potential in the second half for a pickup in sort of group run rates or volume? Just interested in what you're seeing in the U.S. Cynthia Scott: Yes. Look, I'll ask Joe to add some comments. But you're right, John, there are a number of levers that give us the confidence to continue to guide that the U.S. will grow more than 40%. And it does include things like the Stripe partnership really beginning to hit momentum now with 1,400 new merchants. as Joe said, from possible millions of merchants on their platform as well as the penetration of Google Chrome improving as well as us signing our own large enterprise merchants. So there's a lot going on, on the enterprise merchant side, and we continue to acquire net new customers. But Joe, is there anything in addition to that, that you wanted to add? Joe Heck: No, I think you hit on the major points. I think the increased flexibility that we're seeing from ANZ and the increased efficiency we're seeing just in how the platform is built and how we operate it makes us feel very confident in the numbers we're guiding to. Operator: Your next question comes from the line of Tim Lawson with Macquarie. Tim Lawson: Just really interested in your expectations for sort of OpEx growth in the second half, given you've provided that sort of flat versus first half, second half cash EBITDA guidance, but obviously, there's momentum still through the top line. Cynthia Scott: Yes. Thanks, Tim. I might -- I'll ask Gordon to address it because again, there's a couple of different factors at play there in terms of the performance in OpEx that we saw in the first half versus the second half. Gordon Bell: Yes. Thanks, Tim. I would say that it's fairly balanced. What I would note is we did see some nice operating margin performance. If you have a look at the unit economics slide, from a slightly reduced cash OpEx spend in the first half. And that really comes down to not a -- I wouldn't say not a lack of investment, but it's opportunities for investment. So Joe and Surya take the opportunities in front of them and invest where they see they're going to get a return from that investment. In the second half, we've got plenty of things that are on the, what I call the long list for investment, and we'll appraise those as and when they come up. So it's all very much looking forward to investing in the second half to get there. I think the second point I'd make just overall is we did upgrade that operating margin metric. So we did have 16% to 19%, and we're now saying for the full year, we'll be above 18%. So that should give people comfort that we're still investing, but we're doing it in a disciplined manner. Tim Lawson: And just a clarification on Slide 20. Can you just -- it's obviously providing that range on the net bad debts to TTV is very clear. But can you just on that bullet point 3, you talked about Pay-in-4 losses remained stable over the half and then Pain volumes continue to season. It's just hard to sort of reconcile that comment with the numbers. So I just maybe you can unpack that comment a little bit, please. Gordon Bell: Yes, sure. Tim, it's Gordon. I think that if you recall at the first quarter, we talked about losses and forecasting, and it was becoming increasingly difficult because on a cohort basis, your pay-in-8 is twice the duration. So you're starting to mix 2 products at a time where one was growing part seasoning, whereas the others -- the other product pay-in-4 was pretty stable. So hence, why we've gone to more of an actual percentage of TTV, which is avoids that apples and oranges piece. So that's just sort of the composition piece. What I would say is the Pay-in-4 performance is as the wording suggests is very stable, very comfortable with the product. And we've been -- frankly, we've been calibrating Pay-in-8, Pay-in-4 and top line growth to make sure that we are hitting the overall economics we want. So it's stable, and we continue to calibrate on the margins to drive the outcomes we want. Tim Lawson: So effectively, what you're trying to tell us is that while there's a lot of growth, and that's obviously driving losses on new business, whether it be pay-in-4 or pay-in-8, and that's what's driving that into the target range, that 1.84 that overall, the performance is stable. So it's more a mix thing that's driving up that loss rate. Gordon Bell: Yes, that's spot on. And I think the only add to that, so what you said is right, the only add to that, Tim, is that if you recall, as we came into FY '26, we had a very conscious new customer acquisition strategy, which has allowed -- which Joe and the team have executed on superbly, and we've been growing new active customers at 10% year-on-year. So it's the new customer is probably the only add to what you stated. Operator: And your next question comes from the line of Phil Chippindale with Ord Minnett. Phillip Chippindale: Just firstly, on the second half guidance for cash EBITDA to be broadly in line with the first half. Clearly, FX translation is going to be a headwind here. Can you tell us what sort of FX number you've assumed? Or if I can ask it another way, if FX had been flat versus first half, what sort of difference would we be talking sort of half-on-half in dollar million terms? Gordon Bell: Let me run through how we've -- how we see the FX, and you can tell me if it covers your question. So first half '25 average FX rate was about $0.67. First half '26, the average was about $0.67. So similar like-for-like. So the first half, you didn't see a lot of impact on a half-on-half basis, Phil. Second half '25 average FX rate was again about $0.67. As we sit here today from January, the FX rate was about $0.70, and I think the forward points are about $0.70, $0.71 for June. So straight away, you've got that sort of $0.03 to $0.04 difference if things -- if the forecast from the big 4 banks is appropriate. So $0.03 to $0.04, I use the U.S. earnings from half 1, which was approximately USD 75 million, USD 76 million. If you do the sensitivity there, it's about $5 million on the numbers I've just given you. We do have some U.S. dollar calls in place. We put some hedging on in the first half, which will mitigate some of that currency risk. So I would say up to $5 million based on the numbers I've given you. And then you've obviously got to run your sensitivities for the currency moving more than that. Does that run through it for you? Phillip Chippindale: Yes, that's really useful. And then just as a follow-up, just in terms of seasonality, I think Jonathon covered it off earlier. Typically, you see better revenue margins, particularly in the March quarter. But just from an OpEx perspective, is there anything we should be taking into consideration here that sort of is a bit of a drag in the second half to sort of bring us back to that flat number? Gordon Bell: The main one will be, as we've been consistent in that we're not going to starve growing businesses. So the U.S. has especially got great opportunities to drive growth into '27 and '28. And there's a number of initiatives, which Joe and the team are looking at in our Q3 and Q4. Q4 is certainly a spend quarter with back-to-school, summer holidays, et cetera. So we are keeping -- certainly keeping the spend up to make sure that we can deliver in future years, probably the best way to describe it. Operator: And your next question comes from the line of Lucy Huang with UBS. Unknown Analyst: So I just have a question on TTV momentum coming into third quarter. I know you're quite confident on second half TTV growing 40% plus in the U.S. But I think some of your payment peers offshore have called that there's been a bit of pull forward of spend into Black Friday. So just trying to see whether you can give us some early trading trends as to whether you are seeing a bit of a slowdown in trading or whether that kind of mid-40s growth momentum is still continuing. Cynthia Scott: Yes. Thanks, Lucy. Look, we actually did put in the slides on the outlook slide, we have actually given an indication of January U.S. TTV performance. And the short answer to your question is no, momentum is still continuing. We're not seeing a slowdown or a pullback. Unknown Analyst: [Indiscernible]. I might have missed that. Cynthia Scott: It was just in addition to the slide. So -- but we are explicitly saying that the momentum that we've seen in U.S. TTV continues into January. Unknown Analyst: Yes. Understood. And then just a piece on customer growth. Like how are you thinking about the balance of driving new customers to the platform versus net bad debts? Because I think for us, customer numbers are a bit softer in the U.S. Like do you think there's scope to reaccelerate adds, but that may come at a compromise to bad debt? Like how do you think about that balance over the next couple of quarters? Cynthia Scott: Yes. Thanks, Lizzy. So look, it's the same dynamic as we've spoken about before. Driving net new customers is important. And I think 10% growth in new customers in the U.S., particularly driving those customers onto the platform ahead of our busy trading period of Black Friday, Cyber Monday was really important. So it's about driving net new customer growth, but also then once they're on the platform, engaging them. And that's why we've given you more detail around the cohort analysis of more recent customers and how they're accelerating that engagement faster than customers who've been on the platform for longer. And then yes, so having new customers on the platform will drive TTV, but we also need to balance new customers also typically bring slightly higher losses. And so the thing about the way that we manage customer growth is that we then season those customers quite quickly. And so it really is that balance. I might just see whether, Joe, is there anything else that you wanted to add in terms of customer growth and just what we're seeing in terms of where the demand is coming from perhaps? Joe Heck: Yes. I would just say probably referencing some of the merchant expansion and partnership expansion, but also probably a reminder of how we think about the customer. It's a pretty low and grow strategy. So as we gain experience with the customer, we rightsized their spending limits pretty aggressively. So this way, we limit exposure on that new customer growth. But ultimately, as you would see, particularly on Slide 17, this is a seasonal business. We grew customers for the first time in a while, H1 to H2 in '25. And that set us up for the seasonal back-to-school shopping. Again, we've had growth again in this season. So I would say we're actually very -- feeling very good about the 10% growth and nearly 400,000 customers. Operator: And your next question comes from the line of Siraj Ahmed with Citi. Siraj Ahmed: can you hear me okay? Cynthia Scott: We can, Siraj. Siraj Ahmed: Just a question on the U.S. MTM percentage, right? I understand there's quite a few moving parts, but 3.1% in the second quarter was a bit lower than we expected. Just trying to understand how we should think about this into second half within your guide and also more importantly, into FY '27 because I can see the net adds is increasing, but maybe revenue a little bit better. So just that will be quite helpful because I think the trajectory of 27% is what I'm thinking about. Gordon Bell: Yes. Siraj, it's Gordon. Look, we absolutely -- as part of the -- as part of the conscious active customer growth in Q1 and Q2, we've been, again, very conscious that, that does come with -- to Joe's point, with higher initial losses, and then we manage and season that throughout the portfolio. So we do accept the slightly lower U.S. cash NTM in the quarter to take that into account. And then we look to balance that and grow it as we go further. So in the second half, you can expect that number to go up. And then that will then contribute to our full year meeting our full year range. So it is a conscious acceptance, if you like, and we expect that number to go up as we go forward. Siraj Ahmed: So Gordon, just clarifying, so in the second half, even with the net bad debt's going up with reaching a slide, you still think [indiscernible]? Gordon Bell: Yes. You've got other tailwinds, though. You've got interest cost tailwinds, which contribute to that as well in the second half, Siraj. Siraj Ahmed: Yes. And then just -- I'm thinking at 27%, I know it's a bit early, but keeping 3.8% to 4.2% would be a bit tough given the U.S. is growing strongly, right? Is that fair? Gordon Bell: We'll talk about 27%, I think, at the end of the year is probably the best way to put it. Siraj Ahmed: Okay. And just one quick thing. In terms of keeping it at 20%, maybe one for Joe. Is that just -- is that a reflection of that maybe the economics is not as strong because the momentum in 4Q is quite strong and you're saying let's keep it in 4Q '25 was strong, right? And you said let's keep it at 20%. Just wondering, are you just managing for the losses being a bit higher, so let's keep it at 20%. Joe Heck: Yes, happy to jump in on that. Siraj, the 20%, I would say it's more of the shape of the portfolio than anything. We save Pay-in-8 for our best customers, and we continue to refine that model. And we're continuing to just optimize across now what it will be pay-in-2, Pay-in-4 and Pay-in-8. So it's just an ongoing management of the book more so that we're starting to see it level out now at that 20% threshold. Gordon Bell: Siraj, it's Gordon. The other thing on your question around NTM, which I remiss of me not to state is the other piece that we take into consideration is the gross profit and the dollar increase and the longer-term piece -- longer term there. So we do actively target customer growth and conversion. And then the gross profit per customer or in the longer term is beneficial to us. We obviously have to calibrate that with the initial losses as we've talked about. So it is a balancing game overall. And right now, cash gross profit growth being at 33.5% year-on-year is very healthy. So it is a balance in terms of short term versus medium term, and that's probably something we look to there on the GP percentage. Siraj Ahmed: So yes, so the TTV and the spend this half yes, strong... Operator: And your next question comes from the line of John Marrin with CLSA. John Marrin: Just wanted -- just a quick clarification because I think it's pretty important. I think, Gordon, you said that there's about $5 million of impact from FX on that recent swing on the AUD USD. And I guess some of that is including the hedge that you have in place. Is that -- did I hear that correctly? I mean, a pretty important point. Gordon Bell: No. Yes. I'll slightly amend that. So I think based on the numbers I gave you, so again, if you take the -- I've just used the average of the FX forecast to say they're forecasting $0.70, $0.71 at June. So again, you have to take a view on that. And I'm looking at it versus the average of this sort of the second half last year and saying that today's numbers would tell you there's about a $0.03 to $0.04 difference there. So on that, I'll just use the sensitivity of the cash EBITDA we live in the U.S. in the first half being roughly $75 million, and that gets you to a number of sort of $5 million to $6 million. We do have some hedges on. We bought some U.S. dollar calls in the first half. And so that gives us some protection. It's not going to change that number materially. But if the currency gets a lot worse, we'd obviously that protection would become more valuable to us. So I still think circa $5 million is probably the right way to look at it based on today's numbers. Again, you need to take your own assumption on FX forwards. But based on today's numbers, I think that's the best estimate. John Marrin: Okay. Yes. Look, it's going to be substantial, and I think we've got to bake that in. But -- okay. You also mentioned that your marketing performance in the first half was strong enough to help you think about being on your front foot in terms of growth investments in the back half. And I just want to pick at that a little bit. And maybe just focusing on marketing spend in the back half and kind of thinking about what that dollar impact might be from the national brand -- national advertising campaign that it seems you guys have rolled out and what other investments you're thinking about when you say that? Cynthia Scott: Yes. Thanks, John. Maybe I'll just start by just clarifying that, and then I'll throw it to Joe just to give you some specific examples about how we're thinking about marketing and spend in the second half. But the marketing spend, including the brand campaign, would still come in under that same bucket of no more than 0.5% of TTV. We obviously, in the first half delivered underneath that. I think it was 0.4% of TTV in the first half, and that would include the spend on the brand that we refresh and launched this week. Joe, did you want to add anything in terms of the second half? Joe Heck: Yes. We continue to expand our partnerships on the merchant side. But I'll reiterate what Cynthia just said. We're conservative on just brand spend in general. We look at the growing share of wallet that BNPL is taking within the U.S. It's a little bit under 2% of total and 6% of e-com. So there's significant headwinds in just customer adoption there. So I would say we're kind of taking a very pragmatic approach given the shape of the business. One exciting thing I think you'll see us push into is we have a new brand campaign that just launched, but that's to accompany kind of the nondiscretionary everyday spend associated with pay-in-2 and my bills as we push deeper into the engagement model of that nondiscretionary everyday American spend. So that's where our focus will continue to be. Operator: And our next question comes from the line of Ware Kuo with Bank of America. Ware Kuo: Just one question from me. So for the U.S., you guys talked to 7% revenue take rate at the portfolio level. But if I'm just looking at the Pay-in-8 product, the fees on the Pay-in-8 product looked higher than, let's say, Pay-in-4. So I would have thought the revenue take rate on Pay-in-8 would be let's significantly higher. And then maybe if you can talk to just the net transaction margins on Pay-in-8 overall, taking into account the revenue take rate and the losses versus the Pay-in-4 product. Gordon Bell: Thanks, it's Gordon. I'll -- Joe can talk about some specifics. But you're right. 7% is the blended take rate. There's sort of a few ups and downs in that depending on when customers repay and so forth. So hence, why we guide to that number. And then in terms of the U.S., I guess, on a go-forward basis, again, we still see that as the best forecast going forward. Joe and team will obviously toggle with Pay-in-2 and the schedule on that as we start to see momentum in that product, just like they did with Pay-in-8 to make sure that we're balancing sort of those losses versus take rate versus NTM. So it's not static is what I would say. It does develop as the product seasons. Joe, do you want to give a little bit more color on that? That's probably the best way I can describe it. Joe Heck: No, I think you did a good job. I think the net out is we use the portfolio to attract and retain and engage our customer base. So it's important to us to have the flexibility across the quick everyday spends like groceries, pay-in-2, pay-in-4 really help with that. Pay-in-8 is a valuable tool for us in the longer duration, larger purchases, but not getting so far out with this customer base. But it continues to be something we manage very, very actively availability of each product to make sure that we're optimizing the spend. And I'll maybe point back to our users are now up to 11x per year with Zip and we continue to push that forward and having diversity of product options for our consumer is really important. Ware Kuo: Got it. And if I can just ask a quick follow-up question. I'm not sure if you can disclose this, but just wanted to know about the loss rates, the relationship between the different duration products. So let's say, pay-in-8 versus pay-in-4, would the losses be because you're lending it for double the duration, would the losses be, let's say, double for pay-in-4 and then half for paying 2? Is that how we think about it from a modeling perspective? Cynthia Scott: Well, yes. So we don't disclose losses at a product level, but we have given you what the AOV is and what the duration is. And as a general comment, yes, you will have higher losses on a pay-in-8 and lower losses on a pay-in-2. But beyond that, no, we don't give product level loss disclosures. Gordon Bell: I think the other piece I'd just add, is that spot on with Cynthia's comment is we -- I talk quite often about calibration. And I do it because one of the conversations that I know Joe is having these daily with his lending team, and he and I talk about it every week. It's that calibration between losses, growth, new customers that we're constantly toggling. And with the Pay-in-8 product, we've just got 1 year under our belt of seasoning. So it's quite hard to sort of pick specifics there. It's kind of an always-on management technique, and it will be the same for Pay-in-2. So it would probably be a little irresponsible for us to try and give you more specifics than that, maybe in years' times when these products are far more mature, we can. But right now, it's part of our sort of ongoing calibration. And unfortunately, that is all the time we have for questions today. I'll hand now the conference back to Ms. Scott for closing remarks. Cynthia Scott: Thank you. Look, I just want to say thanks, everyone, for joining us and for all of your questions. I know there's probably a few more questions, and we are probably going to see most of you in meetings over the next couple of weeks. But in the interim, if there's any specific questions you have, please feel free to contact Vivienne in the first instance. Thank you.
Operator: Good afternoon, and welcome, everyone, to the Omnicom Fourth Quarter and Full Year 2025 Earnings Call. Today's conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Greg Lundberg, Senior Vice President, Investor Relations. Please go ahead. Gregory Lundberg: Thank you for joining our fourth quarter and full year 2025 earnings call. With me today are John Wren, Chairman and Chief Executive Officer; and Phil Angelastro, Executive Vice President and Chief Financial Officer. On our website, omc.com, you will find a press release and a presentation covering the information that we'll be reviewing today. An archived webcast will be available when today's call concludes. Before we start, I would like to remind everyone to read the forward-looking statements and non-GAAP financial and other information that we've included at the end of our investor presentation. Certain of the statements made today may constitute forward-looking statements. These represent our present expectations and relevant factors that could cause actual results to differ materially are listed in our earnings materials and in our SEC filings, including our 2025 Form 10-K, which will be filed shortly. During the course of today's call, we will also discuss certain non-GAAP measures. You can find the reconciliation of these to the nearest comparable GAAP measures in the presentation materials. We will begin the call with an overview of our business from John, then Phil will review our financial results. And after our prepared remarks, we will open the line for your questions. I will now hand the call over to John. John Wren: Thank you, Greg, and good afternoon, everyone. Thank you for joining us today. It's been 11 weeks since we closed the acquisition of Interpublic, creating the world's leading marketing and sales company, and I'm extremely encouraged by the momentum we've seen in such a short period of time. Today, I'll start with the progress we have made to position the new Omnicom for sustained growth, and Phil will then cover our fourth quarter and full year 2025 results. Throughout our year-long approval process, our integration teams created detailed road maps for how we would come together. That preparation allowed us to move more decisively and with strategic clarity on day 1. We announced our new Connected Capabilities organization and leadership team, bringing together the exceptional capabilities and talent to address our clients' growth priorities. We reinforced our enterprise-level client strategy through a newly formed Growth & Solutions team to drive new business and expanded our Client Success Leaders group to grow our services to existing clients. We formed a combined platform organization and launched the next generation of Omni, integrating Acxiom's Real ID, Flywheel's Commerce Cloud and Omni's proprietary data as well as strengthening our talent and industry leadership in data identity and AI. And we began integrating our operations across real estate, IT, shared services and procurement, among others, which will result in significant operational improvements and cost efficiencies. Following the acquisition's close, we began simplifying and realigning our portfolio to position Omnicom for stronger, sustainable growth and profitability. Our core focus is to deliver integrated services, connecting media, creative content, commerce, consulting, data and technology. These Connected Capabilities underpinned by Omni bring together high-growth strategic services that drive business outcomes for our clients. As part of our portfolio realignment, we've identified certain smaller markets as well as operations that are not strategic to our business that we plan to sell or exit. We will move from a majority to a minority-owned position in these smaller markets, which represent approximately $700 million in annual revenue. These markets remain important to many of our clients. And through continuous ownership in these agencies, we will provide the same level of service we have in the past. We identified nonstrategic or underperforming operations with approximately $2.5 billion in annual revenue that we plan to sell or exit. We've already sold or exited some of these businesses, representing annual revenue exceeding $800 million. We expect to execute the remaining sales and exits over the next 12 months. Our retained portfolio of businesses generated revenue of $23.1 billion for the 12 months ended September 30, 2025. This portfolio positions Omnicom to drive stronger growth and deliver measurable business outcomes for our clients. Our integration planning enabled us to identify significantly greater synergies than we had initially communicated at the announcement of the IPG acquisition. We now expect our annual run rate synergies to double from our initial estimate of $750 million to $1.5 billion over the next 30 months. We expect to achieve $900 million of these savings in 2026. The key areas for these synergies are as follows: $1 billion from reductions in labor costs through the elimination of duplicative corporate network and operational functions, streamlining our regional country and brand structure and optimizing utilization by shifting to more unified resourcing model, including accelerating outsourcing and offshoring. Additionally, across every area of our business, we are evaluating and deploying automation and AI to improve how we service our clients and run our operations. $240 million of synergies related to real estate consolidation, and $260 million of synergies from G&A, IT, procurement and other operational savings. Finally, as part of our capital allocation strategy, our Board of Directors authorized a $5 billion share repurchase program. And today, we are launching a $2.5 billion accelerated share repurchase program. Phil will provide more color on this ASR program during his remarks. We will also continue our historical use of cash for dividends and acquisitions. In December, we announced an increase to our quarterly dividends to $0.80 per share. Our investments will focus on strategic tuck-in acquisitions and organic growth initiatives to maintain our leading positions in media, content, commerce, consulting, data and AI. As we do this, our capital structure is strong and our liquidity and balance sheet positions us to maintain our investment-grade credit rating. Our efforts across these areas are enabling us to move forward as a company with a clear mission to help our clients drive enterprise growth in this new era of marketing defined by data-led AI transformation. More than ever, we're seeing brands ask for an enterprise-level partner that can orchestrate their marketing investments across platforms and optimize performance across the entire consumer journey from engagement to sales. The new Omnicom delivers a 5 competitive advantage directly aligned to what our clients are asking for. We have the world's largest media ecosystem with unparalleled market leverage and intelligence, the deepest bench of award-winning creative talent that fuses human imagination with machine computing to deliver superior personalized content at scale. Connected commerce that transforms every consumer touch point into a driver of measurable sales growth for our clients; an enterprise transformation consultancy that can reengineer clients' marketing operations for speed, intelligence and growth; and a gold standard data and identity solution that gives brands an unparalleled privacy-first understanding of their consumers. Together, these advantages provide a competitive edge across every dimension of modern marketing and sales and will deliver strategic solutions that address our clients' most important growth priorities. As a nod to our strategic advantages, just yesterday, Forrester named Omnicom a leader in their Commerce Services Wave evaluation. Omnicom showed a significant lead versus the competition, proving that our advantage in connected commerce is differentiated by spanning demand and loyalty across physical stores, online marketplaces and direct-to-consumer experiences. The evaluation noted that clients praised Omnicom's ability to operate as a single agency, providing them with access to a large pool of highly qualified talent. Our strategic advantages are translating into client wins, which is the ultimate validation of what we're building. We've secured new business and extended contracts with leading brands such as American Express, Bayer, BBVA, BNY, Clarins, Mercedes and NatWest. These client wins as well as the significant progress we've made as a new organization in a few short weeks are a direct result of our people's unwavering focus, commitment and exceptional work during this pivotal period. I'm extremely grateful to them for their efforts. Overall, I'm very pleased with how we've executed as the new Omnicom. This momentum positions us for strong growth in the years ahead. I look forward to sharing more about our organization strategy and financial performance at our Investor Day on Thursday, March 12. With that, I will turn it over to Phil to walk through our quarterly and year-end financial results. Phil? Philip Angelastro: Thanks, John. Before reviewing our financial results, please note that our fourth quarter and full year 2025 amounts include Interpublic results for only the month of December 2025. Since John already covered the first few slides, let's now look at an overview of our fourth quarter income statement on Slide 7. The IPG acquisition closed just before Thanksgiving on November 26, 2025. Upon closing, and as John referred to, we immediately began the implementation of our strategic plan. We have separated the impact of several parts of the plan on this slide. We recorded severance and repositioning costs of $1.1 billion related to severance, real estate impairment charges and contract exits. We recorded a loss on planned dispositions of $543 million related to businesses that we are in the process of disposing that were recorded at their net realizable value. And we recorded acquisition-related costs of $187 million related to transaction and integration costs. Note that this does not include any potential gains on the sale of certain businesses in this group because we are not permitted to record gains on Omnicom assets until the transactions are completed. Additionally, any expected gains on the sale of IPG assets were included in the fair value adjustment recorded on the balance sheet at the closing date. Excluding these amounts, adjusted operating income or EBIT in Q4 was $876 million and adjusted EBITA was $929 million and a 16.8% margin, an increase of 10 basis points compared to last year. Net interest expense in the fourth quarter of 2025 increased primarily due to the IPG acquisition and the related exchange of IPG debt into Omnicom debt. Interest income increased slightly in the quarter. The tax rate on our non-GAAP adjusted Q4 pretax income was 25.8%, flat with the prior year non-GAAP adjusted tax rate of 26%. Our effective income tax rate on the reported operating loss was 12.7% compared to a more typical reported tax rate of 26.4% in the prior year. The lower tax rate this quarter reflects the impacts of the lower tax benefit associated with the charges I just discussed relating to severance, repositioning, the planned dispositions and the IPG acquisition-related costs, some of which are not deductible in certain jurisdictions. For planning purposes, we expect a similar tax rate of 26% for 2026. Non-GAAP adjusted net income per diluted share of $2.59 was based on weighted average shares outstanding of 233.8 million, which were up from last year due to shares issued for the IPG acquisition. Note, the additional shares issued for the acquisition were outstanding for 1 month. We closed out the year with 313.1 million shares outstanding as of December 31, 2025. Let's now move to revenue. Given the size of the acquisition of IPG and the scale of the implementation of our integration strategy across service lines, geographies and our operating platforms as well as our plans to reposition the business through disposing of certain parts of our portfolio, we have not included our usual organic revenue growth metrics in our slide deck. Had we calculated organic growth consistent with our prior practice, excluding planned dispositions and assets held for sale, organic growth in Q4 2025 would have been approximately 4%. Slides 8 and 9 show the breakdown of our revenue by discipline and by major markets. The primary driver of year-on-year growth resulted from the addition of IPG effective December 1. Foreign exchange changes increased our revenue in the quarter by approximately 2% and a little less than 1% for the year. We expect FX will continue to be positive in 2026 and assuming recent FX rates stay the same, will benefit our reported revenue for the year in excess of 2%. Regarding revenue by discipline, the Media business performed very well in Q4 as did the Experiential business. On the negative side, during the year, our PR business, excluding the acquisition, experienced negative growth due to the challenging prior year comps from national elections in the U.S. Additionally, although small, our Branding and Execution & Support disciplines continue to be challenged in the current environment. As John mentioned, we have moved quickly to integrate the IPG businesses into our Connected Capability organization through geographic and brand alignments. Given the scale of these integrations as well as our strategy to reposition the portfolio, we do not plan to include our historical organic growth metric slide in our 2026 quarterly presentations. With regards to the planned dispositions, approximately 40% of revenue to be disposed of relates to the Execution & Support and Experiential disciplines, and 25% relates to the Advertising group, which is included in the Media & Advertising discipline. The balance of planned dispositions is spread across the rest of our disciplines. Regarding revenue by region, our businesses in the U.S. had strong growth, led by Media as did our European markets and our businesses in the Middle East. Our businesses in France, the Netherlands and China struggled in Q4, and the Latin America market was strong. Slide 10 is our revenue weighted by industry sector. Given these numbers only include 1 month of IPG and our portfolios are very similar, the comparisons to prior periods only show differences of a point or so in a few categories. Now please turn to Slide 11 for our year-to-date free cash flow summary. The increase relative to last year was driven by the improvement in Omnicom's business over the course of the year and the addition of IPG in December 2025. Our free cash flow definition excludes changes in operating capital. However, our use of operating capital improved throughout the year, and we were positive for the full year. You'll note in the reconciliation on Slide 18 that the change in operating capital was a positive of approximately $700 million, a significant improvement in the change in operating capital of over $900 million from 2024. Approximately $170 million of that improvement resulted from Omnicom's businesses, excluding IPG. The balance reflected the timing of the IPG closing and positive working capital growth from IPG's businesses in the month of December 2025. For the year ended 2025, our primary uses of free cash flow included $550 million of cash paid for dividends to common shareholders, and another $83 million for dividends to noncontrolling interest shareholders. Dividend payments decreased due to an increase in share repurchases during the quarter. This excludes our recent 15% increase in the quarterly dividend to $0.80 per share, which was declared prior to the closing of the acquisition. Capital expenditures were $150 million, roughly in line with last year. Total net acquisition and disposition payments were actually a source of cash of $914 million. This included $1.1 billion of net cash received from the IPG acquisition, which was partially offset by acquisition-related payments of approximately $186 million, including $117 million in payments for acquisitions of additional noncontrolling interests and payments of contingent purchase price obligations on acquisitions completed in prior periods. Finally, our share repurchase activity for the year was $708 million, excluding proceeds from stock plans of $27 million. As of Q3 2025, we had repurchased 312 million of shares. And during Q4, we repurchased 396 million. Slide 12 is a summary of our credit, liquidity and debt maturities. At the end of Q4 2025, the book value of our outstanding debt was $9.1 billion. Legacy Omnicom debt was flat with last year, but we assumed approximately $3 billion of IPG debt. As you are aware, our $1.4 billion April 2026 notes are now classified as current on our balance sheet, and we will be addressing that maturity in the near term. As John mentioned, our Board approved a $5 billion share repurchase program, including a $2.5 billion accelerated share repurchase plan, which we initiated earlier today. We also plan to repurchase an additional $500 million to $1 billion of shares during the balance of 2026 as part of the share authorization program. As a result, we estimate the reduction to our shares outstanding compared to the balance of shares outstanding at December 31, 2025, of 313.1 million shares will decline by approximately 9% to 11% by the end of 2026. With weighted average shares outstanding for the year estimated to be reduced by approximately 7% to 8%. Net interest expense is expected to increase by approximately $210 million in 2026 compared to 2025. The change is primarily driven by higher interest expense, including approximately $125 million from the addition of IPG's long-term debt, including $14 million of noncash interest expense resulting from the fair value adjustment to IPG's debt recorded as a result of the acquisition. We are also estimating an increase of approximately $50 million to $55 million, resulting from the refinancing of our $1.4 billion bond, which has a book effective interest rate of 4.07% and which is due in mid-April, and incremental commercial paper borrowings related to our share buyback program, including the ASR. Together, these items are estimated to increase interest expense by approximately $175 million to $180 million. In addition, interest income on net cash balances is expected to decrease by approximately $30 million, primarily due to lower forecasted short-term interest rates on invested cash. In total, these factors result in a projected increase in net interest expense of approximately $210 million in 2026 compared to Omnicom's prior year 2025 actual amount of $167 million. Please note that the total and net leverage ratios for 2025 reflect the full assumption of IPG's debt, but only 1 month of IPG's EBITA. This results in distorted leverage ratios for the period when calculated directly from our reported financials. However, at December 31, 2025, we were in compliance with the leverage ratio covenant in our credit facility, which makes pro forma adjustments for the acquisition. Comparable calculation of our total debt to pro forma adjusted EBITDA would result in a total leverage ratio of 2.4x for the full year ended December 31, 2025. Lastly, our cash equivalents and short-term investments at the end of the year were $6.9 billion, up $2.5 billion from last year, largely due to the IPG acquisition and the strong performance managing working capital and cash we just discussed. Our liquidity also includes an undrawn $3.5 billion revolving credit facility, which backstops our $3 billion U.S. commercial paper program. Before I hand this call over to Q&A, I would like to take a moment to address a framework for how we plan to forecast for 2026. In the appendix on Slides 22 to 24, we present combined Omnicom and Interpublic income statement data based on each company's reported results for the last 12-month period ended September 30, 2025. These are the last 4 quarters in which both of us operated independently. We also use this combined methodology when we announced the transaction in December 2024. For the LTM September 30, 2025 period, combined revenue was $26.3 billion and combined adjusted EBITA was $4.1 billion. These 2 numbers are very close to published analyst consensus estimates prior to the IPG closing for fiscal year 2025 on a combined basis. Because the combined presentation doesn't reflect our planned dispositions, we've used the estimated disposition revenue amounts on Slide 3 to adjust the combined base, which we plan to use for forecasting 2026. The adjusted total EBITA margin for the businesses we plan to dispose of was approximately 10%. Given the IPG acquisition recently closed, we have not yet completed our 2026 planning process. As a result, we will provide additional details on our expectations regarding revenue growth and EBITA growth for 2026 at our Investor Day on March 12. In closing, we've accomplished a lot in the past year to position Omnicom for sustained future growth. As John said, we have great momentum across the company, including revenue initiatives and cost efficiency initiatives, and we are deploying these benefits through the share buyback program announced today. We understand that there is a lot of material to digest. We look forward to updating you on these topics and some new ones at our Investor Day on March 12. I will now ask the operator to please open the lines up for questions and answers. Thank you. Operator: [Operator Instructions] We'll take our first question from Steven Cahall at Wells Fargo. Steven Cahall: So it sounds like you're going to talk more about organic growth at the Investor Day in a few weeks. But John, you just -- you've done a ton of work around the operations and bringing the Connected Capability together. I think a much bigger percentage of the business is now Media, and it sounds like it's performing well. So I was wondering if you could give us any sense of what your expectations are in organic growth for the retained business this year? Or if that's a little too specific, maybe you could at least give us a sense of how you would expect the Media business to perform this year, and how big within the overall business that one is? And then, Phil, thanks for the color on the margins of the businesses that you are divesting. Is the right way to think about margins for this year that we back out those 10% margins that are being disposed of and then we kind of layer on the synergy targets, net of cost to achieve that you've given, and that's kind of the math that we need to do to think about margins for the next few years? John Wren: Thanks for your question, Steve. We'll certainly give you more color on March 12 to the extent that we're done completing our review of the combined companies and the detailed plans. If I was guessing, which I probably shouldn't do, I would think Media going forward will be, I would say, in the mid 50% of our revenue, which is a change. It increases that segment of our organization. But that needs to be finalized, which we were doing in the coming weeks. Advertising will be, again, the same type of caution, but less than -- slightly less than 20% of our total revenue. But as I said, we're working through those areas as we speak. We did get some very early profit plans, but we haven't had the time to go through and interrogate them the way we generally can before we have this call. So that's what we'll be doing in the coming weeks as we prepare for that. Philip Angelastro: Just to clarify, Steve, the Media reference, I think, includes what we would consider Media and related or connected to media. So that percentage probably includes Precision as well as Commerce, which is in our Precision Marketing category. So it's the connected media component of the business. With respect to the second question on margins for '26, certainly, as I said in my prepared remarks, we'll have some more detail and color on our expectations for '26 at the Investor Day. But I think your assumption is certainly a good one to start with, and then we'll get an update at the meeting in March. Operator: We'll go next to David Karnovsky at JPMorgan. David Karnovsky: John, I know it's early in the integration, but can you speak a bit more to what the reception has been so far to the combined company offering, both from existing clients and recent RFPs? And then for Phil, you mentioned a 4% organic figure for the fourth quarter. Can you just clarify what this specifically refers to? And for the assets identified for sale, exit or moving to minority, is this all going to assets held for sale immediately? Or does it get spaced out? And then can you say anything about what the kind of organic growth for some of these agents or what these agencies were in aggregate for what's moving? John Wren: I'd say in all the major markets that we operate in, there's been a lot of enthusiasm on the part of the groups that we've combined and the -- just the attitude and the optimism that is shared all the way down through our employee base about what position Omnicom now is in, what capabilities we have when we join these 2 groups together, and the resources that we'll have to pivot and change as to where necessary and making the correct investments to keep us in a leadership position. So across the board, it's far better than I fully expected, because I always anticipate that there'll be some negativity, but we haven't seen any of that, any particular place in the group. I'll leave the second question to Phil. Philip Angelastro: Sure. So I'll start with the businesses that we've identified as disposals and assets held for sale. So as you referred to, a portion of that and as was referred to in the slide and in John's prepared remarks, a portion of that relates to us intending to move from a majority position to a minority position in certain smaller markets around the world. Those businesses are solid businesses. They service some of our important clients in certain of those markets. But we're really taking that action more for simplicity of the organization and managing the organization than underperformance or the businesses are not strategic to where we're headed in the future. We just don't need to be in all markets with subsidiaries that come with a lot of compliance requirements and other things. So the organization, as a result, will become much more efficient, and we'll still be able to provide the quality service that we need to for our important global clients that might have operations in those markets where we go from majority to minority. The rest of the businesses that we've targeted for disposals and/or sales essentially are made up of either nonstrategic businesses or underperforming businesses. And as John had referred to, we've completed about -- we've completed dispositions of about $800 million of revenue to date. And certainly, we're committed to completing those transactions during the next 12 months. And we've made some good headway recently an Experiential business within the IPG portfolio, Jack Morton, that sale closed this week. So we've got a good head start on moving forward with the plans as far as assets held for sale go. And we'll give a little more color and a little more update at the Investor Day. As far as organic goes, what we did and what I referred to in my prepared remarks was we did the calculation consistent with how we've always done it with one exception. We excluded the organic growth related to those companies that we intend to dispose of and sell. And as a result of doing that, the calculation yielded a growth rate in the quarter of 4%. I'd say, certainly, because those businesses are either the bulk of the businesses are either nonstrategic or underperforming, the organic growth rate related to those businesses is likely lower than what we achieved on the businesses that we intend to invest in going forward for the quarter. But the businesses that are -- where we see the most opportunity, the growth opportunity and the investment opportunities, that's what yielded the 4%. Operator: We'll move next to Thomas Yeh at Morgan Stanley. Thomas Yeh: Just that was very helpful on the 4% organic growth explanation. Just to put a finer point on that, that also excludes the incoming assets in terms of IPG? Or is it pro forma for both of them? And if you could just add some color on where you're seeing the areas contributing to that acceleration in growth beyond the upward bias that is being seen from the dispositions, that would be very helpful. Philip Angelastro: If you could just repeat the second part of that, Thomas, that would be helpful. Thomas Yeh: Yes. Just in terms of the sequential acceleration beyond what you mentioned as the benefit associated with stripping out the planned dispositions, maybe talking about just particularly areas of strength in terms of media and advertising, like maybe talking about specific segments and contribution. Philip Angelastro: You want to take that one? John Wren: Well, the 1 month that we owned IPG was included in the calculation. We weren't permitted because we didn't own them in September and October. Otherwise, we'd have 12 months of IPG numbers. So it was 12 months of Omnicom, 1 month of IPG. So that's in what became the calculation. The $2.5 billion in companies that we had -- that have annual revenue were a combination of both Omnicom companies, but they were primarily, believe it or not, in terms of the revenue size, Omnicom companies. And so the calculation basically excluded the pros and the cons, the pluses and the minuses from that group of companies. And it turned out there are many things which would have contributed to a higher organic growth calculation and a few that would have taken it in the other direction. But it was nothing material in the aggregate. I don't know if you want to add anything, Phil? Philip Angelastro: Yes. No, I think that's accurate. In terms of the other areas where we're focused and where we see the business headed, certainly, it's in the more strategic areas of Media, Precision Marketing, Commerce, data, and the holistic platform organization, we think there's an awful lot of opportunities for growth in those areas and certainly incorporating our content solution and creative solution into that is a critical part of that solution. So those are the areas that we're certainly most interested in investing in, in addition to that, certainly bringing together the Healthcare businesses of both portfolios, we think, is going to be a very powerful selling opportunity for us going forward and a growth opportunity for us going forward. John Wren: You shouldn't lose sight of the fact that we didn't do this merger. It was an acquisition, but we treat it as a merger, looking at the short term. We were not looking to shut them at all. We're looking at strengthening those areas we think are going to be important to clients well into the future and going to contribute to our income and revenue growth. And so it's all full steam ahead, but nothing was done because we were worried about the calculation of this month or that month in any manner, shape or form. Hello? Operator: Jason, please go ahead. You have your mic muted. Jason Bazinet: Okay. I just had one quick -- oh, I do? Can you hear me? Operator: Yes, we can hear you. John Wren: Yes, we can hear you, Jason. Jason Bazinet: Okay. Great. I just had one clarifying question on the margins on the disposed businesses. Is that on the $2.5 billion? Or is that on the $3.2 billion? John Wren: It's -- Phil can answer that. I can. It's more or less on the $2.5 billion, I think... Philip Angelastro: Yes. John Wren: And the remaining assets, the ones we're planning to go to minority on, we're still going to collect a very healthy dividend of being a minority owner of those companies. Philip Angelastro: I think -- Jason, that the margin is -- it's the weighted margin from the entire group. So the $3.2 billion. I think in terms of the pieces, the larger group is probably a little lower than that average margin of 10%, and the majority of the minority group is probably higher than the average of 10%. Operator: We'll go next to Nicolas Langlet at BNP Paribas. Nicolas Langlet: Two questions for me, please. First, on the Omni platform. So you unveiled the next generation of Omni platform earlier this year. Could you share, first, the key feedback you have received from clients so far? Second, how the platform distinguish itself compared to peers and walled garden solutions? And three, whatever the platform is now considered complete or if additional building blocks are still required? And secondly, on the margin trajectory. So regarding the cost synergies benefits you expect, do you plan to redeploy a portion of the $1.5 billion cost synergies into growth initiatives? Or we should assume the majority will flow directly through [ 2029 ]. John Wren: I'll ask Paolo to answer the first question, and then we'll tell you how we're going to reinvest. Paolo Yuvienco: Sure. Nicolas. So with respect to the platform, so far, all of our clients are very excited about the capabilities that is currently available and the new capabilities that we'll be launching, which will incorporate the capabilities across various platforms, including our legacy Omni platform, the legacy IPG Interact platform, Flywheel Commerce Cloud, which has already been part of the legacy Omnicom ecosystem. And then, of course, the really exciting part, which is all of this being underpinned by Acxiom and the Acxiom ID (sic) [ Real ID ]. So the response from existing clients and potential new clients has been overwhelming, to be honest. And everyone is very excited to get their hands on the platform when we formally launch it at the end of Q1. But all of the existing capabilities that the combination of those platforms have today have been driving outcomes for our clients on both sides of the IPG and Omnicom organizations. Philip Angelastro: So the second question regarding margin trajectory, I think certainly, there's going to -- we expect a substantial portion of the '26 benefit to flow through during the calendar year '26, and we'll provide some additional detail at the Investor Day. And when we look out to the total for the 3 years, the expectation of the $1.5 billion of synergies, we're confident that we'll achieve those synergies in terms of achieving the cost reductions associated with them over that period of time. But 3 years is a long time. I think that there's certainly a number of initiatives that we're going to continue to pursue both on the cost front and on the revenue synergy and revenue growth front, and we've been pursuing those and planning for those pre-deal and have accelerated that now that the deal is closed. So it's hard to say exactly how much of that will be reinvested in the business. But certainly, a lot may change over that 3-year period in terms of what's happening in the market, what's happening with technology, what's happening in the industry, what's happening with our clients and what are they most focused on in the future. But certainly, we're going to continue to invest in our platforms and our businesses, and we do expect a substantial portion of the '26 benefit to flow through. And we do also expect to take the cost out in those out years of '27 and '28. And we'll talk a little bit more about it at the March 12 meeting. Operator: We'll go next to Michael Nathanson at MoffettNathanson. Michael Nathanson: I guess I have two quick ones for you, Phil. One is the $3.2 billion of disposals, did I get that right that half of the revenues are legacy OMC and half is legacy IPG? Is that the right way to think about it? Or did I mishear that? Philip Angelastro: I think there's certainly a mix. It's both businesses in our portfolio and in IPG's portfolio. In terms of the size of the revenue, as I indicated, there's about 40% of the businesses relate to the Execution & Support category. That includes the one Experiential business that was in IPG's portfolio that we've sold. The rest of that component is Omnicom businesses. And then I mentioned the Advertising businesses that are in that group as well, about 25% of the number. That's probably distributed across both Omnicom and IPG. And the rest of the businesses, I think when you look at them, there's probably -- maybe it's an equal amount, IPG and an equal amount Omnicom. I think we weren't necessarily focused on whether they were Omnicom business or IPG businesses. We are focused on the strategy ultimately where we wanted to invest and what businesses were underperforming and needed to -- we needed to exit from the portfolio longer term. So I think that gives you a little bit of perspective in terms of the numbers and the split, but it certainly wasn't a focus of ours to determine we're going to exit businesses in the IPG portfolio that we inherited or we're going to focus on reshaping the Omnicom portfolio. It's a combined business. And certainly, we were focused more on the businesses that we're keeping and the investments we were going to make and how we were going to provide for strategic growth going forward. That was first and foremost. Michael Nathanson: Okay. And my second one is just a housekeeping one. I appreciate Chart #4 in the deck; you give us all the revenue and disposals. Could you try to help us just to give us a range of what the last 12 months would be if it ended 12/31/25. So $23.1 billion is where you ended September, but you -- knowing what you know, can you give us a sense of what the range would be what the base would look like exiting '25, so we can help model '26? Philip Angelastro: Yes. That approximates what the base would be if we had full year numbers for both IPG and Omnicom. And as I indicated in my prepared remarks, that actually -- it's actually pretty close both in terms of revenue and EBIT -- and EBITA when you look at the consensus analyst estimates for calendar year 2025. So even though there is no published set of numbers for Omnicom only for 2025 and IPG for only 2025, those LTM numbers are very close to what analyst estimates were and to what the numbers we believe would have been, except they just haven't been published that way. I think there'll be a pro forma done in accordance with the pro forma rules in the 10-K, but the pro forma rules are pretty specific in particular. And you need to show the -- or make an estimate of what the acquisition would have been or what the impact would have been on our numbers had the acquisition been completed as of January 1, '24. But any and all of those ways, the numbers aren't very different than the combined numbers we've included in the back of this deck. And for our own internal planning purposes and forecasting purposes, that's the baseline that we believe is the most appropriate to use, and that's ultimately how we're going to be looking at the business. Operator: And we'll take our next question from Tom Nollen (sic) [ Tim Nollen ] at SSR. Timothy Nollen: I'm interested in the new corporate operating structure. If you could give a bit more color, please, around the decision to create the new divisions that you announced back at the close of the deal. So consolidating some of the creative agencies, keeping and I think all the media agencies separate production unit, PR unit, et cetera. Just maybe a little discussion around why you organize things that way. And then the Connected Capability that you're talking about, maybe talk a bit, please, about what that encompasses. I get that it takes the Omni capabilities, feeds it through the media planning buying operations, but does that also go into all the other Omnicom divisions that you've now laid out? John Wren: Sure. The structure that we concluded on largely was reflective of Omnicom structure prior to the transaction. The media companies, and I don't -- maybe you need to clarify for me, whether you're talking about the crafts or are you talking about the number of brands that we wound up with? Philip Angelastro: Yes. Let me just try and clarify one thing for you, Steve (sic) [ Tim ], based on the terminology. So the Connected Capability reference is essentially in the -- by the way, I know they called you Tom (sic) [ Tim ], but sorry about that. I just didn't -- I didn't want to forget. But anyway, the Connected Capability reference is really what we used to refer to as our practice areas and networks. So the IPG businesses were brought in and integrated into our Omnicom existing structure, as John had said. The Connected Capability terminology is what was new. We introduced that in the press release upon the closing of the deal. So certainly, the Media business and businesses were integrated into Omnicom Media Group and Omnicom Media Group runs their operation as one global group with multiple brands. The brands still exist, but they run the operations as one combined coordinated, integrated operation. And we brought the IPG businesses into those connected capabilities across each of our major disciplines. So Media, Omnicom Advertising, Precision Marketing, PR, Healthcare, et cetera. I'm not sure if that clarifies the structure for you, but that is how we kind of looked at it. I don't know if you want to add to that, John. John Wren: No, that's largely correct. I mean -- you just using Media as an example, where there were 6 brands before the deal, there remain 6 brands. The operations and investments that we make and the type of deals we can accomplish on behalf of our clients, those are done as one group. And then culturally, as you go across the different groups or 6 brands, you'll find differences, which allow us to attract the best and brightest talent into the groups where they'll best fit and be in the best position to service our clients. So the other area where there's probably the largest amount of change was in the Media -- I mean, excuse me, in the Advertising business, where we went in with 5 global network brands, and we decided that we would be best served by going forward with 3 brands. And there's name changes and some other changes in terms of management, but anyone that was contributing revenue prior to the deal and still contributing revenue is still working for us -- that just their business card say something different. I don't know if that helps clarify or not? Timothy Nollen: That helps. Both the explanations you gave is great. Operator: And we'll move next to Craig Huber at Huber Research Partners. Craig Huber: I got a few questions. I'll just do one at a time to make it easier. I'm looking at your Slide 5 here, where you've talked about going from $750 million to $1.5 billion synergies over 30 months or so. The $1 billion number that are labor related, can you touch on with AI out there, is that capability partly allowing you to take out more heads than you originally were planning? Maybe you can also touch on, is any of this labor-related stuff, the $1 billion that you're taking out? Is it people that are of any significance, people are directly related to the revenues of your company? Or are they all back-office stuff? Because in the past, you've said it wasn't going to be related to revenue-generating folks. That's my first question. John Wren: Yes. Go ahead. Philip Angelastro: I think the bulk of the labor-related synergies really relates to a number of things. AI is not necessarily the primary driver of how we looked at this. There were certainly some duplication of roles when you bring together 2 public companies, first off, a number of corporate roles, both at Omnicom and IPG. Unfortunately, we had to make some difficult decisions because you couldn't keep 2 of everything. So there were certainly some headcount reductions related to that. There's also some regional organizations and corporate organizations within the practice areas of Connected Capabilities that were also duplicate roles, which were certainly part of it. Going into the deal, we expected there would be those areas to focus on. But really, we didn't have a lot of data to do the due diligence on. And as we planned for the transaction and executed post close, senior management of both IPG and Omnicom were involved in making the decisions, as John has referred to several times, the goal was to select the best player for the role, not necessarily to have a bias towards only selecting Omnicom folks, and we think we've been successful in achieving that. But there are a number of other areas where we expect the labor synergies to come from, which are areas around nearshoring, offshoring outsourcing in the areas of facility management, shared services, technology, et cetera. There are a lot of opportunities certainly for efficiencies that we expect to achieve. We've started on a number of these paths prior to the deal, but certainly, coming together with IPG, we're accelerating those efforts in all those areas. And we've accomplished quite a bit to date, and we expect to continue to make progress in those areas over '26 and beyond. Craig Huber: And my second question on AI, John. In the past, you've talked about if your clients end up being able to get services from you guys, but less time involved because you're using AI out there to save time and money. In the past, you thought that clients most likely would take those savings and plow it back into marketing through your company, so the net-net, you would not be a loser of your company with AI out there. Is that still your position? John Wren: Yes. My position evolves every day as generative AI is evolving constantly. The initial -- and I'll ask Paolo to comment on this as well. What we're seeing today are efforts that we're testing with our clients, we're starting to utilize with certain other clients that are creating tools for our people, which enhances their ability to do their job. That's one category of people. There are other categories where we believe there are technologies or we're investing in them, which will allow us to eliminate certain positions that are done kind of manually today, but can be done in an automated fashion with generative AI. And as we build out agentic capabilities and are able to connect the processes with how we interface with clients' agentic databases and everything, that will result in further savings. And those are all things we're exploring at the moment. Paolo is living this day-to-day, so I'll ask him to add to my comments and what he's saying. Paolo Yuvienco: Sure. Craig. So look, I know the narrative is always about how do we do the same with less. But the reality is, is that what AI and generative AI is allowing us to do is to do more than we've ever been able to do. And more importantly, it's allowing us to do things that we haven't been able to do in the past. So just to give you some specifics around this, historically, creative teams would typically put 2 to 3 different concepts in front of our clients for a specific campaign. The reason is because it takes time, and it takes a lot of effort to actually bring those concepts to life. Today, with the use of the tools that John is talking about with the agentic capabilities that we put in place, our teams can now test 20 concepts, can test 50 concepts. More importantly is that they can test them synthetically so that we can understand what the impact and value of that work could be, we can predict that before we even spend a single dollar on media. So we have a good sense and confidence level of what the outcome will be with the things that we're putting in front of consumers. So I think the ability to do more and the ability to do more with a higher degree of confidence is really what's driving kind of the whole generative AI institution around us. It's not necessarily about how do we reduce the number of people around this. It's really about increasing the impact and output that we're driving for our clients. John Wren: The other thing I'd add to that, Craig, is we're embracing this. every employee, every group within the company, we're not looking at this as a threat to our jobs, but embracing it as how we're going to be able to create a better product. Craig Huber: But John, is it too early to know if you do things more efficiently for the benefit of the client here, those dollar savings here, is your position still you think your clients will plow that money back into marketing, et cetera, services through your company, so you won't be a net loser. That's what I'm trying to get to here. John Wren: Yes. No, I can understand that is a conclusion where you can see that is happening. There will be other clients that we're able to negotiate with as to performance goals and the methodology in which our work gets judged and rewarded will change. And if our ideas generate lots of money, we'll be expecting to get paid for that as well. With all the hype and everything that's out there, and it will continue for a good long time. But you gave everybody in the world the same tools. What differentiates one group from another group. It's that intellectual creative capability and the ability to source on a global basis, those most likely to be influenced to buy your product, right? And what is going to be needed, what's going to motivate them to buy. We have all those tools, and we have them at such a scale that it's going to be very difficult for many competitors to catch up at this point for a good long while. So just think about it, everybody is doing your job and everybody you listen to on the phone call today and what's going to differentiate one of you from the next one of you. And that's why we're embracing it because we know how good we are, and we know how deep our capabilities and skills go. And that's why I think we'll be a winner in all of this. Operator: And that concludes today's question-and-answer session and today's conference call. Thank you for your participation. You may now disconnect.
Operator: Thank you for standing by, and welcome to the Medical Developments International FY '26 Half Year Results. [Operator Instructions] I would now like to turn the conference over to Mr. Brent MacGregor, CEO. Please go ahead. Brent MacGregor: Thanks very much, and good morning, everybody. I want to welcome you to today's investor briefing for our FY '26 half year results. I am Brent MacGregor, I'm the CEO, and I'm joined today by Anita James, our Chief Financial Officer. So today, I'm going to share with you an overview of our results and the company's key achievements in the half year, and I'll take you through the drivers of our future growth. Anita will then speak to the financials in more detail, after which I'll give you some closing remarks. And of course, there'll be plenty of time for questions at the end of the presentation. So on that note, let's go to Slide 3. Thank you very much. So starting here, these are our key messages. So the results we have released today really illustrate the progress we are making on our strategy. Now having put the business on a sound financial footing in FY '25, our key priorities in FY '26 -- our key priority in FY '26 has been accelerating Penthrox's volume growth. And I'll come to that. So overall, our financial performance in the period was improved. Now if you take out foreign exchange movements, underlying earnings in our first half were stronger, and we're pleased to report positive operating cash flow for the period. It's a great result that reflects the margin improvements we've been implementing over the last 18 months and a stronger underlying performance for our Pain Management business. Now we progressed important initiatives that will support delivery of our future growth ambitions, and this includes progressing approvals for the pediatric label in Europe and some great initiatives related to data generation and real-world evidence to differentiate Penthrox from the standard of care. And our measure of progress is ultimately the demand for Penthrox. And on this, it has been encouraging to see volume growth in all of our regions. Now moving to Slide 4. Here we have our headline results for the period. So as you can see, group revenue was up 8%. Pain Management specifically delivered strong growth with revenues up 18%. Now with our Respiratory business, that's performed below expectation with revenues down 10%. And this has been driven mostly by soft demand in the U.S., where the market conditions have been particularly challenging. Now when you look at EBIT and NPAT, they were slightly down on the prior period. However, last year's results did benefit from significant unrealized foreign exchange gains. So if you exclude those FX movements, EBIT and NPAT were both improved by $0.5 million in the period. But a particular note is operating cash flow, which was improved by $1 million with positive cash flow delivered in the period. So moving now to Slide 5. These are our FY '26 priorities. You've seen these before. So as I mentioned already, our key priority in FY '26 and beyond is to accelerate volume growth for Penthrox while continuing to improve our margins. And on this slide, we want to share the key initiatives we're undertaking this year to support this long-term growth. So in our Pain Management segment, the growth will require us to continue driving behavioral change and to embed Penthrox as a standard of care, particularly in that hospital ED setting. Now we have several initiatives to drive an acceleration in Penthrox adoption. Now first, and you've heard it before, we will leverage the MAGPIE study data, that's the pediatric study that supports our partners in the launch of that pediatric label following all the approvals. Second, we'll generate real-world evidence that demonstrates the benefit of Penthrox from a patient and a health care provider experience perspective, but also from an efficiency perspective. And this growing bank of evidence will be critical to influencing behavioral change and product adoption. Third, we will expand commercial and medical investment overall to support these initiatives. Now enhancing our margins also remains a key priority, and I'll take you through some of the progress we have made in relation to these priorities in the coming slides. Now lastly here, our third priority is about growing share in the U.S. Spacer market. Now on this, we have clearly had some challenges, as I already mentioned. Now we expect the soft demand conditions experienced in our first half to persist in the near term. That evolving tariff regime in the U.S. also brings an added challenge, and we're going to have to, and we will continue to navigate the uncertain conditions with caution and with discipline, as we've been doing thus far. So let's move to Slide 6. And Slide 6 includes the progress we've been made -- we've made on several important initiatives that will support acceleration of Penthrox penetration in the future. Now firstly, once again, the MAGPIE study and the launch of a pediatric label in Europe. Now during this period, the first half of this fiscal year, the MAGPIE pediatric study was published. Now this is an important recognition of the outcomes of the study and of the application of Penthrox to children. It enhances the clinical evidence we already have and it supports pediatric positioning where approved. Now on the regulatory front, we are nearing the final steps in having Penthrox approved for use in children aged 6 years and over in Europe. As you'll recall, Penthrox currently approved for use in adults only, 18-plus. But just last week, we received a device approval, and we expect all final country-level approvals by August. We already have some country-level approvals. The August is -- the expectation is our largest market, the U.K. As I said, but for most countries, the launch plans are already well advanced and waiting for those final approvals to be in hand. Now the extension of the indication will broaden the addressable market for Penthrox, and it also addresses the barrier to entry in select ambulance trusts in the U.K. It is an important milestone that will underpin future growth for the product. Now the second area of focus for us has been on evidence generation. We spoke about this with the last raise that was in July of 2024. Improved data and real-world evidence supports differentiation of Penthrox versus the standard of care and will help drive clinical adoption. Now we have completed a health economic study that provided further evidence that Penthrox used in hospital emergency departments enables whole of department costs and operational savings. And we expect this study to be published by the end of FY '26. In addition to all of that, we're supporting several studies that will provide real-world evidence of the benefits of Penthrox in the emergency department setting. Now even though these studies are going to be generated in Australia, the outcomes of these studies will also support growth in other global markets and certainly with all of our partners around the world. Finally, we've also increased on-the-ground efforts of our medical and our commercial teams. This includes targeted medical and commercial initiatives to expand formulary access, to support protocol inclusion, and to strengthen clinical engagement across the hospital segment. Now as examples of this engagement, our team has represented the company and Penthrox at important scientific congresses, including the Australasian College of Emergency Medicine, the Council of Ambulance Authorities and the Australian College of Nurse Practitioners. Now speaking of nurse practitioners, a highlight in the period was the extension of Penthrox PBS prescriber bag eligibility to nurse practitioners in Australia. And this is going to enable an important health care professional group to have expanded access to the product. Now we recognize the changing long-held behaviors in favor of a well-regarded product like Penthrox takes time and a targeted effort, but I'm encouraged by the progress we're making. Now moving to Slide 7. A critical strategic pillar for us has been to establish a sustainable margin structure. Our target has been to achieve margins that fully reflect the value proposition of Penthrox in all markets and to operate with strong cost discipline. We made great strides in FY '25 and delivered materially improved margins and cost structures. Our work has continued on this front. In July of last year, we increased Penthrox pricing in Australia to customers that had not received a price increase in FY '25. This represented around 25% of our Australian volume. So all of our customers in Australia have moved to the new pricing, and this pricing is aligned with PBS pricing. And as a result of all of this, we should see a margin improvement of around $1 million in FY '26. Now in other markets, we will continue to implement pricing strategies that enable routine pass-through of inflationary movements as those opportunities arise. Now switching to Europe, we successfully transitioned supply in France and in Switzerland to partners. So we have Ethypharm in France and Labatec in Switzerland, and they've been making good early progress in growing Penthrox in those markets. Now while our margins in these countries are now lower, we have to share it with them, the transition is enabling us to reduce our cost to serve and is expected to accelerate product penetration over time. Our new partners bring greater market access and deeper customer relationships. And with stronger long-term volume outcomes now possible, we expect the financial impact of the operating model change to be positive over time. So okay, at this point, let me hand over to Anita, and she's going to walk you through our financial results for the first half in more detail. Anita? Anita James: Thank you, Brent, and good morning, everyone. Today's results reflect the good progress we are making in growing Penthrox and the financial discipline we continue to apply. Notwithstanding the challenges of our Respiratory segment in the half, our group results illustrate underlying improvement. At the top line, we delivered 8% growth. Pain Management was up 18%, mitigating the impact of lower revenues in the Respiratory segment, which was down 10%. EBITDA, EBIT and NPAT were slightly down on the prior year. But if we exclude the impact of foreign exchange movements, all were improved. Moving to Slide 10 and our Pain Management segment. Revenue for this segment was up 18% with higher volumes and improved pricing in Australia. In Europe, sales volumes were higher, driven by growth in underlying demand and inventory stocking of our new partner, Ethypharm. Underlying demand in Europe was up 10%, including growth in the U.K. and Ireland of 8%, growth in France of 10% and growth in the Nordic region of 16%. Average transfer prices in Europe were lower, as expected, following the transition to partner supply in France and Switzerland. Revenue for the region as a result was flat versus the prior year. In Australia, revenue was up 18%. Volume was stronger, up 9%, driven by growth in the Australian hospital segment of 26% and timing of sales into the Ambulance segment. Average selling prices in Australia were improved with the pass-through of the FY '25 PBS pricing to the remainder of the market. Revenue in our Rest of World markets was up strongly, driven by growth in underlying demand and the benefit of order timing. Overall, a very encouraging result. Our Respiratory segment on Slide 14 had a challenging half. Revenues in Australia and other markets outside the U.S. were generally in line with the prior year. However, demand in the U.S. was soft, delivering revenues here that were down 16%. Overall segment revenues were down 10%. We continue to watch this market closely and have been adjusting our costs and our stock levels to align with demand. Moving now to Slide 12 and the key changes to underlying EBIT in the half. It is encouraging to see the benefit of earnings to earnings of improved Penthrox volumes and pricing. Higher volumes in the Pain Management segment more than offset the impact of softer volumes in Respiratory with net earnings benefits in the period of $1 million. Higher average Penthrox pricing, mostly in Australia, delivered a $700,000 benefit to earnings. As expected, the transition to partner supply in France and Switzerland had a $600,000 impact to earnings. The earnings benefit of this transition will be realized in future periods as we reduce our cost to serve and our partners accelerate volume growth. Other changes, including higher spend on medical and commercial activities to progress strategy and inflationary impacts, reduced earnings by $500,000 and foreign exchange rate movements had a $1.1 million impact. Excluding exchange rate impacts in both periods, earnings were improved. Moving now to Slide 13 and cash flow. We have made material improvements to our cash flow over the last 18 months. And in the half, we were very pleased to report positive operating cash flows. Operating cash flow improved to $300,000, an improvement on the prior year of $1 million. Working capital management has been tight despite the challenges that uncertain demand in our U.S. respiratory business has created. CapEx was slightly lower and free cash flow was improved. Cash at the end of the period was $16.9 million with plenty of capacity to support our growth strategy. That concludes my comments on the financials. I will now hand over to Brent to close. Brent MacGregor: Thanks, Anita. So just moving to the final slide of our presentation. So in conclusion, we're encouraged by the momentum we've generated in the delivery of our strategy. In short, we've made good progress in our first half. Hopefully, we're able to demonstrate that in the slide deck. Penthrox volumes are stronger. Our financials are improved, and our balance sheet continues to remain strong. We're progressing several important initiatives that lay the foundation for stronger growth in future periods. So in terms of our second half, we expect to do a few things. We expect to finalize the approvals for the pediatric indication in Europe and to support that new label launch. More broadly, we'll continue to execute targeted medical and commercial initiatives to expand formulary access to support protocol inclusions and to strengthen that clinical engagement across the hospital segment. Now in terms of earnings, as mentioned, seasonally softer demand conditions in the Respiratory segment are expected to result in earnings that are lower in the second half of FY '26 compared to the first half. So that's our story overall for the first half. I want to thank you all for coming on the call today. And now let's open the floor for questions. Operator: [Operator Instructions] The first question that we have on the webcast, please comment on the early successes, including unit growth or otherwise from your partner in France? Brent MacGregor: Yes, we're encouraged. The French partner, Ethypharm, they did their training. They put their people into the field in September. So they were -- by September, October, the 16 people in the field were fully engaged. We've seen volume up versus the prior corresponding period by 10%. So we're encouraged by that, even though it's still early days. The medicines approval for the pediatric indication has been received by the French authorities already. So we're hopeful to see continuing growth through the second half of the year. But we're happy with the first half performance of Ethypharm. Operator: Our next question, what prepositioning sales is being done by your distributors to assist the introduction of Penthrox across ambulance services when pediatric use is approved? Brent MacGregor: I'm sorry, I couldn't quite capture all of that question. Could you Anita? Anita James: In pediatric use, what are our partners doing, Brent, in preparation for the pediatric launch? Brent MacGregor: Okay. All right. Sorry. Yes, we've had calls with -- our biggest partner is Galen. Galen is, as you may recall, is U.K., Ireland and the Nordic region. And so we had calls just in the last 2 weeks with them. They were sharing with us a whole range of activities on which they are ready to go, collateral involving their sales force, interactions they've already had with ambulance services. They've had them for some time. Now they need to be careful, of course, because you can't be speaking off label, what they can be doing. What they have been doing is informing the different ambulance trust -- I'm speaking of the U.K. now in particular -- informing the ambulance trust of the progress of the approvals. As I said, in the U.K., in particular, which is our second biggest market after the home market, it's going to take a few more months, as it always does with the regulator MHRA, but the device approval is in hand. We informed our partners of that yesterday. They have a whole range of activities planned. They have all the collateral ready, all the pieces ready to arm their sales force, and they've already trained their sales force. So they are just waiting now for the medicines approval. And in those countries that are waiting for the -- that have the medicines approval, they were waiting for the devices approval. There's a few additional administrative steps, but we're quite encouraged of all the content, all the training that's been done, all the preliminary interactions they've had -- our partners have had with key customers, again, speaking of the U.K. in particular, but also in the Nordic region. And we feel quite confident the start of pistol goes off and our partners are ready to promote that broadened label. I hope that answers the question. Operator: Our next question. We had strong Penthrox unit growth in ROW. The balance sheet suggests that there was no big jump trade receivable at December 31st. So can we assume that most of the cash had been received for the ROW shipments? Anita James: I'll take that, Brent. ROW, that is rest of world, that's our rest of world markets, a few moving parts there. And yes, I think it's reasonable to assume a good portion of that will have been received in the half. We also had timing with that order shipment to France in terms of inventory stocking for Ethypharm, that will have been paid in the half as well. But equally, there will have been some shipments that have probably gone in November and December that will probably receive cash flow in the second half. But certainly, there's been benefits of that rest of world invoicing in the first half. Operator: Our next question. Can you explain why gross margins are lower today than they were in 2015, given today's much higher volumes and the introduction of continuous flow manufacturing? Brent MacGregor: Lower than... Anita James: I'll take that Brent. Brent MacGregor: Yes, lower today than 2015. Go ahead. Anita James: Firstly, I'm not sure we necessarily report gross margins, and I'm not sure back in 2015 what those gross margins may have been. But I think fundamentally, the makeup of the business is quite different today than what it was in 2015. If you go back in time, the business had arrangements with partners where they would receive upfront milestones. They were accounted for through amortization in the P&L. So very difficult when you're looking at revenue there relative to the cost because a lot of those revenues effectively have no cost because they were amortization of something received in prior periods. The business is much bigger than it was today. Its portfolio is different in terms of the products that it has. We've exited the vet business. So it's very difficult to compare today to 2015, but certainly happy to take that question offline, and we can dig into that a little bit more in detail. Operator: Next question is for Anita. Just to be constant currency EBITDA is around $0.8 million versus $0.2 million on PCP. Is that the right math? Could you give us a thought on 2H FX impact? Anita James: Yes, that's about the right math. I think if you look at the specific unrealized -- without worrying about impacts across the P&L in terms of currency, the currency movements I referred to were specifically around the gains and losses reported in the P&L on our monetary items. And looking at that math, EBIT last year adjusted was around $0.5 million loss versus this year, which is breakeven. In terms of the second half, well, that's anyone's guess really, certainly, the Aussie dollar has strengthened versus where it was for the same period last year, really getting us back to similar positions of where we were before the end of the first half of last year. There's a lot going on in the world that probably will have an impact on that. In terms of our outlook, we're assuming that FX rates from here are stable and therefore, no material gains or losses generated from where we are effectively in December, January. Operator: The next question is for Brent. Can you please take us through the steps in the process between getting the approvals in August all the way until you get the device to the patient in those geographies with some indicative time lines? Brent MacGregor: Yes, sure. So, yes, it's a convoluted process. I realize it's the nature of a regulatory environment in health care, but I'll walk you through the -- from last August until where we are today. So last August, the reference body, which is the HPRA, which is in Ireland, it granted its approval. And what that did was it triggered all the other regulatory agencies in the markets where we are registered in Europe to begin doing its own review. And in some cases, those regulatory agencies conducted that review quickly. For example, ASMR in France, I think the medicines approval for them came nearly days after HPRA's approval. Other regulatory authorities, whether they be across the Nordic region, Switzerland, Ireland, well, HPRA approved as a reference and then approved as well for their own home market, Ireland. Those medicine approvals took a little bit longer. As we stand here today on the medicines front -- we'll talk about devices in a second. As we sit here today on the medicines front, the only 3 markets that remain to approve the enhanced label are the U.K., as I mentioned, our most important market, plus Czechia and Slovakia. Now on the devices front, because that required approval too by a notified body, in this case, the DQS, that process began late last year, and that's what's been just received. So that's been the rate-limiting step in those markets that already have granted a medicines approval. So in those markets -- and as I said, it's all the markets, except for U.K., Czechia and Slovakia. For those markets, we are now close to being done. So now in terms of what are the next steps from this point, the next steps from this point are -- for the regulatory agencies, for the summary of product characteristics which is required to be updated, that needs to be uploaded on to the website of regulatory authorities. That take -- these are administrative steps now. They will take whatever amount of time they take. You may ask, okay, what amount of time? Anywhere from a couple of days to 2 or 3 weeks. It's hard for us to know. But that's the step we're at right now with all the markets, except for U.K., Czech, Slovakia. And so to the question, where do we -- where does it go from there? Once those updates are done and the enhanced label is now official, that's where the teams that I mentioned, our partners' teams go out into the field, they go the day of, and they are in a position at that very moment to begin promoting Penthrox much more broadly than they had the day before. And so that is all to say that ideally, within a few short weeks from now, maybe even before the end of this month, but again, I'm speculating, within a few short weeks from now, those sales forces, those commercial and medical entities in the markets that have already approved the medicine, given the medicines approval, they'll be out there. And as I mentioned in answering the previous question, what we're encouraged by, the partners are all ready. All the work is done, all the approvals have been received, all the revised collateral has been prepared and they are ready to go. So what remains and why -- I'll give one last comment and answer the question. What remains and what you heard earlier in the slide deck, when -- I think I made a comment around by the end of August of this year, all the approvals should be in hand. That's for the most part speaking about the U.K., which is the biggest market. So it's not -- it's far from inconsequential. It's very consequential. But that's why I said August. But all these other approvals, all these other markets, those efforts should be commencing forth with -- within a couple of weeks right now. Operator: Next question. You've stated in the presentation that costs remain controlled. However, comparing the Q2 quarterlies this year and PCP, your product manufacturing and staff costs are increasing exponentially, with these costs significantly up over PCP. What steps are being undertaken moving forward to achieve best-in-class manufacturing, staff costs, so pricing is not the only lever available to you to achieve revenue growth? Anita James: Yes. Thanks. I'll answer this question initially, Brent. No, that's a great question and draws us to an important point that is really important to understand, is that the quarterlies and what is reported in the quarterlies is cash, is cash flow. And that will be impacted in any particular quarter by our investment in working capital. So what will come through in those quarterlies, in the manufacturing costs particularly, will be purchases for raw materials to supply our customers. There was a previous question earlier around rest of world markets and the timing of sales. Some of our customers might only buy from us once a year or once, twice a year. And so our working capital movements are actually a little lumpy as we prepare for getting product available for those customers and those shipments. And depending on the timing of that, that will move from quarter-to-quarter. So it is a little misleading to look at Q2, for example, of this year against Q2 of last year and use that as a guidepost to say things are either better or worse. Cash at the end of the day is king. And so looking at cash improving over time is absolutely the right measure to look at. And that's why we're particularly pleased about the results in the half with operating cash flow actually improved on last year. Probably a better thing to understand, I think the issue that you're getting at is, in fact, the earnings in the P&L in the half year accounts. And if you look at the half year accounts for something like employee costs as an example, it will be up, and it will be up mostly because of inflation and because we've put on 2 headcount specifically associated with our delivering strategy, particularly around commercial and medical activities. But we are being very controlled on headcount. We're being very controlled elsewhere in the organization, with a focus very much about progressing strategy. Ultimately, the greatest efficiencies we can get will come from improved volumes, and on that, when you look at employee costs, we're actually starting to see some of those efficiencies come through now. So effectively, we're manufacturing more volume. Our volumes are up, and the cost of the people involved in doing that manufacturing process, as an example, has been held strong. Sorry, just one other point to make on the manufacturing costs in the half, when you look at the P&L, they will be up because our volumes are up. And so you look, particularly in the Penthrox business, volumes are up quite strongly in most regions. And so our raw material costs as a result will be up. So absolutely, efficiency, reducing our cost and our unit cost is absolutely a focus. And whilst we can't see step change improvements this year, they are certainly there, and that certainly remains a key strategic focus for us. Operator: The next question, what do you believe is driving the disconnect in the market value of the company and the future strategy you have communicated given the share price is at best stagnant or in reality significant decline, whilst the ASX is at or near record highs? Brent MacGregor: Yes. It's a difficult one for us. It's one we grapple with even as -- our primary focus on the day-to-day is on our operations and growing our business, which we're doing. Yes, it's not lost on us that even our quarterly cash reports, which we believe are showing good progress towards the strategy that we're pursuing, is not translating into share price increase. So what we see is it goes up for a period of time and then absent anything in particular, it goes back down. I know that -- we understand that the market perhaps in the past couple of years had anticipated a higher growth rate than has been generated. We've learned a lot about the growth and the challenge of bringing a product that works so well, like Penthrox, into those segments. But we are we are very committed to the strategic approach that we're taking, and we're very pleased with the achievements we made on executing those strategies into the ED, continue to grow volumes, getting the pediatric indication, which was years in the making, and we're on the doorstep of doing it. We realize it hasn't shown through in our share price yet. We are hopeful that as we continue to communicate as we're doing today and the confidence we feel in what we're doing and in the organization that we've sized to the aspiration that we have, we're hopeful that the market will respond accordingly and in a positive way to this news and to the progress we're making. Operator: There are no further questions at this time. I'll now hand back to Mr. MacGregor for closing remarks. Brent MacGregor: Okay. First and foremost, thank you to all of you for coming on the call today, and thank you, in particular, for the questions that you asked. We're very open to hearing from you. And even if there's a question or questions you have for us after this call, we do hope you won't hesitate to send them through, and we promise we'll respond to them. On that note, I want to thank you again for being on the call. I hope the messaging we were trying to convey came through. And we're pleased with the performance of the first half and looking forward to continuing to drive our strategy forward in the second half and beyond. Thank you all. Have a good rest of the day. Operator: That does conclude our conference for today. Thank you for participating. You may now disconnect.
Operator: Good day, everyone. My name is Megan, and I will be your conference operator today. At this time, I would like to welcome you to the eBay Fourth Quarter 2025 Earnings Call. [Operator Instructions]. At this time, I would like to turn the call over to John Egbert, Vice President of Investor Relations. John Egbert: Good afternoon. Thank you all for joining us for eBay's Fourth Quarter 2025 Earnings Conference Call. Joining me today on the call are Jamie Iannone, our Chief Executive Officer; and Peggy Alford, our Chief Financial Officer. We're providing a slide presentation to accompany our commentary during the call which is available through the Investor Relations section of the eBay website at investors.ebayinc.com. Before we begin, I'll remind you that during this conference call, we may discuss certain non-GAAP measures related to our performance. You can find the reconciliation of these measures to the nearest comparable GAAP measures in our accompanying slide presentation. Additionally, all growth rates noted in our prepared remarks will reflect organic FX-neutral year-over-year comparisons, and all earnings per share amounts reflect earnings per diluted share unless indicated otherwise. During this conference call, management will make forward-looking statements, including, without limitation, statements regarding our future performance and expected financial results. These forward-looking statements involve known and unknown risks and uncertainties. Our actual results may differ materially from our forecast for a variety of reasons. You can find more information about risks, uncertainties and other factors that could affect our operating results in our most recent periodic reports on Form 10-K, Form 10-Q and our earnings release from earlier today. You should not rely on any forward-looking statements. All information in this presentation is as of February 18, 2026. We do not intend and undertake no duty to update this information. With that, I'll turn the call over to Jamie. Jamie Iannone: Thanks, John. Good afternoon, and thank you for joining us today. We finished 2025 with incredible momentum as we delivered Q4 results that meaningfully exceeded our expectations. Before I get into the details of the quarter, I'll start with some highlights for the full year. Gross merchandise volume grew by nearly 6% to approximately $80 billion globally in 2025, and while U.S. GMV grew by nearly 10%. Importantly, our growth was broad-based across all of our most established strategic priorities. First, focus category GMV growth accelerated over 12%. In addition, multiple years of investment in our consumer-to-consumer or C2C experience have reduced transactional friction and reinvigorated growth in this segment which makes up roughly 1/4 of our total GMV. Alongside these efforts, we've made significant investments in accelerating re-commerce on eBay, which we define as the sale of preowned and refurbished goods. We've invested in full funnel marketing to drive awareness and consideration of eBay for consumers shopping pre-loved. Innovations like magical listings have unlocked consumers closets, basements and garages to increase the supply of preowned goods on eBay. We have also introduced direct recommerce collaborations with iconic brands and strategically expanded inventory in key areas like certified recycled auto parts. This work has fueled the circular economy. And as a result, recommerce made up over 40% of GMV on the eBay platform in 2025. In aggregate, these strategic priorities, focus categories, C2C and recommerce comprised approximately 2/3 of our business in 2025 or more than $50 billion of unique GMV. This GMV grew by approximately 10% and accelerated throughout the course of the year, reinforcing the broad-based impact of our strategy on overall GMV growth. We saw equally compelling results on monetization front as we continue to scale our suite of eBay services. Revenue increased by nearly 7% to $11.1 billion, outpacing GMV by over 1 point, primarily driven by growth in advertising, which reached approximately $2 billion in annual revenue. We expanded our financial services footprint, driving incremental GMV through improved risk modeling and flexible payment options like Klarna, while working with partners to deploy working capital to trusted sellers. We also scaled managed shipping in the U.K. and accelerated our product road map for cross-border solutions to help our sellers navigate new tariffs and trade policy changes. Our top line outperformance throughout 2025 enabled us to accelerate investments in areas like eBay Live, vehicles and full funnel marketing to support key categories and geographies. We balance these investments in strategic growth vectors with operational discipline, which enabled us to grow non-GAAP operating income by roughly 7% to nearly $3.1 billion. Lastly, we created significant shareholder value by growing non-GAAP earnings per share by 13% to $5.52 while returning approximately $3 billion of capital to shareholders through repurchases and dividends. These results meaningfully outperformed our expectations entering the year, highlighting our ability to navigate a dynamic macro environment and an increasingly complex global trade landscape. We also shared some exciting news today alongside our fourth quarter results. EBay has entered into a definitive agreement to acquire Depop for approximately $1.2 billion in cash. This acquisition further strengthens our C2C value proposition, augmenting our organic momentum with a leading circular fashion marketplace that brings complementary strengths and demographic reach. I'll share more on this transaction shortly, and Peggy will discuss some of the financial details and forward-looking implications. But first, I'll discuss the key drivers of our strong Q4 performance. The collectibles category had another standout quarter and was the largest contributor to GMV growth in Q4, driven by continued strength in trading cards, growing contributions from our off-platform marketplaces, TCGplayer and Goldin and a notable acceleration in other subcategories like bullion and collectible coins amid unique demand for precious metals in recent months. Within trading cards, we continue to leverage AI to extend our industry-leading value proposition. In Q4, we launched early access to a new AI-powered card scanning experience powered by a set of proprietary models trained on over 40 million card samples. Now users can scan a single photo to instantly detect their exact card in parallel, while also servicing historical prices, PSA population data and other valuable insights. This eliminates time-consuming manual research and helps collectors decide when to buy, sell or grade valuable trading cards. Since we launched this beta feature in November, feedback has been overwhelmingly positive, and trading card enthusiasts have already scanned over 15 million cards to instantly identify and value their assets. We also continue to drive synergies with our off-platform collectibles marketplaces to better serve enthusiasts across every price point. In Q4, we launched a new search experience that services unique inventory from Goldin directly within eBay search results. This integration addresses an inventory gap for rare high ASP items, while giving Goldin sellers access to eBay's scaled global demand. In December, Season 3 of King of Collectibles: The Goldin Touch debuted on Netflix and ranked in the top 10 shows in 7 countries, including the U.S., U.K., Australia and Canada. This season featured Goldin's first on-the-ground collaboration with eBay in Japan, highlighting how our teams are working together to connect global Collectors with high-value inventory. Motors, Parts and Accessories, or P&A, also finished the year strong, contributing over 1 point of GMV growth for our overall marketplace in Q4. We are seeing a repair-over-replace trend among consumers maintaining aging vehicles. And with more than 800 million live P&A listings globally, our inventory depth uniquely positions us to meet this demand. In the U.S., we scaled our automated fitment capabilities, enhancing millions of domestic listings with billions of compatibility attributes in Q4. By leveraging our proprietary data to automatically populate these details on behalf of sellers, we are reducing friction while expanding the inventory backed by our guaranteed fit protection. Our easy and free returns program also continues to drive conversion lift while return rates remain stable, demonstrating that reduced friction builds confidence for auto enthusiasts. Fashion was also one of the leading contributors to growth in Q4, led by our luxury and pre-loved apparel-focused categories. Fashion overall generated well north of $10 billion in GMV globally in 2025. Similar to what we've done in collectibles, we've increasingly leveraged every aspect of our build-buy-partner strategy to improve our value proposition for fashion enthusiasts and accelerate GMV growth. On the build side, we've completely reimagined the selling experience through multiple iterations of our magical listing technology. We modernized the fashion shopping journey by expanding our AI-powered discovery platform from the U.K. into the U.S., Germany, Australia, Italy and France. We invested in technology and talent to broaden the Authenticity Guarantee program to cover more categories, brands and price points, including optional authentication to enhance trust for lower ASP goods, and eBay Live has been particularly impactful for fashion as the ability to story-tell and showcase inventory in real time enables sellers to build immediate trust with their community and ultimately drive greater sales velocity for the stores. Our work with key partners also contributed to notable improvement in consideration of eBay in fashion throughout the course of 2025. We partnerships with Love Island, Conde Nast and Vogue Vintage market helped elevate the perception of eBay as a trusted place to shop. Passionate eBay advocates like Chaperone and Emma Chamberlain, have raised awareness of eBay's fashion offering during some of the biggest cultural moments for enthusiasts like the Met Gala. Our collaboration with Marks & Spencer one of the U.K.'s most iconic retailers, enables consumers to drop off apparel at hundreds of store locations to be resold on eBay and our Certified by Brand and Pre-loved Partner programs have enabled many more of the world's leading brands and trusted resellers to increase the breadth and depth of fashion inventory on our marketplace. Our momentum in fashion has meaningfully benefited organic growth in our marketplace. With fashion serving as the second largest contributor to our U.S. GMV growth in Q4 with particular strength in C2C. We complemented this organic momentum with the recent acquisition of Tise, a leading C2C marketplace in Nordics, which further extends our value proposition globally. And now we're excited to further expand our total addressable market in C2C with the acquisition of Depop, which a natural strategic and cultural fit with our company, offering clear opportunities for synergies between our respective market places. Depop has established itself as a leading C2C marketplace that currently serves the base of approximately 7 million active buyers and 3 million active sellers with most of its audience under the age of 34. Depop facilitated approximately $1 billion in gross merchandise sales in 2025 and with nearly 60% year-over-year growth in the U.S. market. This acquisition is compelling on a number of fronts. Recommerce is one of the fastest-growing segments in global retail, led by Gen Z and millennial consumers who prioritize sustainability, individuality and value. These consumers are accelerating the shift towards circular fashion through social-driven shopping behaviors. Depop's mobile-first social forward experience has cultivated an extremely engaged user base that complements eBay's global scale. For instance, over 1/3 of Depop buyers listed 1 or more products on the marketplace in 2025. And this engagement fuels a sell-to-buy flywheel that drives sales velocity across a broad array of brands and price points. I'm confident this acquisition will drive meaningful benefits for users across both eBay and Depop. Depop seller and buyer communities will gain access to eBay's suite of value-added services, including financial services, shipping and cross-border trade solutions as well as trusted experiences like Authenticity Guarantee. Depop strengthens eBay's leadership in C2C, broadens our demographic reach and expand the presence in fashion and adjacent lifestyle categories. Similar to how we've demonstrated the power of cross-listing inventory with Goldin and collectibles, we see a clear opportunity to replicate that success with Depop, given its complementary range of brands and price points. Integrating Depop in the eBay's portfolio should further reinforce our customer proposition in a rapidly evolving recommerce environment and ultimately drive long-term value for shareholders. Another emerging growth vector we're excited about in 2026 is the momentum we're seeing in eBay Live. eBay Live is rapidly evolving into a multi-category shopping destination as we diversify our inventory and programming beyond collectibles. Fashion is becoming a more significant growth driver particularly in luxury watches. During the holiday season, we achieved a single day record for eBay Live GMV on Black Friday, including approximately $2 million of sales in a single event. In recent weeks, eBay Live GMV is tracking at an annualized run rate roughly 7x higher year-over-year, led by rapid growth in the U.S. market. In Q4, we expanded our global footprint by launching eBay Live in Germany and Australia, followed by recent additional launches in France, Italy and Canada in Q1. 2025 was also a watershed year for horizontal innovation, as our proprietary AI infrastructure enabled us to transition from generative AI pilots to scalable agentic experiences that actively do more of the hard work for our sellers and buyers. In Q4, we began rolling out the next generation of our magical listing experience, a true breakthrough that move beyond AI-assisted tools to a fully AI-native architecture. Unlike prior iterations where we integrated generative AI technology into legacy workflows, this new experience leverages AI agents from the start to autonomously build listings from images alone. Now any smartphone camera can act as an AI agent that guides you on which photos to take for your specific product to increase the likelihood of a sale. In the background, AI agents create the title, category and item specifics by leveraging advanced models and our product knowledge graph. AI also provides intelligent pricing recommendations based on real-time transaction data, helping sellers balance velocity and price realization to optimize their cash flow. The early results have been powerful. After making this the default listing experience for all new and reactivated listers on iOS and Android in the U.S., we have seen a more than 1/4 decrease in average listing time and greater than 50% increase in new listing creation rate, double-digit percentage increases in sold items and GMV per lister and customer satisfaction exceeding 95%. We are continuing to fine-tune the experience and are excited to bring this game-changing capability to more countries and seller cohorts over the coming months for unlocking our total addressable market in recommerce. For buyers, we are redefining discovery through a agentic search, which we started rolling out to a subset of our U.S. mobile traffic in December. This technology allows buyers to shop using natural language in a back and fourth dialogue, just like they would with a knowledgeable sales associate that understands their style, preferences and shopping history. As a result, new buyers are able to seamlessly filter results and more easily discover the amazing breadth and depth of inventory on eBay just like enthusiasts have been able to, do for many years. As this technology is built into the core search experience rather than off to the side, it's important that it's scalable. We've powered this experience using a set of lightweight proprietary models that leverage a query agent to classify intent, which enables us to effectively balance the trade-offs between latency, compute costs and query optimization quality. We plan to scale agentic search to more users throughout 2026, laying the groundwork for an even more personalized shopping journey for our customers. In October, we launched eBay International Shipping or EIS, in Canada, our third largest quarter for U.S. imports. This rollout brings the benefits of our U.S. program to Canadian sellers, including delivery duties paid functionality and the automated application of country of origin data. Our Canadian seller ramp has progressed ahead of schedule and we'll continue to expand seller and listing eligibility in 2026 as we refine our offering. In Q4, we also enabled business sellers in Germany to access SpeedPAK, our end-to-end cross-border shipping solution enabled through a joint venture, which was already offered in Greater China and Japan. SpeedPAK automates customs documentation and tariff calculations, simplifying compliance for small businesses that lack the resources to manage these changes independently. In Japan, where SpeedPAK has seen strong adoption, SpeedPak is now utilized for the majority of direct shipments to the U.S., ensuring a reliable transparent experience for buyers. Importantly, between EIS and SpeedPAK, we now have cross-border solutions in place for our largest corridors, importing goods to the U.S., and we'll continue to ramp shipping solutions to additional corridors throughout 2026. I'm also pleased to share that we closed out 2025 by exceeding our ambitious 5-year impact goals. From 2021 to 2025, we set out to drive $22 billion in positive economic impact from the sale of pre-loved and refurbished goods on our platform. Based on our outperformance in recommerce, we estimate we achieved a cumulative positive impact of close to $25 billion. We also helped prevent nearly 8.2 million metric tons of carbon emissions from entering the atmosphere above our target of 8 million. Lastly, we estimate over 360,000 metric tons of waste were diverted from landfills from recommerce on eBay, exceeding our target of 350,000. These results demonstrate how promoting the circular economy delivers tangible environmental benefits while creating meaningful economic value for our global community. In closing, 2025 was a milestone year for eBay. We accelerated GMV growth to nearly 6%, with 8% growth in the second half of the year. Roughly 2/3 of our GMV was driven by our most established strategic priorities: focus categories, C2C and recommerce. This GMV grew 10% in 2025 and exited the year growing even faster. I'm incredibly proud to see years of investment and execution reflected in the strength and momentum in our business. At the same time, I'm even more excited about the road map for 2026. In addition to scaling our established strategic priorities this year, we plan to accelerate emerging growth vectors like our secure, fully digital transaction solution for vehicles. which serves as a powerful multiplier for our broader eBay Motors offering. Each enthusiast vehicles sold on eBay unlocks further customer lifetime value, driving recurring demand for our P&A business as buyers return to maintain, modify or restore their newly purchased vehicle. We also have ambitious plans for eBay Live, which has evolved from a fast-growing U.S. pilot at the start of 2025, to a rapidly scaling commerce engine that's available in 7 countries today. By integrating live shopping directly into our core experience, we are building a new flywheel that allows enthusiasts to discover, interact and transact in real time across many of our strongest categories. Lastly, I've never been more optimistic about our AI road map as we start 2026, as we build upon the robust technical infrastructure and the foundry of proprietary models that we've developed over the past year. This foundation enables us to further raise the bar for innovation, unlock our decades of proprietary data and deliver hyperpersonalized agentic experiences that anticipate our customers' needs and drive tangible value for our business. I want to thank our employees for their incredible execution this year and our community of sellers and buyers for their continued partnership. With that, I'll turn the call over to Peggy to provide more details on our financial performance. Peggy, over to you. Peggy Alford: Thank you, Jamie. I'll start with our financial highlights for the fourth quarter. GMV grew over 8% to $21.2 billion. Revenue grew over 13% to $2.96 billion. Our non-GAAP operating income grew over 11% year-over-year to $775 million. Non-GAAP earnings per share grew nearly 13% year-over-year to $1.41 and we returned $756 million to shareholders through repurchases and cash dividends, demonstrating our continued commitment to capital returns. Now let's go deeper into the key drivers behind our strong Q4 performance. GMV grew over 8% to $21.2 billion on an organic FX-neutral basis. Foreign exchange provided a tailwind of approximately 150 basis points to spot GMV growth. Focus category GMV grew over 16% in Q4, outpacing the remainder of our marketplace by roughly 12 percentage points. Consistent with recent quarters, strength was broad-based across our business and was most pronounced in the areas where we have been actively investing. All focus categories contributed positively to GMV growth in the quarter, led by collectibles, P&A, luxury, refurbished apparel and sneakers. Within trading cards, while Pokemon decelerated as expected due to tougher year-over-year comparisons, GMV from the rest of collectible card games still posted strong growth and sports trading cards growth accelerated. Outside of focus categories, we also saw strong GMV growth in other collectibles like bullion, coins, action figures, comics and other toys. Looking at our business by geography. Our U.S. GMV growth was particularly strong, while our international performance was pressured by the relatively softer macro environment in Europe, and continued pressure on U.S. imports driven by recent trade policy changes. U.S. GMV grew nearly 19%, accelerating by nearly 6 points sequentially due to several factors. Our U.S. volume saw a disproportionate benefit from the strength in collectibles because of its higher mix in this category. Our U.S. business also benefited from strong growth in luxury and pre-loved apparel and an uptick in demand in certain electronics categories. Growing contributions from our emerging growth vectors, notably live and vehicles also benefited our U.S. growth as well as a favorable lower funnel marketing environment and continued strength from our Klarna partnership. International GMV declined nearly 1% on an organic FX-neutral basis with foreign exchange providing a tailwind of 290 basis points to spot GMV growth. International performance was impacted by challenging macroeconomic conditions in the U.K. and Germany and a deceleration in our cross-border volume growth due to U.S. trade policies, including the removal of de minimis exemption for all countries at the end of August. However, our focus categories continued to perform well internationally in Q4, reinforcing the resilience of our marketplace. Moving on to our buyer metrics. Our trailing 12-month active buyers totaled roughly 135 million in Q4. Excluding buyers from recently acquired Tise, active buyers were over 134 million up nearly 1% year-over-year organically. Enthusiast buyers were stable at roughly 16 million while spend per enthusiast buyer grew year-over-year to over $3,300 on a trailing 12-month basis. Our buyer metrics also reflected the divergence in our geographical performance. In the U.S., both active and enthusiast buyer growth accelerated in 2025, exiting the year at mid-single-digit growth. However, our enthusiast buyer count in international markets has been pressured by persistent macro headwinds as some buyers fell below the volume or frequency thresholds. Next, let's take a closer look at our income statement. We generated revenue of $2.96 billion in the fourth quarter, up over 13% on an organic FX-neutral basis with foreign exchange providing a tailwind of 160 basis points to spot growth. Our take rate was 14%, up 60 basis points year-over-year primarily due to the shipping, U.K. buyer protection fee, and advertising revenue growth. As a reminder, we eliminated final value fees for U.K. C2C sellers as a part of our C2C initiative in October of 2024, then progressively scaled our remonetization throughout 2025. By Q4, we had effectively completed our C2C remonetization efforts through our buyer protection fee and manage shipping mandate on eligible items. Trade policy changes and mix shifts in our business continue to apply some pressure on our take rate year-over-year. Last quarter, we noted returned and canceled orders had emerged as a headwind to our take rate in recent months. Encouragingly, we did see return in cancellation rates stabilize sequentially in Q4 as sellers and buyers adjusted to U.S. trade policies. Total advertising revenue was $544 million, representing GMV penetration of nearly 2.6%. Within the eBay platform, first-party ads grew over 17% to $517 million. Promoted listings comprised nearly 1.2 billion of the roughly 2.5 billion total listings on eBay while 4.8 million sellers adopted at least 1 promoted listing product during the quarter. We continue to deprecate legacy third-party display ads, which declined by 41% to $7 million. Off-platform advertising revenue was $21 million. Non-GAAP gross margin was 72.1% in Q4, declining by nearly 80 basis points year-over-year as tax-related tailwinds and cost of payment efficiencies were offset by managed shipping traffic acquisition costs related to promoted off-site ads and Authenticity Guarantee program costs. While these programs pressure gross margins as they scale, they provide meaningful strategic benefits to our marketplace by reducing transactional friction, driving sales velocity and enhancing trust. Our non-GAAP operating margin was 26.1% as marketing efficiencies were more than offset by product development expenses and transaction losses. The losses were primarily attributable to our recently launched shipping programs, which significantly improved the seller and buyer experience. Losses with these types of programs are typically higher initially and we expect them to decline over time as we gather data and optimize these programs. Overall, while we continue to reinvest a portion of our top line upside in strategic initiatives, we flowed through more incremental revenue to operating income in Q4 compared to the prior 2 quarters, resulting in 11% year-over-year operating income growth ahead of our guidance. Non-GAAP earnings per share was $1.41, up nearly 13% and GAAP earnings per share from continuing operations was $1.14. Moving on to our balance sheet and capital allocation. We generated free cash flow of $478 million in Q4 and ended the year with cash and fixed income investments of $4.8 billion and gross debt of $6.7 billion on our balance sheet. Our equity investments were valued at over $900 million. We repurchased $625 million of eBay shares in Q4 at an average price of nearly $86, and paid a quarterly cash dividend of $131 million in December or $0.29 per share. Before I discuss our outlook, I'd like to point out 2 accounting policy changes we are making, starting on January 1, 2026. First, we are adopting a new accounting standard for internal use software, and as a result, we will expense all product development costs starting this year, reducing the amount of capitalization. We are providing a recast of the 2024 and 2025 income statements in the appendix of our earnings presentation, which offers a comparable baseline to the financials we'll report starting with Q1. My upcoming comments on Q1 and 2026 growth rates are based on the recast financials. Second, since we first launched our U.K. managed shipping program over a year ago, we have expanded our partnerships with carriers and provided sellers with more choice and control over which shipping services buyers can select. Given the increased flexibility for sellers, we are switching our accounting treatment for this program from gross to net revenue recognition, which will modestly pressure our take rate in 2026. Now I'll share some thoughts on 2026 and starting with our outlook for the first quarter. We expect GMV between $21.5 billion and $21.9 billion for Q1, representing total FX-neutral growth between 10% and 12% year-over-year. Based on current exchange rates, we estimate FX would represent a roughly 450 basis point tailwind to spot GMV growth in Q1. Our guidance assumes continued strength from our strategic priorities, driven by focus categories, C2C and recommerce. Our year-over-year GMV growth is also expected to benefit from continued efficiency in lower funnel marketing and our corner partnership, which each emerged as more noticeable growth drivers in Q2 of last year. In addition, we do expect increased growth contributions from what we perceive as less durable growth drivers, including bullion and collectible coins. We forecast revenue to be between $3 million and $3.05 billion, implying total FX-neutral growth of 13% to 15% year-over-year. Based on current exchange rates, we estimate FX would represent roughly 310 basis points of tailwind to spot revenue growth. Our guidance implies a roughly 3-point delta between FX-neutral revenue and GMV growth year-over-year in Q1. Continued healthy growth in advertising is expected to be a contributor to this delta. A portion of this delta is also related to the lapping of our phased remonetization of U.K. C2C volume last year, but this component will no longer be a tailwind in Q2 as managed shipping revenue faces lapping pressure from the aforementioned accounting change. We expect non-GAAP operating income growth between 11% and 16% year-over-year in Q1, implying non-GAAP operating margin between 28.3% and 29.2%. Our strong operating income growth reflects disciplined reinvestments in strategic priorities and healthy flow-through to the bottom line. We forecast non-GAAP earnings per share between $1.53 and $1.59 in Q1, representing year-over-year growth between 12% and 16%. Our EPS guidance implies the net interest and other line item is roughly neutral in Q1 due to onetime items. Next, I'll share our preliminary views on the full year excluding the potential impact of the pending Depop acquisition, which I will outline separately. For 2026, we are planning our business around the assumption that year-over-year GMV growth is similar to 2025 on an FX-neutral basis, reflecting the continued momentum we're seeing from our established strategic priorities and increased contributions from emerging growth vectors this year. We expect this strong GMV growth despite the incremental impact of tariffs and other lapping considerations we identified last quarter. These impacts are not expected to be linear from quarter-to-quarter influencing year-over-year growth rates in 2026. However, on a 2-year stack basis, our commentary suggests GMV growth is relatively consistent between Q2 and Q4, implying strong underlying growth trends. We are planning for revenue growth to be in line to slightly ahead of GMV for the full year on an FX-neutral basis as healthy growth in advertising revenue is expected to be partially offset by mix shifts in our business, including higher growth contributions from live and vehicles. We believe these emerging growth vectors will contribute long-term top and bottom line growth and improve the health of our marketplace. We expect non-GAAP operating income growth between 8% and 10% year-over-year in 2026, as we balance reinvestments in our strategic priorities and emerging growth vectors with strong flow-through to the bottom line. Importantly, we will continue to be disciplined in our investments and drive operational efficiencies in our business whenever possible. We expect non-GAAP earnings growth to be relatively in line with non-GAAP operating income in 2026, due to below-the-line items that are expected to roughly offset the EPS accretion from our share repurchases. We anticipate our lower cash balance and higher interest expense would pressure the net interest and other line item year-over-year after Q1. Additionally, as we alluded to last quarter, we are increasing our non-GAAP tax rate assumption in 2026 to 17.5% to reflect the impact of global tax policies and our geographical business mix. Next, let me share a few thoughts on capital allocation. We forecast capital expenditures to be between 4% and 5% of revenue for the full year. As we outlined last quarter, we plan to target repurchases and cash dividends totaling between 90% to 100% of free cash flow in a normal year. For 2026, we are targeting roughly $2 billion of share repurchases, which is squarely within that range despite our planned acquisition of Depop, underscoring our ability to balance inorganic investments with strong capital returns to shareholders. In February, our Board authorized an incremental $2 billion under our stock repurchase plan in addition to our remaining authorization of roughly $800 million at the end of 2025. Our Board also declared a quarterly cash dividend of $0.31 per share for the first quarter to be paid in March, which is an increase of $0.02 from the quarterly dividends paid out in 2025. Now I would like to take a few minutes to walk through the financial implications of our pending acquisition of Depop. We have entered into a definitive agreement to acquire Depop from Etsy for approximately $1.2 billion in cash subject to certain purchase price adjustments. We currently expect this acquisition to close in Q2 of 2026, subject to the satisfaction of customary closing conditions and regulatory approvals. As Jamie noted, Depop is a great strategic fit and builds upon the significant organic momentum in our business, driven by years of investment in C2C and growing value proposition in fashion. Overall, Fashion is one of our largest categories, generating more than $10 billion in GMV for eBay annually. And in 2025, our U.S. market alone added over $500 million of incremental fashion GMV year-over-year, the majority of which came from C2C sellers. Our acquisition of Depop would add a business generating approximately $1 billion of annual gross merchandise sales, primarily in the U.S. market, where it grew by nearly 60% year-over-year in 2025. Upon completion of this transaction, we expect Depop would contribute 1 to 2 percentage points to total FX-neutral GMV growth year-over-year in 2026, assuming the deal closes as expected in Q2. Given the immense potential we see for this marketplace within eBay's portfolio, we plan to invest in Depop to support future growth and synergies between our respective marketplaces. Our current assumption is that the acquisition would represent a low single-digit headwind to the 8% to 10% operating income growth we forecast for the core eBay marketplace. This estimate reflects not only the current operating profile of Depop, but also integration costs and planned investments. We would also expect the acquisition to dilute our non-GAAP earnings per share growth by low single digits, with the EPS impact modestly higher than operating income dilution due to foregone interest income from the cash used for this transaction. Over the long term, we are highly confident this acquisition will be meaningfully accretive to operating income and EPS growth and drive significant value for shareholders. On a consolidated basis, including synergies, we expect the acquisition of Depop to become accretive to non-GAAP operating income in 2028. In closing, our Q4 results capped off a tremendous year for eBay. In 2025, we accelerated GMV growth to nearly 6%, increased non-GAAP operating income by roughly 7% year-over-year and grew non-GAAP earnings per share by nearly 13% year-over-year, marking our second consecutive year of double-digit earnings growth. We demonstrated our ability to accelerate growth invest in our strategic priorities and transform the eBay experience through AI, all while delivering strong bottom line results and healthy capital returns to shareholders. Despite a full year of impact from trade policy changes and the lapping considerations we've laid out, our outlook for 2026 implies another strong year of balanced top and bottom line growth with our investments supporting an exciting innovation road map for our customers. With that, Jamie and I will now take your questions. Operator: [Operator Instructions] Our first question will come from Nikhil Devnani with Bernstein Research. Nikhil Devnani: Jamie, it's pretty staggering to see numbers like 10% to 12% consolidated growth given where things were only a few quarters ago. I know you've acknowledged already some of the shorter-term benefits in a few categories. But when you look beyond that, it seems like there's been some sustained acceleration just generally for you in the U.S. So my core question here is, I guess, what's changed? Are you seeing -- have you seen step-ups in conversion rates? Have you seen influx of new customers to some of those other core categories? Like what's driven this improvement across the board in the domestic market? Jamie Iannone: Yes. Look, thanks for the question, Nikhil. What I feel great about regarding Q4 is the broad brand strength that we're seeing. The underlying health of the business is the strongest it's been since I've joined the company 6 years ago. And I think what you're seeing is that years of investment that we've made are paying off, and that's really evident across our strategic priorities. Focus categories, C2C and recommerce, each of these areas grew in the high single to low double digits in '25. And collectively, they drive a significant majority of our GMV. So we've been transparent and Peggy has talked about some of the unique tailwinds in recent periods. And we've been prudent about our go-forward assumption in those areas. But overall, I'd say we're really pleased with our performance in Q4, the broad-based nature of our growth and how that momentum is translating into early 2026. We had some specific commentary about bullion and collectible coin specific to Q1. But other than calling that out -- potentially less durable, we see that as less durable. Overall, we see the broad-based nature of our growth and that momentum really carrying through to 2026. Nikhil Devnani: And maybe a follow-on, sticking with GMV. For the guide for this year, how much contribution are you embedding from some of the newer emerging vectors like Caramel and eBay Live? Jamie Iannone: Yes. Look, we're excited by the new growth vectors in the business. But I would say the majority of what we're excited by is just the strength of the core business. When you look at our focus categories and the growth that we saw in Q4 and what we're seeing in Q1, that continues to perform -- those continue to perform really well. I'm excited by some of our newest categories that we have in -- or newest areas that we have with both eBay Live and with Vehicles. we're seeing a nice run rate in eBay Live, a 7x run rate for year-over-year. But I would say, in general, our strategic priorities around focus categories, C2C and recommerce are going to be consistent and strong drivers for us in 2026. Operator: Our next question will come from Colin Sebastian with Baird. Colin Sebastian: Great. Congratulations on the quarter and the year. I guess, first, on the International segment, I know the macro factors continue to weigh on growth, but also curious if you're seeing, Jamie, any changes in the competitive environment in key markets? And then likewise, are you seeing benefits from focus categories and AI tools or other platform initiatives as they do roll out in Europe? Jamie Iannone: Yes. Yes. Thanks for the question. Clearly, it's a dynamic macro environment and a clear divergence between the U.S. and our international markets in Q4. In the U.S., while we faced uncertainty relative to trade policy, consumer demand has been resilient, and we saw broad-based strength across categories in Q4. I would say in contrast, Europe has been more challenged as consumer confidence remains low and retail sales trends are subdued there. But what I would tell you is the focus category stuff that we've rolled out internationally has been performing well. The C2C initiatives that we've been driving continue to perform well in that market. We recently expanded eBay Live to a number of our other markets across Germany, France, Italy and Canada. And so overall, we feel like we're well positioned and the things that are working in the U.S. are working as well internationally. It's just a very different macro environment from what we're seeing in the U.S. Colin Sebastian: Got it. Okay. And then maybe my follow-up is on the agentic side. I know it's really early. But at a higher level, what sort of user behavior changes are you expecting as this rolls out on the buyer side? Does this impact your advertising business and also maybe the architecture for how you're building this out to connect with partners like OpenAI? Jamie Iannone: Yes. Look, we feel really well positioned to bring a differentiated experience to agentic commerce which makes us really confident we'll be a long-term beneficiary of this trend. The first thing I'd hit on is the experiences that we're building on eBay, leveraging this technology. Our next generation of magical listing is really a game changer. It's an AI-native solution that leverages our product knowledge graph that leverages 30 years of data and build this amazing experience where we essentially do everything for you in the background. I've been doing this for a long time in decades. And having a new product rollout with 95% customer satisfaction shows you the strength of what we're building using these tools. I would say the same thing with agentic search and what we're seeing as people pilot that and the ability to use natural language against our inventory. But the other thing I would tell you is that the other reason we feel well positioned is our inventory is really different from most marketplaces. Roughly 90% of our GMV is not new in season and 2/3 of that intersects with focus categories, recommerce or with C2C. So these are highly considered purchases of unique items, think used, refurbished, collectable or luxury items where conditions, scarcity and the human judgment matter. The last thing I'd say is that all the work that we've done in our experiences with trust, plays a huge differentiator for us and a real structural advantage. You think about seller feedback, Authenticity Guarantee and the post-transaction Protections that we provide, that's hard to replicate along with financial services and global shipping solutions really do kind of reduce the transactional friction for buyers and sellers. So all of these factors, I think, put us in an incredibly strong position to thrive in an agentic AI world. and I'm really excited by the investments that we're making and the customer responses to how we're using that technology on the eBay experience. Operator: Your next question will come from Ross Sandler with Barclays. Ross Sandler: Great. Hopefully, you can hear me. Jamie Iannone: Yes, we can hear you, Ross. Ross Sandler: Excellence. Okay. So just 2 questions. One on the full year '26 guide, you guys have talked about how we're going to lap some of these like nondurable things in the second half of '26. Could you just talk about how you're thinking about like the growth cadence throughout the year and some of the like durable versus nondurable as we get into the second half? And then on Depop, so those guys have done a great job in their U.S. side of the business. And I think the international has trailed the U.S. performance. So how is like combining eBay and Depop potentially going to advance the cause on like U.K. and Australia and frankly, just the overall fashion segment at eBay in general? Just curious to your comments on that. Jamie Iannone: Peggy will take the first one and I'll take the second. Peggy Alford: Sure. Thanks for your question, Ross. So we feel really good about the broad-based strength that we're seeing. As Jamie mentioned, they're really focused on our strategic priority areas, focus categories, C2C, recommerce. Our commentary reflects the continuation of the strength as well as we're really excited about the contribution that we're expecting from our emerging growth vectors like live and vehicles. In terms specifically on -- in terms of specifically on lapping, a couple of things to keep in mind. So we are expecting a deceleration in Pokemon growth in '26 just given the triple-digit growth that we saw in '25, although I will point out that we expect healthy overall growth in trading cards. We started seeing a little bit of the deceleration in Q4 of '25 and the comps get a bit tougher as we move throughout the year. Jamie mentioned bullion, we are expecting a significant amount of the acceleration that we saw from Q4 to Q1 was related to just the bulion and collectible uptick. And so we are planning for that to moderate during the year after Q1. We're lapping our U.S. Klarna partnership starting in Q2 of '26. And then we talked last year -- in '25 about our marketing efficiency gains in paid search, we'll be lapping those from a favorable competitive dynamic starting in Q2 of '26. So overall, I'd say we believe that the majority of the growth is durable and we remain very confident in the strength of our business. Just want to point out a few of those factors. Jamie Iannone: Yes. And then regarding your questions on Depop, Look, I'm really excited by the acquisition. I think it's really going to supercharge our C2C strategy in several ways, and it's building on strong growth that we're seeing today, particularly in the U.S. Our U.S. C2C business grew in the mid-teens year-over-year in 2025 with growth accelerating in '24. And our learnings across the globe have really helped drive that. We're also doing this acquisition from a real position of strength. We're seeing strong growth in Fashion, its an over $10 billion GMV category for us on eBay and we've been increasing our investments there. I've been talking about that over recent quarters. In 2025, U.S. fashion grew 10%, with even faster growth in C2C. So if you look at it, we added over $500 million of GMV in the U.S. in fashion alone. Depop as really prioritized the U.S. market in a world with limited investments. They've been really leaning in, and they've seen really great growth. They've seen 60% growth in the U.S. market, which is obviously great with the strength that we're seeing in the overall business. The last thing I'd say is that Depop brings a younger consumer base and they're amongst the fastest-growing demographic, especially in this sustainability, recommerce and fashion piece. And so we see it as a great strategic fit for eBay. It builds on the strong growth we're already seeing in C2C in fashion, and I'm excited about the strong growth potential for both marketplaces go forward. Operator: Your next question will come from Nathan Feather with Morgan Stanley. Nathaniel Feather: Congrats on the quarter. I guess, first, just to follow up on Depop a little bit. Interested to hear how do you think about the revenue synergies that are available through the Depop deal, and what is that opportunity to drive across the listing from both Depop to eBay and eBay to Depop? And then just a clarification, Peggy. You said that coins and bullion was the majority of the acceleration from 4Q to 1Q. So just to clarify, that means GMV is still accelerating even excluding the coins and bullion impact? Jamie Iannone: Yes. So let me talk first on what excites me about the Depop from that side and the integration. So first is, we'll keep Depop as a stand-alone brand experience, et cetera. It's resonating great with consumers. It's growing well as I talked about, et cetera. But we do see the opportunity to help support that growth and drive it even further, by bringing assets from eBay that we've developed over the last couple of years. So think about the Authenticity Guarantee work that we've done, the shipping and cross-border trade, payments and financial services in recent years, we've turned more of our back-end resources into services to really help grow not only core eBay Marketplace but other stand-alone platforms. And I'd probably draw a parallel here for you, Nathan, to what we've done in Collectibles. Years ago, we bought TCGplayer and Goldin Auctions, and you see us now integrating Goldin Auctions with a single sign-on experience. We've integrated Goldin Listings onto the platform. And I'm really glad we did those acquisitions because they're really helping accelerate the strategy of what we're doing in collectibles, and I'm similarly excited for that opportunity with what Depop has done with fashion of the ability to take the marketplace to the next level and drive synergies across a number of those areas. Peggy, do you want to take the second piece? Peggy Alford: Sure. Just a quick clarification. So as I mentioned, due to the increases in precious metals, we did see an acceleration in the demand for bulion and coins in Q4, and that continued into Q1. This -- what I meant to say was that, the bullions accounts for a significant portion of the sequential acceleration, not all of it. We continue to see broad-based strength going into Q1 and looking beyond some of the near-term unique dynamics that we called out, we feel very good about this broad-based and durable nature of the GMV growth that we're seeing. Operator: Your next question will come from Shweta Khajuria with Wolfe Research. Shweta Khajuria: Let me try 2, please. First is on earnings growth. So when we think about EPS growth, could you please talk about the puts and takes? So how would -- what would drive the potential upside and how you're thinking about buybacks? And then the second is a follow-up to a prior question on agentic commerce I guess, how do you think -- when we think about long term in terms of your position in agentic commerce, how do you see it evolve? And perhaps, is there -- what is your view on eBay's position in agentic commerce as it relates to shoppers perhaps potentially moving to these AI platforms. Is that a positive for you or negative? And are you compelled to partner with them? Jamie Iannone: Yes. Look, what you've seen from us with partnerships is we've always been open to making our unique inventory available on scaled third-party channels. We've done that with Google Shopping. We've done that with Facebook Marketplaces, which are 2 great examples. We're also thoughtful about where and how we do so, and we're taking the same approach here with agentic commerce. My first priority has been to build the agentic in-house capability. That's why I talked about agentic search. When I talked about the newest version of magical listing, and we've got an exciting road map coming up. But in regard with partnering with other platforms, we built a unified agentic commerce platform that enables us to plug into third-party agents and test different type of experiences to see what works best for our marketplace. For instance, we recently signed on to be an early participant in the OpenAI Ads Pilot Program to test that out. But when I take a step back, yes, we believe we're in a strong position to be a beneficiary of agentic commerce. And it's a lot because of what I talked about earlier. Our inventory is fundamentally different from most marketplaces. It's 90% non-new in season, and we've built a lot of trust and other things around it. When you think about our 70,000 -- sorry, our 16 million enthusiast buyers that we have on the platform that buy 70% of the they're really driving sales in this used, refurbished, collectible, luxury or more considered purchases. So we're going to be very thoughtful about how we do it, and I'm really proud of the technology that we've built to enable us to do so. And we'll continue to develop our platform to create more opportunities that promote discovery of our sellers' unique inventory while we continue to invest internally in loading the leading AI experiences for our enthusiast customers. Peggy Alford: In terms of your question on EPS and operating income growth, we are expecting strong non-GAAP operating income growth in Q1 and the full year, and we're expecting that the majority what's driving the EPS growth. In terms of our buyback policy and our capital allocation plan. It remains the same. We first -- our first priority is organic investment in the business because we believe that, that is ultimately what's going to drive EPS growth. When it comes to excess capital, we have a strong track record of returning cash to shareholders. In a normal year, we plan to target repurchases and dividends totaling between 90% and 100% of free cash flow. For 2026 specifically, we're targeting roughly $2 billion of share repurchase, which is within the range for a normal year, and that's despite our planned acquisition of Depop. This is reflecting our business performance. We have a healthy balance sheet and strong cash flow generation. And so we feel really good about this balance we've been able to achieve between investing in future growth and returning shareholder cash. Operator: Your next question will come from Tom Champion with Piper Sandler. Thomas Champion: Jamie, can you talk a little bit about eBay Live. Maybe give us the update there and your plans for this year? And curious what the long-term benefit is going to be there. Is that dollar volume of transactions? Is it a new customer demographic or is it engagement on the platform? Just curious any additional comments there. And maybe just relatedly, any update to the Facebook partnership? Jamie Iannone: Yes, Tom, thanks for the question. And it's really what's exciting about this opportunity, it's really all of the above on the things you mentioned. We see it as a really exciting opportunity, and I'm really encouraged by the traction we're seeing as we expanded into new markets and categories. It's really a natural extension of our marketplace, and it's already contributing to the double-digit growth that we're seeing in focus categories. And what we've been doing is investing and making Live more discoverable across the site, integrating into streams at relative points in the buyer journey. In Q4, we actually expanded Live into Australia and Germany, and we've since expanded it into France, Italy and Canada. We've been hosting high profile activations at the world's kind of biggest football game. We had Christian McCaffrey, Gronkowski, Jerry Rice raising awareness of what we're doing there. And to your question, we're seeing that it helps sellers because it builds this great new capability, right? You put it out there and you watch what sellers do with it, and it's pretty exciting, but it's also helping them grow their core business because they're building trust back in their core business with what they're doing with Live on the platform. It's helping us attract new buyers into the platform and drive more engagement out of our buyers because of the live streams and what we're seeing there, and that's why we've been scaling it up more geographically over time. I was excited to see that we did a single event. We did over $2 million of sales in a single live event that kind of shows you the scale of what's possible for our sellers to really drive GMV. And our scale, our global buyer base and our high bar for trust really differentiate eBay and live commerce. And while it's still early in our growth phase, we believe eBay Live can be a meaningful growth vector over time and an increasingly important part of how enthusiasts shop on our platform. To your question on the Facebook Marketplace, we continue to make progress on our partnership there. In Q1, we expanded our eBay inventory into Search, which is a new platform for us in the partnership or a new surface, if you will, that reflects higher intent user engagement earlier in the shopping journey. We're also expanding the volume and the categories of inventory shared on Facebook Marketplace, which benefits our existing presence in the marketplace feed. So we believe this partnership is great for the eBay seller community as we expose their listings to Facebook scaled audience, and it's great for Facebook Marketplace users as they discover our breadth and depth of unique trusted inventory. So I think both teams are encouraged by the continued progress and the learnings to date, including the new learnings that we're seeing with the new surface in search. Operator: Your final question will come from Michael Morton with MoffettNathanson. Michael Morton: My first one, I love the commentary on the trading card business, you've done some incredible things there. An investor question we frequently get is on the sustainability of that business. I know that there are some tough comps. But big picture, could you maybe talk about or quantify how you've grown the user base of people who sell trading cards on the website to help people appreciate that it's not just price appreciation. That would be my first question. And my second question, Jamie, I wanted to follow up on Colin's question a bit on Shweta's question. But on agentic and just trying to be really explicit on what we're looking for here, are you seeing any change in behavior from users who are sent from AI search platforms to eBay's website. You do have, exactly what you said, it's high consideration goods, are you seeing higher conversion rates when they come from these platforms because they're coming in with more intent? And does it change the amount of products they click on. Jamie Iannone: So what I would say first on the trading cards is, look, we continue to see a long runway for secular growth in trading cards, and we attribute much of the recent growth to the innovation that we are driving, which has fueled renewed excitement amongst hobbyists. If you look at the Q4 strength, Mike, it was really broad-based across sports, trading cards and collectible card games, Pokemon trains remained extremely strong despite GMV decelerating year-over-year due to tougher comps, but sports trading cards accelerated with the strong growth across the 3 major U.S. sports. And while emerging collectible card games, like there's this new one called One Piece, which is exciting now are starting to gain traction. To your question specifically though, encouragingly, we're seeing GMV growth driven by a balance of new buyers, sold items and ASP, and much of the ASP has been driven from a mix shift towards higher priced items. So stepping back, if you look at the innovation, whether it's live, the new AI card scanning thing that I talked about upfront, which we're seeing great momentum from consumers, we're really excited to see kind of the renewed energy based on the years of investment that we've had. And we believe most of the growth is broad-based and secular in nature. Our scale and our value proposition have really positioned us as a leader in this space. And I remain very optimistic about the multiyear growth opportunity ahead in collectibles. To your question on AI, I'd tell you right now that the traffic is very small. And it's not just for us, like in general, there's not a lot of traffic being driven. The traffic that is being driven is high intent. And so we are seeing kind of high conversion on that in terms of the traffic that's there. The other thing I would tell you is that what we're seeing in our own experiences on our platform with the agentic commerce -- or the agentic search that we're running there is that our enthusiast buyers, especially that are part of the pilot are really loving the ability to have this back and forth conversation. The ability to kind of refine and filter their items using agentic search and get to the things that they want, and it's really resonating on the platform. And then I would say the same thing about magical listing. I talked about the customer satisfaction of that being at 95%. But I think even more important, when you look at the stats of new listings that are coming on to the platform, it's achieving the goal that we've been working on for years now, which is the whole idea of having people say, well, if it's that easy to list it on eBay, let me start selling this, this and this. The average household has $4,000 of stuff that could be sold on the platform, and less than 20% of that is online. So we're really excited to bring that new capability and unlock all that inventory and really drive the significant TAM and recommerce. And we also think Depop is going to help us do that in a big way, too. So thanks for the questions. Operator: Thank you for joining. This concludes today's call. You may now disconnect.
Operator: Good day, ladies and gentlemen. Thank you for standing by. Welcome to TFI International's Fourth Quarter 2025 Earnings Call. [Operator Instructions] Please be advised that this conference call may contain statements that are forward-looking in nature and is subject to a number of risks and uncertainties that could cause actual results to differ materially. I would also like to remind everyone that this conference call is being recorded on February 18, 2026. Joining us on the call today are Alain Bedard, Chairman, President and Chief Executive Officer; and David Saperstein, Chief Financial Officer. I would now like to turn the call over to Mr. Alain Bedard. Thank you. Please go ahead, sir. Alain Bedard: Well, thank you, operator, for the kind introduction, and thanks, everyone, for joining us on today's call. Last evening, we reported our quarterly results showing robust free cash flow driven by international initiatives and the hard work of our team. With overall freight dynamics showing modest signs of stabilization, the men and women of TFI are busy preparing for a potential industry rebound and controlling the controllables. . And another focus of ours, which you've heard me in emphasis many times is producing strong free cash flow regardless of the cycle. I'm pleased to say that we generated more than $10 per share of free cash flow in 2025 or $832 million for the year and notably, our fourth quarter free cash flow was 25% higher than the year ago figure. At TFI, we view this free cash flow as very important given our strong track record of strategic capital allocation. We intelligently invest for the long term, even during down markets, and whenever possible, return our excess capital to shareholders. As you may recall, during the fourth quarter, our Board again raised our dividend. And over the course of 2025, we continue our track record of opportunistic repurchase buying back over $225 million of common shares. Now let's turn to the other aspect of our fourth quarter results, total revenue before fuel surcharge of $1.7 billion compares to $1.8 billion a year earlier, and we generated $127 million of operating income, reflecting a margin of 7.6. Our net cash from operating activities improved meaningfully to $282 million, which was up 8% over the prior year quarter. And our free cash flow from the quarter was $259 million, reflecting a 25% year-over-year increase, as I mentioned. Taking a more granular look at our business segment. Let's begin with LTL, which represent 39% of our segmented revenue before fuel surcharge. At $661 million, this was down 10% compared to a year earlier. However, we're able to improve our adjusted OR slightly more than expected to 89.9% relative to 90.3% in the year ago period. Our total LTL operating income was $62 million compared to $70 million a year earlier. We also generated for LTL a return on invested capital of 12.2%. Next up is Truckload, which was 40% of a segmented revenue before fuel surcharge at $674 million for the fourth quarter as compared to $693 million in the prior year. While tariff and the general economic uncertainty still affect freight volumes and excess capacity has been an industry-wide concern. We continue to seek growth opportunity that our network and our infrastructure are particularly well suited for. This includes both data center and the broader economic grid -- electric grid to market in which we've demonstrated recent successes. Our Truckload operating income of $48 million compares to $60 million a year earlier and our OR of 93.2% compared to 91.5%. So wrapping up on Truckload, our return on invested capital came in at 5.8%. Lastly, in our segment discussion, Logistics was 21% of segmented revenue at $358 million relative to $410 million in the fourth quarter of 2025. Operating income was $31 million versus $43 million last year, and this represents a margin of 8.7% versus the 10.5%. I'll note that despite slightly lower logistics revenue sequentially we were able to expand our operating margin by 30 basis points over the third quarter. And finally, our Logistic return on invested capital was 11.8. Shifting gears, our balance sheet is a pillar of our strength supported by the $830 million of free cash flow we produced during 2025, including more than $250 million during the fourth quarter alone. Both figures up year-over-year. We ended the year with a 2.5x debt-to-EBITDA ratio. And given this financial foundation, we continue to be an attractive dividend and repurchase more than $225 million worth of common shares during 2025, as I mentioned previously. We also continue to seek accretive bolt-on acquisition opportunities. And I'll conclude with our outlook as we entered the new year. For the first quarter, we look for adjusted diluted EPS to be in the range of $0.50 to $0.60. And for the full year 2026, we initially expect net CapEx, excluding real estate, to be in the range of $225 million to $250 million. As I mentioned in the past, our outlook assumes no significant change, either positive or negative in the operating environment. So before we open up the Q&A, you may also have seen our press release yesterday about the latest change to our Board of Directors. So I want, again -- I want to again express my gratitude to my friend Andre Berard for his more than 2 decades of service as a Director of TFI International, most recently as our Lead Director. His impact on our Board since 2003 has been enormously beneficial to the firm, and we all wish him all the very best to his upcoming retirement. I would also like to congratulate Diane Giard on their nomination as our new Lead Director. And now operator, if you could please open the lines for both David and myself, we'll be happy to take questions. Operator: [Operator Instructions] And your first question comes from the line of Ravi Shanker from Morgan Stanley. Unknown Analyst: This is Nancy on for Ravi. I was wondering if you could help give some guidelines around the fiscal year guide and potential scenarios to get there and how you're thinking about 2026 as a whole would be great. Alain Bedard: Yes. Well, that's a very good question. So this is why we came out with our Q1, okay, with $0.50 to $0.60. I mean this is down year-over-year versus 2025 because we're still in a transition environment. The freight recession that we've seen since 2023, 2024 and 2025 is still persistent as we look at Q1. We're starting to see some very early signs in our Truckload sector that maybe things will start to get better, okay, during '26. This is very early. The change in the U.S. with the CDL and not renewing some permits as drivers, et cetera, et cetera okay? That may help the Truckload industry in general. On the Canadian side, the fact that now every owner operator or not an employee, but let's say, a Driver Inc. now has to -- will be issued a T4A, which is a kind of like a W-2 in the U.S. as an employee. So now he's got to report his income and pay taxes. So we're starting to see some people disappearing okay, in '26. But this is the very early days in the Truckload sector. On the LTL side, I mean, we're still in a very difficult environment, and we anticipate that it's still going to be the case for probably 2026 as a whole. On the Logistics side, though, I mean we feel really good that, okay, yes, our Q4 2025 was not as good as the previous year. But in terms of one of our divisions that moves trucks for the most important manufacturer in the U.S. Packard and Freightliner. We think that this is going to start improving by probably Q3 and Q4 going back to normal. So on the logistics side, we have a more clear path of the major improvement that we could see during the course of '26. Truckload early signs that things will probably get better, although nothing is sure, it's very early in 2026. We're just in February. On the LTL side, U.S., still very soft market. On the Canadian side, very soft market, too, but we do way better in Canada than we do in the U.S. because if you look at our revenue per shipment, number of shipments are down, okay, in Canada, the same as the U.S. But we're able to maintain an operating ratio very close to what we were doing, let's say, a year ago. So we have a better control on our costs still in Canada. If you look at our claim ratio, for example, which is like unbelievable. Were close to 0 in Q4 on the Canadian LTL side. And we're still at 0.9% of revenue on the U.S. side, which is an area that we definitely have to improve during the course of '26. I mean we had some better quarters on that in that regard on the claims side, and we need to focus more on that, and this is a big area of focus in terms of improving our service on the U.S. LTL side with our customers. So you don't want to break the customers' freight or lose it, right? Unknown Analyst: Got it. That's very helpful. I guess touching on that a bit more. Do you guys feel ready for the up cycle that comes within U.S. LTL with the idiosyncratic changes you have made? Or is there a lot more work within 2026. Alain Bedard: No, we're ready -- I mean, we are really ready. I mean in terms of the management tools that we have today versus, let's say, just 2, 3 years ago, I mean we are very well equipped. We have financial information by terminal now. We've implemented Optym on our line all. We have Optym also implemented, which is a software on our delivery side, okay, now we're going to Phase 2, which is going to be also implemented for the pickup side. So I mean, we're ready. We have the tools. We are improving our team on the commercial side. I mean, we have way more stability in our sales force than ever, okay. So our friend, Mr. Traikos has done a fantastic job of creating some stable environment in the sales team, understanding the focus of what these guys need to do. And I think that probably for the first time, it's still early in the game, but in Q1, we're probably for the first time in a long time, show that our shipment count is about equal to the one of the previous year. Very early still, okay? But if you look at Q4, we were down 10%. We're down 6%, 7% in Canada, but down close to 10% in the U.S. So it would be quite an accomplishment as a first step, okay, to be able to at least maintain the volume that we had in Q1 '25. Operator: And your next question comes from the line of Jordan Alliger from Goldman Sachs. Jordan Alliger: Yes, I hear your thoughts around the demand environment. I'm just sort of curious as we roll into the -- or through the first quarter. Is there a way you could give some additional color as to perhaps the segment margin-related drivers behind the $0.50 to $0.60 EPS guide, again, realizing that you're not assuming much change in the operating environment, but maybe give some sense for shape of those margins as we move forward seasonally . Alain Bedard: Well, that's a very good question, Jordan. And so this is why I'll pass it on to David, which is our CFO. David Saperstein: Jordan. So we're looking at probably around 250 basis points of sequential margin deterioration in the U.S. LTL. And I just want to qualify that by saying that Q1 is unique in the year and that it's very back-end weighted to March. And so it's very difficult to get a sense for the trends based on January and the first half of February. And this year, particularly so, because we lost at least 100 basis points related to weather, which caused us to have a lot of overtime expense, et cetera. So we anticipate around 250 basis point sequential deterioration, but it's heavily weighted towards March, which, of course, hasn't occurred yet, and we don't have perfect visibility into. In terms of Canadian LTL about the same in terms of the sequential move, P&C is 1,000 basis point down and 15% revenue down sequentially, which is normal seasonality for us, Q4 being a peak season in the P&C. Specialty Truckload, like Mr. Bedard was saying, we are seeing some early signs of positive things in the Truckload. And so we expect to be flat sequentially from Q4 to Q1 in the Specialty Truckload. Canadian Truckload, a little bit of erosion, maybe 100 basis points margin deterioration sequentially and then Logistics are around 150 basis points. Jordan Alliger: All right. Great. And just out of curiosity, I know the weather has had an impact. Are you able to share a little bit more color around, I know March is so important, how's January, February volumes? And is it possible? I know you alluded to it a little bit, can you still make that up in March on the tonnage side for LTL? David Saperstein: Well, listen, the January was very, very difficult, both from a volume perspective and from a cost perspective, because of the costs associated with the weather and the disruptions and the inefficiencies that, that caused. February, we saw volumes tick up, and that's why Mr. Bedard is making a reference to potentially being flat year-over-year in volumes. We'll see how the pricing follows as it relates to that. But we can see that the volumes are -- did tick up in Feb. Operator: And your next question comes from the line of Walter Spracklin from RBC Capital Markets. Walter Spracklin: Good morning, everyone. So you mentioned some of the improvement that you're seeing, and David just mentioned it as well in the fundamentals of trucking attributed to some of the CDL and [indiscernible] previously testing. Are you seeing that now build into your pricing, your contract pricing. We see pricing move on the spot side. But are you seeing at all any improvement in pricing on a contracted basis, particularly in U.S. LTL or if it is differentiated by segment or region, if you could touch on that. Alain Bedard: Yes. That's a very good question also, Walter, because spot moves first. And when the shippers start to see a movement upward in the spot, they try to get into a long-term agreement with you with those low rates, right? So to answer your question, yes, spot are up. On the van side, I mean we're starting to -- it's also inflation for us on the line haul for our LTL, because some of our LTL is moved by third parties, okay? And we saw price moving up in Q1 so far. But on the contract rate, it takes more time. It takes more time Walter, so that shippers are going after you, commit to long-term pricing at these low rates. And as a trucker, what you normally say is let's wait, let's wait and see. So for now, no, on the long-term rates, it's still not as good as the spot rate, but we believe that the fact that the it's always an offer and demand balance. So the offer is starting to reduce, okay? The demand is still not great, okay? This is the issue we have for the last few years is that the offer has always been growing because of the '21, '22 COVID area where we added so much capacity, okay, that now we're stuck with overcapacity. And now the offer is starting to reduce a little bit and the demand is still not very strong, but we anticipate that if the demand starts to go upward and the offer is also being reduced. So this is why as 3PL they're starting to see some pressure, because the trucker are asking for more money and they can't get that kind of money from the shipper yet. So a little bit of pressure on rates for our, let's say, our 3PL organization. But long term, medium term, for sure, the contract rates will start to go up. If this trend of reducing the offer and a little bit of increase in the demand continues in '26. Walter Spracklin: Okay. That's fantastic. I'd like to go back to your guide now and just reflecting some of the inbounds I'm getting in the sense that you delivered much better than your guide had -- your guide for Q4 had been set at 80 to 90, you came in it with [indiscernible]. Can you talk a bit about the different. What we could see what we had been forecasting relative to what you came in with, but really internally, where was the area of outperformance? And is that area of outperformance now built into your guide for Q1 as well? Alain Bedard: Well, you know what, Walter, like David was saying, the problem that we face is that we are giving guidance on Q1 based on horrible month of January, right? And a very early, okay, signs of improvement in February. So this is why we're cautious. I mean, -- this is what we believe it could be delivered by our operation, okay? Hopefully, we do better than that like we did in Q4. But then again, the other problem we have Walter until we have a deal between U.S., Canada and Mexico, which is supposed to come, let's say, in the summer of '26 even if the market -- there is a reduction in the offer, the demand is still not very strong. So this is why we have to be very careful until such time that we have a new agreement between the 3 countries where our customers knows what's going to happen in the future, then we're going to feel way better, okay, in terms of being able to forecast what can the company deliver in terms of our profitability. Operator: And your next question comes from the line of Brian Ossenbeck from JPMorgan. Brian Ossenbeck: I just wanted to hear a little bit more about the Specialty Truckload business, obviously, heavy industrial there. So assuming not seeing too much of an uptick yet, but we've seen a little bit of life in the PMI, but I also want to hear a little bit more about the data centers, the electrical grid, the things that probably have maybe a little bit more longer tail to them, but I'm not sure how big they are and how fast they're growing at this point. So maybe some more details on the industrial side with those 2 in focus. Alain Bedard: Yes. Yes. You know what? This is something new for us, right? And this is coming right now, okay. It's our Lone Star operation out of Texas that is really the one being involved in wind, although wind is going to be quite active in '26 and moving some equipment for the data center. One of our latest acquisition is also bidding on some job up north in Michigan in those northern states in the U.S. So that could be a positive for us if these guys were able to win these adventures. So I mean, we are an industrial carriers in our Truckload. We're not a retail guy, okay? We are industrial. And for sure, let's say, on building we start moving in the right direction in that regard. Okay, that's going to help. Whereas in the meantime, this is why we created this job of Chief Commercial Officer for all of our U.S. Truckload with [ Mr. Huppi ] that is now in charge of working, okay, all of our network participants in that sector. So we are deeply focused on what is moving now. And what is moving now is where the major investments are in the energy sector and wind, solar and the data center. So that's our area of focus right now. But hopefully, the other sector, okay, of the industrial, which is construction material and all that starts to move in '26. Now like I said, with this latest acquisition that we've done late in '25, these guys are very good. Hopefully, they're successful in those bids, and we'll see, because this could be a very interesting win for us. So we'll see if these guys are able to get the ball moving on that. So all in all, we started, okay, like we said, we're just seeing a little bit of the early sign of some industrial activity, which is our world. I mean we're not a van carrier that moves retail freight, right, for, let's say, a Walmart or Amazon. I mean us, we move steel, we move aluminum, we move building material, et cetera, et cetera. So that's our core, okay. Same in Canada, too, right? So hopefully, this starts to move. And like you said, there's some movement on PMI. Hopefully, those major investments starts to increase. Under the new administration, we're hopeful that this is -- this will happen. Brian Ossenbeck: All right. Maybe just a follow-up on the TFF, TForce side of things, for shipment looks like it's stabilizing a bit here. Talking about getting back to maybe flat tonnage growth here in the quarter and maybe improving from there. Is that service and network dependent? Or is that more of a -- all of the economy, I would assume it's more of the former, but just wanted to see how far along you are with that -- with those improvements to the point where you could maybe grow a little bit faster than what the market is giving you. Alain Bedard: Yes. See, our focus to us is if you look at what we do in Canada in terms of our weight per shipment is way higher than what we do in the U.S. Why is that? Because you have to understand that TForce rate used to be UPS freight. And their focus was retail, like UPS per se. And as we're saying, forget about retail as much as you can move away from retail and let's move freight, that is based on the industrial base. So this is why our weight per shipment since we bought the company, it went from about 10.75 to 12 something now, 12.25, 12.50. Right? And the push is to continue to move into that sector of industrial LTL versus retail LTL. We understand that a lot of the retail stuff more and more, okay, will be controlled by the gig economy, by the Amazon and all that. So this is why we're saying to our guys in the U.S., let's focus on the industrial sector of the economy versus the retail sector of the economy. Now the problem, like I just said earlier, is that the industrial economy is slow, it's very soft, right? But this is why it may be a little bit more difficult to do this transition. But that's the focus of ours is to move away as much as fast as we can, okay, from the retail economy, because we're seeing what's happening, okay, with the gig economy with the Amazon and all the others one. So guys, that's changed, okay, the focus. We've been quite successful so far, okay, doing that, but we need to improve more. We have to be closer to 1,400, 1,500 pound shipments, because don't forget, you're paid -- normally, you're paid by the weight. And the cost is not based on the weight. The cost is based on the movement, right? So you move a pallet that's a 1,000 pounds or move a pallet that's 1,500 pound. The cost is about the same. May be different on the line haul. But line haul the issue is always [ queued ] before weight. David Saperstein: Yes. And the service point continues to be very important for us, Brian, and that's how we're looking to grow and move. I mean it's true that we took a step back on the claims ratio. But the other service metrics are moving in the right direction. I can tell you that in Q4, the miss pickups were 1.5%, down from 3.3% a year ago, reschedules at 8%, down from 12% a year ago. On time is flat, around 91%. And then we've continued to increase our small, medium-sized shippers as a percent of total, it's around 28% of total revenue, that's up from 25% a year ago. Operator: And your next question comes from the line of Jason Seidl from TD Cowen. Jason Seidl: I wanted to touch base a little bit on the data center comments and I think you called it out in the previous release, and you guys typically don't do that. Maybe you could dig a little bit deeper and let us know sort of how big you think this can get for TFI. Alain Bedard: Well, you know what, Jason, like I said, I mean, right now, before this acquisition that we did late '25, I mean we were only servicing the data center world, okay, through our Texas operation at Lone Star. Okay? And this is something new for those guys. It's like it's something new for the industry in general. So -- because these guys used to be big with wind and energy in Texas. So now we're saying, okay, this is great, but how about data center. So let's -- so we are kind of very close to what's this builder Bechtel, okay? So we're trying to work very closely with those guys. But now with this new acquisition that we just made late in the year, those guys that are operating more like in the Michigan area. Those guys are also very close to a builder there that's been awarded to data center. One for Meta, one for Google. And hopefully, we could continue to work for this builder okay, to support them in those two data centers. So this is -- could be a win for us. If ever, our team is successful out there. So this is what we're trying to do is build some kind of a recipe partnering with the builder of those centers, like the Lone Star guys are with Bechtel and our guys up north are with a different builder. So this is what we're trying to do. And then once this is -- this data center has been completely built, they will need servicing, right? So that's also something that we're trying to get into and to grow that business. We have lots of experience in Texas with Lone Star and moving very expensive -- like we did a move for one of the energy company, ConocoPhillips that was valued at about just doing the move, if I remember correctly, it was like close to $1 million just to move this kind of equipment, right? So these guys are really good at what they're doing. And it's just like, okay, guys, so good for wind, good for energy, for the oil sector and all that. But data center is the new thing. So let's get up and running on that. David Saperstein: And the approach is to approach -- the approach is to approach this as a consolidated group, right? And we have one of the larger flatbed fleets in the U.S. over $1 billion of U.S. Flatbed revenue. And we are going to market for the large customers as one so that they're in the area able to get that nationwide service. And so it's around the energy, it's around the construction. It's also around the high-value A lot of the materials or high value need to be on time. And so we have that skill set with the DoD top secret work that we do high-value freight as well. Jason Seidl: That makes sense, David. And my follow-up, Alain, you touched on continuing to do acquisitions. There's been a lot of articles out that 2026 could be a big M&A year for the logistics group in general. Maybe talk a little bit more about that? I mean, are you still targeting a larger acquisition this year? Or is that going to be something that's more of a '27, '28 event? Alain Bedard: Jason, in order to do a deal of large-size you got to be patient. And like I've always said, you make your money in the buying, never in the selling. So the price has to make sense and all that. So for sure, I mean, we could do something of size, the end of '26 into '27. But there, again, I'm looking at what's going on with everything that's going on in the market right now with -- on the parcel side and even on the LTL side. So you'll probably see us do some in '26, do some kind of smaller deals, okay, like the one we just did late in Q4. We just did one small deals in Minnesota to add to our Transport America division, okay, that makes a lot of sense. We may be doing some smaller deals in the LTL world in the U.S. So large deals takes time, right? And we have to be very careful. And like I said earlier, until we have a deal between the 3 countries, okay, in NAFTA kind of deal, right? Until we have that, it's very difficult to do a deal of size because you don't know what the rule is going to be. So this is why I'm saying it's impossible to do something now may be possible by the end of '26 but probably more like '27. And in the meantime, because of our free cash flow generation, we'll keep continuing to do smaller deals, okay, where the risk is different, okay? Now because of too much unknown on the deal between the 3 major partners in the world, which is U.S., Canada and Mexico. Jason Seidl: Yes. Makes sense. Alain, you mentioned smaller deals on the LTL side. Will this be like buying cartage agents. Alain Bedard: No, I would say it's probably -- I'll give you an example. You buy a small Texas regional guy as an example, okay? -- or you buy a regional guy in the Northeast, which is close to Ontario, Quebec, right? So that's what I'm saying by smaller deals. So it's not a national carrier. It could be a strong regional guy that covers one state like Texas or cover two or three states in the Northeast. This is more okay, what we are trying to do right now because a large deal in the U.S. LTL for us, it's not possible right now. Operator: And your next question comes from the line of Tom Wadewitz from UBS. Thomas Wadewitz: I wanted to try to drill down a little bit on the non-domiciled CDL impact and how to look at that in your business, right? So Truckloads is an extremely large market. where we expect the supply side benefit, but the benefit might be different in dry van versus specialty in flatbed. So do you have a sense of kind of how much non-domiciled CDL has impacted specialty flatbed, you were mentioning some of the skill sets are a little more unique in specialty. And I'm just trying to get a sense of like, well, is this really going to cause capacity to come out in dry van and then there's maybe less pricing impact to you. I know they're somewhat fungible, but just trying to get a little more sense of kind of how you would see the driver impact and whether you think there is a lot of activity in supply and specialty that's actually non-domiciled? Alain Bedard: That's -- you know what -- this is a really good question, because so far, okay, we see way more, okay, on the van side than on the specialty truckload side, because what you just said I mean in the specialty, let's say, on a flatbed or on a tanker operation, there's more than just driving the truck. Right? Whereas the van, you just pick up a trailer and you drive it, right? So it's much easier than to tarp a load on a flatbed, right? So I don't know that, Tom, so far. It's very hard to put a finger on what the effect of that is going to be. But one thing is for sure is that we'll probably not see as much benefit as the van because it's probably less of an issue for our world, but it's a little bit like a domino effect, right? So once the spot moves okay, on the van, it starts to move on the reefer, we see also some movement on the price on the flatbed side year-over-year. It's starting to move. So I don't know if exactly -- is it because the supply is constrained or is it the demand that's more? My feeling would be more like not the demand because the demand in my mind, is still very soft and weak excluding the data center thing there or the energy sector. But I think it's an issue of the supply that's starting to constrain because our revenue per mile, although we still have some of our divisions that are not doing well on a revenue per mile basis because of market condition. But overall, okay, our revenue per mile is improving. I mean in Q1, okay, I think we're going to start to see those improvements, because we did not improve in Q4. That's for sure. I mean we -- I've never seen a Specialty Truckload OR at 93%, which is worse than my van 91 OR in Canada. This is not acceptable, absolutely not. But there's market condition to that. So that should -- we should see some improvement there. And is it because of the demand? Or is it because of the supply, I think it's a little bit the supply demand will probably improve over the course of '26 and '27 and CDL, is that helping us as much in the specialty world versus specialty Truckload world and than the van world, I think that probably it's a huge more benefit to the van world versus the specialty, but we're still getting I think improvement, because our revenue per mile is improving year-over-year as of now. Thomas Wadewitz: Okay. That's great. And then a quick one for David or one or two for David. Just I want to make sure I understand your comments on U.S. LTL in 1Q. So if you see flat year-over-year shipments, then that would imply, I want to say, like 3% to 4% growth in shipments per day 1Q versus 4Q. So that would be kind of a meaningful improvement. So I don't know if you were saying kind of flat shipments sequential or year-over-year and if you're saying flat year-over-year, what might be driving the kind of the improvement in activity. David Saperstein: Well, what's -- so it would be potentially flat year-over-year. Again, hard to say what's going to happen in March. But that was -- but it was -- the comment was with regard to year-over-year. What's driving the improvement is the sales team, the service and all of the things that we've been working on over the course of the past year. Now the revenue per shipment may not be positive, right? And that's the -- that's why we're looking at -- we'll see where the revenue per shipment is relative to year-over-year. But, but there is pricing pressure out there. And so that's going to be the offset to what could be strong volumes or stronger volumes as it relates to the profitability contribution. Thomas Wadewitz: And 100 basis point comment on weather impact, that's a full quarter impact in U.S. LTL? David Saperstein: Yes, we're estimating that we've lost like $5 million to $6 million already on the weather. Just through extra over time and just inefficiencies and cleaning up the dock and all that cost . Alain Bedard: Yes, versus a normal environment, because some -- see the issue of the weather, we always have weather in Q1. So this is not something that we normally talk about. But this year, it's special, because it affected our big market, which is Northeast, Midwest and Texas, right? So if the weather is an issue in Idaho or in Utah, but not too big for us, right? But when it affects Chicago, when it affects Dallas, when it affects New York. I mean this is really, really difficult because Dallas, we were shut down for 3 days because of the ice. So what David is talking about $5 million, $6 million, this is over and above what we consider to be a normal environment of weather. I mean, this is -- we're not saying because we had -- no, no, this is exceptional for this year, because weather was really bad in our major sector, okay, for TForce Freight . Operator: And your next question comes from the line of Konark Gupta from Scotiabank. Konark Gupta: Maybe just a first one on the earnings side of things. I mean, as we kind of look into the back end of 2026, hopefully, conditions improve. But is Q4 going to face a tough comp from like the [ $1.19 ] EPS you reported for Q4 of 2025. I mean if I'm looking sequentially, you have like effectively a drop of 50% in EPS from Q4 to Q1 as guided, and that's a little bit wider than what you typically see, right? So I'm just trying to make sure, we're not missing anything when we are comping or lapping the Q4 2025 and Q4 '26. Alain Bedard: Okay. So I think, Konark, that Q4, okay, 2025 versus '26 I think that we're going to be in a different position, okay, versus this year versus '25, reason being that I believe that our logistics will do way better in 4 '26 versus 4 '25 because our customers will be busier talking about the OEMs, the truck manufacturers, okay? And also the fact that we've had as an acquisition late in Q4 '25, a great company in our Logistics sector. So this is why on the logistics side, I think that we're going to do way better, okay, Q4 versus '25, '26. On the Truckload side, it's still -- I'm convinced that we're going to do better because I've never seen 93 OR. And we're taking some action, okay? I'll give you an example. One of our division on the West Coast which we are doing really well, okay, with certain accounts like the aerospace. So we have Boeing as a customer over there. We have Bombardier as a customer too. So we're doing really, really well with those guys, but we're doing so poorly with some other customers. So we took the bull by the horn, and we said, guys, no, no more of that, right? We have also another division that's from Daseke that is doing really well with one sector of their business, but they're doing really poorly with another sector. So there, again, we're going to take action there. So this is why, to me, I think that Steve and his team understand that we can run a Specialty Truckload with a 93 OR. This is completely unacceptable. And we're taking action over and above what we think that we're seeing some early signs of market improving. On the LTL side, like David was saying, I mean a big focus of Kal and the team there is really to improve our service, okay? And we are. We are improving our service. So as an example, we move way more freight on the road versus the rail. So the rail miles within TForce rates are down to about 20%. When we bought UPS rate, these guys were 38% to 40% on the rail. So for sure, when you move freight on the rail. You don't know, you don't control the service, because this is the rail, whereas if you do it yourself on the road, well, it's under your control. So we are improving our service as an example, just moving rail to road. Now like I said earlier, because we move that on a van and the van, okay, world's rate per mile is moving up, like we were talking about this environment is changing. It's also a little bit of pressure on our costs because where we used to pay, let's say, 220 miles. Now, okay, you could be start paying 250 to 270 or 280 a mile depending on the lane, right? So a little bit of pressure on that for us. But for sure, with better service, I believe that our commercial team with Chris and the rest of the boys there will help us grow for the first time organically in '26 year-over-year, right? So this is why you look at what we're saying about Q1, I think it's exceptional what we're seeing because it's still a very tough environment. Our customers don't know what's going to happen in the future because until we have a deal, like I said earlier, between U.S., Canada and Mexico, a lot of guys are sitting on the fence because don't forget, I mean, TFI is a U.S. carrier for about 75% of our revenue, but 25% to 30% of our revenue is Canadian, right? So a lot of our Canadian customers, they don't know what the future is. And also some of our U.S. customers are facing a tough time selling to Canada right now. So all of that being said, when we come up with $0.50 in Q1, it looks really bad versus $1 in Q4, but it's a special environment, okay? And we're cautious. Konark Gupta: That's great clearly. And if I can follow up maybe on logistics. I think you mentioned that sequentially speaking, at least logistics margin expanded from Q3, don't be surprised to see that. So any color you can share in terms of what's driving this improvement? I mean, is it early days? Or is it the mix? Or is there something else? Like how should we extrapolate this performance at logistics into '26. Alain Bedard: Yes. I think, Konark, that you see us improving during the course of '26. Like I said, because of this acquisition, okay, that we did because of our -- one of our large customers, the OEMs are also going to be busier. Our Canadian logistics is doing pretty good. We have a great business there. Our U.S. logistics is under a little bit of pressure with what's going on in the truckload sector in the U.S. where the rates are starting to move up on the spot. So you try to get a truck. It's a little bit more money, and you're stuck with contracted rates with customers, and these guys want to extend those contracts and we're saying, no, because the market is changing. So on the U.S. side, a little bit more pressure, okay, on our profitability there, maybe for the next few months. But all in all, I feel really good about where we're heading with our logistics. Logistics for us, with this new acquisition and a few things that we're working on should do better in '26 than in '25, Absolutely. The other thing also that's worth mentioning is that if you look at our Truckload brokerage operation in the U.S., I mean the revenue is up, okay, and it will continue to grow. So this is one area of focus of Steve and his team is to grow more of this asset-light operation versus asset-heavy operation and get a better mix like we have in Canada. In Canada, we won a hybrid model where we have our own assets, okay? But we also generate a lot of revenue without any assets. When we bought Daseke, they were doing some of that, but not a lot. So the goal doing in '25, '26 and '27 is to grow the share of the asset-light operation share of revenue, okay, versus the total revenue of the company. So you're way better positioned to improve your return on invested capital, because when you don't buy steel, your capital cost goes down, if the profitability or the revenue remains the same, your return on invested capital improved. And this is when we talk to the Truckload team say, we can't run a single-digit retail investor capital, guys. I mean if you do that, the future is bleak. So we got to do something. The market will help us, yes, but we need to help ourselves too. Operator: And your next question comes from the line of Bruce Chan from Stifel. J. Bruce Chan: You made some helpful comments around the road to rail shift in LTL. I think that makes a lot of sense for service. Maybe you could also remind us of what percentage of linehaul miles are currently outsourced on the LTL side, whether that's the truck or rail. And then given your fleet investments, do you have any plans to bring that number down this year? . Alain Bedard: Yes. So what we do is about 20% on the rail, 20%, 22% on the rail. And then we have owner up, okay, and we have third party. So the third party and owner up probably our own guys do, if I remember correctly, David, tell me -- correct me if I'm wrong. David Saperstein: Yes, our own guys are doing around 55%. Yes. So it's 45% outsourced. Alain Bedard: And of the 45% outsourced, 20% of that is rail. So 25% is third party, owner up and third party. J. Bruce Chan: Okay. Great. And then just maybe broad plans, if you're comfortable with that number as far as its use your model or whether you plan to bring that down over time? Alain Bedard: Listen, I mean, for sure, okay, if you hold your average length of all is 1,000 and more, you have to have some rail, right? So I cannot answer is 20% the right number? I would say we're getting close to the right number if the average length of haul stays above 1,000 miles. Now one thing is for sure is the 55%, like David was mentioning with our own guys that could grow probably closer to 60%, okay? Over time, yes, because you have better control when it's your own people. But the rail at 20%, we're probably close. If we remain over 1,000 miles. We're probably close to the best that we could do. Now again, this is going back to the average weight per shipment that we went from $10.75 to $12 something -- the average length of haul is down a bit, but the discussion I'm having with Kal and the rest of the team is over time, okay, we need to change our approach to the market and reduce over time the average length of haul so that we don't touch the product 3 or 4 times. We touched the product less. So in order to touch the product less, you have to do less miles, less on the average length of haul, right? it's an evolution, okay, that's going to take place over time. But there, again, what I'm saying, if you run over 1,000 miles, you need the rail. Operator: And your next question comes from the line of Ken Hoexter from Bank of America. Ken Hoexter: So Alain, maybe just a bit of a contrasting message, so maybe some clarity. You noted a weak environment, but 1Q should be flat after a down 7% ton and down 11% shipment quarter. So maybe clarity on what's driving that near 50% EPS downtick in the first quarter. And then you throw in, "Hey, it's conservative, we could do better." So is it just the weather that's stepping you back? Are there gains in the fourth quarter or any impacts from the fourth quarter acquisitions in there? Maybe just some clarity on it. . Alain Bedard: Yes. So David, do you want to give some clarity to Ken on that? . David Saperstein: Yes, sure. I mean, look, in terms of gains or anything special in the fourth quarter, the only thing special in the fourth quarter was tax for about $5 million. Other than that, it's -- there is nothing onetime in nature. The -- in terms of what's driving is the trend of volumes up. It's the work that the team is doing. What may still weigh on the profitability though is the revenue per shipment and -- and so that's why the growth in volume may not be as profitable as otherwise would be. We'll just have to see how that plays out. And then more broadly, it's very, very difficult to, especially at TForce Freight to forecast the first quarter because all the money is made in March. That's just the nature of this business. And so when we're looking at a Jan and Feb that we're very difficult with or at least January, very difficult with the dynamics that we've talked about. There's a lot that's unknown. And so we've done the best that we can, and we are being conservative about what March might be when we put together that guidance. Ken Hoexter: That was flat on shipments or on tonnage. I think you said both... David Saperstein: The shipments year-over-year potentially on shipments. Yes. Ken Hoexter: And then you previously noted, I think, 200 to 300 basis points of margin improvement at LTL in a flattish environment. I think you mentioned, if we're starting out flattish in 1Q, does that mean you're looking flattish for the year? And -- does that -- or is too big a whole? And so that 200, 300 basis points for the full year is too big? Or is that still achievable Alain, in your outlook? And how about EPS, are you then looking for it to be at least up on a year-over-year basis? . Alain Bedard: Yes. So in terms of the volume, like I said, Ken, I think for the first time '26 in our U.S. LTL we should see a little bit of organic growth, okay, on the shipment count, right? On the weight, we believe that it's going to be about flat or up a bit. On the revenue per shipment, like David was saying, okay, right now, what we're seeing is a little bit of pressure on the revenue per shipment when we look at Q1 so far. But the team is working to correct that, okay? It's not like we accept that. No, no, no, no, no, no. We cannot live with $5 less of shipment and whatever it is. I mean don't forget, our GRI, which is small, okay? It's a small number of shipments, right? But we didn't do any, but we're doing one in mid-March, okay? Most of our peers have done, there's earlier than us. And us, we waited, okay? We waited because we want to continue to improve our service. So there's no this issue with customer when you talk to them about asking for more money. So this is why we're doing that mid-March. Okay. Fine. So if we go back to the year in terms of globally TFI, my mind is, for sure, our plan is we will deliver better OE or EPS in '26 versus '25 without a doubt. That's our plan. Because our -- like I said our logistics will definitely improve that. We have visibility. We know okay, where the OEMs are going, because we talk to them, okay? We know that it's going to be weak for the first 6 months year-over-year in '26 versus '25. But the latter part of the year, we're going to do way better in Q3 and in Q4 versus '25. Okay. So we are suffering a little bit in that business in Q1 and in Q2 year-over-year. In our Truckload, we've talked a lot about that. I mean I'm convinced that we're not going to deliver a 93 OR, okay, in Q1. We are improving our year-over-year basis in Q1 and during the course of the year. And on the LTL side, I mean, we're taking some actions there, okay, improving our service, organic growth small. I think that we'll do a better job in '26 as we've done. Now we've said it clearly, and this is why our guidance is only $0.50 to $0.60 is that we had a difficult start of the year, okay, not just in U.S. LTL, in truckload as well and logistics because some of our customers are not that busy. So this is why this is what we believe is achievable, okay? And hopefully, we do better than that. David Saperstein: Yes. And the other thing I would point out on the full year is that in Truckload, we've done a lot of work in 2025 to reduce the capital intensity of Truckload, because we had way too much equipment. And so depreciation expense will be lower in the Truckload in '26 than it was in '25. And you can actually already see that if you look at the DNA of Truckload just in Q4 is $3 million lower than it was the year prior and lower as a percentage of revenue as well, right? So there's real efficiency as it relates to the capital there. And that's going to continue into '26 and the impact would probably be higher in '26 than $3 million a quarter. Alain Bedard: Yes. Because if I may add, guys, our revenue, if I remember correctly, our revenue per truck in Q4 is better even with rates per mile that are not that better. So velocity is more. Operator: And your last question comes from the line of Cameron Doerksen from National Bank. Cameron Doerksen: I just wanted to, I guess, follow up on M&A. You mentioned a few times the acquisition you closed in Q4, I guess, the Hearn industrial. I mean, obviously not huge, but you cited it a couple of times here as a really great fit. Can you just talk a little bit about that business? Because it looks like in your disclosures that not a huge from revenue point of view, but a pretty good margin profile for that business. Alain Bedard: Well, you see -- I mean those guys are doing a great job. I mean they are entrepreneur. And I think that what these guys are doing today is great. And I think that the potential for being part of the TFI family is going to help us -- help them and us, okay, do even better in the future. So this is something new for them. I'll give you an example. They don't touch freight. I mean, they do a lot of work for the -- in the automotive business, but they don't touch freight, but they have a certain degree in the freight. So that's something new for them, right? So for sure, they are in touch with our GHG division, okay? Because these guys have a lot of capacity that could be used to deliver freight for those guys. So there's going to be some great synergies, I think, between members of the family, with the Truckload sectors and all that. And for sure, these guys are lean and mean operators, very successful guys. And yes, I think it's going to be a great acquisition in our logistics sector, a little bit like the [ GHG ] and the other ones that we've done in the logistics sector. Cameron Doerksen: Okay. No, that's helpful. Maybe just a bigger picture capital allocation question. I mean you mentioned that you continue to be active with the tuck-in acquisitions. Just wondering if you've got kind of a target for leverage at year-end? I mean, you still pretty comfortable here, great free cash flow still expected in 2026. But just any guess targets there as far as leverage and is the capital allocation priorities? Alain Bedard: Yes. So capital is always the same thing. If we don't do anything of size we're going to do probably, I would say, '26 in 2026, $200 million to $300 million of M&A in terms of tuck-in, probably $200 million minimum, maybe up to $300 million, and then we get the dividend. And the rest, okay, we'll just use the cash to pay down debt or depending on the stock valuation do some buyback. I mean we have the possibility of buying back all the way up to 7 million shares that we are approved to do. Now again, $2.5 million leverage, it's okay, but we would prefer to bring that down to $2 million over time. So let's say that we do about the same free cash as we did last year. We got the dividend, we've got the M&A -- so then for sure, we'll be reducing our leverage if we don't do any stock buyback. So leverage I don't remember the plan, David. So where do we end up, we're closer to $2 million than $2.5 million. David Saperstein: Yes, no doubt. And the other thing we'll point out and we actually added this into the MD&A were just under the table where we show the leverage ratio. That leverage ratio is calculated according to the way that our banking covenants are calculated and it includes two things that some investors may not consider leverage. One is letters of credit. And the second is the book value of earn-outs, right, which are subject, of course, to the future performance target companies. So those numbers are a little bigger than they have been in the past. And so that's why we set them out in the table. And so you can see that and you can work out by backing those out, what, let's say, the real economic leverage of the company is, which is a little lower than as presented in the banking syndicate. Alain Bedard: Yes. With these numbers, David, I think we're at $2.2 million, right? . Operator: There are no further questions at this time. I will now hand the call back to Alain Bedard for any closing remarks. . Alain Bedard: Thank you. So all right then. Thank you very much, operator, and thank you, everyone, for being on today's call. We appreciate your interest in TFI International. And we're both confident in our position and enthusiastic about what 2026 will bring. As always, please reach out if you have any additional questions. I look forward to seeing many of you on this year's conference circuit. Enjoy the day, and we'll be in touch. Thank you. . Operator: This concludes today's call. Thank you for participating. You may all disconnect.