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Operator: Good day, and thank you for standing by. Welcome to the Capgemini Full Year 2025 Results Webcast and 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 today, Aiman Ezzat, CEO. Sir, Please go ahead. Aiman Ezzat: Thank you. Good morning. Thank you for joining us for the Full year 2025 results call, and I'm joined, of course, by our CFO, Nive Bhagat. So Capgemini delivered a solid set of results for 2025. Operating margin and organic free cash flow were on target and revenue growth finished above the upgraded guidance. In a demand environment that remained largely unchanged, our underlying performance strengthened quarter after quarter with momentum improving across regions, businesses and sectors. We won where clients invest in cloud, data and AI and digital business process services. We captured where it matters most to clients, the large transformation programs. For the year, revenues were EUR 22.46 billion, representing 3.4% growth at constant currency with around 2.5 points of scope impact. Bookings were EUR 24.36 billion, which represents a solid 1.08 book-to-bill for the year and a strong 1.21 in Q4, which is really an evidence of sustained commercial traction driven by a higher number of large deals. We demonstrated the strong resilience of our operating margin at 13.3% and organic free cash flow at EUR 1.95 billion in spite of cost pressure due to a higher bench in Continental Europe. Normalized EPS stands at EUR 12.95, plus 5.8% year-on-year. In line with our dividend policy, the Board will propose a EUR 3.4 per share dividend at the Annual General Meeting. So in a fast-changing environment, we also took strategic steps to lead in AI, Intelligent Operations and to reinforce our position on Sovereignty, and I will discuss these market trends shortly. So we finished the year on a strong note with another improvement in our underlying growth in Q4. Constant currency growth was 10.6% in Q4, including a scope impact of about 6.5 points, driven primarily by WNS and Cloud4C. Now stepping back and focusing on the underlying trend, we clearly see the benefits from the actions implemented over the last quarter. All regions improved between Q1 and Q4. North America recorded the strongest acceleration, while U.K. and Ireland and APAC and LatAm improved on an already solid performance. France gradually improved, but it remains challenging at year-end. The recovery in the rest of Europe was more pronounced and is now back to growth. The improvement is also visible across sectors, which all have significantly improved since the beginning of the year, even manufacturing is now stable year-on-year, excluding M&A impact. Finally, from a business perspective, Operations and Engineering recorded the strongest acceleration, both at constant currency and organically with double-digit growth in digital BPS across both Capgemini and WNS. One of the highlights of 2025 is the strength of our ecosystem of technology partnerships. Today, more than 2/3 of our bookings are associated with our top 12 technology partners. And in a world driven by cloud data and AI, cyber and sovereignty, clients are looking for solutions combining ecosystem of technology partners and services provided by relevant transformational focus, leveraging industry domain and functional expertise. I also want to highlight specifically the Defense sector, which continues to enjoy double-digit growth in 2025. And as the leading European player, Capgemini is uniquely positioned to capture this structural growth opportunity. I do expect to see further acceleration in the next 2 to 3 years as Europe ramps up its defense programs. So we expect good growth to continue in H1. For Q1, in line with traditional seasonality, constant currency growth should be in the range of 8.5% to 9.5% in constant currency with around 6.5 points of contribution from M&A. So quick words about our 2025 ESG policy achievements. So again, here, we demonstrated continued improvement in corporate responsibility with major progress on our ESG road map. So let me highlight a few points. From an environment standpoint, we accelerated towards our target of being net zero across all scopes by 2040, reaching 100% renewable electricity for all operations. We also made notable progress in gender balance. Proportion of women in the global workforce reached 40.5%, up 7 points since 2019. And for women among executives, leadership position, we reached 30.5%, up 13 points since 2019. Finally, on governance, we made further progress around cybersecurity with a CyberVadis score of 990 out of 1,000, positioning us as the leader in our industry. Now let's focus on our growth engine. And of course, let's start with AI. So AI in the enterprise has become a reality. Maturity is increasing about its possibilities, but also about what it will take to achieve real adoption and measurable results. So 2026 is really the moment of truth for AI, the moment where AI must transition from [indiscernible] to measurable business impact embedded in core operations, delivering value through AI-powered transformation. As we move to transformation, there is a growing awareness that the foundations are not yet in place, whether we're talking about infrastructure, data, standardized governance, risk and compliance frameworks. In practice, clients face siloed legacy systems preventing AI workflow orchestration, poor data availability and quality preventing AI performance and fine-tuning and legacy workloads running on-premise and preventing AI compute at scale. Finally, it's about human AI collaboration and trust. This is where the real complexity lies. This is our playing field. All this complexity, this is where we can drive real transformation requiring strong business acumen, domain knowledge, transformation capabilities, data and AI and technology depth. And in this context, Capgemini has the right capabilities and set up to deliver AI transformation to our clients, leveraging appropriate ecosystem and partnerships. Now let's take a couple of examples to make that more concrete. So just -- the first client example is a client who want to identify its procurement activities end-to-end to be more competitive. So from strategy and sourcing to procure to pay and end-to-end processes. So we are currently building a suite of 7 Agentic products that will provide market intelligence, assist buyers in the sourcing phase, analyze supplier responses to tenders, automate food cost calculations, simulate cost scenarios, analyze cost variances, consolidate forecasting, draft contracts and automate value tracking. As you see, the scope is pretty comprehensive. And the product is targeted to deliver tangible impact in the short term, strengthen working capital by optimizing payment terms, reducing inventory exposure and improving the cash impact of procurement, decrease operational and purchasing costs through automation and smarter decision-making and lower process execution costs and reduce reliance on manual efforts across procurement workflow. We can already document EUR 27 million of savings to date to what has been achieved. Our second client was facing issues of data center reliability with significant financial impact up to hundreds of thousands of dollars per minute of downtime of outage in addition to reputation damage. We developed a physics-informed AI model, identifying abnormal variation to predict and prevent equipment catastrophic failures, and alerting platform integrated with existing order workflow that's not requiring any operator training and a global and unified view of equipment operation, relationship and performance, feeding back operational and design improvement. Implemented and live, our solution has successfully prevented and mitigated catastrophic events, saving our customers millions and millions every year. And just one key metric, we have avoided around 50 critical incidents prevented per year. Now moving on to the second vector of growth, which is Intelligent Operations, which we consider still to be the largest showcase for Agentic AI. WNS was acquired in that context to provide the scale and vertical expertise required to lead in this market. The integration is proceeding as planned and should be operational in H2. I can confirm that the benefits are on track. Let me remind you, annual run rate of revenue synergies of EUR 100 million to EUR 140 million by the end of 2027 and annual run rate of cost synergies of EUR 50 million to EUR 70 million also by the end of 2027. The go-to-market activities as expected, are vibrant, and we have today 100 cross-selling opportunities identified. The Intelligent Operations pipeline of opportunities also growing with some very large deals in pursuit. With Intelligent Operations, we are leveraging AI to reshape and run entire areas of client business operation to achieve end-to-end strategic value creation by combining cost efficiencies and enhanced business outcomes. Happy to report that we closed our first mega deal of over EUR 600 million for a large global company, covering multiple functions and processes based on a true Agentic AI-led transformation solution, delivering significant cost reduction and enhanced business outcome and operating on a non-FTE based commercial model. So this is the largest of several contracts signed in the last 4 months with some potential extensions of scope. And this is a clear proof that the Intelligent Operations strategy is working and will be one of our growth pillars in the coming years. Let me move on now to sovereignty, where we see a significant appetite from clients to help them develop and implement their sovereignty strategy. This has become a huge topic in today's multipolar world. I took this as proof -- I take it as proof, this striking figure. Over 50% of services contracts will include some sovereignty requirements by 2029, up from 5% in 2025 according to Gartner. And sovereignty is not a monolithic framework, but is composed of 4 key dimensions: Data, operations, technology and regulation, and no one can really be sovereign across the full value chain. Now it is clear that as the largest European player, we are the driving force in developing offerings, ecosystems and partnerships to help large organizations implement sovereignty enabling solutions adapted to their needs and environment. We reinforced our solutions portfolio with the acquisition of Cloud4C, providing hyperautomated, AI-ready, locally governed cloud operation with sovereign compliant monitoring, disaster recovery, cybersecurity and continuity and in addition, with specialization across some industries and sovereign compliance frameworks. Now we are leveraging Cloud4C setup to create a European-hosted mirror platform to operate our European customers' sovereign workload. This is a perfect complement to our Bleu SecNumCloud JV with Orange in France. We are also leveraging our core partners, sovereign solution. We made 3 announcements in the past week with Google Cloud, AWS and Microsoft in addition to the sovereign technology partnership signed with SAP in November. Now we are extremely well positioned to capture the growth trend on sovereignty. Now the market is moving fast. And while a few areas have been softer in recent years, the opportunity set ahead of us is really compelling, especially in AI, Intelligent Operations and Sovereignty, as I have outlined earlier. We are executing a clear plan with selective strategic M&A, disciplined investment and a sharper focus on where we lead. Today, we are accelerating also our capability shift in order to deliver on the growth agenda. This will translate in a number of country-specific workforce and skills adaptation initiatives, leading to an estimated EUR 700 million restructuring over the next 2 years. These Fit for Growth local initiatives strengthen our competitive position and support sustained and profitable growth. For 2026, our targets are clear: Constant currency revenue growth of around 6.5% to 8.5%, with inorganic contribution of around 4.5 to 5 points. Operating margin of 13.6% to 13.8%. Organic free cash flow of around EUR 1.8 billion to EUR 1.9 billion, including the estimated year-on-year increase of around EUR 200 million in restructuring cash out. In 2026, we're going to demonstrate our ability to set the group on a new profitable growth agenda around AI, Intelligent Operations and Sovereignty. And this will further reinforce the group's financial profile. We are clearly pivoting the group to be the catalyst for enterprise-wide AI adoption, more to come during the Capital Markets Day in May. Thank you for your attention, and I now hand over to Nive. Nivedita Bhagat: Thank you, Aiman, and good morning, everyone. Let me start with the headlines for FY '25. We delivered a solid top line at EUR 22,465 million, which is up plus 1.7% on a reported basis and plus 3.4% at constant currency, placing us above the top end of the outlook we upgraded in October. This shows that our growth initiatives put in place over the year yielded results despite a mixed environment. On profitability, we protected the operating margin at 13.3%, stable year-on-year and in line with the guidance we set. Holding the operating margin despite the challenges we have faced in Continental Europe is proof point that our operating model is more resilient than ever before and shows the continued effectiveness of our cost discipline. Net profit group share ended at EUR 1,601 million with basic EPS at EUR 9.46. Normalized EPS, which strips out the other operating income and expense items was EUR 12.95, plus 5.8% year-on-year. Finally, we delivered organic free cash flow of EUR 1,949 million, in line with the around EUR 1.9 billion target we set at the beginning of the year, a strong testament to our financial discipline and focus. Let me take a moment to talk you now through the shape of the year. Growth rates gradually improved quarter after quarter at constant currency, but also ex M&A. Underlying growth strengthened further into Q4 and after taking into account the scope impact of around 6.5 points, our constant currency growth reached 10.6%. I'm happy to confirm that the organic growth in Q4 was therefore around 4%. To this effect, there is an error on Slide 27 of the pack. Now reflecting on the acceleration since the beginning of the year, what gives us confidence is that this wasn't a single sector or single region spike. We saw broad-based improvement across all businesses, regions and sectors. Currency impact was negative at 370 bps, so that's minus 370 bps in Q4 and minus 170 bps for FY '25. Based on current rates, currency headwinds should continue into Q1 2026 at slightly over 4 points and then settle at minus 1 to minus 1.5 points for the full year 2026. In summary, while the demand environment has remained largely unchanged, our current momentum is clearly stronger than it was a year ago. Turning to bookings. This was EUR 24.4 billion for the year with a very solid EUR 7.2 billion in Q4. In constant currency, our bookings are up plus 3.9% for the year and plus 9.1% in Q4, which mirrors the improvement in revenue momentum we just discussed. The book-to-bill of 1.21 in the quarter and 1.08 for the year is strong by historical standards, and this reflects 2 things. We continue to win in clients, new strategic priorities, particularly data and AI, and we won a higher number of large deals, which brings some added visibility. As Aiman said earlier, our portfolio investments from cloud, data and AI to digital core modernization, Sovereignty and Intelligent Operations continues to show good conversion, which sets us up well for the future. From a sector perspective, the improvement extended into Q4 on a like-for-like basis. This is also visible in manufacturing, which was stable in Q4. This solid performance was complemented by the contribution of WNS and Cloud4C acquisitions, which was mostly visible in the services, financial services, energy and utilities and consumer goods and retail sectors. Turning now to the full year, again at constant currency. Financial services and TMT sectors were the most dynamic in 2025, growing plus 9.2% and plus 7.7%, respectively. With the exception of manufacturing, which remained slightly negative, all the other sectors posted low to mid-single-digit revenue growth in 2025. Geographically, Q4 showed a step-up in underlying trends in our largest regions. North America improved and rest of Europe returned to positive growth. Growth rate improved in France, although still negative in Q4. The scope impact from WNS and Cloud4C is most visible in North America, United Kingdom and Ireland and in Asia Pacific and Latin America. In Q4, this is lifting these regions' already solid growth rates to around 20% on a constant currency basis. For the full year at constant currency, revenues in North America increased by plus 7.3% year-on-year. This has been fueled by continued underlying acceleration throughout the year with strong performance of financial services and to a lesser extent, in the TMT and manufacturing sectors. United Kingdom and Ireland region grew plus 10.5%, primarily driven by robust underlying momentum, notably in the financial services, TMT and public sectors. France revenues decreased by minus 4.1% in a challenging environment as illustrated by the persistent weakness of the manufacturing sector and the contraction of the energy utilities and the consumer goods and retail sectors. In the Rest of Europe region, revenues declined by minus 0.7%. The good performance of the public sector and the growth in Energy & Utilities and the services sectors were offset by a weak manufacturing sector. Finally, revenues in the Asia Pacific and Latin America region grew plus 13.8%, driven by financial services as well as the solid traction in the consumer goods and retail and TMT sectors. On profitability, North America operating margin expanded 40 bps, so that's plus 40 bps to 16.9%, while U.K. and Ireland held a strong 18%, which is 170 bps below a record 2024, which remains a very healthy level. Operating margin in France stands at 10.9% compared to 10.2% last year. As commented in H1, this improvement has been driven by one-off items. Excluding these one-offs, there has been no improvement in the underlying margin. Asia Pacific and Latin America was 12.6% at plus 20 bps and the rest of Europe ended at 11.4% at minus 60 bps. Across our businesses, the Q4 sequential uplift was also visible. Growth rates improved across all business lines on a constant currency basis, but also ex M&A. Strategy and operations, which has no M&A impact, improved significantly. This came with some contrast across regions as we have seen during previous quarters. The other highlight is Operations and Engineering. Let me unpack this as both WNS and Cloud4C are reported here. Starting with digital BPS, this is clearly the fastest-growing business. We have double-digit growth on a like-for-like basis across both Capgemini and WNS. Cloud Services and Engineering are also now positive. Moving on to the full year at constant currency. Applications and Technology grew plus 4.6%. Operations and Engineering, plus 4.9% and Strategy and Transformation at plus 2.4%. In terms of head count evolution, head count closed at 423,400, up 24% year-on-year and 19% since end of September, primarily reflecting the WNS integration. WNS is also accretive to our offshore leverage. Offshore leverage moved from 60% in September to 66% at the year-end. This is up plus 8 points year-on-year. Attrition was slightly down to 14.9% on a last 12-month basis before we incorporate WNS data in 2026. Let's now look at the operating margin bridge. Gross margin was 27.1%, down 30 bps year-on-year. This primarily reflects a prolonged soft market in Continental Europe. In this context, I would like to point out that our gross margin has been significantly more resilient than in any other previous down cycle. Additionally, in the current demand environment, we have tightened our selling expenses by 20 bps and our G&A by 10 bps. The net result is operating margin stable at 13.3% within the range guided for the year. Moving on to financial results. With the interest expense of the new bonds and lower interest income on cash, we moved from a net interest income of EUR 13 million last year to a net expense of EUR 30 million this year. On income tax, the effective tax rate is down year-on-year to 24.6% at the back of some noncash positive one-offs, which I did mention in H1. Now looking from operating margins to the bottom line. As anticipated, other operating income and expenses are up year-on-year at EUR 784 million. The restructuring costs amounted to EUR 205 million, in line with our comments in July. And with the acquisition of WNS, our acquisition and integration costs are at EUR 97 million. This takes the operating profit to EUR 2,199 million, which is 9.8% of revenues, down from 10.7% last year, given those noncore items. After financial and tax effects previously discussed, group net profit stands at EUR 1,601 million, down 4.2%. Basic EPS is EUR 9.46, down minus 3.7%, while normalized EPS was EUR 12.95, up plus 5.8% year-on-year. On cash generation and capital allocation, we generated EUR 1,949 million of organic free cash flow, stable year-on-year and in line with our around EUR 1.9 billion target. This year, again, the conversion of our net profit to organic free cash flow is clearly above 1 at 1.2x. In terms of our capital allocation, in 2025, we deployed around EUR 4.9 billion, approximately EUR 3.8 billion on WNS and C4C, EUR 1.1 billion on shareholder returns, which was split between EUR 578 million of dividends and EUR 542 million of buybacks. The employee shareholder program led to a EUR 0.3 billion capital increase, leading to a net outflow of EUR 4.6 billion. On the balance sheet, we redeemed the EUR 0.8 billion bond in June and then successfully completed a EUR 4 billion bond issue in September. We closed the year at EUR 5.3 billion of net debt. And as anticipated, the net debt-to-EBITDA ratio stands at 1.66, and this compares to 0.7x a year ago. And as a reminder, this was 2.8x post the Altron acquisition. In 2026, as we integrate WNS, we expect limited M&A and will accelerate our buybacks, which is consistent with the EUR 2 billion share buyback program announced in July. On that note, Aiman, I hand back to you. Aiman Ezzat: Thank you, Nive. So before we move on to the Q&A, let me briefly acknowledge the current market volatility that reflects the perception and uncertainty of AI-related impacts. So what matters, however, is unchanged. Capgemini fundamentals are solid. Our strategic priorities are clear, and our teams remain fully focused on our clients' needs. Now listening to our large Global 2000 clients, their needs are rooted in who they are, complex organization that requires end-to-end transformation capabilities, global execution at scale, deep industry expertise, technology-agnostic integration and rigorous regulatory compliance governance. These structural needs do not disappear with AI, they become even more essential. And that makes Capgemini's role integral as organizations navigate the future. The adoption of AI and GenAI will drive sustained profitable growth for the group and value for all our stakeholders. In 2026, we'll affirm our critical role in making AI real for our clients. With that, let's open the Q&A and to allow a maximum number of people in the queue to ask questions, I kindly ask you to restrict yourself to one question and a single follow-up. Operator, could you please share the Q&A instructions. Operator: [Operator Instructions] And the first question comes from the line of Laurent Daure from Kepler Cheuvreux. Laurent Daure: Congratulations for the fourth quarter first. So two questions for me. As you can guess, given the increasing scope impact in the fourth quarter, it's a bit tough for us to reconcile the numbers. I know you will not share with us the organic performance by regions, but I was interested to see if you could provide a bit more insight of the underlying organic trends in the main regions between the third and fourth quarter. In other words, if you've seen further improvements in U.S. and U.K. or if the improvement mostly come from a better Europe? And then my follow-up is probably going to talk more during the CMD on that. But when you discuss with clients, their midterm ambition and their potential budget, I would say, 3, 4 years out, when they look at the additional business regarding AI versus the savings that you will bring to them, do you see them having in mind a reduction of their budget? Or what is their stance at the moment? Aiman Ezzat: Listen, underlying organic and -- Nive can add precision to that. I mean, for me, everything is trending in the positive direction. I mean, definitely in North America, we continue to see further acceleration, which really underlines the recovery. U.K., France has improved and rest of Europe has improved. So -- and on the organic number, just to remind you, Nive said that the organic number is around 4% in Q4 overall for the group. Nivedita Bhagat: And I think just to add, geographically, Q4 has showed a step-up in underlying trends across all our regions. So North America has improved. Yes, rest of Europe has returned to positive growth. And of course, we have seen some improvements as far as France is concerned as well. Aiman Ezzat: Okay. On your second question, I don't think clients are thinking this way about reduction, et cetera. Clients are looking at how critical it is for them to adopt AI and where it can have an impact, both from a strategic perspective and from this. They are not thinking about, okay, I'm going to save money, I'm going to reduce my spend, et cetera. They're looking about how can I get real value out of AI, and they're ready to put the money on the table to make it happen because they consider that as being critical to their future in terms of transformation. I don't think we have -- I have seen clients discussing in 3, 4 years down the line, when I do the -- will I reduce my IT cost or will I reduce my spend on AI, et cetera, anything like that. Laurent, I don't think we are there. I think clients are really around where is the value creation. This is moving fast, how I can adopt it, where can I deploy it? How do I get benefit out of it, whether it's savings, time to market, innovation, better customer relationship, et cetera. And this is really what focus is a lot more than predicting what they will do in 3 or 4 years. I mean you see the uncertainty that's creating in many industries, including in ours by AI and really people are dealing with that more than trying to plan, am I going to save money and reduce my IT budgets in 3 or 4 years. Operator: We will now take the next question. And the question comes from the line of Nicolas David from ODDO BHF. Nicolas David: Congrats from my side as well for this very strong end of the year. My first question is regarding the Q4 to Q1 trends you are describing. Could you help us understand if in Q4, you saw some kind of exceptional budget flush or elements which prompt you to expect an organic growth at the low to mid-range of your guidance you described for Q1, a bit below what you saw in Q4? Or is it just comps or a bit of caution? And second question is, when you discuss with clients and you are signing contracts about identification of workflows, could you help us understand if those projects are done and those identification projects are done inside the traditional cloud business software with tool provided by the software providers, the legacy software provider? Or are they designed using new entrants tools or tools that you are developing yourself around the historical application layers? Aiman Ezzat: Okay. Listen, on the Q4 to Q1, it's more, I think, the seasonality that basically that you see that's going to impact thing, okay? I mean we'll always build some caution in what we say around where we head, but we are quite confident around the growth that we see in front of us. I mean, no specific concern that we see in terms of the business going into Q1. On the project, I think it's all of the above. Because, as you know, everybody wants to put their AI agents, their AI models, drive the consumption towards them. So whether you talk about software vendors and the Agentic layer, you talk about the hyperscalers and you talk about all the new entrants like OpenAI, Anthropic, Mistral, et cetera. All of the above work, they're all winning some business. We work with all of them. And the question is what is the pertinent solution for the client based on what he needs and who, at the end of the day, based on the strategy, whether it's short term or medium term, based on who has been the most convincing to them in terms of what they are pitching, and this is really what the clients go. But in a number of cases, they're also experimenting. Many clients have not have a long-term strategy, deciding of saying this is what I will do, this is my line and I will not move from it. And I think -- if people evolve and bring the right solution that are really pertinent to the client, to the client industries and specific environment, that is what they will adopt. What we have the client is navigate through some of that and ensure that they actually get real value because this is not about what solution or what agency going to adopt is how to make it happen in your critical processes, how to ensure that they're enterprise scale, how to ensure that they are safe, how to ensure that you can trust, how to ensure that the human AI model works. That's really where the complexity lies. But at this stage, we don't see clients saying, I will go this way or this way. I think it's still pretty open. Nicolas David: All right. But based on what you see, you believe that incumbent software player can be relevant in this move. Aiman Ezzat: Yes. I mean, again, I heard a number of technology CEOs talk about it, including from the hyperscalers recently. I mean, the thing about the death of software, I think, is a bit premature. The question is, what value are you bringing? If you don't evolve, I mean, same thing in our industry. If you don't evolve, software vendors don't evolve, then they will have a lesser role to play in the future. But you have to evolve to be able to embrace and bring the value to clients. At the end of the day, what clients are looking is not should I buy a software, should I buy an [indiscernible], I want value delivered. Who can help me deliver tangible value. That's what they're looking for. And if you play in there, then you have a role to play. If you don't contribute to that, then you get commoditized and basically downplayed over time. Simple. Operator: Your next question today comes from the line of Sven Merkt from Barclays. Sven Merkt: Your guidance for 2026 is obviously very solid, but still below the exit rate of Q4 on an organic basis. Can you help us to square this? And was there anything exceptional in Q4? Or have you just baked in significant conservatism into the guide? I noticed you called out still a complex macro environment earlier. And then secondly, a lot of focus, obviously, on helping your clients adopting AI. But can you speak a bit more about your internal road map to adopt AI to drive efficiency and what financial impact that could have over the long term? Aiman Ezzat: Okay. So listen, the guidance, I mean, when you start the year, I mean, we still have an environment that's basically not the most stable environment. So yes, we're going to have some conservatism as we start the year, and we'll see how the year plays out. But when you see the geopolitics, discussion around tariffs and a number of hot points across the world, you're going to have to be cautious and not just replicate what we see in Q4 of saying this is how the year is going to look out. So we see a solid H1. We have good views on H2, but we know there's still fluctuations that can happen along the year. If I go to your -- to the folks, I think it's a very good question around how we're adopting AI. So first, there is 2 key areas. In addition, we talked a bit about what we're doing with clients, 2 key areas. One is our operations, second thing in our delivery. So in our delivery, we are pushing. And it was slow because some of it is linked to our client environment. We work mainly in our client environment. If they don't provide us the tool, et cetera, we cannot really take advantage of that. And then there is client conservatism about what we use, what impact it's going to have, is it safe, et cetera, before just going for the savings. We start to see some more accelerated benefits in some areas. I cannot -- so it's not across the board still, but we really start to see pockets where we're gaining maturity, clients are gaining maturity and where we see we can progress faster. I mean, typically, if you take our offering in Intelligent Operations, that's what we do. I mean we are basically telling the client, we take this over, we're going to do the Agentic transformation. And of course, by doing that, as you imagine, we go up the experience curve quite quickly because we are adopting internally in our delivery model, how to make that happen. And we have a number of success. I talked about a couple of examples, but there's a number of others. So we are going up that experience curve area by area, business by business to see how we can accelerate the adoption. And of course, we're pushing for a strong acceleration this year, okay? The second part is in our Operations. And here, we have developed and created an internal platform data. So what we push to our clients, we have done it. We have built all the LLM layers above that with one of the technology partners, one of the large technology partners. And we are now -- have started developing the different Agentic layers. HR agent, sales agent, finance agent, proposal agent. So we are deploying internally what we're preaching to our clients. I think we'll probably dive more in detail around the number of these elements at Capital Markets Day and talk about what the impact that we see in terms of the future as we both adopt and deploy more of the solution also at clients. Operator: Your next question today comes from the line of Frederic Boulan from Bank of America. Frederic Boulan: If I can just stay on the AI debate. So the bear case on the IT services industry, as you know, is around the negative impact from cutting efficiency, massive simplification in software deployment. Can you share with us what you think the market is missing and how CAP can maintain its relevance in that new ecosystem? And if I can get a follow-up around pricing. I mean, is there any specific area where you do see significant price pressure from more efficient delivery supported by GenAI? Aiman Ezzat: So listen, again, I recognize the market is looking for clear evidence that AI is already translating into tangible value, whether it's gross margin or both. And for me, shifting the perception is not about making promise, it's really about execution. And that's really what we're focusing on. We're focusing on execution around growth, around margin, on cash flow, also providing more and more visibility and understanding about the trajectory in terms of how AI is progressing. We are embedding AI across all our offerings. So we are redesigning our offering in a certain way. So it's by design, not telling people see how you can use AI to improve things. Basically, we are designing how AI should be used. And I think this is what really where everybody is going and where we're helping our clients to go. You have to redesign your processes, the way you work and everything around the impact of AI. But I can tell you really when I -- besides examples, when I really talk to clients, the level of adoption we're still at the beginning. And because the transformation is complex, this is not easy things to do. And our best response to some of the fears in the market today is on delivering value, delivering value, explaining where we are winning, explaining the partners with whom we're signing who basically talk with them around how we're delivering value and how we need them and some will come in the near future, additional ones. So it's really about proof points. I mean this is our best response is proving that this works, that we're able to create value across the value chain of what we're doing in Capgemini. On the pricing, I don't think there's any change. There's not a specific area of pricing pressure. The environment is competitive. And of course, as you demonstrate more value creation potential, you, of course, can be able to generate better margin in certain areas. And I think this is really what we are focusing on. Operator: And the next question comes from the line of Mo Moawalla from Goldman Sachs. Mohammed Moawalla: And it's encouraging to see the revenue inflection. On the revenue growth, first of all, I just wanted to sort of clarify how is the kind of discretionary spending environment? To what extent did you get a bit of sort of budget flush effect? And then looking forward, you talked about some encouraging pipeline on intelligent operations. Is that something that's sort of baked into the guidance in terms of -- or is that sort of going to be as part of the conservatism you talked about? And then secondly, while the kind of growth is inflecting, we are seeing this kind of erosion on the gross margin. Can you sort of just help us understand that dynamic going forward? And that should we sort of anticipate that continuous kind of erosion in gross margin as pricing environment remains tough and you're kind of having to see some deflationary effect from AI? And is that sort of then what can you do on the OpEx side to try to kind of manage that impact on the operating margin? Aiman Ezzat: So first on the revenue growth. No, I mean, I don't consider there was any budget flush coming into Q4. I think it's really real growth that we have driven and improving across the board, as we said, even manufacturing now is not a headwind anymore because even excluding M&A, manufacturing has become flattish. So it's all trending in the right direction. From Intelligent Ops, we will never bet to include in our forecast some very large deals. So in our guidance, we will never bet on large deals. The other thing, just remember so that we don't get -- we understand the full impact of that. Some of these deals, as we say, these are complex deals. I mean we're talking about clients ending up a chunk of their operation and trusting us to run them and to transform them. So this is not -- it takes time to be able to close some of these deals. And the second thing, it takes time to transition. So the revenue doesn't come immediately. So a deal that we have today in the pipeline will have minimal impact in 2026, will have full impact in 2027, okay, just so that to you have a back of the envelope idea on that. Nive, on the gross margin. Nivedita Bhagat: Yes. On the gross margin, clearly, of course, this primarily reflects a fairly tough -- prolonged tough market that, of course, we've had in Continental Europe. And I think that's really one of the reasons why the gross margin is where it is. Now having said that, I think the gross margin has been far more resilient in this down cycle than any previous down cycle. And I think if I go back into the past, if I looked at the period of the financial crisis, I think we were down about 180 bps. If I look at COVID, we were down about 120 bps, whereas this time it's 30 bps. So not to sound defensive, but to say, I think we've been pretty resilient through this period of time despite, of course, 7 quarters of negative constant currency growth, just as a reminder. Now coming back, though, to the margin levers, I think, I've always said that the mix and portfolio mix is our biggest area of focus when it comes to that improvement. So that's an area of focus that will continue to happen. And all these investments we've made through our acquisitions, through the portfolio to what we see is going to help with that growth going forward. But additionally, yes, our Fit for Growth initiatives that Aiman just talked about will address some of that and will address some of the margin accretion from that perspective. And we will also, of course, continue to look at everything in terms of our operational parameters. So whether it's SG&A and looking at onshore/offshore, looking at what we do with our pyramid, et cetera, all of those aspects, we will continue to look at very strongly. So the focus is very much an improvement to gross margin as we go ahead, Mo. Operator: Your next question today comes from the line of Michael Briest from UBS. Michael Briest: Can you talk a little bit more about the Fit for Growth program? What your ambition is with the EUR 700 million restructuring envelope? And then thinking about head count more broadly, Obviously, you're using AI internally. WNS, there's an opportunity there around automation. Can you talk about how you expect head count to develop through the course of the year? And then just on the follow-up would be that EUR 600 million deal that you announced, Aiman, congratulations. How does that sort of fit into the GBP 100 million to GBP 140 million revenue synergies? It seems early to have won something so soon after the deal closed. But you mentioned the full pipeline. Can you give some more context on that and how quickly you can get to that GBP 100 million plus synergies? Aiman Ezzat: Okay. For the Fit for Growth program, I mean, listen, recognition that, first, I mean, you have seen that over the last few quarters, we get some -- we had some challenging environments in Europe, okay, across a number of countries. Some of them are linked to sectors. But also, we are anticipating some evolution from the technology and notably from AI in terms of evolution around some capabilities. So I think -- and we have to do quite a bit of reskilling also in some areas to be able to prepare our workforce for the future. So this is really what this Fit for Growth program is about. This is about basically realigning some capabilities with where we see now the opportunities coming up, whether they're Intelligent Operations, AI, Sovereignty or some other pockets which are emerging where we need to invest. So what we did is basically said we have to move fast. The market is moving fast, and this is about basically doing fast, something that we could do over several years is that we don't have time to waste. We really have to act fast, and we took the decision to be able to accelerate what we do traditionally over time to do it at a much faster pace. So that's for the Fit for Growth program. On the head count, you're always going to have both aspects. Growth drives head count. And at the same time, we're pushing very hard on AI and automation. Doing large Intelligent Operations deal adds us head counts. On the other side, we also drive a lot of productivity in some of the existing contracts. So the 2 will change. So think in the specific year, how the account is going to evolve will depend very much on the mix of business that we're going to win, how much is onshore, how much is offshore, et cetera. I think what -- the way I would look at it is I definitely expect that over the midterm, what we will see is an increase of revenue per head count. Right now, basically by embarking a large BPO business from WNS, we reduce effectively that because the revenue per head in this type of business is lower. But over time, I definitely expect a trend where with the leverage of Agentic AI, et cetera, we will be driving the revenue per head up. And on Intelligent Operations, we always said, I remember, since you have been following us for a long time, we did all the accretion in terms of revenue, the synergy of revenue on the IGATE deal on one deal, on one client. And here, basically, yes, we are. We're going to be able to do probably on some of the couple of large deals, a large part of the revenue accretion. It's going to take time for some of this to be able to ramp up. And just in addition to some of these large deals, also don't neglect the cross-selling opportunities. I mentioned 100 cross-selling opportunities. When you see the size of both businesses on our side, on their side, 100 cross-selling opportunities is a lot of deals. Some of them are small, but some of them are pretty large. I think I answered your three questions. So we'll be taking one final question as we're coming almost up to the hour. Operator: Your final question comes from the line of Balajee Tirupati from Citi. Balajee Tirupati: Congratulations, Aiman and Nive, on a strong close to 2025, also on winning the mega deal. If I can start with Intelligent Operations, first question there, could you share at this stage, how is the maturity of pipeline of similar mega deals looking at this moment? And also what your thought is about the sustainability of the double-digit growth you're seeing in Intelligent Operations? And if I may also ask a second question on evolution of AI tools and plug-ins. I do appreciate enterprises are still in early stage of adoption and the readiness is probably at nascent stage as well. So are you seeing or expecting the scope of productivity gains possible increasing and broadening the context not limited to, but for example, comment from Palantir around achieving complex for migration in as little as couple of weeks. How you would expect analyst community to reconcile with that? Aiman Ezzat: So first, I mean, listen, the pipeline, as you know, when you get to large deals, I mean, the closing time is always somewhat difficult to be able to estimate because they can go on for months and months and months before we're able to get to that. But the pipeline is good. We have some very large deals, but we also have some deals which are multi-steps. There's a client with whom we signed the first step around 2 or 3 functions at the end of last year. And now we are basically looking at scope expansion already this year, probably in the first half and maybe another one again later in the year. So they don't all come as one single deal. Sometimes they come as multiple steps in terms of closing some of these deals. But we have good confidence about ability to sustain double-digit growth when we see the pipeline and the deals that we have. I've good confidence for the near future to sustain the double-digit growth around all that business. On the AI tools and productivity gains, the productivity is coming bit by bit. Whenever I talk to clients, everybody has some nice cases when I ask them at scale. I think there have been interviews with CIOs of large banks recently. When you say what they say, we're still at the beginning because the reality is that besides generating code on an LLM and really trying to integrate that into an enterprise that's very complex with legacy systems, siloed data and all the like, it's a lot more complex. So it takes more time. And yes, there is a gap between CEO's expectation, I can tell you and what his team is able to deliver today. So everybody is trying to accelerate, but there is challenges. On things like Palantir, I think, again, people end up with the headline and they don't dig in detail, okay? And whenever we see something else, we take it seriously. We take it seriously about what is happening, are we missing something, et cetera. And we dig in detail, and we really understand what it is. I think you need to get some people maybe in your organization or other to really dig in detail about what it is. It is -- yes, there is advancement in certain areas. When you look really into the detail of what it is and to what it applies, it's not going to make your SAP migration in 2 weeks, okay? So don't stay on the headline, dig a little bit more in detail. As I say, we take things seriously. We did it. And we understand what exactly what is behind. There is advancements in some areas, but it's not stratospheric in terms of suddenly you can do SAP migration in 2 weeks, okay? That's the headline that people took and that headline is significantly wrong. And some of what they do, really the way it shows applies more to an environment of SMB data than it applies to large corporations, okay? I love to go into the detail around that, but I assure you, we are not concerned after digging. Thank you very much. I appreciate, of course, the exchange and all the questions and looking forward to interact with you over the coming days and weeks. Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Thank you for standing by. This is the conference operator. Welcome to the Alkane Resources Second Quarter Fiscal Year 2026 Financial and Operating Results Conference Call and Webcast. [Operator Instructions] The conference is being recorded. [Operator Instructions] Now let me hand the call over to Natalie Chapman, Alkane's Corporate Communications Manager. Natalie Chapman: Hello, everyone. Thank you for joining our call today. Some housekeeping items to note. The accompanying presentation for today's call is available for download from the company's website at alkres.com. Today's press release, the financial statements and the MD&A are all posted on our website and SEDAR+. For those of you on the webcast, please move through the presentation slides yourself as directed by our presenters. Moving on to Slide 2. I'll remind everyone that this conference call contains forward-looking information that is based on the company's current expectations, estimates and beliefs and may also use terms that are non-IFRS performance measures. Please review Alkane's quarter 2 fiscal year 2026 disclosure materials for the risks associated with this forward-looking information and the use of non-IFRS performance measures. Please note that all dollar amounts mentioned on today's call are in Australian dollars, unless otherwise stated. Also, as management reviews the quarter and half yearly results, please remember that Alkane has a June 30 fiscal year-end. So the quarter ending December 31, 2025, is our second quarter of the 2026 fiscal year. And as we closed the merger with Mandalay Resources on August 5, 2025, our group financial and operating first half fiscal 2026 results shown today only include 5 months from the Costerfield and Bjorkdal mines, the former Mandalay operations and a complete 6 months of results from Tomingley. Please move on to Slide 3. Today's speakers from Alkane Resources are Nic Earner, Managing Director and Chief Executive Officer; and James Carter, Chief Financial Officer. I'll now hand the call over to Nic Earner. Nicolas Earner: Hi, everyone, and thanks for joining us today. Let's go to Slide 4, which provides a quick summary highlighting our record achievements on our very successful first half of 2026. Alkane had a record-setting second quarter and first half of fiscal 2026, both operationally and financially. We produced just over 43,600 gold equivalent ounces in Q2, which gives us just over 74,000 gold equivalent ounces for the first half of 2026. And remember here, the ex Mandalay asset production from July, the month of July is not included in that number. And so when we look at our full year, so the full 12 months, including July, including Mandalay assets, we're on track to meet that group 2026 guidance of 160,000 to 175,000 gold equivalent ounces. So given the strong prices for gold, the strong prices for Antimony and our great production results, our mines generated AUD 133 million of operating cash flow for the quarter, which has boosted our already strong financial position. As of quarter end, we had AUD 246 million in cash, bullion and liquid investments on hand. This strong financial position, combined with what we expect to be continued robust free cash flow from our operations, allows Alkane to aggressively grow the company through exploration, capital programs at each of our mines as well as advance the Boda-Kaiser copper-gold porphyry project and opportunistically grow the company inorganically. Now let me move on to Slide 5 to get into more details on the quarter. On a consolidated basis, in Q2, Alkane produced nearly 43,000 ounces of gold and 267 tonnes of Antimony, which equates to nearly 44,000 gold equivalent ounces. All of these are records for Alkane as a company. This was from mining nearly 581,000 tonnes of ore at an average gold grade of just under 2.4 grams per tonne and an average Antimony grade of just under 1%. Recoveries of just over 90% gold and just under 87% Antimony were higher than in Q1. Now I'm going to get into specifics with each mine shortly, but let me summarize, overall, all our mines are operating well and all of them meet our own expectations, which are very high. So let's move on to Slide 6 and look at Ting. In Q2, we processed nearly 319,000 tonnes of ore at an average recovery rate of 89.8% and an average grade of 2.5 grams per tonne. This led the mine to produce a bit over 22,000 ounces of gold. This is 20% higher than we got in Q1. High production came from slightly improved operations, but mostly from the planned mining sequence moving into higher-grade zones, also continued cost management. And this resulted in all-in sustaining costs in Q2 being AUD 2,216 per ounce. The U.S. dollar amount is on the screen there. This is 16% lower than in Q1. So the primary source of ore at Tomingley continues to be from the Roswell underground deposit. During the quarter, and I'm going to describe this is ordinary course of business for us, but I want to give you detail on this. We had some minor challenges. We had some shock credit downtime that delayed our paste fill. We had some lower development rates leading to lower development ore. And we redesigned some stope shapes to improve load recovery. But all these issues were overcome pretty rapidly and like I said, a part of the ordinary course of business. Our processing plant continues to perform well. We're milling in excess of budget. And primarily, this is a result of us inserting a mobile crusher to pre-crushed material prior to entering our processing circuit. So this pre-crushing material entering the circuit has seen a nominal increase in milling rates to approximately 1.3 million tonnes per annum with further optimization on both throughput and cost options for this mobile crusher continuing. Capital expenditure during the quarter was mainly for the Newell Highway realignment project. Construction of this is expected to be completed in about a year from now in 2027. This is a high-return project, which allows us to access the high-grade San Antonio deposits in 2 new open cut mines. Bottom line, improved productivity, lower costs, higher gold grade, higher gold prices. Cash flow from Tomingley was AUD 67 million in the second quarter or a bit over 70% higher than Q1. Moving on to Slide 7. Q2 at Bjorkdal, we processed nearly 330,000 tonnes of ore with an average grade of 1.04 grams per tonne and an average recovery rate of 87.4%. This allowed us to produce just under 10,000 ounces of gold. All-in sustaining costs in Q2 were AUD 4,117 per ounce. Again, the U.S. is on the screen or 2% higher than in Q1. Bjorkdal was a solid quarter mining performance. All production is going well. We've got consistent stope productivity, and we've got stable development activities. We've also started replacing some critical equipment, which has resulted, as you'd hope, in machine availability. Further equipment replacements are continuing in this quarter, current quarter 3. Mill throughput was a little bit slower -- I mean, lower than the previous quarter. This is primarily due to our mill reline, the new linings we put in were wearing slightly slower than the anticipated rate, good for relining, but it limited our maximum allowable mill load. The completion and commissioning of the return water system from the mine as well has also had a positive impact on flow performance to date, which has led to improved recoveries. With the improved productivity and higher gold prices, operating cash flow from Bjorkdal was AUD 35 million for the second quarter. On to Slide 8. At Costerfield, our gold and Antimony mine, we processed nearly 35,000 tonnes of ore. In Q2, we plan to be in a higher grade sequence in the mine. Therefore, we achieved an average gold grade of just under 10.4 grams per tonne and an average Antimony grade of 0.91%. Both of these were higher than in Q1. Gold recovery rates of 93.9% and an Antimony recovery rate of 86.8% were also higher in Q1. Our increased plant efficiency and throughput rates, particularly as well as the grade, allowed the mine to produce 10,790 ounces of gold and 267 tonnes of Antimony or 11,686 gold equivalent ounces. All-in sustaining costs in Q2 were AUD 2,149 per gold equivalent ounce, resulting in a 12% decrease from Q1. And this demonstrates the focus we have on getting high grade in and expanding our production rates. Costerfield summary, steady operational performance during the quarter, strong mining productivity as well, we continue to advance several initiatives to improve our ore quality and recovery. We continue to try and optimize drill and blast optimization, remembering this is a narrow vein stoping environment where we're trying to keep our widths as tight as possible. We continue to focus on operator training, and we are moving towards emulsion explosives because we want to improve some recovery and reduce dilution. So as we prioritize here on Costerfield, operational consistency and grade control, and we use this to underpin our strong production outcomes that we expect to get over the coming quarters. So with this great productivity, with our cost control, high gold prices and, of course, higher gold grade, operating cash flow from Costerfield was AUD 30 million for the second quarter. Now moving on to Slide 9. One of the key strategic initiatives that we have is to drive organic growth by increasing mineral resources, we have an aggressive exploration program across our portfolio. I'm going to tell you about that now. So on Slide 9 here that we're at. At Tomingley in Q2, we invested AUD 2 million for the quarter in several programs. This includes 1 and 2 on the picture, extension drilling under the existing pits of Wyoming and then Caloma North. #4 on the picture, resource infill drilling at Roswell, and we get results here like just under 8 meters at nearly 0.5 ounce per tonne. At #3, discovery of a new zone of gold-rich mineralization at McLeans right next to existing infrastructure, intercepting gold intercepts like 26 meters at 4.36 grams per tonne of gold. Down at # 5, and we own the land under this, drilling in El Paso, which also resulted in several significant intercepts, including 8.2 meters at 3.74 grams per tonne. And then last but not least, at #6, we commenced testing Peak Hill for its gold copper porphyry potential. And number seven, we're conducting geophysical targeting and drill testing for low sulfidation epithermal gold quartz veins at Glen Isla. What I want to show you here is that a lot is happening at Tomingley to expand the resources. And more importantly, the sheer volume and range and distance of this work alone demonstrates big potential and the reason why we continue to focus on exploration. So let's move on to Slide 10, Bjorkdal exploration. Here, we invested AUD 2 million on a program at # 3 there, Storheden on 2 programs to test the Northern and Eastern depth extensions #1 and 2 with the goal of extending the ore body that's currently being mined. So for example, at Storheden, the #3, the results of this drilling highlighted the doubling of the known depth and extent within a series of Bjorkdal, just like the deposit to the south style veins interpreted across 3 target domains. This was all released in December. The highlight results included 34 grams a tonne over 1.6 meters, 142 grams a tonne over 0.6 meters and 111 grams per tonne over 0.5 meter. This narrow vein, high grade, this is the backbone of what we see at Bjorkdal, and we've got the expertise to mine these type of veins, either narrow vein or over broader swarms efficiently. In additional, over at #4 to the right of your page, work has recently commenced to extend the Norrberget resource. So let's move on to Slide 11. At Costerfield, we invested AUD 6 million in Q2 on near-mine drilling with 3 main focus areas. Number one, Brunswick South drilling. We focused there on building the high-grade intercepts we discovered earlier in the year, so earlier in 2025 with progression to infill drilling late in the quarter. And number two, Kendall drilling, we're exploring a series of veins, quite high grade above the currently active Youle workings. And number three, the Sub King Cobra, we call it, we're drilling focused both on infill and extending the mineral resources below the existing Cuffley and Augusta workings. But additionally, perhaps even more excitingly, numbers 4 and 5, True Blue has progressed with 3 diamond rigs predominantly concentrating on infill drilling with a focus on step-out testing at our surface geochemical anomaly there. Meanwhile, #6, we're also testing the potential for a Sunday Creek style mineralization -- mineralization just below Costerfield's historic mines. So moving on to Slide 12. This is the Northern Molong Porphyry project, the entirety of which is shown on the map of this slide or stylized map on this slide, and this is a highly prospective gold and copper corridor. This project also encompasses in the bottom right of your page, our Boda-Kaiser copper gold project. During the quarter, we invested AUD 3 million on several programs, including a mobile magnetotelluric survey we completed across most of the deposit you see there, and we think this will guide us towards future high-value work programs. And we continue to make progress on a 4,500-meter reconnaissance drill program to learn more about the project's potential. Of course, we'll announce results as we receive them. What I want to make clear to you, the reason why we're focused on this is we're looking to further increase the already substantial gold and copper inventory. This project and what can come from it is incredibly leveraged to the current price. As you can see, the exploration work going on at each of our projects. Our goal is to expand resources to increase mine life production levels and drive new discoveries. Undoubtedly, I want you to see that exploration is a key pillar of our strategy that's fundamental to our organic growth objectives. And with that, I'm going to hand over to you now, Jim, to provide a review of our financial performance. Thanks. James Carter: Thanks, Nic. So if everybody could -- we'll turn to Slide 13. And so I'll start with an overview of the key financial highlights for the second quarter ended December and also the 6 months ended -- or the first half, which is the 6 months ended December as well. So we'll focus on these 2026 results because the results for the prior year do not include the former Mandalay operations. So consolidated revenue for the quarter was AUD 256.7 million at an average realized price of AUD 5,785 per ounce or around about USD 3,857 per ounce. And that was 18% higher than our Q1. Average antimony prices were AUD 42,500 per tonne or about USD 28,327 per tonne. And that was 19% higher this quarter than the previous quarter. These are record revenues were achieved in the second quarter. They were a result of strong operations, robust gold and antimony prices. And cash flows for our second quarter could have been a bit higher, about AUD 18 million higher. We had a shipment from Costerfield that sort of departed around the Christmas period. So -- that payment, which normally would be received a little bit quicker sort of because of the Christmas holiday period that came into -- received in early January, and that will be recognized in our Q3 cash flows. Site operating costs on a consolidated basis were AUD 2,031 per gold equivalent ounce produced. That was about 8% lower than the September quarter. This is a result of improved throughput levels, capturing some synergies from the merger and just trying to be -- maintain the cost discipline. All-in sustaining costs were AUD 2,739 per gold equivalent ounce or about USD 1,826 an ounce produced. That's about 8%. That was also 8% lower than the previous quarter. So at these cost levels, we are within our 2026 guidance range. EBITDA for the second quarter was a record AUD 147.2 million. Sustaining capital during the quarter, that was AUD 20 million. That included AUD 10 million for capital development at our Bjorkdal operation in Sweden and AUD 4 million of mining ancillary equipment at Bjorkdal and Tomingley. Our growth capital in the quarter was AUD 9 million, and most of that was at the Tomingley operation on the Newell Highway alignment, which Nic touched on a little bit earlier on the Tomingley slide. So for the event, that gives us access to the eventual mining of the San Antonio open pit in 2027. Exploration expenditures for the second quarter were AUD 11 million, and I think that was all captured by -- in the slides that Nic was talking about just slightly earlier. So if we turn to Slide 14, now, and we're really -- we're having a look at our second quarter cash flow. So in the December quarter, cash flow from our 3 operations was AUD 133 million or 82% higher than the first quarter. Corporate and other expenses were AUD 20 million. That included AUD 7 million for corporate and technical support across the group, AUD 6 million for a cash-back bond, which we were required to put down as part of our Newell Highway realignment project. That's a bond that sort of will come back to us over the course of the next 18 months or so upon successful completion of that project and AUD 3 million for Boda exploration at about AUD 2 million for Lupin closure costs. So after all of that, after sustaining capital growth, exploration, taxes and corporate, we ended the quarter with AUD 218 million in cash. So overall, there a AUD 58 million increase from the September quarter, which was really pleasing. So at December 30, 2025, liquidity remains exceptionally robust. We got cash bullion listed investments totaling AUD 246 million. So we've got a clean balance sheet. debt is just limited to some equipment financing for our mobile equipment across the group. So that's just giving us a really enviable financial foundation that we think that [indiscernible] and the peer group can match, underpins the foundation to grow the business, pursue our organic growth targets, which Nic had spoken about a bit earlier and gives us flexibility to act on strategic value accretive opportunities as they arise. So with that, I will turn the call back to you, Nic. Nicolas Earner: Thanks, Jim. All right. Let's go on to Slide 15. I want to focus on our outlook, which I think you can see has a pretty clear momentum. Leveraging the financial strength Jim just outlined, we're well positioned to scale up our business. We've got a dual track strategy. We're fueling growth while keeping a sharp focus on cost efficiency, a discipline that's reflected through the maintenance of our 2026 guidance. With our record-setting first half behind us, we're carrying a lot of energy into the remainder of the year. We're firmly on track to achieve the annual production minus the July Mandalay of 155,000 to 168,000 gold equivalent ounces. But as I say, let's look at this 3 operations for 12 months, 100% basis, full year guidance is pretty impressive, 160,000 to 175,000 gold equivalent ounces. Now on the cost front, we're disciplined. We want to drive down the cost at Bjorkdal. We're disciplined. We've got a consolidated all-in sustaining cost firmly on track at AUD 2,600 to AUD 2,900 per ounce. So this is US between USD 1,690 and USD 1,885 per ounce. The real story is our impressive commitment to organic growth. We're putting AUD 78, somewhere, it will land somewhere between AUD 78 million and AUD 88 million into growth capital and exploration to unlock the next chapter of this company. Tomingley, I don't want you to see this is just infrastructure. It's a gateway. This realignment of the Newell Highway is the key that unlocks the high-grade large-scale San Antonio deposit in about a year from now. And at Costerfield, our objective here for drilling is clear. We're extending the mine life and building the case for potential future processing expansion. And over at Bjorkdal, our focus is on precision. We're building a high-grade inventory that we want to redefine our future mine studies and increase the mining rate. So this guidance is more than just set of numbers, it's a road map that we're trying to build a larger platform achieving the vast potential of this business. So let's move to Slide 16. What you can see on this slide is more than just a plan. We have a commitment to performance, and we're delivering on that. We're squarely positioned to meet our production targets, but we're not stopping there. We're deploying the drill bit, which I've talked about across the entire portfolio to expand the resource base. This is the bedrock of the strategy, extend mine life and accelerate production growth at all 3 operating mines. And let's not forget Boda-Kaiser. This world-class copper-gold porphyry project remains an important part of our long-term value. We're moving with a purpose on the environmental studies, the permitting and the consultation to advance this project. And in doing so, we're giving ourselves maximum flexibility to consider ways to unlock value. Corporately, our balance sheet is a clear strategic advantage above our peers. In this gold price environment, we expect to continue building our cash position. And as we seek inorganic growth opportunities, we're well positioned to move quickly but with discipline, and we have strong financial flexibility. We're confident, we're focused. We're well positioned to drive long-term value for the shareholders. And with that, I'll hand the call back to the operator to start the Q&A session. Thanks, operator. Over to you. Operator: [Operator Instructions] We're going to take the first question on the line. And it comes from the line of Daniel [indiscernible] from [indiscernible]. Unknown Analyst: Congratulations on the very nice results. I have a question and I guess, a comment. So my question is you announced an ADR -- sponsored ADR program, and you already have an unsponsored ADR program and the shares trade in Canada and also Australia. And I know you talk all the time about increasing liquidity. And I'm just curious whether basically having these 4 venues for where your shares are trading is actually fragmenting liquidity and not really increasing it. That's my first question. Nicolas Earner: Yes. Thanks, Daniel. How about I answer that and you can ask the second part if there was one. Yes, clearly, we took a fair bit of advice out of North America on this one. The clear expectation that we think will occur is that most people will go with the issuer-sponsored ADR because of the increased liquidity that will come there rather than the nonsponsored vision just because the liquidity will be less there. And what's really interesting is what we wanted to do, and it remains to be seen whether this is correct, right? But what we wanted to do was create a vehicle for particularly retail investors in North America to be able to access the stock with liquidity in a clear price point because there would appear to be, particularly as gold has such interest, quite a degree of people that are using that mode and method and who just don't access the TSX and the ASX. So we're watching with interest, and we certainly think that it's something that we should try in this market. Unknown Analyst: Okay. And 2 more, if you don't mind. You talked a lot -- no, no, recently, you mentioned your aspiration to get into the ASX 200. And I recall at the time of the merger with Mandalay, there was a lot of talk about what a wonderful thing it would be to join the ASX 300. But it doesn't seem like joining the ASX 300 has done anything. I mean I look at this Edison report and that shows how undervalued you are compared to your peers and so forth. So I just wonder whether aspiring to join the ASX 200 is just sort of a waste of energy. Nicolas Earner: I -- you've got me a little bit baffled there because -- and happy to get you all comment on in case I've misinterpreted what you said. So if you look at Alkane and Mandalay pre this, Alkane's typical turnover was AUD 1 million a day. And Mandalay's at one point was AUD 0.5 million and then it rose up to be similar. And then post the merger, we are typically AUD 8 million to AUD 9 million. Mandalay is AUD 1 million to AUD 1.5 million. And we have seen a lot of index funds enter our register. And then from the point that we stabilized at in share price of a nominal sort of AUD 1.10, we've seen a drive up to AUD 1.50 with a lot of buying come across in the 12 months. So certainly, the index inclusion appears to have helped the register, the buying the share price to support the visibility of it. And all our understanding is that the ASX 200 will further deepen that pool. Are you looking at information that I'm not looking at, so I've misinterpreted you. Unknown Analyst: No, I just -- I'm not looking at sort of liquidity or trading volume and so on. I'm just looking at the valuation of the company compared to what at least Edison considers your peers. And the stock has been -- remains quite undervalued. And I just wonder whether joining these indices really helps at all. Nicolas Earner: I think if we -- look, I think if we had not joined the indices, then we would be horrendously undervalued, not just undervalued. So if you look at some of the peers that we have, like if you take, for instance, Catalyst and Ora Banda, they have passed into the ASX 200, both with an uplift in buying that's coming from that. And so as to where all these things settle, I think the fundamental basis of our cash flow, our reasonably consistent production performance. Of course, that has to shine through. And the index inclusion should be something that simply flows from that. But there's certainly value in exposure to a very large volume of money in the Australian superannuation funds being an ASX 200 versus ASX 300. Unknown Analyst: Okay. Great. And then if you don't mind, one final thing. So you've built up this large cash pile here, and you talked about the uses. I'm curious what the priorities are. You've got this quite exciting Boda-Kaiser project, and I imagine that will potentially involve a lot of CapEx. Mandalay, as I remember, years ago, used to pay a dividend and some of these large gold companies that you aspire to emulate pay dividends. And then you talk about corporate development and so forth. I'm just curious if you could talk a little bit about your priorities. And just one final thing. This earn-in seems like a very clever deal. But it would seem to me that proving that Mandalay has been -- or is a great deal would go a long way towards convincing people that the next deal is going to be a good one. That's it for me. Nicolas Earner: Yes, sure thing. A couple of different things to unpack within that. So let me -- hopefully, and you can come back to me if I miss one of them, my apologies. So if we look at -- our analysis suggests that right now, we can create more value for our shareholders by delivering on production, reinvesting into the businesses to keep the costs low, expanding the resource base and then also inorganic growth where other businesses are undervalued. And so that's our view. Unknown Analyst: [indiscernible] more undervalued than you are. Nicolas Earner: Yes, of course, me. Unknown Analyst: Okay. Yes. I'm sorry, I interrupted. Nicolas Earner: Yes. No, no, it's not the interruption. It's the assumption that we go and pursue a business that's higher value than we are. Anyway, so -- so then when we look at dividends, if you look at our peers on the ASX, of the top 20 gold companies, about 5 or 6 pay dividends at present. So clearly, as a Board, we look at that each time we meet around dividend and capital allocation. At the moment, our view is that we will continue to look for those internal things to create shareholder value. And then clearly, if we don't see that and our cash balances rising, then we would look to return those to shareholders, yes. So the second part of what you said is we're referring to the Nagambie earn-in. I think the thing that is really key to understand there is that there's a 30-day right of first refusal that Southern Cross [ hold ] on a deal they did with Nagambie a long time ago. I couldn't give you the exact timing. So they may either elect to match that or not. In the event that they don't elect to match that, yes, we're pretty interested in really seeing if the potential that we think could exist there at the Nagambie deposit does because logically, it could absolutely either dovetail into the later years of Costerfield or in an ideal world, allow an expansion of that facility. All those things would need approval. Yes. And last but not least, you spoke about convincing people that the Mandalay deal has been a success in order to do it. Yes, I can't -- of course, I can't say what the parallel history would have been if we hadn't have done the deal. We don't know in this rising gold price environment. But certainly, -- as a combined entity, both of us have had more value realized in our stock and our price to NAV and all the other multiples than we were equivalently on our own. So it certainly appears successful in all of those metrics. And certainly, a share price that's been achieved for Alkane or Mandalay in reverse that just did not appear possible on a stand-alone basis. So certainly, that's the feedback I'm getting from the vast majority of share. Operator: [Operator Instructions] And at this moment, we will proceed with the written questions. Natalie over to you. Natalie Chapman: Thank you, Nadia. I'm heading off to the written questions. So for M&As, where is your focus from a geographic perspective? Do you see any opportunities to build on operations in Australia and Europe? Or are you looking in other regions? Nicolas Earner: Yes. Thank you. Australia, New Zealand, U.S., Canada, Scandinavia. Natalie Chapman: Awesome. Thank you. Mandalay was very excited about True Blue. Is that the highest potential target at Costerfield? Or do you see another target as a priority? Nicolas Earner: Yes. Good question in terms of -- it depends on the time frame that you're talking about. So Kendall and Brunswick South are the near-term targets that we're most excited about. But I don't see either of those containing 300,000, 400,000 ounces at the moment. They appear to be more incremental adding of 1 or 2 years production. So True Blue, we're more excited about from a longer-term perspective because indications are that we may be able to replicate the entire corridor length that we see all the way Augusta to Brunswick, all the old mines, which have pulled over 1 million ounces out at [indiscernible] in the past. So that's -- so time frame-wise, True Blue, yes, is a more exciting prospect for us. Natalie Chapman: What exploration target or opportunity within your existing portfolio most excites you? Nicolas Earner: I think again, it depends on which hat you want to put on. I'm most excited by the potential of discovering a swan -- like a similar Swan Zone type thing as seen at Fosterville, discovering a similar thing deep at Costerfield. But that is a very long-dated bet, but it is the most exciting because of how transformational is in that sheer volume of ounces that they had. Yes. Hopefully, I've answered that, but please write another question if I've misanswered your question. Natalie Chapman: We're halfway through quarter 3 and gold prices are higher than quarter 2. What visibility into quarter 3 results can you share with us at this stage? Nicolas Earner: Yes. So we're -- our full year guidance is on a 12-month basis is 160,000, 170,000 ounces. And on the half year, we were a bit over 80,000 ounces equivalent and just under the top end of that guidance. So we expect a quarter similar to the quarter we just had. So yes, we're very happy with where we're at. Natalie Chapman: When do you think you might be in a position to make a decision on processing expansion at Tomingley? Nicolas Earner: Yes. So I think people may have seen some of the subtlety in what I've described. So at the moment, we're achieving what we were hoping to achieve or had planned to achieve, sorry, with the plant expansion. We're achieving that with pre-crushing. We're probably -- we were hoping to add 450-odd thousand tonnes of extra throughput on the addition of about AUD 45 million capital expansion. And we thought that we would try a whole heap of other things given all the money that we've invested into the circuit. On fine grind and all that sort of stuff. And pre-crushing was one of the things that we considered. And at the moment, we're north of 1.3 million tonnes per annum and with a line of sight of 1.4 million tonnes per annum. So all things going smoothly, I think that we will continue to eke out really small throughput improvements of the existing Tomingley plant because chasing effectively, we'd be putting AUD 45 million in for 100,000 to 150,000 tonnes per annum, which is not quite the case. And we don't have the, in my view, the ore resources yet until we get another major, major discovery of the size of Roswell to warrant updating the plant to say, 2 million tonnes per annum or something. Hopefully, that makes it clear for people. Natalie Chapman: [Operator Instructions] I've got another question in here. Given your strong cash position and the high price of gold, has consideration been given to buying out your hedging position? Nicolas Earner: Yes. I mean, as you can imagine, we talk about this at each Board meeting. We talk about all the financial instruments that we have or could put in place. One of the other things we do is we talk a lot to our shareholder base about it. And the current view at present is to deliver into the hedges in accordance with the schedules that we publish now, quarterly reports. One of the reasons for this is we're in a very, very volatile gold price environment at the moment. And the feedback from a lot of our shareholders is that they wished to be the ones taking the gold risk that we were a known quantity themselves. So that's our current plan. Obviously, we continue to review that. And then even in some of the things with Daniel cash balance, all these other things are things that we take into account. But at the moment, if you're putting together a financial model, just assume that we are delivering into the hedge book. Natalie Chapman: Right. Excellent. We have no further questions. So I'll hand the call over to Nic for closing comments. Nicolas Earner: Great. Thanks, everyone. I appreciate you taking the time to join us today. And look, whilst as per one of the questions Nat just asked, look, we've had a successful year so far, and we really look forward to showing you more of this progress and showcasing for those of you in North America, getting people here in Australia to understand these assets more and reflecting more of the value that exists in these really strong cash flows into our share price. So look forward to our next call in a few months. And as always, reach out if you have any questions. Have a good day, everyone. Appreciate it. Cheers. Operator: This concludes today's conference call. Thank you for participating. You may now all disconnect. Have a nice day.
Operator: Good day, everyone. My name is Abby, and I will be your conference operator today. At this time, I would like to welcome everyone to the Sabra Health Care REIT, Inc. Fourth Quarter 2025 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 that time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star 1 a second time. I would now like to turn the call over to Lukas Hartwich, Executive Vice President of Finance. Please go ahead, Mr. Hartwich. Thank you, and good morning. Lukas Hartwich: Before we begin, I want to remind you that we will be making forward-looking statements in our comments and in response to your questions concerning our expectations regarding our future financial position, and results of operations. Including our earnings guidance for 2026, and our expectations regarding our tenants and operators, and our expectations regarding our acquisition, disposition, and investment plans. These forward-looking statements are based on management's current expectations, are subject to risks and uncertainties that could cause actual results to differ materially, including the risks listed in our Form 10-K for the year ended December 31, 2025 as well as in our earnings press release included as Exhibit 99.1 to the Form 8-Ks we furnished to the SEC yesterday. We undertake no obligation to update our forward-looking statements to reflect subsequent events or circumstances, and you should not assume later in the quarter that the comments we make today still valid. In addition, references will be made during this call to non-GAAP financial results. Investors are encouraged to review these non-GAAP financial measures as well as the explanation and reconciliation of these measures to the comparable GAAP results included on the financials page of the investors section of our website at sabrahealth.com. Our Form 10-K, earnings release, and supplement can also be accessed in the investor section of our website. With that, let me turn the call over to Richard K. Matros, CEO, President, and Chair of Sabra Health Care REIT, Inc. Thanks, Lukas. Happy Friday the Thirteenth, everybody. Sabra's NOI growth for the SHOP portfolio, excluding our transition facilities, is is expected to be sturdy in 2026 as it has been in 2025. And we expect the transition facilities as they continue to improve to add to the overall growth in our SHOP performance. Our guidance at 4.9–5.4% growth at the midpoint for normalized FFO and normalized AFFO, respectively, reflects continuing execution of our strategy. Our pipeline continues to be robust, we completed approximately $450,000,000 in investments for 2025. We had discussed on our last call exceeding $500,000,000. A couple of those deals fell over into 2026 but no deals fell out. So we are closing on everything that we said we would close on on our last call. Our investment activity has grown $200,000,000 since our last call, we are currently in the process of closing $240,000,000 of awarded deals most of which will close in Q1 and early Q2. Our expectation is that we will materially exceed the volume of 2025 investments and are clearly off to a strong start in 2026. Moving on to our operational results. They continue to be impressive. Our SHOP operational performance showed strong occupancy gains, and increased cash NOI margins. Our same-store senior housing also showed occupancy gains and margin improvement. Our same-store senior housing triple net showed improved occupancy and maintained high rent coverage. The skilled nursing portfolio again showed increased rent coverage hitting an all-time high well as increased occupancy. And our top 10 triple net relationships also had another strong showing. Our our leverage stayed steady at our current target of five times, and the regulatory environment remains stable. And with that, I will turn the call over to Darrin Smith for detail on our senior housing portfolio. Darrin Smith: Thank you, Rick. Sabra's managed senior housing portfolio had another solid quarter with continued growth. The total managed portfolio, including non-stabilized communities and joint venture assets at share, had sequential revenue growth of 15.8%, cash NOI growth of 18.4% with margin expansion of 60 basis points. These statistics demonstrate sequential improvement in operating results that reflect the continued growth and strong performance in Sabra's senior housing portfolio. During the quarter, Sabra invested over $150,000,000 adding four properties to Sabra's managed portfolio bringing total year investments to roughly $450,000,000 with an estimated initial cash yield of 7.5% and an average age of less than ten years. Additionally, Sabra closed on $27,000,000 of additional managed senior housing assets subsequent to year-end and has another $220,000,000 of awarded senior housing and $20,000,000 of awarded skilled nursing investments most of which should close in the first quarter or early second quarter. Deal flow shows no signs of slowing and despite increased interest in the sector, Sabra remains competitive on new investments. Moving on to the same-store portfolio. Sabra's same-store managed senior housing portfolio, including joint venture assets at share, continued its strong performance in the fourth quarter. The key numbers are revenue for the quarter grew 6.4% year-over-year with our Canadian communities growing revenue by 10% in the same period. Fourth quarter occupancy in our same-store portfolio was up 160 points to 87.9% year-over-year. Notably, our domestic portfolio occupancy increased 80 basis points to 84.7% during that period while our Canadian portfolio grew 300 basis points to 94.2% in the same period, marking the seventh consecutive quarter where occupancy was over 90%. RevPOR in the fourth quarter 2025 continued to rise with an increase of 4.2% year-over-year with our Canadian portfolio increasing 5.2% in the same period. While RevPAR and occupancy continue to grow, XPOR increased only 1.6% for the same period providing for cash NOI growth of 12.6% on a year-over-year basis. With industry tailwinds at our backs, and a very robust pipeline, we should continue to see both organic and external growth in our portfolio. Our net-leased senior housing portfolio continues to do well, with continued strong rent coverage reflecting the underlying operational recovery. And with that, will turn the call over to Michael Lourenco Costa, Sabra's Chief Financial Officer. Michael Lourenco Costa: Thanks, Darrin. For the fourth quarter 2025, we recognized normalized debt FFO per share of $0.36, normalized AFFO per share of $0.38. In absolute dollars, normalized FFO and normalized AFFO totaled $91,200,000 and $95,200,000 for the quarter, respectively. Cash NOI from our triple net portfolio decreased $1,300,000 from the third quarter, while cash NOI from our managed senior housing portfolio increased $5,500,000 for a net sequential increase of $4,200,000. As noted last quarter, we transitioned four previously triple net lease senior housing facilities to our managed senior housing portfolio during the third quarter, which accounted for the $1,300,000 sequential decrease in triple net cash NOI from the third quarter to the fourth quarter. Cash NOI from our managed senior housing portfolio totaled $35,600,000 for the quarter compared to $30,100,000 for the last quarter. This $5,500,000 increase was primarily the result of investment activity completed during the third and fourth quarters together with sequential growth in our same-store portfolio. Interest and other income was $10,600,000 for the quarter, compared to $12,700,000 last quarter. This decrease was primarily due to $2,800,000 of lease termination income recognized last quarter and backed of normalized FFO and normalized AFFO. Cash interest expense was $26,600,000 which is consistent with last quarter. Cash G&A was $12,500,000 this quarter, compared to $9,100,000 last quarter. The increase of $3,300,000 was primarily due to truing a performance-based compensation expense for the year as a result of hitting certain performance targets. Normalizing for the portion of this adjustment that related to prior periods, cash G&A was $10,600,000 for this quarter. As noted in our earnings release, we have introduced 2026 earnings guidance which I will discuss in further detail. Our full-year 2026 guidance on a diluted per share basis is as follows. Net income, $0.60 to $0.64. FFO and normalized FFO, $1.49 to $1.53. AFFO and normalized AFFO, $1.55 to $1.59. At the midpoint, we expect both normalized FFO per share and normalized AFFO per share to increase approximately 5% over 2025. As a reminder, our guidance does not assume any 2026 disposition, or capital markets activities that have not yet been completed. There are a few other important assumptions built into our guidance that I would like to point out. Cash NOI growth for our triple net portfolio is expected to be low single digit at the midpoint, in line with contractual escalators. Additionally, our guidance assumes no additional tenants are placed on cash basis or moved to accrual basis for revenue recognition. Average full-year cash NOI growth for our same-store managed senior housing portfolio is expected to be in the low to mid-teens. General and administrative expense at the midpoint is expected to be approximately $52,000,000, which includes $12,000,000 of stock-based compensation expense. Cash interest expense is expected to be $103,000,000 at the midpoint. The weighted average share count assumed in our guidance is approximately 255,000,000 and 256,000,000 for normalized FFO and normalized AFFO, respectively, and is in line with our fourth quarter weighted average share count after adjusting for the timing of ATM share issuances during the fourth quarter. Now briefly turning to the balance sheet. Our net debt to adjusted EBITDA ratio was 5.00 times as of 12/31/2025, in line with our targeted leverage and a decrease of 0.27 times from 12/31/2024. As of 12/31/2025, the cost of our permanent debt was 3.92% and the weighted average remaining term on our debt was 4.2 years, the next material maturity being in 2028. Additionally, we have no floating rate debt exposure in our permanent capital stack, with the only floating rate debt being borrowings under our revolving credit facility. We have continued to proactively use the forward feature under our ATM to issue equity when prices present an opportunity to lock in attractive cost of capital to fund our active pipeline of deals. During the quarter, we issued $206,000,000 on a forward basis at an average price of $18.79 per share after commissions and in total, we currently have $322,700,000 outstanding under forward contract at an average price of $18.60 per share after commissions. We also settled $40,000,000 of outstanding forward contracts to fund this quarter's investment activity. We expect to use the proceeds from the outstanding forward contracts to on the investments we have been awarded and do so on a leverage-neutral basis. As of 12/31/2025, we are in compliance with all of our debt covenants and have ample liquidity of approximately $1,200,000,000, consisting of unrestricted cash and cash equivalents of $71,500,000, available borrowings under our revolving credit facility of $782,400,000, and the $322,700,000 outstanding under forward sales agreements under our ATM program. As of 12/31/2025, we also had $483,000,000 available under the ATM program. Finally, on 02/02/2026, Sabra Health Care REIT, Inc.'s board of directors declared a quarterly cash dividend of $0.30 per common share of stock. The dividend will be paid on 02/27/2026 to common stockholders of record as of the close of business on 02/13/2026. The dividend is adequately covered and represents a payout of 79% of our fourth quarter normalized AFFO per share. And with that, we will open up the lines for Q&A. We will now open for questions. Operator: Star and then the number one on your telephone keypad. We will pause for just a moment. And our first question comes from the line of William John Kilichowski with Wells Fargo. Your line is open. William John Kilichowski: Hi. Good afternoon. Thanks for taking the question. Maybe just starting on the building blocks of your same-store growth. I know you do not give specifics, but maybe you could help us think about it in relation to what you accomplished in 2025. From a Rev four x four and occupancy perspective. And then maybe just as we look forward to 2027–2028, how does the success that you are achieving today make you feel about the long-term growth prospects of this business given the supply-demand profile you are facing? Michael Lourenco Costa: Yes. I will take your first question, John, with regards I am assuming you are referring to our 2026 same-store guidance, correct? William John Kilichowski: Yes. Correct. So, I mean, the the main building blocks are you know, we expect to see continued occupancy growth in our same-store portfolio. We closed you know, fourth quarter just under 88%, and, you know, we fully expect our portfolio to get into the low nineties. So that is one of the the key building blocks. In our guidance. We do expect there to be, you know, some rate growth probably, you know, along the lines of what we have seen this last year. You know? In, you know, low single digit rate growth for you know, and potentially more. On the expense side, especially since these assets in in that pool are approaching kind of that 90% occupancy level, the overall expense growth should be inflationary, right, or or somewhere in line with inflation. There is not a lot of incremental expense that is going to be, added on as they keep pushing past that 90%, occupancy level. So the x four growth, should remain, you know, pretty muted, and below, you know, an inflationary level. Hopefully, that helps. William John Kilichowski: Yes. That was helpful. And then maybe if we could just jump to the the loans receivable book. It looks like there is a maturity towards the end of the year. I do not know if you could tell us a little bit more about that, the yield. And then obviously, what is included in guide? I am assuming that there is nothing on the other side of that. So what is is there any incremental upside from recapturing that and putting some of that back to work? Or is there an assumption of what you do with capital at the end of it? Richard K. Matros: Yeah. So the loan you are referring to is the RCA loan. And we are having conversations with Deerfield, who is the equity sponsor, as well as the RCA team kind of as we speak. And so there is nothing really to report on that. They are servicing their debt as they should be. So everything is copacetic there. And since it does not expire till the end of the year, the the assumption of guidance is that the lease stays in place. It does not mean that is gonna be the ultimate but it made the most sense for this year's guidance. William John Kilichowski: Mhmm. Got it. Thank you. Operator: And our next question comes from the line of Juan Sanabria with BMO. Your line is open. Juan Sanabria: Maybe just piggyback on the back of that last question. On the RCA loan, could you just make any comments, or could you update us on kinda how the the tenants' health in terms of financial strength how they are positioned. Richard K. Matros: Yeah. There is nothing else for us to comment on. We are having discussions. As I said, they are serving the debt, which should give you an indication of their health. And they are a great operational team. Juan Sanabria: Okay. Fair enough. And and then just with regards to CapEx, could you just give us a sense of how much you are expecting to spend on maintenance CapEx as well as anything kind of over and above you know, you you kinda look at what you have disclosed, and thank you for adding disclosure there around SHOP CapEx, it has been a bit outsized I am sure there is some deferred CapEx you have seen with others. So just curious if you can give us some rough expectation, you know, what you think you will spend in 2026 on the SHOP portfolio. Michael Lourenco Costa: Yeah. I mean, in terms of maintenance CapEx, I think you could it to be at similar levels like we have been disclosing on our portfolio. You know, quarter over quarter. On the you know, non-maintenance CapEx, the non nonrecurring as we call it in our supplement, it is probably gonna be somewhere in that $20 to $30,000,000 range if I had to ballpark it. For 2026. Juan Sanabria: Thanks, Mark. Appreciate it. Operator: And our next question comes from the line of Michael Griffin with UBS. Your line is open. Michael Griffin: Maybe following up on the first question on occupancy. I think you talked fourth quarter just under 88%. I think you said expected to get in the low 90%. Is that expected for 2026? And then what is the maximum? You know, is this something that that kinda caps out at low nineties, mid nineties, high nineties? How how you thinking about the opportunity on occupancy there? Thanks. Richard K. Matros: Yeah. So we think we can exceed 90%. How much further just in 2026, we will see. But once you get to the mid-nineties, you are kind of effectively full as people are moving in and out. Mean, we have buildings. We have a building in Canada that runs a 100% for long periods of time, but that is that is unusual. So if you are looking at it decent sized portfolio in the aggregate, probably mid-nineties is a pretty decent number to think about as effectively full. Michael Griffin: Thanks for that. And then as a follow-up, a small portion of the $240,000,000 of awarded deals is skilled nursing. In your view, what held that the the skilled nursing investment in 2025? Do you expect that to change in 2026? Thanks. Michael Lourenco Costa: No. We we we still expect the lion's share of the investment activity to be at SHOP. Of all the transactions we see, it is probably SHOP represents probably 95% of the opportunity. Of the skilled nursing investments that we have that we are looking at that are either have been awarded or we are looking at from an off-market basis they are all coming directly from existing relationships I would expect that to continue, but it will be minimal compared to the senior housing investment. Michael Griffin: Thank you very much. Good luck in 2026. Michael Lourenco Costa: Thank you. Thank you. Appreciate it. Operator: And our next question comes from the line of Austin Todd Wurschmidt with KeyBanc Capital Markets. Your line is open. Austin Todd Wurschmidt: Great. Thanks. Hello out there. Just when thinking about the SHOP NOI guidance, should we think about the Holiday transition assets as lagging a bit versus the rest of the portfolio currently, but maybe there is potential for those to to catch up and being a source of upside as the year progresses? Michael Lourenco Costa: Yes. Definitely, the the Holiday portfolio is lagging the overall same-store portfolio. But they have a much longer runway as far as upside with with respect to occupancy and all the other metrics. Richard K. Matros: Yeah. And that goes to my opening comment that that is gonna bolster our overall SHOP growth for the year. Our non-Holiday portfolio has been doing really well. And so that should bolster because we do expect it to to improve. Austin Todd Wurschmidt: Can can you give us just a sense of of what that delta is between the Holiday transition assets in the fourth quarter? Maybe what the rest of the portfolio did to just understand what the catch up opportunity is and then does guidance assume that it fully catches up or or just you know, kinda make some additional progress through the year? Michael Lourenco Costa: Yeah. Elmer Chang: No. I would I I think the way we would answer that question is I mean, you saw the year-over-year growth for our entire same-store portfolio. And it is about for the ex-Holiday portfolio that we transitioned last year. You know, it is somewhere below that. Right? And we are not gonna give specifics on to what degree it is below that, but not at, you know, 13%, 12% like the entire portfolio was. But to Rick's earlier point, Darrin's earlier point, you know, as those continue to recover, we do expect there to be some additional NOI uplift as a result. Richard K. Matros: Right. So we came in at 15% for the year prior to the prior to the transition, we were in high teens. And so that is that is an expectation that we have. It is just hard to pinpoint the time frame under which the transition facilities will improve enough to get us back there. That is that is the direction. Austin Todd Wurschmidt: Yeah. And and then just one more. I I was curious what was the driver of the outsized occupancy growth for the SHOP assets in Canada was. I think you said it was 300 basis points year-over-year. I think that was closer to 150 basis points last quarter. Anything specific that is driving that sort of acceleration in occupancy upside? Elmer Chang: No. Nothing specific. I would just say that the the Canadian market is is ahead of the US market as far the recovery is concerned. And from a new supply perspective, I think Canada is even has a lower sort of construction rate that is happening there versus in the US, which we all know is at near historic lows. Got it. The lack of supply. Everybody. Elmer Chang: Yep. Operator: And our next question comes from the line of Seth Eugene Bergey with Citi. Your line is open. Seth Eugene Bergey: Maybe just going back to kind of the overall investment opportunity set, what part of the 240 is skilled versus SHOP? And then maybe broadly, you know, how are you seeing kind of the investment landscape change and the opportunity set change? Are your return requirements changing at all, or you know, how is the acquisition pipeline changing as a result of you know, as we kind of see more more REITs kind of get involved in the in the SHOP space. Elmer Chang: So number one, the the $240,000,000 of, awarded transactions is significantly weighted towards SHOP. There are a couple of skilled nursing actually, there is one skilled nursing opportunity that we discussed, which is only $20,000,000 of two forty. As far as the continued competitiveness, in the market, you know, we are definitely seeing more competition, but with such an enormous deal volume in the market, still able to find high-quality newer vintage assets at good yields. Richard K. Matros: And our return ex expectations have not changed. So our IRR return expectations are still low double digit. Seth Eugene Bergey: Thank you. That is helpful. Operator: And our next question comes from the line of Michael Lee Stroyeck with Green Street. Your line is open. Michael Lee Stroyeck: Thanks. Good morning. You shed some light on how the non same-store SHOP assets are growing? And are you expecting meaningfully different NOI growth within that portfolio relative to the same-store pool in 2026? Michael Lourenco Costa: Yeah. I mean, in terms of the the facilities that are not included in our same-store pool, you know, there is a component of that that are more recent investments. Right? They just do not meet the same-store criteria because we have not owned them long enough. And as we have talked about on calls, the last couple calls, the investments that we have been making are we are going into those with, call it, you know, high 80%, maybe even low 90% occupancy. But there is still some room to run there on the NOI side. And once those get folded into the same-store pool, you know, those will be their their performance will be reflected. And then in terms of other assets that may not be included in the pool, that are not recent transactions. You know, their occupancy is a little bit lower. They have they are they are excluded for a reason. You know, there may have been some renovations done. Some repositioning of the asset at some point in time, and those assets are in the process of recovering. And once they get to a reasonable spot, then we will include them into the pool. But those assets know, by definition, will have some opportunity for increased NOI growth given where they are performance wise today. Richard K. Matros: But as the non as a non same-store gets folded in over time, it is not gonna re result in reduced numbers for us. Michael Lee Stroyeck: Okay. Understood. And then maybe one question on pricing power. How long do you expect that mid single digit RevPAR growth to continue within the Canadian portfolio? And then when or if do you expect the US business to catch up? Elmer Chang: I would expect the Canadian portfolio should continue on with that that same sort of trajectory at least over the next year and it depends with respect to on the US portfolio. It depends on the occupancy as occupancy continues to increase. There will be more pricing power, and we should see some elevated growth at that point. But it is it is pretty impossible to to sort of even take a guess at how long that is gonna take for the US market to catch up to the Canadian market. Because it is a pretty big gap. Right now. Operator: Makes sense. Elmer Chang: For the time. Richard K. Matros: Yep. Yep. Operator: And our next question comes from the line of Farrell Granath with Bank of America. Your line is open. Farrell Granath: Thank you for taking my questions. My first one is regards to as you are entering into these SHOP assets, largely, which occupancy are are you trying to enter in at? And does that allow a greater ramp as that enters from your non same-store into your same-store providing potentially greater duration as we are talking about the same-store NOI growth. Richard K. Matros: Yeah. A lot of the assets that we are acquiring sort of 86%, 87%. There is some that are a little bit higher, but mostly mostly the sort of 86, 87% range. So that gives us plenty of room for growth, particularly when you factor in the operating leverage you know, once you get to those higher numbers. You just have a great pull-through on the revenue side. Because, as Mike mentioned earlier, do not have much in the way of incremental costs. So the growth becomes outsized Farrell Granath: Great. And I guess similar along those lines, while while we were just speaking about the Canadian portfolio, and thinking about NOI margins going forward, at what point does that almost cap out? Or have you do you have an example of one of a facility with higher pricing power, high occupancy, has been able to really level out expenses just to give a sense of what direction this portfolio can go towards. Richard K. Matros: So we we have some anecdotal evidence in Canada with a couple of buildings where they have really maxed out and the margins are really quite high, but it is anecdotal. It is one or two buildings. You cannot really extrapolate from it. Much less take that and make assumptions about the US. But the margin growth is we saw the pretty nice runway there. So to expect know, assisted living margins to exceed 35% is not is not low-balling it or high-balling it. It is a realistic expectation. From our perspective, the question is how much higher can it go than that and obviously, independent living is even higher. Elmer Chang: Thank you. Operator: And our next question comes from the line of Alex Hagen with Baird. Your line is open. Alex Hagen: Hey. Thanks for taking my question. Maybe if you can speak on deal flow and how competition is evolving. Maybe where are you seeing cap rate compression? And where is pricing holding up? We are you are we are definitely seeing cap rate compression. As as as the sector gains more and more popular and and then private equity as well is getting involved. However, the private equity investment they have not made a big splash. Typically, when you see them transacting on on opportunities, it is kind of a one to three asset sort of acquisition. And they tend to be focused more on either trophy assets in premier locations or deep sort of value-add opportunities, neither of which we are focused on. Fortunately, the cap rate compression, although it is it is definitely there, we have still been able to to find and continue to find newer assets in solid markets in that seven seven cap range. Richard K. Matros: Nice. Alex Hagen: And just sticking with the SHOP stuff, are you willing to lend to the development of new SHOP. Are there any of those opportunities bubbling up. Elmer Chang: Yes. Actually, we we have a program that is, preferred equity, so we are not lending. But we will provide preferred equity on developments. Those typically carry with them, you know, double digit returns. With a purchase option and then a kicker on the back end. So it creates, provides us with a solid investment return along the way. And provides optionality in the future and to some extent creates a future pipeline. Although, the although we I am continuing continue to see more development opportunities, most of them still do not pencil. But I am starting or we are starting to see, deals that actually pencil. So I think it will pick up Michael Lourenco Costa: Yeah. Alex Hagen: So thank you, guys. That is it for me. Operator: And as a reminder, it is star one if you would like to ask a question. Our next question comes from the line of Omotayo Tejumade Okusanya with Deutsche Bank. Your line is open. Omotayo Tejumade Okusanya: Hi. Yes. Good morning out there. Great to see all this activity. On the skilled nursing side for a second, could you just talk a little bit about how you are seeing the regulatory outlook for the rest of the year, whether it is on the Medicaid side, whether, again, also on the Medicare Part A side, just kinda giving some some of what we saw with the Medicaid Advantage. Richard K. Matros: Yeah. I do not think there is a read-through from from the MA rate decision. So I think for for our space, look. It is very formulaic. Kind of as I said over the last couple of calls, the outsized rate increases both on the Medicaid side the Medicare side. We got through the pandemic. You know, really started tapering down a little bit last year. We hit a high point think, in 2023 on both Medicaid and Medicare rates. Because of the time frame through which the cost support process runs. And when that all that inflation was captured. So they came down a little bit in 2025. But was still quite robust. And expect them to come down some more this year. Until the and then maybe when you get into 2026, you sort of back to where you were with historical averages. So I do not see anything unusual there. At all. And there is no there is no dialogue that is happening at the state level around Medicaid rates that are causing us any concern Omotayo Tejumade Okusanya: That is helpful. And then also on the SHOP side, again, first kind of six weeks of 2026 have been a little bit strange, kind of higher flu season. Very strange weather. Just kind of curious if that is impacting moving move-out activity at least for the first six weeks of the year. And if it is, if that started to stabilize out, Richard K. Matros: Yeah. Not really. Been pretty muted. Flu season has been relatively muted. So yeah. Not much. Omotayo Tejumade Okusanya: Great. Thank you. Richard K. Matros: Thanks, Kyle. Operator: And our next question comes from the line of Richard Anderson with Cantor Fitzgerald. Your line is open. Richard Anderson: Hey, thanks. And good morning out there. So I have just one question as it relates to SHOP and the execution of the SHOP platform. Know, Ventas and Welltower have established programs to grow you know, in the year following. I am not worried about people finding, acquisitions. I am worried about them executing on the operations in the aftermath. You guys have been doing this for ten years on the SHOP side. Now a lot of your peers are sort of getting into it today. You find or do you think back that, boy, you kinda learned a lot of lessons out of the gate that having been in it for ten years has given you sort of an advantage. From an operating point of view. And, you know, I am I am just curious if you think that there are it is more complicated perhaps as an operating business than than maybe some on the outside looking in might realize. And and I am wondering if there were lessons learned earlier on in your SHOP existence that you that you put into, you know, into execution over the course of the past several years that puts you at a better advantage to grow. Thanks. Richard K. Matros: Yeah. Thanks, Rich. So a couple of things. One, it is more complicated than becoming more complicated. As acuity rises. Under the assumption that you are aligning yourself with operators that are pushing acuity up which we are. I think, you know, one of one of the lessons that got learned along the way is when you have got a team at the REIT that is used to working with just triple net. Working and really getting into the details and working side by side with those operators under a SHOP structure, is very different. And so it took some time, I think, to acclimate to that. I think one of the advantages that we have is from the very beginning, our asset management team has only been comprised of ex-operators. So that was something that we did intentionally when we first did the spin. And started building up all those functions. So so I know folks know kind of my operating background, but it is not it it is not just me. We have built a really deep operating bench. Throughout the company. And we have added a business intelligence unit along the way as well. For better data data analysis and so I think being robust in those areas has paid off for us. And so as we grow the SHOP portfolio going forward, everything that we add from an infrastructure perspective at this point is just incremental for us. So you know, now it is a matter of continuing to fine tune, especially with all the technological and advancements and utilization of AI and and things like that. But I think the formation of our biz intelligence unit positions us well-to-do that. Elmer Chang: And, Nguyen, I will add something to that. Sorry. I will add something else to that, Rich. And it is not necessarily I would not call it a lesson learned. I think it is just good management which is the way that we internally manage, oversee, and operate on that portfolio has evolved over the last ten years as you would expect. I think it would be be kind of foolish for somebody to assume somebody with company with 10 SHOP assets is gonna have the same infrastructure, same process, same everything as somebody with a thousand SHOP assets. Right? Mhmm. But that that willingness and that appetite to continue to evolve ourselves and reinvent ourselves in how we do that and continue getting better that is something that has changed over the years. I would not say that is a lesson learned. I think that that is just the know, spirit of of constant improvement. Richard Anderson: When you think of I do not know. Maybe you have 60 employees at Sabra. Present company excluded. How many of them would you say are sort of focused primarily on senior housing operating I mean, in terms of people that are completely dedicated senior housing operating, that would we have a section of our accounting group that is probably I do not know, six, seven professionals. That that is all they do. Our asset managers spend a lot of their time, as you would expect, on that portfolio. They also spend time on our triple net portfolio as well. But I think everybody to a person here at Sabra is involved as we should be. Richard K. Matros: And the other thing I would point out is our investment team who do not necessarily have an operational background. They work completely in sync with the management team, and they go out to the buildings with them. So over the years, our investment management team who does not have an operational background, has now spent so much time going through buildings that we are looking to acquire side by side with our asset managers who are operators. That their understanding of operations has really expanded tremendously. So so if you look at our investment team, our asset management team, and the folks that completely dedicated to SHOP, in accounting and finance it is a pretty big chunk of that with 55 people of that 55 of those 55 people. Richard Anderson: Okay. Great. All I got. Thanks. Thanks. Operator: And as a reminder, it is star one if you would like to ask a question. And with no additional questions at this time, I will turn the call back over to Mr. Richard K. Matros for closing remarks. Richard K. Matros: Thank you for your support, and thanks for dialing in for the call. And I hope you all have a great Valentine's Day weekend. With whoever you spend Valentine's Day with. Take care. Operator: And ladies and gentlemen, this concludes today's call, and we thank you for your participation. You may now disconnect.
Operator: Hi. Welcome to the Colliers International Fourth Quarter Year End Investors Conference Call. Today's call is being recorded. Legal counsel requires us to advise that the discussion scheduled to take today may contain forward looking statements that involve known and unknown risks and uncertainties. Actual results may be materially different from any future results, performance or achievements contemplated in the forward looking statements. Additional information concerning factors that could cause actual results to differ materially from those in the forward looking statements is in the company's annual information form as filed in the Canadian Securities, in the company's annual report on Form 40-F as filed with the US Securities and Exchange Commission. As a reminder, today's call is being recorded. Today is 02/13/2026. And at this time, for opening remarks and introductions, I would like to turn the call over to the global chairman and chief executive officer, Mr. Jay Hennick. Please go ahead, sir. Jay Hennick: Thank you, operator, good morning. I'm Jay Hennick, Chairman and Chief Executive Officer of Colliers. Joining me today is CFO Christian Mayer. Our call is webcast, and a call deck is available in the relations section of our website. 2025 was an exceptional year for Colliers. Repeat. An exceptional year for Colliers. Reflecting the strength of our diversified platform and our successful expansion into other high quality recurring professional services. Today, more than 70% of our earnings come from these resilient businesses, approaching 75% once recent acquisitions are included. Our fourth quarter results were in line with expectation and were up nicely over last year, which itself was a very strong year over year performance. Last week, we achieved another milestone, agreeing to acquire Ayesa Engineering, a world class business and a rare opportunity at this scale. This acquisition meaningfully expands our avenues for growth, strengthens our ability to scale organically, pursue further acquisitions, and cross sell engineering capabilities across our global client base. Once closed, Colliers Engineering will rank among the top 30 global engineering firms with expanded presence in Europe, Latin America, and The Middle East. Operationally, in commercial real estate, we had another solid quarter. Capital markets continued its rebound, especially in The US, and leasing activity held steady with strength in both office and industrial. Demand for outsourcing solutions, including property management, valuation, and other advisory also grew nicely as clients continued to look for trusted and experienced partners with global execution capabilities. Engineering delivered another strong year of growth with internal performance and meaningful contribution from acquisitions. Growth will accelerate even further once Ayesa joins the platform. Investment management ended the year with over $108,000,000,000 in assets under management, reflecting deep investor confidence in our investment strategies across the entire Harrison Street asset management platform. Throughout the year, we continued investing in leadership, talent, and innovation across the board, reinforcing the entrepreneurial culture that defines Colliers. Our partnership model remains a key competitive advantage with meaningful inside ownership across the board keeping leaders fully aligned with our clients, our investors, and our shareholders. We entered 2026 with strong momentum once again and a healthy pipeline. We expect another year of solid internal growth, ongoing contributions from recent acquisitions, and a meaningful uplift once Ayesa closes. Over the past five years, despite challenging and often unpredictable conditions, Colliers doubled its size delivering compound annual growth rates of more than 15%, and based on what we see today, we expect similar performance again in 2026. Our strategy is working, our teams are performing, and we're extremely well positioned for future growth and value creation. Before I turn things over to Christian, a brief comment on AI, which is all the rage. At Colliers, we see AI as a productivity and growth enabler. It is helping us automate routine work, improve efficiency, expand margins, allowing our professionals to focus on higher value advisory services that are complex and rely on judgment, expertise, and trusted relationships. AI also strengthens our data advance, combining our proprietary information with advanced capabilities through our partnership with Google Cloud and other third party providers to deliver better insights and better execution for clients. Importantly, AI enhances rather than replaces our business across all three segments. Judgment, accountability, qualifications and licensure, as well as important client relationships remain central to how we operate. Put simply, it makes our professionals even better at what they do for our clients. While recent share price movements suggest AI near term impact may be overhyped, we believe its long term value is as an enabler and is truthfully, meaningfully underappreciated as future potential for Colliers and its future. Let me now turn things over to Christian. Christian? Christian Mayer: Thank you, Jay, and good morning. Please note that the non-GAAP measures discussed on this call are defined in our press release and quarterly presentation. All revenue growth figures are presented in local currency terms. For the fourth quarter, we generated revenues of $1,600,000,000, up 5% year over year, with growth across all segments. Overall internal growth for the quarter was essentially flat and was impacted by strong prior year comparisons. On a full year basis, internal revenue growth was up a solid 5%. Adjusted EBITDA was $245,000,000 for the quarter, up 6% over last year, in line with revenue growth. Fourth quarter Commercial Real Estate segment net revenue was up 7%. Capital markets revenues increased 13% led by strong activity and market share gains in The US, where we saw our investments in recruiting and multimarket connectivity driving continued market share growth in a recovering market albeit slower than we all would like. Growth in EMEA and Asia Pacific was modest against a strong prior year comparative. Leasing revenues were up 3%, also led by The US, the office and industrial asset classes, again versus a strong prior year comparative. Outsourcing grew 8% in the fourth quarter, with our valuation practice driving the growth. Segment net margin was 15.8%, up 50 basis points year over year on operating leverage from higher transactional revenues. Our engineering segment net revenue was up 8% led by recent acquisitions. End market demand continues to be strong, especially in infrastructure, transportation, and environmental consulting, offset by a temporary slowdown in certain project management operations in the quarter. The net margin was 12.4%, slightly lower than last year on lower overall productivity. Our revenue backlog is strong across the segment, and provides excellent visibility for the year ahead. Investment management net revenues increased 6% driven by a recent acquisition. The net margin declined slightly to 42.5% as we continued to integrate our operations under the Harrison Street Asset Management brand. These strategic investments are crucial for strengthening our capital formation capabilities and unifying non-client-facing functions. We expect these costs will continue to impact our margins through 2026. Our IM segment raised $2,100,000,000 in new capital commitments during the fourth quarter and $5,300,000,000 for the full year, in line with our expectations. Fundraising momentum was solid as we entered 2026, with several funds currently in the market including our latest flagship infrastructure fund which launched in December. Our fundraising target for 2026 is $6,000,000,000 to $9,000,000,000 as we accelerate the pace of attracting institutional and private wealth investors looking for differentiated alternative investment solutions. Year end AUM, as Jay mentioned, was $108,000,000,000, flat relative to September 30, with new capital raised offset by asset sales in older vintage funds and accompanying returns of capital to our LPs. As in the past, we anticipate our LPs will reinvest a significant portion of the returned capital into our new funds. Now turning to our balance sheet. Our leverage declined to two times as of December 31, with the benefit of strong seasonal cash flows. The recently announced Ayesa acquisition will add approximately 0.7 turns of leverage on a pro forma basis. The $700,000,000 USD equivalent purchase price will be funded from a revolving credit facility, which currently has over $1,100,000,000 of available capacity and will be Euro denominated, bearing interest at a very attractive rate of approximately 4%. We are entering 2026 with strong momentum. Across our company there's a tangible sense of optimism about our strategy, the investments we are making, the increasingly resilient profile of our revenues, and the avenues for growth in each of our diversified segments. In that spirit, we are introducing our outlook for 2026 as follows: In commercial real estate, we are expecting low teens top line growth and a modest increase in net margin, predicated on a continuing recovery in capital markets. It's important to note that even with this growth, our capital markets activity will remain well below prior peaks. Our engineering segment is expecting mid single digit internal growth and the impact of acquisitions including Ayesa, resulting in total top line growth of over 25%. This growth is supported by a strong backlog and favorable trends in infrastructure, urbanization, and energy transition along with increasing data center demand. Investment management net revenue growth is expected to be in the low teens with growth led by higher management fees as fundraising continues to accelerate. Putting it all together, we're expecting mid teens growth in all three of our key operating metrics. That concludes my prepared remarks. Operator, can you please open the line for questions? Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed with the number one on your touch tone phone. You will hear a prompt if your hand has been raised. Should you wish to decline from the polling process, please press star followed by the number two. If you're using a speakerphone, please lift the handset before pressing any keys. Your first question comes from the line of Tony Paolone from JPMorgan. Your line is now open. Tony Paolone: Great. Thank you. I'd like to start with engineering and just a bit on the organic growth there. As you roll that up, if I think about that business, I think about it being like an hourly rate number of professionals and the number of hours worked. Can you talk about just, like, what's happening with some of those trends organically? And you know, where you're finding success or not and sort of those revenue synergies as you roll this up? Christian Mayer: Yeah. Tony, I'll take that. You know, as we mentioned, demand for our services is strong across all the end markets. In terms of the questions you're asking—pricing and hours and things like that—we're seeing opportunities to increase pricing. There is strong demand for our services. We're getting nice increases from institutional, public sector, and private sector clients. In terms of professionals, we're hiring; the market is still tight for qualified engineers. But we are growing our workforce to meet the demand. Our backlogs are strong, as I mentioned in my prepared remarks, and that is driving our utilization. You know, we have business in infrastructure, power, transportation, property and building work, with programmatic clients in distribution and retail. These activities are all going strong and will drive our hourly work and our ability to increase our utilization of our staff and our margins. Let me add, Tony, a couple of things that just maybe simplify some thoughts. Probably 60% of the engineering business is what I would categorize as design, which is design of all types of solutions, which is not hourly based, although we do manage our labor on an hourly basis. But it is not priced to clients on the basis of an hourly rate. The balance of the business is more, I would say, closer akin to project management. Once the design is complete and needs to be executed upon, it's closer to an hourly rate kind of structure. So we love that business because the design aspect allows us to generate higher margins, yet the hourly rate portion, or the project management portion, is something that is certain. It is long term. For example, we have some clients where the execution of the project may be ten or twelve years, where we're allocating x number of people for a long period of time to oversee the completion of the work. So it's a very interesting business opportunity for us. It's a very good business. And as Christian said, there's a shortage of engineers virtually everywhere in the world which is driving up pricing. You know, we'd like it to drive it up a little bit more. But it is driving up overall pricing because it's hard to get qualified engineers. So I thought I'd add that little editorial. Tony Paolone: No. It's really helpful because it kinda ties to the follow-up where I was gonna go with just some of these concerns around AI and thinking about, you know, if everything gets more efficient and they can do more work quicker, does that have any implications on sort of the billable hours or just the TAM of revenue? Or are there just other ways to charge? I mean, just trying to think about how that could be disruptive. Christian Mayer: Well, for sure, on the design piece of the business, automation of all kinds, AI, helps drive our margins up because our professionals can do the mundane, the menial tasks faster and get to the real value add stuff. So we see some real advantages from that aspect of our business. Operator: Okay. Thank you. Your next question comes from the line of Daryl Young from Stifel. Your line is now open. Daryl Young: Good morning, everyone. I wanted to start with a question just on capital allocation. And specifically where the share price is today and your thoughts on buybacks or an SIB? Jay Hennick: I'd love to buy back stock right now. But we have lots in the pipe, including Ayesa, as you know. And we believe more behind that. So we're watching our capital carefully. It's very easy to do an equity offering and dilute shareholders, but that's never been our MO. We're in the business of creating long-term shareholder value. So you know, buying back stock is not really, as a corporate matter, in the plan. But on a personal level, it might be in the plan. Daryl Young: Okay. And then switching to investment management. Some of the integration cost pressures have gone on a little longer than I think I originally had expected. Is the scope of what you're doing there changing and evolving? Or maybe just a little bit more color on the continuation of those pressures? Jay Hennick: Well, we don't really see them as pressures, but it will continue again in '26. Christian will add a few little tidbits in a minute, but, you know, we're actually getting a little more ambitious on some of the initiatives as we bring everything together. And we're liking where we're coming out. So we're gonna continue to do what we think is right in terms of creating a spectacular platform under a unified brand. Christian, you wanna add? Christian Mayer: Daryl, I'd just add that we have been messaging for some time that we're going to be incurring additional costs to integrate and bring together this business. And as I mentioned in my prepared remarks, which is consistent with what I've been saying previously, we do expect this to continue through the first half 2026 until we sort of complete the work and realize some of the benefits of the work we've been doing. Daryl Young: Oh, okay. Thanks. I'll get back in the queue. Operator: Your next question comes from the line of Erin Kyle from CIBC. Your line is now open. Erin Kyle: Hi. Good morning, and thanks for taking my question. I wanted to start maybe on the macro here, and if you can just give us some more detail on what you're seeing from a macro perspective as it relates to the capital market pipeline here? And then maybe just elaborate a little bit on what's baked into that 2026 guide and whether it depends on some additional rate cuts here. Jay Hennick: Yeah, Erin. We're not counting on rate cuts in terms of our outlook for capital markets. Capital markets is benefiting from a pent-up supply—pent-up supply of transactions. As you know, transaction activity has been slow for a number of years, and there's a lot of people in the market that want and need to transact. And that's starting to turn into revenues for Colliers. So that's really what we're seeing. We had strength in 2025 in capital markets and we expect that to continue in 2026 with more transactions happening at all price points across all markets. '25 was led by The US. I think The US will continue to be very strong, and hopefully volumes will pick up in EMEA and Asia Pac, which have been a little bit slower. Erin Kyle: Could you just remind us what The US exposure is specifically in capital markets? So maybe a percentage of that business? Christian Mayer: About 50%. Erin Kyle: Okay. That's helpful. Thank you. Then I just wanted to clarify on the engineering segment. What was the internal growth in the quarter and for the year? I don't think I saw it in the slides this quarter. Christian Mayer: Yeah. Engineering internal growth was roughly flat on the quarter and 5% on a full year basis. Erin Kyle: Helpful. Thank you. I'll get back in the queue. Operator: Your next question comes from the line of Stephen MacLeod from BMO Capital Markets. Your line is now open. Stephen MacLeod: Thank you. Good morning, guys. Lots of great color so far. I just wanted to ask a little bit about the sort of AI trade we're seeing going on in the marketplace right now—stock marketplace, that is. Jay, you referenced some of it in your prepared remarks, but I was just curious if you could give maybe a few examples of how you intend to leverage AI in the future—you know, you gave a little bit of color there. And then I guess separately from that, where you might see some potential risks to the business, if any. Jay Hennick: You know, let me just sort of start with—you know, we don't buy and sell commodity real estate or lease commodity real estate. I heard somebody musing yesterday about selling condos. That's very different than what we do. You know, our professionals are handling high value, complex transactions, multiple variables. You know, they need their judgment. They need experience. They need relationships. So AI is not going to impact their business other than to make them better at what they do. And as I said, we have—there's sort of three buckets there that are interesting and valuable to our professionals. One is our own data sets, and we have significant data sets that we've accumulated over many, many years. Market by market, category by category, real estate asset type by real estate asset type, including valuation information, including real estate property management data sets. All of those are valuable in our computer systems, etcetera. We've also entered into this partnership with Google Cloud who have the biggest commercial real estate data, and it's an exclusive partnership—we're the only ones in the industry. And they have a unique and probably the most commercial real estate data out there. And so we're leveraging that as well as their capability at doing what they do, which I think is top drawer. And our existing software suppliers are also moving in the way of AI in a rapid format. So when you bring all of those things together and you integrate that—and by the way, this is going to be a long term process. This is not gonna be turn it on this year and you're in business. This is gonna be a two, three year process to maximize the value. We're trying to be very pragmatic about it. We're focusing on higher value output first. But there's all of that data that we will be able to arm our professionals with that will allow them to advise clients better as they make decisions. The second piece, as I talked about, is how do we get rid of the redundancy, increase the efficiency? There's so much that—this is not this year, and it's not because of this fancy phrase called AI. We've been automating processes for years now, and in areas like valuation and other areas where there's just a lot of mundane tasks. What AI is allowing us to do is accelerate that process. And we think that we'll become way more efficient, be able to reduce our costs—not just our IT costs, but also labor across the world. And that's gonna only drive increased margins. So we're quite excited about both of them. Our CapEx this year around IT is bigger than it's ever been before in terms of our history by a meaningful amount. Our teams are centralized and excited about the possibilities. And what we have to do as good stewards of capital is make sure that they're staying focused on the biggest opportunities for us rather than, you know, a shotgun approach. So we're quite excited about all of this, but, you know, let's just put it into the—this is just what we do for a living. This is what we do to enhance our business. And there are so many other areas that are gonna continue to grow our business. This is just gonna make us better. It's gonna increase our moat even more. It's gonna create more value for our professionals, and all of that just leads to a better, stronger, long term business called Colliers. Stephen MacLeod: That's great color, Jay. Thank you. And it sounds like it's gonna be a net benefit. Jay Hennick: Absolutely. Stephen MacLeod: I just appreciate the color just given the backdrop, so that's why I asked. So thank you. You know, just maybe one more question, more surgical, I suppose. But just on the investment management business, just as you work through the investments you're making this year, coming out the other end, you know, better positioned to capital formation and things like that. Christian, could you just talk a little bit about sort of where you see margins going once the investment into the unified platform has been made? Christian Mayer: Yeah. You're gonna see margins decline in 2026 to the high 30s net margin area. And then in 2027, we're expecting to return to our historical average margin in the mid-40s. So that's essentially with fundraising, as we outlined, starting to accelerate and with these integration efforts behind us. Stephen MacLeod: Yeah. That's great. Okay. Guys, appreciate the color. Operator: Your next question comes from the line of Julien Blouin from Goldman Sachs. Your line is now open. Julien Blouin: Yeah. Thank you for taking my question. So, Jay, it sounds like we should be thinking of the Ayesa acquisition kind of similarly to Englobe in that it sort of gives you this foothold in Europe and elsewhere from which you can grow and sort of roll up other businesses. I guess as you think about identifying those next tuck-in targets, is it primarily on the basis of the geographies you wanna be in, or is it the additional capabilities that you're most interested in adding to the platform? Jay Hennick: Well, the simple answer is both, obviously. But we have capability across the platforms everywhere, stronger in some places and weaker in others. But let me zero in on Ayesa for a second. The beauty of that deal for us, when you cut through it all, is they were founded in '64 by the same family. The management team there is absolutely spectacular. They have spent since 1964 building sizable platforms in Spain, Mexico, Europe, The Middle East—markets where we did not have a presence. And so, yes, looking at it like Englobe is a great example, except in the case of Englobe, as we consolidate the industry, we're doing it only in Canada. Now we have the opportunity to do the same thing in multiple markets. And so our M&A teams here and at Ayesa are very excited about what they can do with their existing platforms, which themselves are extremely profitable with strong management teams already in place. So we see lots of future growth coming there. And as we continue to look at that business, we see other areas where we can do similar things. And, again, you know, I wanted to emphasize, which didn't come out in my initial comments, our partnership philosophy is making a huge difference. We're a permanent capital source. We're partners with the operators that run these businesses every day. Yes, we have significant equity stakes in the business. Yes, we drive all of their growth initiatives. But they finally have a partner that can help them execute on plans, help them integrate acquisitions, sort of follow some of the things that we've done for the past thirty years. And there are other potential targets out there that could continue to accelerate our growth in engineering. So it's not over now, but it's an area that we alluded to on previous conference calls over the past twelve or eighteen months, and I think there's more opportunity to be pursued. And there's similar opportunities in our other segments as well. So, you know, our philosophy of three segments—each of them high value, recurring, professional services, high cash flow generation—is working and has worked for thirty years. So we have a way of operating, which we think is unique. We think we differentiate ourselves in the marketplace when it comes to being an ideal partner for some of these great businesses. And our job, I think in many ways, is to just find that great business with the great management teams that are hungry to take the business to the next level, and that's what we focus on so much when it comes to M&A. Julien Blouin: Thank you. That's really helpful context. And then Christian, I think you referenced a temporary slowdown in certain project management operations in the quarter and lower overall productivity is, I think, how you stated it. Can you maybe elaborate on what drove that and sort of what gives you confidence that these pressures won't recur as we move into 2026? Christian Mayer: Yeah. We had lower activity levels in project management operations in our legacy local project management business in EMEA and Asia Pac. And we think that was a temporary one-time thing. So I'm comfortable that is going to be behind us. And then as it relates to margin, the engineering business does have a lot of hourly labor attached to it. Utilization is extremely important. And when you're in the holiday season, that sort of thing, it does impact the utilization and productivity of staff. So it was really a very minor change in margin, not something to be concerned about as we look ahead. Julien Blouin: Okay. Well, thank you both very much. Operator: Your next question comes from the line of Himanshu Gupta from Scotiabank. Your line is now open. Himanshu Gupta: Thank you, and good morning. So on commercial real estate, I mean, you have low teens growth expectation in 2026. Can you break it down between capital markets and leasing businesses? Christian Mayer: Sure. So the segment, as you said, is low teens revenue expectation for growth. In terms of capital markets, we would be looking at high teens, which is a slight acceleration from what we had in 2025. We have a lot of visibility and confidence in the return of transaction velocity there. Leasing would be something in the mid to high single digit area in terms of growth year over year. So really, growth you're seeing in commercial real estate is focused around capital markets. Himanshu Gupta: Got it. Thank you. And then on leasing specifically, can you comment on industrial and office leasing expectation? I mean, is there any outlier within, like, regional breakdown or within asset class for leasing? Christian Mayer: You know, you hit the nail on the head there, Himanshu. Office and industrial were strong in the fourth quarter, in The US in particular. I think those classes are going to continue to be relevant in terms of—they are our largest asset classes that we provide service in. So those two asset classes will continue to drive growth as well as others, like data center in particular would stand out there. So it's going to be based on those areas. Himanshu Gupta: Got it. Thank you. And then switching gears, fundraising target of, I think, 6 to $9,000,000,000 this year. What platforms are you expecting this level of fundraising? I mean, can you unpack this? Like, how big is the infrastructure? What other funds will contribute to that level of fundraising? Christian Mayer: Well, as I mentioned, we had the first close on our new vintage infrastructure fund in December 2025. So that is a big driver of fundraising. The alternative fund at Harrison Street, Fund Ten, had its first close last year, earlier in the year. So additional activity on that fundraise. We've got a number of products in the market—existing open-ended vehicles as well as new products that we're introducing to the market. So a lot of different areas of focus, and credit as well is another vertical. So it's gonna be broad based. Himanshu Gupta: Got it. Very helpful. And my last question is, can you speak to the performance of funds within your IM segment last year? Was the performance of these funds in line with your expectations, and how are they helping you to do more fundraising? Christian Mayer: Fund performance has been strong, Himanshu. So we continuously rank in the top quartile for fund performance across the alts, credit, and infrastructure space. In fact, our flagship open-ended vehicle, the Harrison Street Core Fund, exceeded the ODCE index by 100 basis points in 2025, which the team is very proud of. So doing well. Himanshu Gupta: Awesome. Thank you. Good to hear, and I'll turn it back. Operator: Your next question comes from the line of Jimmy Chan from RBC Capital Markets. Your line is now open. Jimmy Chan: Thank you. So, Christian, just on the leverage, are you gonna be on a pro forma basis at 2.7 times? Is it your plan to get back to the two times leverage where you've historically been? And how do you plan to do so? Christian Mayer: Yeah. Jimmy, that's the plan. That's always the plan when we lever up for a larger acquisition. We've done so in the past with Harrison Street, with Englobe, and now with Ayesa. So the plan is to generate strong operating cash flow again in '26 like we did in 2025, to grow our EBITDA organically. The combination of organic EBITDA growth and cash flow generation is a powerful delevering effect, and that's what we expect to happen here as we progress toward the end of the year. Jimmy Chan: Okay. And then my second question—I'm sorry to go back to this, AI, Jay—but it seems, I guess, that your view is that not only do you not think AI will be a disruptor, it's actually gonna be a margin enhancer. Is that a fair interpretation, or am I going too far, is number one? And then do you see at all any possibility across the various services that you provide that you can actually see fee pressure as a result of AI? Jay Hennick: I don't see any fee pressure at all. I see the exact opposite. I think it's a disruptor—not to our business, but to our mindset. You know, the great thing about this is it has opened up everybody's eyes to accelerate automation and integration across the organization faster than we otherwise would have, I think. You know, internally—and we're a very low CapEx business. We generate huge cash flows in our business. We're allocating a lot more capital to IT because of all this new focus on AI. And as we get deeper and deeper into this, we realize more potential opportunities for the way we do business and the information we can provide to our professionals. So I'd say we're quite excited about it. But I think it's only additive to our business long term. I can't see any area where it's not. If you were selling commodities—cookies, something like that—yeah, okay, great, you can use AI. But these are complex transactions. They need licenses in many cases across the board. You need personal relationships. You need all the things I've talked about. And if we can make our professionals better and have more information at their fingertips, they're gonna be able to execute transactions faster, with more information to the buyers and sellers. And leasing—which is a big component of our business—is even more complicated in many respects given the types of leasing that we're now doing, data centers and other very complex transactions. So I see it as a benefit—an enabler is probably the best word I could use. Jimmy Chan: Yeah. Thank you for that. I do have one more quick one on Ayesa. The EBITDA for 2026 is around $6,364,000,000. Is that what's embedded in your '26 guidance? Jay Hennick: Seven months of that. Yes. Jimmy Chan: Seven months of the 2026 EBITDA. Christian Mayer: Yeah. Operator: Your next question comes from the line of Steven Sheldon from William Blair. Your line is now open. Steven Sheldon: Hey, Jay and Christian. You have Matt Filak on, Steven Sheldon. Thank you for taking my questions. Wanted to start with one on Ayesa. It looks like that business has historically grown faster and operated at higher margins than your broader engineering platform. So I was just wondering if you can give us a rough sense of your growth expectations for that looking ahead and talk about what drives that stronger margin profile? Christian Mayer: Well, the growth in that business—we referenced a 13% CAGR over the last ten years. Obviously, the business now is at a scale where it becomes more difficult to grow organically at those kinds of rates. Certainly, we expect that high single digits are achievable organically going forward, and that's what we’re focused on. In terms of its margin profile, it provides high value services—design, site supervision, project management consulting—on very sophisticated projects in high demand end markets. These are public sector—public transit, water, energy, energy transition—end markets that can command higher margins. Jay Hennick: The team at Ayesa, for example, they're big in desalination in The Middle East. And, you know, obviously, that's a very profitable component of their business. They've got expertise in water in Spain and in Mexico, and they've capitalized on it in The Middle East. Christian Mayer: And I think the team has extremely disciplined pricing and disciplined execution on their projects. And they've demonstrated that over the last decade as well in being able to consistently deliver superior margins on their business. Steven Sheldon: Got it. I appreciate that additional detail. And then just had one on producer headcount in capital markets and leasing. In the event transactional volumes were to have a more meaningful recovery in 2026 than you've assumed in your guidance, do you feel appropriately staffed to capture that upside? Or should we expect some incremental hiring? Jay Hennick: We’re very active in recruiting across the board and have been over the past number of years. So we feel like we have what we need, but we're quite active in specific areas or specific specialties—white space—where we can capitalize even more. Christian Mayer: And I think the productivity of our existing producers is not at peak levels today. So they have capacity to generate more revenues with the same professional headcount. Steven Sheldon: Very helpful. Thank you both. Operator: Your next question comes from the line of Frederic Bastien from Raymond James. Your line is now open. Frederic Bastien: Hey. Good morning. Just wanna go back to Ayesa—hope I said it correctly. But, obviously, limited—no overlap whatsoever from a geographical standpoint with the business. And sounds like they have niche expertise that you can probably leverage. Was that kinda behind the underwriting assumptions? Like, that beyond the twelve months of the first of the acquisition period, you're gonna be able to cross sell a lot of the Ayesa services to your other regions? Christian Mayer: Yeah. Frederic, the transferability of skills is something that we do look at whenever we make an acquisition. And in the case of Englobe, they happen to have water expertise in terms of irrigation, drinking water, sanitation in Canada. And those skills are transferable and being transferred to our US business to help grow that part of their operation. So certainly with Ayesa’s capabilities in desalination and other areas in the water space, that will be something we'll look at. Frederic Bastien: Okay. Cool. That's good to hear. And then I don't know if you mentioned it, Christian, but did you mention how much you ended up fundraising in 2025? Christian Mayer: Yeah. It was in my prepared remarks. Let me turn back. $5,300,000,000 on the full year, I believe. Frederic Bastien: Okay. All I have. Thank you. Operator: Our last question comes from the line of Maxim Sytchev from National Bank Financial. Your line is now open. Maxim Sytchev: Hi. Good morning, gentlemen. Christian, I was wondering if it's possible to get a clarification on organic growth for engineering. Was it a gross or net basis, number one? And then I guess if you can provide any color in terms of how the year is starting to trend—I presume we should be anticipating a recovery there. Thanks. Christian Mayer: The first part of your question—the internal growth was on a net revenue basis. And I think the second part of your question was about growth trajectory into '26. Yeah, I mean, as I said in my prepared remarks, we have strong backlogs supporting our revenue outlook for the year, and we have mid single digit internal growth as an expectation. We also have the impact of three tuck-in acquisitions that we did just in the last couple months, as well as the annualization of a few acquisitions last year. So that, together with the Ayesa transaction, which we expect will close in Q2, brings us to the overall revenue growth outlook of 25 plus percent. Maxim Sytchev: Okay. Makes sense. And then just one quick clarification around Harrison Street. So the dip in the margins to kind of high thirties—what is driving that exactly? Is it sort of system integration, personnel? Can you maybe just explain a little bit from an operational perspective on how that projection will rebound on a prospective basis? Christian Mayer: Yeah. We're conducting a lot of work on our IT systems integration, bringing the platform together. So a number of different systems projects underway to make that happen, a number of headcount additions which have occurred over the last six months and will occur going forward. And then also some planned efficiencies that we are working through today will yield run-rate cost savings once we hit the latter part of the year. Operator: There are no further questions at this time. I will now turn the call back over to Mr. Jay Hennick. Please continue. Jay Hennick: Thank you, everyone, for participating in our fourth quarter and full year conference call. And we look forward to the next one. Thank you. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation, and have a nice day.
Operator: Welcome to the Safran Full Year 2025 Results. At this time, I would like to turn the conference over to your host, Olivier Andries, Safran CEO; and Pascal Bantegnie, Group CFO. Mr. Andries, please go ahead. Olivier Andriès: Good morning, everyone. Thank you for joining us. Today, we will review our 2025 results, share our 2026 outlook and briefly walk you through some of our updated 2028 assumptions. 2025 was an outstanding year for Safran. Airlines carried more than 5 billion passengers and against that backdrop of strong demand and still low retirement levels, our aftermarket activities clearly outperformed expectation across both spare parts and services. We have also reached an all-time high in LEAP production, delivering more than 1,800 engines, up 28% versus 2024. Defense and Space had a particularly strong year as well. In military propulsion, we accelerated M88 production, and we have secured a new Rafale export contract with the Indian Navy. In defense electronics, order intake reached a record level with 1.6 book-to-bill ratio, reflecting very strong market demand. We have also signed several strategic partnerships, expanded capacity across multiple product lines, and we have achieved the first major export success for Safran.AI, which is a new name we have given to the Preligens company we had acquired 18 months ago. In Aircraft Interiors, [ recent ] seats, commercial wins and improved pricing conditions confirmed that the strategic shift presented at our last Capital Market Day is being executed. Overall, we outperformed our initial expectation in 2025, delivering record financial results across all metrics. This, despite tariffs. Margin improved by 150 basis points and cash generation approached EUR 4 billion. Reflecting this performance, we are proposing a EUR 3.35 dividend per share, up 16% year-on-year. Finally, on portfolio management, the integration of Collins actuation activities is progressing well. At the same time, we are moving ahead with the divestment of 2 non-core activities, the sale of Safran passenger innovation was completed last month, and the easier transaction where we are going to sell our share of the joint venture to our partner Embraer is expected to close by midyear. Turning to Slide 4. Civil business highlights. We invest to secure [indiscernible] and you can see that clearly in our recent industrial announcement with the new LEAP-1A assembly line in Morocco. At the same time, we are continuing to expand our MRO footprint following the groundbreaking of our LEAP MRO shop in Morocco. We have recently inaugurated Safran's largest LEAP engine MRO center worldwide in India. We are also pleased to mark another important milestone in CFM's long-standing partnership with Ryanair. We announced that 3 days ago, of a new material service agreement that covers the entire fleet of around 2,000 engines, CFM56 and LEAP, and that will support 2 new Ryanair future maintenance, repair and overall shops that they have decided to launch in Europe. This is a compelling illustration of our open MRO market strategy we presented at our last Capital Market Day. Commercial momentum remains very strong. LEAP continues to be the engine of choice, as illustrated by the recent agreement with Pegasus in Turkey, for 300 LEAP-1B engines, which also includes long-term maintenance services. Finally, at the Dubai Airshow, Riyadh Air ordered 120 LEAP-1A engines to launch its FA21 neo fleet and selected our wheels and electric carbon brakes for its 787 fleet, ultimately more than 70 aircraft. We have also announced a joint cooperation with Emirates to manufacture and assemble seats in Dubai. And Safran Seats was selected to supply new business and economy class seats to retrofit more than 100 additional aircraft across both the 777 and A380 fleets. Turning to Slide 5. Momentum remains extraordinary strong in defense. We announced the groundbreaking of the first M88 MRO shop outside of France in Hyderabad, India. At the same time, as we continue to ramp up M88 production. We have also announced a significant investment at our Le Creusot site in France, adding new production lines for complex rotating parts for the M88 engine. We have also signed an agreement with Bharat Electronics in India to create a joint venture to manufacture our HAMMER guided bombs. Overall, in 2025, we have approved around EUR 1.4 billion of industrial investment, mainly to expand massively capacity across both Civil Aerospace and Defense. With that, I will now hand over to Pascal to walk you through the 2025 results in more detail. Pascal Bantegnie: Thank you, Olivier. Good morning, everyone. Today, I'll walk you through the adjusted accounts, and you'll find a bridge to the consolidated statements in the appendix. Let's start with FX trends, which are shown on Slide 7. In 2025, our trading floor faced a really volatile environment. The dollar weakened against the euro, the whole year, which wasn't easy to manage. Still, our team did a great job protecting the portfolio, and we managed not to trigger any KO barriers. That said, at the end of Jan, the euro-dollar shot up past 120, and that caused us to lose less than $1 billion in hedging volume, so less than 2% of the whole portfolio. We reinstated the same hedge volume afterwards so that did not impact our goal of reaching $112 in 2026. Based on the actual figures for 2025 and to reflect our revenue profile now that we include the actuation and flight control business, we have increased our expected exposure to $16 billion in 2026 and $17 billion from 2027 onwards. As always, these number should not be seen as a medium-term business outlook. We are confirming the $112 hedge rate for 2026, and we'll do our best to secure that rate for '27 and '28. We've also started hedging for 2029. And as a first indication, we are targeting a hedge rate between $1.12 and $1.14 based on current market conditions. Now if we look at Slide 8, our 2025 revenue came in at EUR 31.3 billion. It's EUR 4 billion higher than last year, which is up 14.7%. That's actually 14.8% organic growth, and we saw steady growth quarter-after-quarter throughout the year. OE sales went up by 11.3%, thanks to both higher volumes and better pricing. Services revenue was up 18%, showing just how strong airline demand was for MRO and spare parts. Changes in scope added a positive 3%, mainly because we brought in the actuation and flight control business, but the boost from this acquisition was completely offset by a weaker dollar, which dragged things down by 3.2%. Our recurring operating income reached EUR 5.2 billion, so that's more than EUR 1 billion higher than last year. The operating margin was also up by 150 basis points, hitting 16.6% of sales. The solid performance was mainly driven by strong results in the aftermarket, volume growth and our continued focus on operational excellence and keeping Safran competitive even in such a sweet environment. If we move to Slide 9, you'll see a summary of the income statement. Apart from sales and EBIT, which I'll get into in more detail later on, let's look at some of the other key P&L items. We had one-off items totaling EUR 479 million, which is a pretty big number. So most of that is in cash. About half comes from the EUR 244 million pretax capital loss tied to the divestment of Safran Passenger Innovations. There's also EUR 178 million in impairment charges on some programs and then a few other cash costs like restructuring and M&A expenses, especially from the actuation and flight control acquisition. Looking at financial income, our returns on cash investments actually topped our cost of debt, bringing in a net EUR 116 million in financial interest. Our apparent tax rate was 32.3%, which was heavily influenced by the French corporate surtax, EUR 370 million, which cut around EUR 0.90 per share of our EPS. All in all, net income attributable to the parent was EUR 3.2 billion, up 3% year-over-year, and that works out to EUR 7.6 per share. Let's dive into our businesses, starting with Slide 10 on Propulsion. Revenue here reached EUR 15.7 billion, which is a 17.6% organic increase. When we look at Propulsion services, revenue was up 21% organically. For the Civil aftermarket, spare parts sales climbed 18%, mainly thanks to the CFM56. That drove more shop visits, mid-single-digit growth and a higher proportion of full work scope shop visits. High thrust engines also did well, helped by growing wide-body traffic. LEAP engines contributed too, with third-party shop visits making up about 15% of total shop visits in 2025. We saw a 30% jump in services overall, mostly because LEAP aftermarket activities expanded under rate per flight hour contracts. Both helicopter turbines and military engines also helped drive propulsion services growth. On the OE side, revenue grew by 12% organically. We delivered a record 1,802 LEAP engines. So that's 28% growth compared to 2024 and well above our initial target. In Q4 alone, we delivered 562 engines, up 49% from Q4 last year. So we have surpassed 500 deliveries for 2 straight quarters now, which looks good for our 2026 goals. While M88 fighter engine deliveries were down year-over-year, production actually ramped up a lot in 2025, just as we had planned to keep up with a strong backlog, especially for export customers. Recurring operating income was EUR 3.6 billion, 28% organic growth. The operating margin stood at 23% of revenue, up 2.4 points, which is a strong result and almost aligned with our initial guidance earlier in the year, even with some lingering tariff impact. This improvement was mainly driven by strong civil aftermarket activity and really robust performance from CFM56, both in volume and work scope. The LEAP program also contributed with us starting to recognize profits on LEAP-1A RPFH contract and a still high ratio of spare engines. Let's now move to Slide 11 and talk about Equipment & Defense. Sales here is EUR 12.3 billion, which is up 11% organically and 16% overall. That includes about EUR 618 million from the Collins actuation and flight control business, which we consolidated for 5 months in 2025. OE revenue was up 11% organically with growth pretty much across the board. The strong performance in 2025 was mainly driven by higher volumes in defense, especially for things like the HAMMER-guided bomb, missile seekers and navigation and timing systems. We also saw good momentum in primary electrical system and wiring as well as nacelles and landing gears, especially for the A320. Aftermarket services benefited from the uptick in air traffic, going up by 12% organically with growth everywhere, but especially in landing gears, nacelles and evacuation slide systems. Recurring operating income came in at EUR 1.6 billion, and our operating margin improved by 50 basis points or 90 basis points if you exclude Collins, showing that we are making steady progress toward our 15% margin goal for 2028. The strong performance was driven by a favorable business mix and our efforts to stay competitive. OE volume growth was especially robust for narrow-body platforms as well as in avionics, defense and space. Services also did well with strong demand for carbon brakes, landing gear, nacelles and aero systems. One quick side note. As of Jan 1, 2026, Safran Ventilation System will move from Aircraft Interiors to Equipment & Defense, so we can create more synergies with our power electrical business. SVS is a profitable business. It brings in a double-digit operating margin with revenue slightly under EUR 200 million. Finally, looking at Slide 12. Aircraft Interiors continued to make real progress on its turnaround. Sales reached EUR 3.3 billion, including Safran Passenger Innovations, our IFE business, which is a 14% increase and actually bring us back to 2019 levels. OE sales went up by 15%, mostly thanks to higher deliveries in cabin, especially galleys, inserts and water and waste system for A320 and 737. Revenue also got a boost from our IFE activity as well as from higher volumes and better pricing on business class seats. Services were up 13%, mainly on the back of demand for Cabin spare parts, especially from customers in the Middle East, Asia and the Americas as well as from SVS, which I mentioned earlier, will transfer over to Equipment and Defense in 2026. Seats also did well, both with spare parts and services and passenger innovations helped out on spare parts and repairs. Recurring operating income crossed EUR 100 million with operating margin up 2.3 points. Cabin kept capitalizing on shifting production to best cost countries like Mexico, the Czech Republic and Tunisia and also on renegotiating prices for the lower-margin programs. IFE activities helped lift profits overall and seats kept improving, thanks to ongoing work on pricing and operational excellence. The strong performance really shows our focus on pass-through and price increases, which helped offset the impact of tariff. The very good news is that Aircraft Interiors has now reached cash breakeven with a noticeable EUR 140 million improvement just over last year. Now if we look at Slide 13, we generated EUR 3.9 billion in free cash flow, which is up 23%. That gives us an EBIT to cash conversion ratio of 75%. The strong result came from a 17% increase in EBITDA, so higher earnings less an impact from one-off items, along with a positive impact from working capital changes. For the first time since COVID, we managed to reduce inventory DSOs by 9 days. Also, we did increase inventories in dollar to support the ramp-up that was more than made up for by a strong inflow of advanced payments, which were higher than last year, especially thanks to the Rafale orders and other defense programs. We also paid an extra EUR 1 billion in income tax, reflecting our higher taxable income and including the EUR 377 million French corporate surtax. At the same time, we're still investing to support our growth and prepare for the future. Tangible CapEx was just under EUR 1.2 billion, focusing mainly on expanding engine MRO capacity and increasing production, especially for landing gears, smart weapons and resilient P&T systems. On Slide 14, you'll see that Safran ended 2025 net cash positive at pretty much exactly the same level as in 2024, right down to the nearest million. That's actually just a coincidence. This puts us at about 0.3x EBITDA. In line with the capital allocation framework highlighted at our last Capital Market Day, we made organic investment to sustain our growth and prepare for the future for about EUR 1.8 billion in R&D and CapEx as well as inorganic investment for EUR 1.6 billion, the main cash outflow this year being the Collins flight control and actuation system. We also returned EUR 2.6 billion to shareholders with the balance between dividends and buybacks. We also redeemed our OCEANE 2028 bonds early using shares repurchased in 2023 and 2024, which helped cut out on net debt by EUR 0.7 billion. Bottom line, Safran is still completely deleveraged, and we are in a really solid position with a strong balance sheet. For 2025, we are proposing a dividend of EUR 3.35 per share. That's a 16% increase compared to last year, and it does represent a 40% payout based on the adjusted net income, mainly restated from the capital loss from the SPI divestment. This year, as part of the EUR 5 billion share buyback program, we also bought back 5.1 million shares for cancellation, which cost a total EUR 1.3 billion. In December, we went ahead and canceled all shares that were being held for that purpose, so 5.3 million shares in total, resulting in capital ownership accretion of 1.6%. Also, between '24 and '25, we canceled 8.9 million shares, which amounted to EUR 2.1 billion and led to a 2.13% capital ownership accretion. Looking ahead to 2026, we'll keep moving forward with our share buyback program. The first tranche actually started early in mid-Jan. Just before we wrap up this section, let's quickly look at Slide 16. It's a quick reminder of the goals we set for 2025 back in December '21. I'm happy to say that we met or even exceeded all our key targets for 2025, which really shows our commitment to operational excellence and our focus on delivering strong 2-digit profitable growth. Over this period, both our revenue and free cash flow more than doubled, well ahead of our original outlook and EBIT grew even faster, nearly tripling what -- starting from a 10.2% operating margin in 2020 and landing at 16.6% in 2025, close to the middle of our 16% to 18% target. We achieved all this despite facing plenty of challenges, things like inflation, supply chain disruptions, tariff and even the French corporate surtax. So it really highlights how robust our business model is. Now let's take a look at our outlook for 2026 and our ambitions for 2028 to see what's coming next. Olivier, over to you. Olivier Andriès: Thank you, Pascal. I'm now turning to Slide 18 and our 2026 outlook. We expect to continue the LEAP delivery ramp-up with a further 15% increase. Operating in a still favorable environment, Civil aftermarket should continue to expand with spare parts up mid-teens and services up around 20%. In particular, Q1 should see a strong start in spare parts, helped by an easier comparison base. As a reminder, this outlook excludes Safran Passenger Innovation, which was divested on January 30. In more detail, for 2026, Safran expects revenue up low to mid-teens, recurring operating income between EUR 6.1 billion and EUR 6.2 billion and free cash flow between EUR 4.4 billion and EUR 4.6 billion, including an estimated EUR 470 million impact from the French corporate surtax. Let me now revisit some of the assumptions we shared at our Capital Market Day '24. Starting with LEAP OE on Slide 19. Our Q3 and Q4 delivery performance, more than 500 engines per quarter reinforces our confidence in delivering another 15% increase in 2026 and in reaching around 2,600 engines by 2028. This ramp-up is supported by continued supply chain improvements and the ongoing execution of our resiliency plan. On the performance side, LEAP continues to mature faster than the CFM56. For LEAP-1A, more than 1,450 kits of the new HPT blade have now been produced. This upgrade can more than double time-on-wing in harsh environment, bringing shop visit intervals in line with the CFM56. In parallel, around half of the LEAP-1A fleet is now equipped with the reverse bleed system highlighted at the Capital Market Day 2024, which reduces on-wing fuel nozzle maintenance. And for LEAP-1B, both the reverse bleed system and the HPT blade upgrades are expected to be certified in H1 2026 delivering the same durability improvements to the 737 MAX operators. Continuing with civil aftermarket on Slide 20. We are revising our CFM56 assumptions upward. In line with our partners' comments last July, sustained maintenance, repair and overhaul demand from operators and as a result, very low retirement levels supports a stronger outlook for CFM56 shop visits through 2028. We now expect a plateau of around 2,300 to 2,400 shop visits per year from 2025 to 2028. Compared with our Capital Market Day '24 assumptions, this represents more than 750 additional shop visits over the '25, '28 period. Beyond that, while shop visits are expected to start declining from 2029, we continue to see pricing and work scopes supporting CFM56 revenues through the end of the decade. On LEAP, our assumptions remain largely unchanged. We continue to see strong growth in shop visits with work scopes expanding. And we still expect the share of external shop visits to double from around 15% in 2025 to about 30% by 2030. Moving to Slide 21. The updated assumptions we've just discussed translates into around 15% additional revenue over the period compared with Capital Markets Day '24. As a result, the revenue annual growth between '24 and '25 is now expected to be in the low teens, up from mid- to high single digits at the time of our Capital Market Day '24. Profit growth is expected to follow a similar trajectory. Turning to margin at completion across the LEAP Red per Flight Hour portfolio. Progress has accelerated since our last update. Compared with CMD '24, we have delivered a further 2 points improvement, bringing the total margin increase to around 7 points between 2021 and 2025. This reflects both more favorable terms on new contracts and our continued focus on optimizing existing agreements whenever possible. And just as a reminder, the majority of the profit from the Red per Flight Hour contract portfolio will be recognized after 2030. As a result, on Slide 22, you can see that we are raising our 2028 targets. On revenue, both additional aftermarket activities and the consolidation of actuation support higher growth. We are, therefore, increasing our outlook with 2024 to 2028 revenue compared annual growth now expected to be around 10%. On EBIT, we are raising our 2028 guidance by EUR 1 billion. In propulsion, we are increasing our margin target from the low 20s to 22% to 24% despite tariff and an accelerated OE ramp-up. In Equipment & Defense, we confirm a mid-teens margin in 2028, now including the actuation and flight control activities. In Aircraft Interiors, we now target a high single-digit margin in 2028, which only reflects the divestment of Passenger Innovation and the transfer of Safran Ventilation Systems from Aircraft Interiors to Equipment & Defense. On free cash flow, we now expect an additional EUR 4 billion to EUR 6 billion over '24 to 2028. Despite the higher impact of 2 years of French corporate surtax around EUR 850 million compared to roughly EUR 500 million at Capital Market Day '24 and despite tariff. To conclude, let me briefly highlight a few key priorities. First, we remain fully focused on meeting customer demand while managing the OE ramp-up. We will continue to improve competitiveness and strengthen our industrial resiliency. We will also keep customers flying by providing spare engines, spare parts and by expanding our internal maintenance repair and overhaul network. In parallel, we expect to complete several divestments in 2026 in line with our portfolio pruning strategy. We will pursue our ambitious research and technology road map to prepare for the next single-aisle generation and to drive decarbonization. And finally, we remain firmly focused on our growth trajectory with the objective of increasing operating profit, expanding margin, strengthening cash generation. Thank you for your attention. We are now happy to take your questions. Operator: [Operator Instructions] We will now take our first question, and this is from Christophe Menard from Deutsche Bank. Christophe Menard: Congratulations for the results. I had 3 questions. The first one on the cash conversion in 2028. And this is over clearly the '24 to '28 period, the 70% conversion. If I do a back of the envelope calculation, I'm getting the sense that you're probably targeting more conversion of 65% in later years. So is there a phasing on your cash? And is it linked to, for instance, prepayment outflows that we may have in the coming years? I will follow up with the next 2 questions afterwards, if you want. Pascal Bantegnie: So we upgraded our 2024-2028 cumulative free cash flow guidance to EUR 21 billion. As you rightly said, it could be an EBIT to cash conversion slightly below 70% in the outer years. What I could say is that we have not included yet any impact for 2027 and 2028 from a potential continuation of the French corporate sale tax. It could be EUR 0.5 billion for each year. It's not included in our guidance. At the same time, we have not included any new Rafale advance payments that may come from new contracts, and you can see quite a large one coming in from Asia. So the free cash flow upgrade guidance is coming from upward revision from aftermarket, the upward revision of LEAP engines deliveries as well. When you try to figure out what your EBIT to free cash flow conversion will be, it's all about the working capital expectations. Here, we have put some decrease in our inventory DSOs, as I said during the call, starting in 2025, continuing in 2026 and going forward. Should we deliver more equipment, LEAP or other stuff, then we could be able to have more favorable working cap changes. So we'll see with time. And we have included advanced payments, which are already booked in terms of orders, notably on Rafale. Christophe Menard: Thank you very much for this. So I understand there is a degree of conservatism as well on this. The 2 other questions. I think you said on the call earlier that you were getting ready for rate 75. You mentioned Morocco. This is all for 2027? Or can you share the time line for rate 75 on your [ end for your ] and the capacity you're putting online. And one quick question on the margin '26 per division. My understanding from what we're seeing on your guidance propulsion maybe -- can we assume that propulsion is more at the high end of the range you gave on your Slide 22? Olivier Andriès: Christophe, I'm going to answer on rate 75. I'm just saying that we take decision to invest to get prepared for rate 75. It's not up to me to comment when Airbus is going to be ready to reach rate 75 full year. But basically, what I'm telling you is that we are investing for that because we acknowledge that the demand is there for some time. So it's worth investing. That's why we have announced our LEAP assembly line in Morocco. It will help us meet rate 75. This assembly line is going to be ready by '28. And you may see in the future, we may announce future investment also in line with our objective is to meet rate 75 on other equipment as well. So we are just getting prepared. We have to be realistic. It does not happen overnight, but we are getting prepared. We are investing. Pascal Bantegnie: On your third question about margin per division, when you compute our guidance, you'll see that we continue to expect some margin expansion at group level. We also expect margin expansion at all 3 branches, including propulsion with a starting point, which is 23%. By the way, it's a 2.4% improvement from last year. And a year ago, I told you that we were about to grow our margin by 250 basis points, which we almost did despite tariff. So right, in 2026, we expect to continue to grow our margin in propulsion. The same in Equipment & Defense. It will be a slight improvement in Equipment & Defense because we will have a full year impact of the Collins actuation and Flight Control business, which, as you know, for the time being, is dilutive to our margin. And in Aircraft Interiors, despite the divestment of SPI, Safran Passenger Innovations and the transfer of a profitable business from Aircraft Interiors to Equipment & Defense. And despite that, we will see a decrease in revenues, we still expect to maintain or slightly increase our operating margin in Aircraft Interiors. So all in all, at group level and all branches, we should see some margin expansion in 2026. Operator: We'll now take the next question. This is from Sam Burgess from Goldman Sachs. Samuel Burgess: I've got a couple, if I may. Firstly, just on your free cash flow guidance. I mean, given the strength of the upgrade, sort of 30% on previous, can you see yourself accelerating the existing buyback? And just help us think through how you're thinking about capital allocation with that additional cash? And just secondly, in terms of the LEAP orders that you're signing today, can you just help us have some color on how many are going at the moment proportionately to long-term service agreement contracts versus T&M? That would be really helpful. Pascal Bantegnie: I'll take the first question on the free cash flow upgrade. On capital allocation, there is no need to change our philosophy or policy today because we have a 40% dividend policy -- sorry, 40% payout dividend policy that will remain unchanged for the next years. And as you know, we are executing a EUR 5 billion share buyback program. In 2025, we only executed 1/4 of that. So I would expect to execute another quarter of that program in 2026. We can always decide to speed up or slow down the execution of such a program. But as long as we still have the program into force, there is no reason to change that. Olivier Andriès: Hello, Sam. On LEAP, especially on support and services contract, we see now a good mix of what we call rate per flight driver contracts and material service agreement where we just provide spare parts and repair solution. And by the way, as I mentioned, the announcement we made 3 days ago with Ryanair is a perfect illustration of that. Ryanair has decided to invest in their own MRO shop, and we have decided to support them to do so in their own ramp-up. And also, we have concluded an agreement whereby for all this period, 15 years or more, we are going to provide spare parts and repair solution to them at negotiated conditions. So you see this is really an illustration of our long-term strategy where we see, let's say, a 50-50 share between flight contracts and, let's say, typical time and material or MSA contracts. It's interesting because in the past, usually only the legacy airlines have their own MRO shop, the Air France-KLM, the Lufthansa, the Delta Airlines. And we see now with this first mover, Ryanair has been -- is the first mover. We see a low-cost carrier investing in their own MRO shop, that's interesting. And for me, this is a trend, an interesting trend. I'm not saying that all of them will do that, but I'm sure we'll see more airlines coming into that kind of play. Samuel Burgess: I mean just a very quick follow-on from that, if I may. If you in terms of your MRO capacity expansion ambitions on LEAP, does that change at all with that kind of dynamic? And I guess, as a follow-on implications for propulsion margin over the midterm. Olivier Andriès: No. We -- there is no change. The compass is still the same, meaning that together between both partners, GE and us, basically, we aim at basically having internal LEAP shop visit representing about 50% of the global work. And we incentivize, we make sure basically and we -- yes, we want to favor those airlines and third parties that are jumping in the LEAP MRO. We want it to be an open MRO market. So external shop visits should long term represent 50% of the overall. So we are executing our MRO plan to increase capacity. As we have already said, it's about a EUR 1 billion investment just for maintenance shop, excluding, by the way, repair shop. This is only engine maintenance shop, EUR 1 billion. And basically, the plan is executed as planned. Morocco, India, Mexico, further investment in France and Belgium as well. And I know our partner is on the same path. Samuel Burgess: Okay. So no change to previous guidance on that. Operator: We'll now take the next question. This is from Milene Kerner from Barclays. Milene Kerner: I have 2, please. Olivier, you mentioned that 1,450 durability kits have been produced on the LEAP-1A so far. How do you expect a proportion of Light scope event to involve as the durability kit continues to grow across the rest of your LEAP 1A fleet and then the LEAP-1B. And what does that mean for the medium-term free cash flow trajectory? And then my second question is, as you're exiting now noncore cabin and interior and you're adding targeted defense assets, how should we think about your portfolio in the long term in terms of the mix between commercial and defense? Olivier Andriès: Milene, I'm not sure I got fully your question on the blades. The fact that part of the fleet is already equipped with those blades basically will just increase the intervals between shop visits. So this will push out for those LEAP engines that are equipped with the new blades, the shop visits are going to be pushed out, which in rate per flight hour contract is a positive for us, in fact, because it increases the maturity of the engines. So when are we going to have a full fleet of LEAP-1A equipped? I don't have a precise answer to that question. We'll start with the LEAP-1B as well. What are the consequences in terms of free cash flow? To be very clear, it's a positive as well because as today, most of our contracts are RPFH contract. Basically, any shop visit, any early shop visit is a spend for us. So maybe, Pascal, you can add comment on that? Pascal Bantegnie: Yes, I'll give it a try. With time, what matters is the mix between what we call quick turn and full performance restoration shop visit. And the more new HPC blades we have in the fleet, the less quick turns we need in the maintenance shops, meaning that the mix will evolve in a favorable manner in the years to come, which will benefit both EBIT and free cash flow going forward. But it is already in the plan and in our 2028 guidance. Olivier Andriès: On portfolio management, without entering into detail, I'll just give a tendency that should not surprise you. The tendency is that our Aircraft Interiors exposure should, with time, basically decrease as we are still executing our plan to divest some noncore activities inherited from the ex Zodiac acquisition and a significant part of them being in the Aircraft Interiors activity. So our aircraft interior exposure should reduce should be reduced. And I would say, as we stand ready to seize opportunities and as defense is a strong booster for everybody, if there are some, let's say, opportunities that are just passing by, that could be of interest for us in terms of technology because it's a good complement to what we do. And if it makes sense economically, we are ready and we can be agile and we are ready to jump in. So I would say in terms of tendency, directionally, our defense activity should grow and our Aircraft Interiors activity should be reduced long term. Operator: We'll now take the next question. This is from Benjamin Heelan, Bank of America. Benjamin Heelan: And I wanted to ask my first question on supply chain. We haven't actually touched on it a lot on this call yet. Can you talk about what you're seeing across the business? What are you seeing in LEAP? What are you seeing in the equipment business? Where are the challenges? Where are things improving? If you could just provide a bit of an overview in terms of what you're seeing from a supply chain situation, that would be great. Second question is on the propulsion margin, sort of '22 to '24. Could you provide a couple of swing factors within that, right? What's going to cause you to get to '22? What's going to cause you to get to '24? And how should we be thinking about R&D within that as well? I keen to hear that. And then thirdly for me, interesting on the presentation at the back, you've obviously given us guidance on the number of CFM56 shop visits, but you haven't given us any numbers yet on the LEAP. Could you provide a bit of a range in terms of heavy work scopes for LEAP that you're expecting in 2030. And then associated with that, obviously, you talked about the margin at completion of the LEAP improving 7 percentage points. When should we be assuming that the margin that you're booking on LEAP shop visits is going to be comparable to CFM56? How should we think about that? Olivier Andriès: Ben, many questions. I'll take the supply chain one. Just to say, directionally, we see an improvement of the supply chain. I'm not telling you this is blue sky yet. But we've seen in the course of 2025, let's say, noticeable improvements all across the board, not only on the engine side, but also let's say, the equipment side as well. What are the remaining challenges? They are mostly always more or less the same. It's upstream, I would say. It's about raw materials. It's about forging and casting. And by the way, this is why we have taken the decision at Safran to unlock, let's say, the situation on forging and casting. This is why we've decided to invest in our own casting facility, turbine blade casting facility of our own. We have decided to invest and we are investing in forging. We are the only -- I'm not sure that whether you know that, but we are the only engine manufacturer in the world having forging capacity internally. We are the only one. And we have decided to invest more in forging as well. So we -- basically, we have a strategy to, let's say, unlock the situation and to, how could I say, decrease our dependency or exposure to some big guys that could potentially have a [indiscernible] strategy. Then I would say the one that we are looking at very carefully and for which we have a resiliency plan is relating to rare earth, which is typically one of the areas that has been weaponized by some countries in the frame of those geopolitical tensions. And so on rare earth Basically, we are building stocks. We are also working on some alternative supply chains. I'm not saying that we are going to do that ourselves because this is not it's not our own activity, but we want to make sure that we can find alternative. Again, our compass is not only to continue to work on our competitiveness, but it's also to continue to work on our resiliency. Pascal Bantegnie: Okay. On your second question about the main drivers for profit margin expansion or decrease in propulsion. So there are many drivers. First, on civil engines, it's all about the number of installed engines and the ramp-up that we have in front of us. You know that the more installed engines we deliver, we have a loss per engine, even though it is reducing per unit, but still it is a loss. Then the spare engines, what we are looking at is the number of spare engines or the ratio between spare engines and the total number of engines being delivered. Today, it's pretty high at low double digits, and it tends towards 10%, 12% for the coming years. So it will be a negative if it goes down. Then it's all about aftermarket. As long as we continue to enjoy from very strong spare part momentum, not only on CFM56, but on the LEAP and IRS engines, it will be a positive. Then it's all about our policy to release profit margin on the LEAP RPFH contracts. As you know, we started to release margin on LEAP-1A RPFH contracts last year. As soon as we introduce the LEAP-1B new HPT blade in H1 this year, we will start to release margin on LEAP-1B contracts as well. As you know, it is capped by construction. We don't intend to release much of the margin before 2030. The good news, as Olivier highlighted in his concluding remarks is that the margin or the expected margin at completion of our book has increased by 7 points from 2021 to 2025. So we have more potential in terms of profit into our books that will be mostly released after 2030. So the name of the game, as you know, for us, is to avoid any dip in margin anytime in a year. This is clearly the target we have together with Olivier. And then one item which is not under our control is tariff. Tariff is given today. We know that we are in a fluid environment to say the least. So that may change one way or the other. Then on your sub question, I'm not sure I got all, but I'll try to answer it. I guess it was related to the long-term propulsion margin. And at some point in time, we are expecting a sunset of our CFM56 spare part business, likely starting in 2029 or 2030. We will have to start to release more profits coming from the LEAP RPFH contracts, but also from the LEAP spare parts activity as well. Olivier commented that we are diverting part of the customers from RPFH to time and material, more conventional spare part sales. Again, the name of the game is to avoid any dip in margin. So today, we have a fixed formula to release our profit. By the way, we have made little progress. I would say the progress rate of our LEAP RPFH contract is very low. It's about 5% today. So the potential is huge in terms of dollar profit for the next decade. So I'm not worried that we will be able to have no dilutive impact in the years to come. I hope it answers your question, Ben. Otherwise, please. Benjamin Heelan: Yes. No, it does. Operator: We now take our next question. This is from Chloe Lemarie from Jefferies. Chloe Lemarie: I have 2, if I may. The first 1 is coming back on the 7 points of improvement in the lead portfolio margin I think, Olivier, you said that the assumption from the CMD were actually largely unchanged in LEAP. So should we assume that it's because that change in portfolio margin will mainly flow through the P&L beyond 2028. The second 1 is on the hedge book. In Q1 last year, Pascal, you commented that you were working on firming up the rate to avoid the knockout activation. Could you maybe share how this has evolved and if we should consider that 2028 is now almost fully firmed up. And on the comments you made on 2029. If spot remains where it currently is, should you be able to build a full coverage for that year within 1.12 to 1.14. Is that how we should understand the comments you made? Pascal Bantegnie: Yes, as we said, between '21 and '25, we've been able to improve our expected margin at completion of our RPFH book by 7 points. Most of the profits will be released in the next decade. So it has no impact on the short-term '25, '26, '27 profit recognition methodology as we do cap our profit release by construction. So no change. But what I'm saying is that the overall expected profits within our books is even bigger than what it was a year ago. On hedging, FX hedging, as I say, we had faced a weakening of the dollar against the euro across the year. It now stands at $1.18, $1.19 per euro. all our KO barriers are within 121 to 130 or so. So if there is any peak in euro-dollar at any time as we did face at the end of Jan, then there is a risk that we may lose part of our hedging volume. Nevertheless, I'm really confident that we can deliver $112 in '26, in '27 and '28. For 2029, we are starting to hedge our year at $17 billion exposure. Given the current market conditions, the 1.12, $1.14 range seems achievable. Now the risk is that should the euro-dollar moves up again and stands at 125 or 130, there is no magic in what we do with our trading room. It means that with time, we'll see the hedge rate going up and converge to the spot rate. But there is a lag to that phenomenon. So as long as it stays within the current range, below 120, I'm comfortable we will maintain 112 up to 2028. Operator: We'll now move to the next question. This is from Olivier Brochet from Rothschild. Olivier Brochet: Two questions from my side, please. Could you elaborate a little bit on the growth that you've experienced in defense in 2025. If you could share numbers on that in equipment. And the second 1 is on wide-body programs. Do you see some risk on volumes there coming from seats or the rest of the cabin in terms of your capacity and the ramp-up point of view, please? Olivier Andriès: Olivier, Growth in defense, the dynamic has been extremely strong in some key munitions especially we have what we call a guided bomb, which is named Hanwha, which is extremely successful in export markets and is highly demanded at the moment. You may have seen that -- I can confirm you may have seen yesterday that Norway has decided to order hundreds of them, basically that they want to deliver to Ukraine. So these are what we are talking about. So are guided weapons that we manufacture. We have multiplied by 4 our production in the last 3 years. And I believe we will continue to scale up. Another example is our inertial navigation systems where that do equate mainly military equipment, aircraft, helicopters, tanks, ships, submarines, but also artillery. And here as well, the demand is extremely strong, and we believe we are going to multiply our production by probably 3 to 4 as well. Last example I'd like to mention is missile propulsion. We -- we are a missile propulsion designer and producer. And I think we are the only one in Europe to do what we call turbo reactor for missile. We are equipping the Scalp/Storm Shadow cruise missile or the exocet missile, but we are also equipping missiles that are designed and produced by Saab in Sweden or Kongsberg in Norway. And here as well, the demand has grown very massively. So we've just -- we have decided 18 months ago to invest that's EUR 100 million in our facility to multiply our production by 5. So those are examples of the very significant scale-up that we see in defense. On top of that, the demand is high also on optronics. We are a player in portable optronics or onboarded optronics for UAVs, for helicopters, for maritime patrol aircraft. And here as well, the demand is very strong. So all in all, on Defense Electronics it's 1.6 book-to-bill ratio, and I can promise that the book-to-bill ratio in 2026 will be far above 1 again. On seats and widebody, indeed, the demand for -- especially business class seats is extremely strong. And I think it's unprecedented again. And interestingly, it's not only a demand for line fit aircraft, but it's also a strong demand for retrofit aircraft. So basically, we've delivered this year, I think if I remember well, it's 2,600 business class seats, significantly above what we've delivered last year. And the growth is very, very, very strong. So we are going to invest to increase our capacity in business class seats. And this is what we are talking about with Emirates. We are going to build a new assembly line in Dubai for that because -- just to meet the demand. Now we still face -- I mean, we have significantly improved our development process. So today, we deliver on time. We deliver on quality to the airframers and to the airlines. But we are still facing rising expectation on the certification side. We are experiencing also a tighter interpretation of pre-existing rules. So all in all, this -- and this is an industry-wide situation. It's not specific to Safran. But the consequence of that is that, yes, indeed, seats could potentially be a pacing item for the ramp-up of the wide-body aircraft just because of, let's say, the tighter tightening of interpretation of pre-existing certification rules. Is it clear? Olivier Brochet: Extremely. Operator: We will now take the next question. This is from Adrien Rabier from Bernstein. Adrien Rabier: Just 1 follow-up, if you may, on the CFM56, please. Could you explain a little bit on what you expect to happen after 2028, the trajectory for shop visits? And then you mentioned pricing and scope of potentially in time. So any detail you can provide would be very helpful. Olivier Andriès: Well, I know that the dynamic has evolved in the latter years because, as you know, we were expecting, let's say, the start of what we call the sunset earlier than what we do see today. And this is a consequence of the so-called flying more for longer situation. So it's a dynamic situation. Today, we are very, very confident that the volume of shop visit will remain at this peak of 2,300, 2,400 up to 2028. So how will the dynamic unfold after that is still to be seen. So this is why basically we take a cautious approach there. It's going to be, let's say, it's going to be a combination of how quickly Airbus and Boeing are going to reach their peak rate for, respectively, the A320s and the 737. And they are on a trajectory to, let's say, to go up by then. It's going also to be -- one of the other elements in play is going to be the level of aircraft retirement. And I have to say, in 2025, there has been a very low level of aircraft retirement. We've been -- it's been about 150 aircraft, so more or less the same as in 2024, no change. And therefore, this is not feeling any used part market. So really, it's going to be a combination of traffic growth. The traffic growth in 2025 for the narrowbody has been more than 5% compared to 2024. So is it going to continue at this pace? So this is one entrant. The other entrant is going to be how many new gen aircraft are going to get into the fleet. So how fast are Airbus and Boeing going to be able to reach their peak rate. And the third element is going to be the level of aircraft retirement. So it may well continue for 1 or 2 additional years. It's too early to say. It's really today a question of how this dynamic will unfold. Operator: And the next question is from Ross Law Morgan Stanley. Ross Law: So the first one is just a follow-up on portfolio. You've previously spoken about an ambition to divest about 30% of the legacy Zodiac assets. Can you maybe just give us a progress update here? And how much of this target is covered by the recent deals? And when should we expect you to achieve this target? Second question is just a quick one on your 2026 FX assumption for the spot rate at $1.15. And it's been tracking around the 118, 119 mark year-to-date and at present. I'm just wondering why you are assuming $115 and not higher? And then lastly, just on the media article yesterday suggesting you're working on advanced ducted engine as a possible more traditional alternative to RISE for next-gen narrow-body. Are you able to confirm this? And also what it means for RISE and also your R&D outlook? Olivier Andriès: On portfolio, how do we progress? Let's put it that way. Between Safran Passenger Innovation and EasyAir, we are talking about a revenue of roughly EUR 0.5 billion, more or less, roughly. It's an indication. So how -- what does it mean in terms of percentage of the ex Zodiac portfolio progress? It's a few points, I would say. When we met at the Capital Market Day, basically, we had executed 10% for a target of 30% of the portfolio. I guess I should not -- we should not be far from 15%, but it's indicative. We may come back on that, but it's an indicative number. So there's more to come. We hopefully will progress in 2026. But I will say the obvious. Before launching a process of divesting an asset, we need to make sure that this asset has some kind of appeal to the market. And so this is why we are focused on the performance and economic recovery first. But we are planning to continue to divest, especially in the course of 2026. Pascal Bantegnie: On your second question about FX, true, we took the assumption of $1.15 per euro on the spot rate just because we built up our 2026 budget at the time, it was at $1.15. So now it's $1.18. So that means a slight negative. It will only impact negatively our revenue base. You know the sensitivity, it's about EUR 100 million, EUR 150 million of sales per cent spot rate. So we'll see with time, we could have chosen 1.20. It would be as long as 115. We'll see at year-end. And then your last question is about the RISE program. RISE is a technology program. We are developing technology bricks, new materials, gearbox, an open fan architecture, hybridization that we leave all options open. So there is nothing new in what you may have seen in some press reports about a ducted engine or an open fan engine. Olivier Andriès: Yes. I'll say the obvious as well. We are getting prepared to any scenario because at the end of the day, it's going to be an airframer decision to select a given engine architecture. So basically, RISE, as just Pascal has reminded, is a technology program. There's a lot of common bricks that basically we develop whatever the architecture is. And yes, indeed, we are working on an open fan architecture. But again, we need to be prepared to any scenario. We are still very confident that the open fan is, let's say, the most, let's say, rewarding, let's say, configuration in terms of fuel burn. There's, of course, a lot of challenges that we need to meet and need to tick boxes, if you wish, on this technology plan. But again, we need to be prepared to any scenario. So no surprise. Pascal Bantegnie: We'll take 2 more questions. Operator: Next question is from the line of Rory Smith, Oxcap. Unknown Analyst: You've given lots of color on the call so far about narrow-body engines. So that's very helpful. I just had a question on wide-body. Is it fair to assume that there's a similar sort of margin differential between, let's say, timing materials or spare parts versus services under wide-body service contracts, as you mentioned for under LEAP? That's my first question. Olivier Andriès: To the wide-body, I would say yes, Rory? Yes, indeed. similar. Unknown Analyst: Brilliant. And then just as a follow-up to that, is there anything you can tell us this morning just about this sort of engine durability issue. I'm not saying it's your component, but anything that you're hearing from your partner there that Boeing talked about on their 4Q call that may be impacting the flight test program for 777X. Olivier Andriès: Well, I cannot comment on that, Rory. Sorry for that. That is the last question? Operator: Yes, of course. Last question today is from Ken Herbert RBC CM. Kenneth Herbert: Two questions, if I could. First, you grew spare parts in civil engines about 18% in '25. The guide is for mid-teens growth this year with looks like basically flattish CFM56 shop visits and some growth on the LEAP. Can you just help dissect that a bit and why the slower growth? Is it anything in underlying assumptions on price or work scope or maybe wide-body versus narrow-body as a first question. And then second, we are starting to hear some concern -- not concerned questions from some of the larger CFM56-7B fleets about maybe lowering engine inventory levels this year as we go through the year. And I'm just curious if you can comment on that, if that's anything you've seen and how we should think about that? Pascal Bantegnie: Okay. I'll take the first one on spare parts for 2026. So we are guiding to a mid-teens revenue growth. It's driven by the 3 engine families. First one, CFM56, we should see more or less a flattish number of shop visits. So volume is flat. Price will be up. It's still to be agreed with our partner. It will be applicable from 1st of August. We will benefit from last year price increase in the catalog list price, which was mid- to high single digits. And then work scope. W scope should be a positive because as we saw in 2025, we're expecting a higher proportion of full work scope within the total of shop visits. So CFM56 will continue to be a driver. On the IRS engines, as you know, we have a minority stake on the GE engines. And here, we see good positive drivers as well in terms of pricing and volume and work scope on all 3 components. And then on LEAP, we'll continue to grow the number of shop visits for the LEAP, as we say globally from about 15% shop visit per formed by third parties to 30% by 2030 and with a favorable mix over time, meaning less quick turns and more full performance restoration shop visits. So that should benefit as well our guidance for spare parts in 2026. I would like to say right now, then what we will discuss in April, we should have a very strong start in spare parts in Q1 only because we have favorable comparison base. So you should expect a higher number than the mid-teens when we publish our Q1 numbers. Olivier Andriès: Ken, on your second question, I'm not sure what you are referring to. But what I can say is even if our overall performance has been extremely good on spare parts, especially CFM56 spare parts in the course of 2025. We have been a little bit constrained by some supply chain issues that are getting unlocked. And that's also what is going to be a component to feed 2026. So we see, let's say, supply chain, let's say, some supply chain bottlenecks getting unlocked on CFM56 spare parts as well, and that's going to help us in 2026. Pascal Bantegnie: Thank you all. Have a good day, and happy Valentine for tomorrow. Olivier Andriès: Thank you. Operator: Thank you. This concludes today's conference call. Thank you for participating, and you may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Fingerprint Cards AB Q4 Results 2025 Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Stefan Pettersson, Head of Investor Relations. Please go ahead. Stefan Pettersson: Thank you very much, and good morning, everyone, and welcome to FPC's earnings call following the release of our Q4 and year-end report this morning. So we'll start by a presentation of the report by our CEO, Adam Philpott; and then by our CFO, Fredrik Hedlund. And if you're following this call on the web, you can post questions throughout the call. And with that, let me now hand over to our CEO, Adam Philpott. Adam Philpott: Thank you very much, Stefan. Good to be here. Let me just start on the agenda. So fairly typical agenda that you would expect from us over the last few quarters. We'll start with an executive summary of the financial performance and highlights. A couple of key focus areas that we'll have is really digging into AllKey. You will have seen us talk a lot about AllKey in the report, and we started talking about AllKey over the last few earnings calls. And we'll also talk about asset and licensing deals, which you've also spoken a lot about as well. Then I'll ask Fredrik to help me out on the key figures before we summarize and spend some time answering your questions. So let me move then to the summary of the quarter. So firstly, for the quarter alone, and then I'll talk about the year, down slightly, 4% year-on-year down for revenue, but actually in constant currency up. So FX started to make a bit of an impact. But I think what it shows is quite stable revenue given the transformation that we've driven as a company as we migrate and evolve some of our customers up the value chain towards AllKey. Not only that, but you can see that same stability in terms of the gross margin. So really strong performance in maintaining gross margins at very high levels compared to our history, of course, also. And then for the year, 1 quarter could be a trend -- can be a data point rather, a year, of course, is a trend. And so as you look at the full year, up 30% year-on-year, 40% if you account for FX as well. So I think that paints a really clear picture on the direction and trending of the company as well. So really pleased with that overall performance also. But as you know, we've been going through a transformation as a company. And a big part of that is how we transition or evolve beyond sensors into systems. We will, of course, continue to drive a strong sensor product line with some of our key customers there. We've got some great customers in the sensor business. That's our bread and butter. We'll continue to develop that business. But of course, we have many customers who get greater value from us as we move into systems. And that's evidenced not only by some of the customer sentiments that we've shared in the past, and we'll share a bit more of that today, but also evidenced in our pipeline. We know that 50% -- around 50% of our existing customers see the value in AllKey for their products and are on an upgrade path going through evaluation into productizing and then shipping AllKey as part of their products. So really pleased, that's been our primary focus is on our existing customers, those for whom AllKey makes a lot of sense. And as you can see about 50% of our customers are involved in that. But at the same time, AllKey opens up opportunities for us to acquire new clients, really important to build out the customer base. And so as we look at our pipeline for the future, 50% of our pipeline is made up of new clients, and that's driven largely by AllKey. So really pleased to see that, and we'll spend a bit of time on that a little bit later, too. And we also continue to launch new AllKey products. We're seeing that bet really playing out strongly, so we're continuing to add to that portfolio, opening up different markets. Most recently in December announcing the AllKey Ultra product, expanding our lineup with the Secure Element variant, very differentiated for us as a company as well. So really pleased on how that bet is playing out. And of course, we've done some good asset monetization deals throughout the last year or 2, and that's something we see a great opportunity to continue as biometrics continues to be super important to organizations looking to ascertain identity, stay ahead of cybersecurity and move away from password. So iris has a big part to play there as to some of our other IP. And so we see a great opportunity to leverage those sorts of models into adjacent verticals also. So really pleased with the performance, resilient revenue during Q4, great performance for the year as we expand into AllKey. And so what I also want to do is, kind of take you back. Take you back to where we've come from and where we're going this year. This is our first earnings call of 2026, and that means that we're now in the third year of our transformation, the transformation program that I put in place when I joined the company. And so just to take you back briefly, when I joined, the first thing we needed to do, we had a burning platform. We needed to look at how we stabilize the company. We needed to rearchitect the company because the world around us had changed. And that meant a number of things. You may remember the 6-point plan, you can see on the left here, and that was a few key elements, really about cutting costs, getting OpEx to the right level, leaving some of those markets that were just taking money out of the company rather than putting money in because they were so unprofitable, tidying up the balance sheet and a few other fundamental elements. So that was year 1 in stabilizing and rightsizing the company. The second year was then about saying, well, what are the vectors we have for growth, looking at a few growth opportunities, and that was last year, our second year. And those growth opportunities were looking at cloud identity, looking at our iris assets and of course, moving up the value chain in the product that is AllKey. And so those were the bets that we placed last year to open up new growth avenues for the company. Cloud was a really promising one, and it was evidenced by things like a lot of M&A in that cloud identity segment. But what we found with cloud with is quite a long-term development cycle and therefore, quite asset intensive. And so for us, we still very much have our eye on that opportunity, but we're monitoring it rather than investing heavily in that. What we are focused on because of the bet that's taken off is AllKey. AllKey has shown huge promise throughout last year. And therefore, we are really focusing our investments, our attention on AllKey to really get behind the genuine and real demand that we're seeing for that product. We had a few bets. We looked at the ones that were really taking off, and we're focusing exactly on those. It's showing huge potential with existing customer demand. And as you remember, AllKey is about 3x the ASP of traditional sensors. It's showing new customer demand as well, so our job is to feed that demand. So as we look at year 3, it's really about focused growth. Looking at those bets we placed, focusing on the ones that are paying off and really doubling down on AllKey. The beautiful thing about AllKey is it absolutely leverages our core competence. The things that made us great in the first place, it really builds upon those. And therefore, it's a near adjacent, it's got less risk and it's got genuine demand from our clients. Of course, we saw the asset bets that we've placed pay off as well. Those are more episodic deals. They happen here and there, but we believe there's a lot more gas in the tank on those also. Those are like big deals. They happen occasionally. And so we're really focused on where are we going to get the next ones from. We've proven the model out and so continuing to get additional ones, which then also funds the business as we drive this transition up the food chain and into the segments that we're focused on. And then as we now dig into a couple of those focus areas. So I said AllKey and assets, those are the key things we want to focus on, particularly AllKey for our core business. So let's spend a bit of time on those 2 items. And so on the right here, you can see some demo products that we created. This is based upon AllKey and AllKey Ultra as well. You can see in those photographs, the little bit sticking out. That's a USB-C. So that gives you a sense on how small these are. They're incredibly elegant devices. We were at TRUSTECH, which is a fintech show in Paris in December. We have these with us and just the buzz around them was phenomenal. So really exciting product, really exciting market, obviously ties to FIDO market access or number of different markets, and I'll touch on some of those markets a little later. But a real buzz around these products from lots and lots of customers. And you can see the 2 different form factors there as well. And so our focus with AllKey was to, first of all, talk to our existing clients. We know that there's a lot of benefits for them in simplifying and taking complexity out of their products and also making it easier for them to integrate. And so our focus was to work with existing clients. I'm going to show you some pipeline in a second about how that's going. But really pleased. I talked a minute ago about 50% of our existing clients are upgrading to AllKey. So real demand, real pipeline for that product there. At the same time, because it's easy to use, easy to consume, it doesn't mean that we, as a company and the few engineers that we have, have to be involved deeply in every single deal, which means that we can scale the business without having to be a bottleneck based upon our internal capacity. And so we're starting to see a lot of new clients come on board. And again, I'll show you some data on that in a second. And in my opinion, we're only just getting started with new clients. We've been very opportunistic about incoming leads. The sellers have focused -- been opportunistic about a few clients that they've approached. We are now ruggedizing and doing campaigns at scale. So we'll start to see more new clients come into our pipeline as well. And then the third great thing about AllKey is because it's very simple to consume and adopt for a client, it's perfect for the channel because they don't need to come back to us for every question. They can be self-sustaining. They can go out and drive the market. And we're starting to see a lot of leads come from the channel that we specifically set up because of our AllKey product. So those are 3 key focus areas. We're actually going to focus more on the channel with some coverage in 2026 as well to unlock additional source of new customers there, too. Here's another interesting one, though. We see the potential to develop AllKey into the smart card because we're actually starting to see some early smart card demand. You may remember, it was probably 3, maybe even 4 earnings calls ago, you may not remember, that we talked about Payment that the company has been in for a long time and actually seeing that evolve into multifunction cards. We're seeing a bit of demand for that. Now I'm not going to stand here today and say it's going to take off, it's going to be the next big thing, because I think we hoped that Payment was going to be a bigger market than it has so far become. But we are starting to see some early demand. I'm not going to talk boldly about it today, but I will talk about it some more if we start to see some of the demand that we're starting to see manifest in genuine opportunities and real converted deals. So we're going to keep an eye on that. I didn't want to say nothing about it today because I want to be transparent about what we're seeing in the market. But at the same time, I'm not going to double down and say this thing is going to be huge because I think we've seen some false signs in the past, and I want to make sure we're really focused on real evidence and real conversion on the smart card. But we are seeing some demand. We do see that as a future vector for AllKey, particularly AllKey Ultra with a Secure Element on there, too, and it's something we're keeping our eye on. And of course, we have a volume center business. We're going to continue to do that. AllKey isn't about moving away from that. It's about expanding beyond that so that we can offer a broader portfolio and different value based upon our different -- based upon our clients and what they're really looking for. So huge opportunity for us, really nice to see how that is developing. And so let's talk about some evidence. We've talked about where the market is going. We've talked about AllKey a bit, and we've introduced it for a few quarters now. But I want to talk a little bit about pipeline. Now pipeline isn't something we've really shared on earnings calls before. So it's quite a new thing to start sharing. Pipeline isn't equal to revenue. It's not equal to invoicing. It's not equal to budget. It's simply an indicator of the opportunity we see out there. Here's what I will tell you, we run strong pipeline rigor. As a CEO, I used to be a Chief Revenue Officer for a $1.8 billion company. So I've kind of got some capabilities in pipeline management. And so pipeline is something I'm really focused on because it tells us where -- as long as we've got the right rigor, it tells us where the opportunity is that we need to invest behind. So we're really confident that we've got good pipeline. But it doesn't mean it's all going to close, of course, but we're pretty confident about some of the signals we get from our pipeline. And let me just talk to you quickly about the 2 charts here then. So the chart on the left is product mix by revenue. So of the total pipeline we have for '26 or '27 or '28, we split that by how much is AllKey and how much is sensors. And what you can see here is that we are really starting to grow the mix of our pipeline that is coming from AllKey. We're shifting customers to AllKey, but we're also acquiring new customers in the pipeline that are AllKey. And of course, 100% isn't flat. We're growing the pipeline at the same time. So from '26 to '27, the pipeline growth is greater than 20%. So we're getting more pipeline in, as you would expect, as we shift customers from sensors to systems, it's greater ASP. You would expect the pipe to grow. And of course, we're bringing new customers in as well. I won't talk about growth for 2028 because that pipeline is immature. We're still building pipe for 2028, but it gives you an indication of what's going on there. So really pleased to see the mix increasing significantly. Does it mean that 60% of our business in 2027 will come from AllKey? Not necessarily as this is about conversion, but it gives you directional insights into how we see the mix evolving. And then the chart on the right, I talked about we're bringing new customers into the pipeline as well because of AllKey. The chart on the right shows our total pipe for each of those years and how much of that pipe is from new customers versus existing. That's on quantity, so how many customers in our pipeline are new versus how many are existing. Historically, we've run at less than 20% of our pipeline from new customers. We've really been farming existing customers once we settle down in the access space. Now we're really starting to grow that customer mix as well. And that's obviously something we're very focused on. So great to see that already increasing in the pipeline. Of course, we need to convert and you would have a lower conversion on new customers than you would have on existing. But again, it gives you some direction around how we're growing or planning to grow our customer base. So exciting data for us to look at. And of course, as we think about what we're doing here, 3x the ASP, sustaining our margins at 50% to 60%, we track gross margins in our pipeline as well so that we can intervene should there be a low-margin deal, but really sustaining those margins as we move up the value chain and offer greater value to our clients, too. So a very exciting view on the pipeline. And then the other thing I said is, we have lots of good customer feedback as well. I talked to not all of our customers, I talk to most of our customers, and the team are deeply engaged both on the sales, of course, and on the engineering side as well. And so the interesting thing about the feedback we get from our customers, and we haven't had negative feedback, by the way. Sometimes people don't always like price, but we offer great value, and we're able to sustain our margins. But you can see the breadth of verticals that we're serving, fintech, crypto wallet providers, FIDO providers, software companies -- big software companies for that matter, IoT and wearables, access control, more of the traditional market. And then you can see there the blend of existing and new that we're seeing in those different segments with those different types of customers. And at the end, you can see the value drivers. So really broad range of feedback from different types of customers for some of the different levels of value that AllKey provides. So if you look at the fintech example, that kind of talks to where we're taking AllKey. I mentioned it in the smart card form factor earlier, but it doesn't just have to be smart card, it could be any type of device where that client, in particular, is really interested in putting their own custom applications on top of our MCU on the AllKey platform so they can use identity through fingerprint biometrics to do other types of tasks within their organization, too. So again, thinking of it as more of a platform that you can use biometric identity on for other software applications as well as some of those that we've spoken about previously, physical, logical access, Payment, et cetera. So that's a really exciting one. As we think about the crypto providers, the hardware wallet providers, obviously, security is really critical for those guys. So they love the MCU that we're using. And they also look at as a really trusted player because we're a European with a long track record of a credible company in this space. And they meet our people. They meet our engineers, and they love what we're able to do and the level of capability that we have in the organization. On the FIDO side, because it's a turnkey solution that we offer rather than the customer themselves having to put pieces together, it allows different types of FIDO players to come to the market and have a much less complex product, but also integrate our product far more quickly so they can get to market quickly. On the software side, you saw the design earlier in the photos that I shared. That really resonates as you think about how you plug this into a PC, FIDO, for example, or do other things on Windows Hello for authentication. So the design piece is critically important also. And then finally, a couple of other things. I talked about reduced complexity in our traditional customers, particularly for those customers who are slightly up the volume chain as well and therefore need an all-in-one solution. Having something less complex takes a lot of cost out, not just in creating the product, but in not having returns and things like that because it's a high-quality, durable, reliable product. And then on the wearables side, some of the feedback we've got is, these are consumer wearable companies who often want their consumers to be able to use their product for enterprise security because we offer enterprise-grade security as a company, particularly as it relates to our AllKey Ultra, they are able to access new markets or be able to offer new services in existing markets in extremely credible way. So really good feedback across the board from our customers that substantiates the quality of pipeline I shared previously. So there's a lot going on, on AllKey, very excited about it, very focused on getting behind that demand to ensure we capitalize and convert it, but that's obviously a very key focus for us for 2026. The other focus I did want to touch on is assets and licensing deals. We've done quite a few of these now, built a track record and some credibility around that. I wanted to talk quickly about one of those deals, and then I'll talk about how I see us replicating that. And so on the left, you can see a photograph. This is from Smart Eye booth at the Consumer Electronics Show just a month ago in Las Vegas. And so we signed a deal with Smart Eye in early 2025. They've been busy working on the developing the product, integrating it with theirs, working with our team as well. And I think what they demonstrated at CES proves what's possible with the iris asset. I wasn't at CES, some of our team were there. But I went over to meet the Smart Eye team and go through the demo myself recently. And they're now productizing this demo just for our reps to be able to go out and resell as well. As you know, from that deal, we have a 50-50 revenue share as we take that to market jointly. But looking at the product, it's extremely long range. You can approach from a few meters away. And even before you get within a meter, the camera starts to authenticate you. That's very different to every other iris asset on the market. Every other iris asset, you're pretty much going up to some binocular, either one eye or both eyes. It's not a very nice user experience. So this is much more intuitive, much easier, much less invasive for the user. And so it's quite unique on the market. So it works at a longer range. I think when I did it, I was authenticated about 70 centimeters. So just within a meter, longer range, really powerful. Also very easy to use. That's a big part of biometrics is if it feels invasive, it doesn't always work for users. But at the same time, very, very high efficacy. There's no point in being able to authenticate a distance if you can't do so with high efficacy. And iris is right up there at the highest efficacy along with Fingerprint. And at the same time, what the team have been able to do is be able to do that, but on ever lower cost hardware. That's a really important part of unit economics so that it makes it much more viable in the market as well. So Smart Eye have really proved out what's possible when we partner on iris, and we see many other areas where we can go and do that. Physical access is a really obvious one. Logical access is another obvious one. Health care comes up a lot because of the unique environment, and PPE, et cetera, the operators are working within there. And those are just a few. We see about 15 or so global markets that we're actively engaged in to look at where there's partnerships that we can do to jointly develop that asset for those markets where we otherwise couldn't fund it on our own, but also, of course, licensing that asset out in order to fund the business and get additional income in. So really powerful opportunity for us, big deal approach to that one, highly strategic, and we have some folks focused on doing exactly that. So with that, that's a bit of a round of ground on where we've come from, how we've performed, but also where we're going this year as we continue to execute the transformation plan with a real focus on AllKey and on our assets. And with that, let me hand to Fredrik Hedlund, our CFO, just to do a slightly deeper dive into the Q4 and 2025 numbers. So Fredrik, over to you. Fredrik Hedlund: Yes. Great. Thank you, Adam. So let's walk through the fourth quarter numbers. So in the fourth quarter, our revenue was down 4% year-over-year. But if you look at revenue from a constant currency perspective, our revenue increased by 9% year-over-year. And from a total year 2025 perspective, our revenue was up 30%. And from a constant currency perspective, revenue was up 40%. And if we turn to gross margins in the fourth quarter, our gross margin was 65.8%, which is in line with the fourth quarter of 2024. And if you look at our gross margins for the total year 2025, we ended up with a gross margin of 60.7%. And from an EBITDA perspective, we were slightly positive. And from a free cash flow perspective, we were also slightly positive in the fourth quarter. And when we look at cash, we ended our cash balance at SEK 27.1 million, which is SEK 1.2 million lower than the third quarter of 2025, so last quarter. And if you look at headcount, our headcount was down 31% year-over-year, and it kind of started to flatten out. So our headcount was flat versus last quarter. And as Adam mentioned, we managed to close the PixArt deal in the fourth quarter. And with that, Adam, back to you. Adam Philpott: Thank you, Fredrik. And so let me just move to summarize and then hopefully, we've got a bunch of questions coming in, and I'll hand to Stefan at the end to help us answer those questions. So as a summary, the fundamentals are stable. Revenue was slightly down for the quarter, but it was actually quite far up in constant currency. So we feel good about the transition that we're managing. And at the same time, we've been able to do that whilst maintaining very strong gross margins, particularly if you compare it to history. And we're doing that whilst having continued operational discipline and rigor around cost. So we took a lot of cost out of the business to right size the company, and we're maintaining that cost level whilst augmenting it with AI. We've got a number of agentic practices in place to ensure that our people are as productive as they're able to be using AI tools. So for us, AI doesn't replace staff, it augments them. And we're teaching people every day and encouraging people every day to experiment with how they use AI in a safe and secure way for our company's data. So pleased about how we're doing that also. And then the other key call out both for Q4, but also throughout this year, I think, is the progress we've made on the AllKey. That it's so encouraging where we have a number of bets and you see one of them, particularly one that's so close to our core competence really taking off and resonating with customers. It's one thing to have a great idea and then to build a product but you aren't always guarantee that, that product is going to take off. And so it's really -- I'm really pleased for our team, honestly, as much as our business there that things that they've done have manifested with our customers so far in such a positive way. Our job, of course, is to see that through and drive conversion, but really pleased about the customer sentiment we're getting, really pleased about the evidenced pipeline that we're getting as we help existing customers upgrade to AllKey, but then also very encouraged about the new customer pipeline that's coming in both direct and through our new channel partners in that space. So that's really exciting to see. So on the strategic focus, that's what it's all about, focus. We're focused on investing in the AllKey demand. We're also focused on expanding our asset deals and licensing deals that we've done to help fund that continued expansion and get more weight behind it. And also, of course, from a business perspective, driving to positive EBITDA and free cash flow through that operational discipline. So with that, I'm going to pause there. Thank you so much for your attention. Bang on half an hour. Stefan, let me hand back to you, and perhaps we can take some questions. Stefan Pettersson: Yes. Thank you, Adam. I think we'll begin by taking any questions there are from the phone lines. Operator: [Operator Instructions] We will now take the first question from the line of Markus Almerud from DNB Carnegie. Markus Almerud: Markus Almerud here from DNB Carnegie. So let me start with AllKey. Obviously, I was going to say. But you look at the -- if I start with the existing customer base where you say that 50% of customers are on an upgrade path. If you talk a little bit about the mix of that customer base, and I don't know what the mix is today. But in terms of volume, is it evenly split? Or do you have any single customers which are particularly large? And can you talk a little bit about that sort of trend? Adam Philpott: Yes. Do you want me to answer that one, Markus? Or do you want to -- if you got more on that one, sorry, I just jumped in there. Markus Almerud: No, no, no. I was just elaborating. So I'm just talking about volume basically. Adam Philpott: Yes. Yes. No, really, no. So I'll tell you how we've looked at it. We've looked at it by revenue. We've looked at the pipeline by quantity of customers, and we've looked at the pipeline by volume, of course, as well. Because exactly where you're going with this is because AllKey is 3x the ASP, you need minus 3x the volume in order to achieve the same numbers. And so as we look at the new customers, which I think your question was specifically about, there are some bigger customers in there. So when you think about revenue, but also to a degree, volume. There are some bigger customers in there, but it's actually spread quite broadly. So the quantity of customers as well is pretty good. That's what I was focused on when I talked about the pipeline data earlier is the number of customers that we're bringing in. Now typically, what you'll find is that we don't, as a company, go and target super small customers because, obviously, that doesn't make sense to get the right return on investment. We tend to target medium and then large customers so that we have a balanced pipeline. Larger customers, obviously, take longer to close and perhaps there's higher risk around those if you depend upon them. And so having medium customers to fill in the peaks between those are exactly the sort of pipeline balance that we look for. So I would say we've got a really balanced pipeline in terms of medium and large customers and the volumes would reflect those size of customer. Markus Almerud: And looking at the current customer base that you do have, which are now converting, you talk about 50% -- 50% of the current customer base, which is sort of on an upgrade path. What's the kind of size among those customers? Is it fairly even? Or are there any really large ones sticking out? Adam Philpott: I would say that actually, the bigger -- some of the biggest customers we have in our pipeline are newer customers to the company. We've got some very high-volume customers who are going to stay as sensor customers. That's why it's really important for me to emphasize that sensors remains a really important business to us. We're not moving out of it. We're not competing with it. We're expanding beyond it. So we've got some really big customers who remain in sensors. We've got some new big customers on AllKey. And then the bulk of our customers who are migrating, I would say, are kind of medium to large customers in that space as well. So it's a real variety of customers we're moving across. I think as we look at it on aggregate, both the quantity of customers around 50%. And then I also shared with you the pipeline data, of course, earlier. So you could see, for example, this year, about 30% of our pipe is AllKey because we only announced it at the end of 2024. The bulk of it really starts to kick in end of this year and definitely into 2027. That's when you see the revenue mix start to shift as well. But to your point, in that 60% in 2027, it's not dependent on one massive customer. I think the risk is relatively well spread. Markus Almerud: And on Ultra, which you released now in Q4, how is that progressing? And given that there is a Secure Element in there and you're looking at the kind of pipeline on that, or kind of just interest on that, is it mainly the types of FIDO and tokens and crypto? Or does it also tie into the Payment cards and maybe access cards? Adam Philpott: It's actually -- you're absolutely right. It's across all of those things. I think the thing I'm -- it was interesting. We put this package together called AllKey because we wanted to, A, move up the value chain ourselves, but B, take complexity away for customers to make their life easier, right? And so there was a really nice value equation for our clients. And it was our first foray into doing that. As we then introduce the Secure Element into that, the complexity that comes with the Secure Element is even greater. So taking that burden off our customers has been even more powerful, I think, and actually even more differentiated because to be -- to have the credibility and skills to operate at that level of security is even fewer people who can do that. So the competitive moat around us is even greater as is the value to our customers. So I'm really excited about the AllKey Ultra product. The pipeline is phenomenal, but we're really seeing that resonate as well as the AllKey product. I would say, to answer your question about the segments, definitely FIDO. You have some specialist FIDO providers who are probably going to want to provide their own Secure Element, because that's how they see their value add. That's fine. We'll continue to sell sensors to those guys. You've got others who just want to be quick to market and have a turnkey solution. They'll be more applicable for AllKey Ultra. So there's different types of players out there, but we can -- that is definitely a core market for the AllKey Ultra. You mentioned Payment. Absolutely. I shared with you earlier a feedback from a wearable customer. We're seeing a lot of demand there in terms of wearables as people start to tokenize. And also organizations who provide, whether it be consumer or personal wearable devices, want to add more services to it. They want to be able to start to have Payment. But rather than just have this device on your finger or on your wrist or in your ear or on your body, some other place, I don't know where they can do Payment. Of course, you want to be intention-based Payment where you probably have a step-up level of security using biometrics. So there's real demand in that space for our Secure Element product for Payment also. And then there's other markets around logical access. Of course, that probably ties closely into FIDO, Windows Hello as well. So certainly, Payment and FIDO, I would say, are key markets for AllKey Ultra. Markus Almerud: And in terms of timing, I mean, you talk about back end of '26 and then 2027 in terms of kind of getting into mass production of this. Is it the kind of timing here depending on your producers? Or is it more the kind of life cycle than the kind of time it takes for your customers to kind of get there? And tied to that, of course, I mean, how easy is it to scale production, is that a bottleneck? Adam Philpott: That's a really good question. So I think of it like a critical path. What pieces do we need to accelerate to get that business in quicker? It's not our ability to invest. It's not our supply chain. It's the productization cycle. So if you think about it, we go and talk to a customer, we've got this new integrated product. It's going to make your life easier. Okay, I'm interested. I'd like to see it, then we do a demonstration, and we -- then they like to evaluate and we give them an evaluation kit. Then they test us against most of other people. They select us because we're the best. And then they go to design in. So they design that into their product and build a prototype and then they move to full production design. That takes quite a long time. And then they have to start marketing, shipping, et cetera, their products. So it can be an 18- to 24-month cycle. It can be quicker as well. There's a lot of rapid prototypes, a lot of rapid engineering companies out there today. So actually you can come down with AllKey Ultra through even 9 months, but that would be best practice. So that would be, in my mind, what the critical path looks like to get this out. What I would say is, AllKey does accelerate that because they don't have to go and find our products, go and find an MCU, go and find a Secure Element and tie this stuff together, it rapidly simplifies the overall productization cycle. So that's kind of how I see it. What I do think, though, Markus, is that there's an opportunity to invest more behind this to build more pipe and to get more customers on board. Markus Almerud: A couple of more, if I may. On the licensing deals, first of all, I mean, I assume there's more to come. We spoke about that earlier, but our PixArt came in Q4 in October. And I assume there is -- I mean, you were alluding to that in the presentation, but I assume there is more to come and you expect these kind of to continue to come on a sort of ongoing basis, right? Adam Philpott: Yes. Absolutely, because I think of our company is an organism that produces products that we sell. That's our core business, but has a level of capability that other people want that they will pay for. And if you look at other companies, they actually ground this as one of their business lines. They say it's our corporate services or our design services or whatever. We don't do that because we want to focus on our products. But equally, we go and look out for those opportunities to bring in net income into the company that we can successfully monetize without distracting our resources away from the core business. So we absolutely see more of those. We've got incredible ASIC team. We've got an incredible algo team, and that's what partners, particularly, are interested in because they lack that. So we have a number of partners who want best-in-class talent. So there's a talent aspect to it, but there's also an asset aspect to it as well. I mentioned iris earlier. We're now -- we're seeing more and more demand for sort of biometrics and iris is a high-efficacy modality and people are looking for that. In the world of deep fake, people want high efficacy, not just vanilla access. So we're seeing demand for that. But that's very much a partnership model for us. We don't have so much resource that we can develop the different modalities. We want to focus on where we can make an impact and then partner where we need support, but that would be through a licensing mechanism to allow someone to develop that for their specific market rather than us do it for them. So iris is the second one. And then the third one, I call it assets and licensing deals. There's lots of different ways that we can ensure customers can benefit from our products in their market. We can sell them products and the more they buy, the better price they get or we can license technology to them as well, allow them to use their own supply chain, if that's a core competence of theirs so that they can unlock the right aspects of value that they're seeking. So those are really how I think about the assets and licensing. Markus Almerud: And the PixArt money, is it all in now? Or is there more to come in... Adam Philpott: I think -- yes, Fredrik, I would defer to you now. I think it's pretty much all in. But Fredrik... Fredrik Hedlund: You're correct, Adam. All in. Markus Almerud: Okay. And then finally, maybe I was excited to read the word inorganic in your release. Maybe you can share some more thoughts on kind of what you're looking for and what should we expect and all that? Adam Philpott: Yes, absolutely. Here's how I see it. I shared a picture on the last earnings call for those of you who have recognized. And it showed the fragmentation in the markets we serve. There's lots and lots of different vendors doing things that are adjacent to what we do. And so I think there's opportunity for industry consolidation because in isolation, we're all quite small. But when you aggregate it together, there's overlapping capabilities. So there's the opportunity for cost optimization, but there's also the opportunity for upsell revenue growth through cross-selling, for example, because there's kind of some adjacencies in complementary nature. We're not talking about getting the same company 5x integrated, not really about that. There's actually adjacent companies that can aggregate together, realize some cost optimization and deliver some benefits on the top line whilst they do so. So that's how I think about the inorganic opportunity due to the market fragmentation. Markus Almerud: Okay. Adam Philpott: Awesome. Thanks very much. As always, I appreciate your questions as well, Markus. Stefan, maybe we'll come back to you, see if there's anything that's come in on the chat. Stefan Pettersson: Yes. Let's take a couple of questions here. So after the first major JLR cyberattack, have you already observed a significant increase in interest from current customers and potential new customers on spending more in your security solutions? Adam Philpott: That's a great question. And as a cyber guy, I particularly like that question. So I've been in cybersecurity for probably, I don't know, more than 15 years now. And so I think what really interests me here is that identity has always been the weak link in cybersecurity. I don't know how long we've been talking about passwords is the #1 vulnerability, but it was very slow to change because passwords are free. People have to remember them. So the burden is on the end user, except the risk is on the organization. And so JLR was absolutely an identity-centric attack. It was stolen credentials through help desk account recovery. And so we're seeing not just increased demand in cybersecurity, which is pretty big anyway, but a focus on identity. If any of you follow me on LinkedIn, you'll see recently, I've been posting about identity. There's this phrase in the industry at the moment, which is attackers don't hack in, they log in. So think about it. It used to be hackers come in and they smash the back window or break down the front door. They don't do that. They put the key in the door, turn the lock, and walk straight on in, right? And so our job is to ensure that they can't do that because they can't steal the keys or they can't copy the key or they can't be given the key. They have to be unique to the individual through biometrics. So an answer to that great question, we are absolutely seeing an increase in demand. Is it attributable to JLR? Who knows, right? No one does attribution in cybersecurity because it's such a difficult and thankless and meaningless sometimes thing to do. But we are seeing increased demand, and we're seeing increased focus on identity. So it means we find ourselves in the right space. And so our job is to capitalize upon that. Stefan Pettersson: All right. Thank you, Adam. And another question on staff. I see that FPC has the same number of staff in Q4 as in Q3. Do you need to grow staff for more sales to generate more sales in the future? Adam Philpott: Yes, it's a good question. It's a fine balance, isn't it? We need to maintain operating rigor on our costs. But at the same time, we need to manage the growth lever as well. And if we're too limited in capacity, it can have an effect on that. I think the question specifically mentioned sales, not necessarily sales resources, but getting more sales, i.e., more revenue. Here's what I would say on that. I would say 2 things, and Fredrik, I'll pull you in because you probably got some other views as well. The first thing I would say is that I think there's additional capacity in our sales engine. And the way we think about that is to augment our salespeople with AI. I'll give you an example. We have an AI agentic model where when a lead comes in through our website or if we scan someone's ID at an event or wherever a lead comes from, we have a set of AI engines that will look at that contact, look at that customer and deliver a bunch of consolidated research to the rep on who the customer is, what they're doing, why biometrics might be of value and some of the things that our reps can talk to them about that create value for that company and help us as a company, too. That takes time away from the reps having to do that. That would be quite a lengthy research exercise. So just think about how we can support our reps is really important. So I think there's -- we've created more productivity for our reps. I know they wouldn't agree with me. They probably say they're too busy, but that's good. And so I think that's part of it is augmenting our staff with AI so they can be more productive. We are very active in doing that. We don't pretend we're the best at it. We don't hype it. But equally, we're definitely not doing nothing. So we feel good about our pragmatic approach to AI for capacity augmentation. That's the first thing. The second thing is we have actually expanded slightly. So we had a couple of reps, one who's business development, one who's sales in the U.S., who are looking at the cloud identity piece because that was taking too long and AllKey was taken off, we pivoted those guys towards AllKey. So we've increased our capacity. And what we're focusing one of them on is on our channel. We've got some big disties in North America. And if you don't go and see them and remain top of mind and keep educating them and building relationships with them, they forget about you and go and do something else. When you see them, we instantly see leads coming out of them through their networks. So lighting up that channel is really important, also focusing the business development on more campaigns that can then feed the rest with new leads. Those are some of the things we're doing to ensure that we are growing capacity and focused on putting our investments where the market is taking off. Stefan Pettersson: All right. Thank you, Adam. Does FPC have the opportunity for new customers in the defense industry, which is growing today due to the uncertainty? Adam Philpott: Yes. I would love to be more active in that space. I would say that with our ability to invest, that's quite capital intensive in the sense that it takes quite a long time. We do -- we are opportunistic in that segment at times. We approach clients, particularly manufacturers, et cetera. We need to be a little careful about what we can do there because of the nature of that industry and some of our contracts. But I think that is quite a focused undertaking. And so we just need to be very balanced because if we tie up our resources in something long term, it means our short-term funnel starts. So we just need to be a bit balanced about where we focus. Today, we tend to focus on sales cycles that are 12 to 24 months. That's kind of the sweet spot. If we start to get into much longer sales cycles, it means that we're kind of building for the long term, which is great, but not having any bank on the near term. So I do see us over time, expanding our aperture to longer-term deals once we've built out a much stronger base of short-term customers, but it's not something we have a specific campaign or focus on or assets on today. Stefan Pettersson: All right. Thank you very much. And thanks, everyone, for good questions. And I'd like to hand over to you, Adam, again, for any closing remarks. Adam Philpott: Yes. Thanks very much, Stefan. So I appreciate all of the questions, really good questions. I really enjoy answering those and hearing what's on your minds by the nature of your questions. As I said, the business is stable. We put some good stability in place on the fundamentals. We do, of course, focus on funding the business, both through accelerating the transition and spread up to AllKey, but also through those asset deals. So that's a key focus on our minds. I think what's really important that we've seen over the last year is proving out which bet is going to take off, observing it and then rigorously investing behind it. And that's really what we're doing on the AllKey bet with additional products to come off that roster as we continue to see proof points of demand such as those in the smart card space. So thank you for everyone. I appreciate you joining us for the first call of 2026. I appreciate you being with us on the journey as we're now in the third year of this transformation and look forward to speaking to you all again soon. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Let's close that door. Hello, everyone. Operator: Thank you for joining us, and welcome to the CareTrust REIT, Inc. fourth quarter 2025 earnings conference call. After today's prepared remarks, we will host a question-and-answer session. If you would like to ask a question, please press 1 on your telephone keypad. To withdraw your question, press 1 again. I will now turn the call over to Lauren Beale, CareTrust REIT, Inc.’s Chief Accounting Officer. Please go ahead. Thank you, and welcome to CareTrust REIT, Inc.’s fourth quarter and full year 2025 earnings call. We will make forward-looking statements today based on management's current expectations, Lauren Beale: including statements regarding future financial performance, dividends, acquisitions, investments, financing plans, business strategies, and growth prospects. These forward-looking statements are subject to risks and uncertainties that could cause actual results to materially differ from our expectations. These risks are discussed in CareTrust REIT, Inc.’s most recent 10-K filing with the SEC. We do not undertake a duty to update or revise these statements except as required by law. During the call, the company will reference non-GAAP metrics such as EBITDA, FFO, and FAD. A reconciliation of these measures to the most comparable GAAP financial measures is available in our earnings press release and Q4 and full year 2025 non-GAAP reconciliation that are available on the investor relations section of CareTrust REIT, Inc.’s website at www.caretrustreit.com. A replay of this call will also be available on the website for a limited period. On the call this morning are David M. Sedgwick, President and Chief Executive Officer, James B. Callister, Chief Investment Officer, and Derek J. Bunker, Chief Financial Officer. I will now turn the call over to David M. Sedgwick, CareTrust REIT, Inc.’s President and CEO. David? David M. Sedgwick: Thanks, Lauren. Good morning. I want to first acknowledge our dear friend, William M. Wagner, who officially retired a few weeks ago. CareTrust REIT, Inc. would not be what it is without Bill. He helped establish a strong foundation on which we are poised for success, and our future achievements will be a tribute to his many contributions. We wish him well in his much-deserved retirement and caution him to take it easy on the Oreo cookies and the pizza. It is a marathon, Bill, not a sprint. Alright. Thank you for joining us as we reflect on the incredible year that was 2025 and our plans to keep the flywheel ripping for years to come. Simply put, 2025 was a transformational year for CareTrust REIT, Inc. Starting the year, we were a team of 21 coming off the most active investment year of our history, by a factor of five, punctuated by our largest single transaction to that point, which we closed at the end of 2024. Our portfolio consisted predominantly of triple-net leased skilled nursing facilities with a handful of net-lease senior housing assets and a loan book. In 2024, we had grown the equity market cap 74% to $5.1 billion. But we are never satisfied. So even though the company was running at a record pace, we believed two things. One, we had another gear in us, and two, we needed to do some strategic heavy lifting to position the company to scale for the long term. So we got to work. Doubling our team of professionals, adding firepower throughout the organization, and bringing in-house other areas like tax and data science, and we executed. Acquiring Care REIT, including their team, to enter the UK care home market and closing on our first SHOP deal after methodically evaluating many opportunities, large and small, along the way. Our collective efforts led to total investments of $1.8 billion, surpassing our record 2024 and supporting our 17.3% year-over-year normalized FFO per share growth. Beyond FFO, we have increased the diversification of our portfolio across geography, asset type, operator, borrower, manager, and payer source, as well as achieving continual improvement in our already strong EBITDAR rent coverage. We ended the year having again grown our market cap by 61% to $8.2 billion. I cannot help but take a moment to thank our shareholders, our board, our operators, our capital and strategic partners, and our entire team for their dedication and hard work. We simply could not have produced the 10-year total shareholder return through year end of approximately 439% without your commitment, professionalism, and sacrifices. I could go on and on about 2025, but really our focus is on 2026. The accelerating momentum from 2024 to 2025 and the resulting growth has only stoked the hunger and motivation everyone at CareTrust REIT, Inc. feels to make 2026 another great year. Today, the skilled nursing operating environment is stable and largely supportive across most states, and the senior housing environment in both the US and UK is also stable and gaining strength in many markets. We hit the ground running in 2026. We do it with a CareTrust REIT, Inc. team that is deeper and more capable than any time in our history, and we are now running with the two additional growth engines of UK care homes and SHOP. And yet, the start of this year feels very much like déjà vu all over again. What do I mean? What I mean is like 12 months ago, we are coming off another record year. Our operators continue to set the standard for portfolio lease coverage. We continue to have access to capital and a fortress balance sheet, and we again have high hopes for a substantial year of external growth. And we still feel the same urgency and hunger to grow long-term shareholder value. And our mission remains the same: to be a unique healthcare REIT that is by operators for operators, making disciplined investments in assets and operators who can change the world of senior housing and care in a big way. With that, I will now turn it over to James. No pressure, my friend. Thanks, Dave. Good morning, everyone. James B. Callister: During the fourth quarter, we completed approximately $562 million of investments, including our first SHOP deal, which involves three communities in Texas totaling 270 assisted living and memory care units. We are excited to partner with Sinceri Senior Living, who will help manage those communities for us. Fourth quarter investments included about $84 million of loans with the majority toward the skilled nursing sector, approximately $27 million to acquire two senior housing communities triple-net leased to an established operator, the remainder comprising the acquisition of 14 skilled nursing facilities across three transactions. Overall, the blended stabilized yield on fourth quarter investments was 8.8%. Since year end, we have closed on another approximately $215 million of investments, including the acquisition of six skilled nursing facilities in the Mid-Atlantic, at a strong going-in rent coverage, leased to a quality operator in a new relationship for CareTrust REIT, Inc., and two care homes in the UK net leased to an existing operator. As we look forward, our investment pipeline remains strong, sitting at approximately $500 million. The quoted pipeline is approximately half UK care homes, a third skilled nursing, one small SHOP deal, and the remainder a combination of loans and senior housing triple net. It includes some singles and doubles as well as some mid to large-size portfolio transactions. Please remember that when we quote our pipeline, we only include opportunities where we have a reasonable level of confidence that we can lock up and close within the next 12 months, and it does not always include larger portfolios that we are reviewing. Our investment pipeline remains robust, supported by a balanced mix of broker transactions and proprietary opportunities generated through established operator relationships and other strategic channels. We continue to see consistent deal flow across all sectors, encompassing triple-net and SHOP structures alongside a steady and meaningful increase in overall transaction activity, particularly within seniors housing and the care home market. We are seeing the most competition in SHOP where cap rates continue to compress as investors seek more exposure to the sector to benefit from operating trends. Having said that, we are still finding SHOP opportunities that excite us, and we are benefiting from our strategic push in the UK and through our solid pipeline of skilled nursing deals. Our disciplined underwriting framework, combined with a strong focus on long-term operator partnerships and a commitment to creative, collaborative transaction structuring, will continue to drive sustainable growth across the skilled nursing, senior housing, and UK care home sectors. With that, I will now turn it over to Derek to review our quarterly financial results. Derek J. Bunker: Thanks, James. For the fourth quarter, normalized FFO increased 42.7% over the prior quarter to $104.1 million, and normalized FAD increased 38.7% to $103 million. On a per-share basis, normalized FFO increased $0.07, or 17.5%, to $0.47 per share, and normalized FAD increased $0.05, or 12.2%, to $0.46 per share. For the full year, normalized FFO per share increased $0.26, or 17.3%, to $1.76 per share James B. Callister: and normalized FAD increased $0.22, or 14.3%, to $1.76 per share. Derek J. Bunker: During the fourth quarter, we sold 6.5 million shares on a forward basis at an average price of $37.30 for gross proceeds of approximately $242.5 million. After year end, we sold another 3.5 million shares on a forward basis for gross proceeds of $129.5 million, for a current total of $372 million of gross proceeds pending from unsettled equity forward contracts outstanding under the ATM program. We anticipate using proceeds from these sales to fund our acquisition pipeline. In yesterday's press release, we provided initial guidance for fiscal year 2026 of normalized FFO per share of $1.90 to $1.95, and normalized FAD per share of $1.90 to $1.95, the midpoints of which each represent a year-over-year increase of 9.4%. In addition to the assumptions detailed in our release yesterday, I will note that our guidance does not assume any new investments, dispositions, debt repayments, and debt or equity issuances beyond those announced to date. Since we do not assume additional investments in our guidance, we assume the equity forward contracts will settle at year end. Lastly, our liquidity continues to remain strong. In addition to approximately $100 million of cash on hand as of 02/11/2026, we have full capacity available on our $1.2 billion revolver. And despite a record pace of investments, we continue to maintain low leverage with net debt to EBITDA of 0.7 times, net debt to enterprise value of 3.7%, and a fixed charge coverage ratio of 10.5 times. James B. Callister: Each as of year end. Derek J. Bunker: With that, I will turn it back to Dave. Thanks, Derek. We hope our report has been helpful to you, and thank you for your continued support. We would be happy to answer your questions at this time. Operator: We will now begin the question-and-answer session. If you would like to ask a question, please press 1 on your telephone keypad. To withdraw your question, press 1 again. Please pick up your handset when asking a question. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from Farrell Granath with Bank of America. Your line is open. Please proceed with your question. Thank you. And Farrell Granath: I guess I will just start it off with your guidance and expectations for the pipeline going forward. I know you have added that there has been some additional competition at least in the SHOP area. But I am curious if you can elaborate on the opportunity set on these larger portfolios, specifically in SHOP. Now that you have entered into deals with your recent acquisition, is it seemingly easier to have these conversations? Are you having more inbound, especially on these larger portfolios? James B. Callister: Yeah. Hey, Farrell. This is James. I mean, I think that the inbounds, I think, are pretty consistent. SHOP deals are typically pretty heavily marketed. So I think you see a pretty wide range of large and small deals that come through. I think our view is we want to look at all of it. Right? I think that David M. Sedgwick: we want to be able to look at large and small and see the best, most risk-adjusted path to get us to a low double-digit IRR. I think we look at both. Like I said, they are pretty heavily marketed, even the larger ones. So I think we see just about everything that comes in, and I think the brokers have definitely gotten word of our interest in SHOP and know, I would be pretty surprised, shocked if a meaningful deal was out there that had not come across our desk. Farrell Granath: Thank you. And also in your commentary around specifically SNFs reaching record levels of coverage and now looking forward to 2026, I am curious how sustainable do you think these coverage levels are as well as just framing the current market environment headlines when it comes to Medicare Advantage and how you are just viewing SNFs in the market. David M. Sedgwick: Yeah. Thanks, Farrell. The skilled nursing environment right now I think is in a really good place. Speaking with our operators very recently, that is the sentiment that we get from them. Labor is in a much better place than it has been in recent history. The states, regulatory, reimbursement-wise, things feel really good. And our operators are really anxious to seize the moment and get back into growth mode. So we feel like if you look at our portfolio, you look at the coverage, you know, our occupancy is right around 79%, 80%. So there is still room, quite a bit of upside for our operators as that number increases, to offset the inevitable headwinds. There is always going to be headwinds in skilled nursing every year. There is always something. But with great operators and beefy coverage, you can at least, we believe, manage through any of that. Farrell Granath: Great. Thank you very much. David M. Sedgwick: Thanks, Farrell. Operator: Your next question comes from the line of Wesley Golladay with Baird. Your line is open. Please go ahead. David M. Sedgwick: Thank you. Hey. Hey, everyone. You did make some data analytics hires Wesley Golladay: earlier in the year. Can you talk about what they are focused on at the beginning? Are they mainly targeting senior housing operations? Or is it more so for the acquisitions of all segments? David M. Sedgwick: Yeah. So the investment in the data science team right now is prioritized on building out our SHOP capabilities, building out that platform, but ultimately, that team is going to have an impact across the whole organization, making us more efficient, making us smarter. We are already seeing it, and we really like what we see. We will continue to invest in that department. Wesley Golladay: Okay. Thank you. David M. Sedgwick: Thanks, Wes. Operator: Your next question comes from the line of Michael Albert Carroll with RBC Capital Markets. Your line is open. Please proceed. Michael Albert Carroll: James, can you provide us some details on the pipeline right now? Of that $500 million, like what is Michael Albert Carroll: the break out between care homes, SHOP, and skilled nursing facility deals? Michael Albert Carroll: Yeah. Mike, I would say of that $500 million right now, I think like I kind of put in the prepared remarks, it is about half UK care homes right now, about a third, I would say, US skilled nursing, and the rest is a combination of, you know, a SHOP deal, triple-net seniors, and a couple small loans in there. Michael Albert Carroll: I am sorry. I forgot that you said that. Can you, I know you kind of highlighted this earlier, but just on the competitive landscape that you are seeing within this space, I mean, is it any more competitive in specific property types? Like, are you seeing it being more competitive in SHOP, SNFs, UK care homes? Or is it kind of similar across the board? James B. Callister: You know, I would say of the three segments, I think that SHOP is definitely the most competitive. I think you have the most capital pursuing deals. So I think you see definitely the most interest based on groups wanting to get in on the operating trends. But I think that we still feel like there are SHOP deals out there that really excite us. I feel like with our cost of capital, we can be really competitive. And as we really pour through just about everything that comes in and wanting to look at, you know, deals that we think can get us through different paths to that low double-digit IRR, we feel like when we find those deals that really intrigue us despite the competition, that we can pounce and go get the deals we really want. Michael Albert Carroll: And then if you look at the cap rates for each individual property type, how much do they typically vary? I know that you did about high eights, I guess, the fourth quarter and to date. Like, if you are looking at more UK care homes and SHOP deals, I mean, should we expect that yield to dip a little bit lower? And just kind of off of that, when you are quoting those cap rates do you include the tax leakage on the UK care homes, or do we need to make sure that we think about that when we are putting our numbers out there? James B. Callister: I will defer to Derek. I think we do quote post-tax, but I mean, the SNF yields are going to be the same that they have been historically. I mean, if it is a really large portfolio deal or with incredible coverage, we might dip, you know, a teeny below what we normally do, but SNF deals are still going to be in the nines. Derek J. Bunker: SHOP James B. Callister: cap rates, Mike, are definitely compressing, so every deal is a little different. There is just a wider band range of cap rates in seniors depending on how old the vintage is, the CapEx needs, the location, the age, all those kinds of things. In UK, I mean, it is typically going to be pre-tax mid-eights Derek J. Bunker: to higher. James B. Callister: Post-tax mid-sevens to higher. Michael Albert Carroll: Great. I appreciate it. Derek J. Bunker: On the blended deal, we typically Derek J. Bunker: typically do not exclude the impact of the withholding tax in the UK when giving a blended stabilized yield. Operator: Okay. Your next question comes from the line of Michael Goldsmith with UBS. Your line is open. Please go ahead. David M. Sedgwick: Afternoon. Thanks for taking my question. You know, you have already done $215 million to start the year. You have got $500 million in the pipeline. Michael Goldsmith: So over $700 million. At this point last year, you were at $350 million. You know, you started the call talking about how 2025 was a bit déjà vu of 2024 with the growth. But I guess just given where you are set up, like, how confident are you that we will be talking about next year, we will be talking about déjà vu all again given the strong growth and investment opportunities. David M. Sedgwick: Oh, I love a crystal ball question, Mike. I will answer it this way. I think we felt really, really good going into 2025. We felt like the table was set to have another big year, and the difference going into this year is I just feel better about it. Because now the difference is our team is deeper and more capable, and we have the UK and the SHOP TAMs to play in as well. So as long as there are some meaningful, you know, chunky-type opportunities out there, we should be really competitive, David M. Sedgwick: and David M. Sedgwick: we certainly have the potential, if those deals materialize, to have another really substantial year. Michael Goldsmith: Thanks for that. And as a follow-up, being a SNF REIT and seeing the operational intensity that comes with skilled nursing and dealing with SNF operators, does that give you an advantage as you enter SHOP? How much different is there in identifying skilled nursing operators versus SHOP operators? Michael Goldsmith: Thanks. David M. Sedgwick: Thanks for that question. We do think that our operating DNA and deep experience is helpful. It certainly informs how we underwrite. It certainly informs how we vet operators and how we asset manage. I think it provides a deeper level across the board. And I see, and I think you see, that manifested in our lease coverage. You know that? That really is a symbol of choosing the right operators, underwriting the deals properly. And there is a lot that we carry over from vetting skilled operators with choosing seniors as well. Thank you very much. Good luck in 2026. Thanks a lot. Your next Operator: question comes from the line of Juan Sanabria with BMO Capital Markets. Your line is open. Please go ahead. Juan Sanabria: Hi. Thanks for the time. Michael Goldsmith: Just curious, as you have expanded your opportunities set with UK care homes and SHOP, if you look at, one, UK SHOP or IDA transactions, and two, if you consider doing development at some point in seniors housing recognizing you are larger and can maybe wear the initial dilution, I would imagine some of the growing operators are looking to development as a source of opportunities. So curious on your stance on those two. David M. Sedgwick: Great question. I think on the first, as we look at the UK, Michael Goldsmith: the David M. Sedgwick: operator relationships that we have right now are eager to grow with us, and they have expressed a desire to Derek J. Bunker: to continue to, you know, to do deals with us in a triple-net basis. I think that there will be, as you look in the future, there is going to be opportunities probably to apply our SHOP platform to the UK. So I would never say never on that, and I would say it is probably more likely than not in years to come. So the second part of your question was development, and I think, yeah, there is going to be, I think what we would like to do there is de-risk to the market instead of being at risk. So right now, generally, you know, it still does not pencil to do anything in a significant way here in the United States with respect to development. Michael Goldsmith: But there could be Derek J. Bunker: certain circumstances, certain opportunities that do. And on a limited basis for the right operator, for the right location, I think we would take a hard look at that. Michael Goldsmith: Great. Thanks. Since you kind of noted getting a new operating partner in the Mid-Atlantic with the recent transaction, I am not sure if you feel comfortable naming that operator, or you could just give us a little color on that group and if it was related in any way to the Integra transaction that one of your peers announced. James B. Callister: Yeah. I mean, I do not think we have a problem announcing it. They have released their own press releases, Juan. So it is a group known as Miller Group, but I do not think they are affiliated with anything else anybody has announced. If you are referencing Sabra, it is not Sabra. Michael Goldsmith: Thank you. Derek J. Bunker: Thanks, Juan. Operator: Your next question comes from the line of Michael Stroyak with Green Street. Your line is open. Please go ahead. James B. Callister: Thanks, and good morning. Can you maybe just talk about your underwriting Michael Albert Carroll: criteria within SHOP and whether that has changed at all due to the increased competition, either at the property level or just in terms of IRR requirements, or are you just passing on more deals than maybe James B. Callister: you would have, call it, three to six months ago? I mean, we definitely noticed the compression in cap rates. I think that we still look to get an unlevered IRR in the low double digits. And we look at every deal to see what that deal's path is to get us there and what we think the pricing will be. So, I mean, I do not think we just look at it in one box and say, you know, we have to have, you know, a seven going in, and it has to look exactly like this to get us there. I think we are going to look at it given the compression in the market and the cap rates, and we are going to look at what is this deal's path to get us to that low double digit. And how realistic is it? Right? If it is in lease-up, if it does or does not need CapEx, what its position is in the market, what is the revenue versus expense growth look like. So I think you look at all of that in the same way we always Derek J. Bunker: have. James B. Callister: I think that we take expected pricing into account for sure, and it impacts how we see us getting to that double-digit IRR. But, you know, maybe some deals trade a little too expensive to get us there, but that has always been the case a little bit. So I do not think it has changed much of the underwriting. I think it has just changed the path we see as getting to the low double-digit IRR we are looking for. Michael Albert Carroll: Got it. Makes sense. James B. Callister: Maybe one additional question. Just Michael Albert Carroll: given pretty minimal leverage today, James B. Callister: how are you thinking about funding future external growth? And at what point do you think it would make sense to use some balance sheet capacity instead of equity issuances? Derek J. Bunker: Thanks, Mike. You know, I think more of the same as we have approached over the past year or two. Really just piggybacking off Dave’s comments. It feels like we are positioned really well. Capital markets have been favorable. I think as rates have come down, you know, using the balance sheet is a balance between looking at where our equity is trading and a little bit more on the Jonathan Hughes: revolver side. And I think there will be a point where we start to carry a little bit there, maybe then look toward the bond market, especially as we fully realize the IG savings that we think we can get. But we just feel like we are in a multiyear sort of inflection of getting bigger deals and bigger opportunities, and so we want to make sure we have got really full capacity and full availability, whether that is debt or equity. Michael Goldsmith: Got it. Thanks for the time. Derek J. Bunker: Thanks, Mike. Thanks. Lauren Beale: Your next question Operator: comes from the line of Austin Todd Wurschmidt with KeyBanc Capital Markets. Your line is open. Please go ahead. James B. Callister: Yeah. These Michael Goldsmith: you referenced some of the hiring that you have done this past year, and I am just wondering, you know, for any potential larger transactions, do you feel like you have the platform and people in place to digest that? Or do you think it would come with, you know, adding additional James B. Callister: folks to kind of help oversee that effort, you know, maybe particularly within SHOP, which is a little bit of a newer segment for you. Derek J. Bunker: Yeah. I think the answer to that is really going to be relative David M. Sedgwick: to the circumstances of the deal, the size of it, the complexity of it, whether or not the team, or part of a team, would come with it, Derek J. Bunker: those are all things that we throw into the David M. Sedgwick: mix to figure out how to get a big deal done. The team here is Derek J. Bunker: pound for pound, in my opinion, the best and the most capable to do all sorts of things. But there still are going to be some deals, David M. Sedgwick: like the UK care home acquisition last year, Care REIT, where it came with some really talented people, and we decided to keep. So it is all going to be relative to the circumstances of the particular deal. Austin Todd Wurschmidt: Helpful. And then just one on the loan book. I mean, it seems like kind of the competition in the lending markets these days has picked up a little bit. I mean, any risk of loan prepayments that you foresee or any conversations you are having on that front? Michael Goldsmith: Well, David M. Sedgwick: you know, the loan strategy that we put in place a few years ago has Derek J. Bunker: wildly exceeded our expectations and helped David M. Sedgwick: fuel real growth, real acquisition of real estate that either came with or because of those loans and relationships that we developed. I think as things get more competitive as banks kind of jump back into the space, those relationships are still very active with us. It is still looking at off-market opportunities with those relationships. And so I think that is still going to be, going forward, Derek J. Bunker: a really unique and powerful David M. Sedgwick: mode of growth for us, Derek J. Bunker: maybe a little bit less David M. Sedgwick: than it has been in the past if banks continue to get really aggressive, but we are looking still, not included in that pipeline number, at some larger deals that are off-market with some of these strategic partners of ours. And Derek J. Bunker: you know, if we get some loans paid back, David M. Sedgwick: that will just fuel additional growth because that pipeline continues to reload. Austin Todd Wurschmidt: Thank you. Thanks, Austin. Operator: There are no further questions at this time. I will now turn the call back to David M. Sedgwick, CEO, for closing remarks. Derek J. Bunker: Well, we are really grateful for everybody's interest and support. If you have follow-ups, you know where to find us. Have a great day. Operator: That concludes today's call. Thank you for attending. You may now disconnect.
Operator: Welcome to the Safran Full Year 2025 Results. At this time, I would like to turn the conference over to your host, Olivier Andries, Safran CEO; and Pascal Bantegnie, Group CFO. Mr. Andries, please go ahead. Olivier Andriès: Good morning, everyone. Thank you for joining us. Today, we will review our 2025 results, share our 2026 outlook and briefly walk you through some of our updated 2028 assumptions. 2025 was an outstanding year for Safran. Airlines carried more than 5 billion passengers and against that backdrop of strong demand and still low retirement levels, our aftermarket activities clearly outperformed expectation across both spare parts and services. We have also reached an all-time high in LEAP production, delivering more than 1,800 engines, up 28% versus 2024. Defense and Space had a particularly strong year as well. In military propulsion, we accelerated M88 production, and we have secured a new Rafale export contract with the Indian Navy. In defense electronics, order intake reached a record level with 1.6 book-to-bill ratio, reflecting very strong market demand. We have also signed several strategic partnerships, expanded capacity across multiple product lines, and we have achieved the first major export success for Safran.AI, which is a new name we have given to the Preligens company we had acquired 18 months ago. In Aircraft Interiors, [ recent ] seats, commercial wins and improved pricing conditions confirmed that the strategic shift presented at our last Capital Market Day is being executed. Overall, we outperformed our initial expectation in 2025, delivering record financial results across all metrics. This, despite tariffs. Margin improved by 150 basis points and cash generation approached EUR 4 billion. Reflecting this performance, we are proposing a EUR 3.35 dividend per share, up 16% year-on-year. Finally, on portfolio management, the integration of Collins actuation activities is progressing well. At the same time, we are moving ahead with the divestment of 2 non-core activities, the sale of Safran passenger innovation was completed last month, and the easier transaction where we are going to sell our share of the joint venture to our partner Embraer is expected to close by midyear. Turning to Slide 4. Civil business highlights. We invest to secure [indiscernible] and you can see that clearly in our recent industrial announcement with the new LEAP-1A assembly line in Morocco. At the same time, we are continuing to expand our MRO footprint following the groundbreaking of our LEAP MRO shop in Morocco. We have recently inaugurated Safran's largest LEAP engine MRO center worldwide in India. We are also pleased to mark another important milestone in CFM's long-standing partnership with Ryanair. We announced that 3 days ago, of a new material service agreement that covers the entire fleet of around 2,000 engines, CFM56 and LEAP, and that will support 2 new Ryanair future maintenance, repair and overall shops that they have decided to launch in Europe. This is a compelling illustration of our open MRO market strategy we presented at our last Capital Market Day. Commercial momentum remains very strong. LEAP continues to be the engine of choice, as illustrated by the recent agreement with Pegasus in Turkey, for 300 LEAP-1B engines, which also includes long-term maintenance services. Finally, at the Dubai Airshow, Riyadh Air ordered 120 LEAP-1A engines to launch its FA21 neo fleet and selected our wheels and electric carbon brakes for its 787 fleet, ultimately more than 70 aircraft. We have also announced a joint cooperation with Emirates to manufacture and assemble seats in Dubai. And Safran Seats was selected to supply new business and economy class seats to retrofit more than 100 additional aircraft across both the 777 and A380 fleets. Turning to Slide 5. Momentum remains extraordinary strong in defense. We announced the groundbreaking of the first M88 MRO shop outside of France in Hyderabad, India. At the same time, as we continue to ramp up M88 production. We have also announced a significant investment at our Le Creusot site in France, adding new production lines for complex rotating parts for the M88 engine. We have also signed an agreement with Bharat Electronics in India to create a joint venture to manufacture our HAMMER guided bombs. Overall, in 2025, we have approved around EUR 1.4 billion of industrial investment, mainly to expand massively capacity across both Civil Aerospace and Defense. With that, I will now hand over to Pascal to walk you through the 2025 results in more detail. Pascal Bantegnie: Thank you, Olivier. Good morning, everyone. Today, I'll walk you through the adjusted accounts, and you'll find a bridge to the consolidated statements in the appendix. Let's start with FX trends, which are shown on Slide 7. In 2025, our trading floor faced a really volatile environment. The dollar weakened against the euro, the whole year, which wasn't easy to manage. Still, our team did a great job protecting the portfolio, and we managed not to trigger any KO barriers. That said, at the end of Jan, the euro-dollar shot up past 120, and that caused us to lose less than $1 billion in hedging volume, so less than 2% of the whole portfolio. We reinstated the same hedge volume afterwards so that did not impact our goal of reaching $112 in 2026. Based on the actual figures for 2025 and to reflect our revenue profile now that we include the actuation and flight control business, we have increased our expected exposure to $16 billion in 2026 and $17 billion from 2027 onwards. As always, these number should not be seen as a medium-term business outlook. We are confirming the $112 hedge rate for 2026, and we'll do our best to secure that rate for '27 and '28. We've also started hedging for 2029. And as a first indication, we are targeting a hedge rate between $1.12 and $1.14 based on current market conditions. Now if we look at Slide 8, our 2025 revenue came in at EUR 31.3 billion. It's EUR 4 billion higher than last year, which is up 14.7%. That's actually 14.8% organic growth, and we saw steady growth quarter-after-quarter throughout the year. OE sales went up by 11.3%, thanks to both higher volumes and better pricing. Services revenue was up 18%, showing just how strong airline demand was for MRO and spare parts. Changes in scope added a positive 3%, mainly because we brought in the actuation and flight control business, but the boost from this acquisition was completely offset by a weaker dollar, which dragged things down by 3.2%. Our recurring operating income reached EUR 5.2 billion, so that's more than EUR 1 billion higher than last year. The operating margin was also up by 150 basis points, hitting 16.6% of sales. The solid performance was mainly driven by strong results in the aftermarket, volume growth and our continued focus on operational excellence and keeping Safran competitive even in such a sweet environment. If we move to Slide 9, you'll see a summary of the income statement. Apart from sales and EBIT, which I'll get into in more detail later on, let's look at some of the other key P&L items. We had one-off items totaling EUR 479 million, which is a pretty big number. So most of that is in cash. About half comes from the EUR 244 million pretax capital loss tied to the divestment of Safran Passenger Innovations. There's also EUR 178 million in impairment charges on some programs and then a few other cash costs like restructuring and M&A expenses, especially from the actuation and flight control acquisition. Looking at financial income, our returns on cash investments actually topped our cost of debt, bringing in a net EUR 116 million in financial interest. Our apparent tax rate was 32.3%, which was heavily influenced by the French corporate surtax, EUR 370 million, which cut around EUR 0.90 per share of our EPS. All in all, net income attributable to the parent was EUR 3.2 billion, up 3% year-over-year, and that works out to EUR 7.6 per share. Let's dive into our businesses, starting with Slide 10 on Propulsion. Revenue here reached EUR 15.7 billion, which is a 17.6% organic increase. When we look at Propulsion services, revenue was up 21% organically. For the Civil aftermarket, spare parts sales climbed 18%, mainly thanks to the CFM56. That drove more shop visits, mid-single-digit growth and a higher proportion of full work scope shop visits. High thrust engines also did well, helped by growing wide-body traffic. LEAP engines contributed too, with third-party shop visits making up about 15% of total shop visits in 2025. We saw a 30% jump in services overall, mostly because LEAP aftermarket activities expanded under rate per flight hour contracts. Both helicopter turbines and military engines also helped drive propulsion services growth. On the OE side, revenue grew by 12% organically. We delivered a record 1,802 LEAP engines. So that's 28% growth compared to 2024 and well above our initial target. In Q4 alone, we delivered 562 engines, up 49% from Q4 last year. So we have surpassed 500 deliveries for 2 straight quarters now, which looks good for our 2026 goals. While M88 fighter engine deliveries were down year-over-year, production actually ramped up a lot in 2025, just as we had planned to keep up with a strong backlog, especially for export customers. Recurring operating income was EUR 3.6 billion, 28% organic growth. The operating margin stood at 23% of revenue, up 2.4 points, which is a strong result and almost aligned with our initial guidance earlier in the year, even with some lingering tariff impact. This improvement was mainly driven by strong civil aftermarket activity and really robust performance from CFM56, both in volume and work scope. The LEAP program also contributed with us starting to recognize profits on LEAP-1A RPFH contract and a still high ratio of spare engines. Let's now move to Slide 11 and talk about Equipment & Defense. Sales here is EUR 12.3 billion, which is up 11% organically and 16% overall. That includes about EUR 618 million from the Collins actuation and flight control business, which we consolidated for 5 months in 2025. OE revenue was up 11% organically with growth pretty much across the board. The strong performance in 2025 was mainly driven by higher volumes in defense, especially for things like the HAMMER-guided bomb, missile seekers and navigation and timing systems. We also saw good momentum in primary electrical system and wiring as well as nacelles and landing gears, especially for the A320. Aftermarket services benefited from the uptick in air traffic, going up by 12% organically with growth everywhere, but especially in landing gears, nacelles and evacuation slide systems. Recurring operating income came in at EUR 1.6 billion, and our operating margin improved by 50 basis points or 90 basis points if you exclude Collins, showing that we are making steady progress toward our 15% margin goal for 2028. The strong performance was driven by a favorable business mix and our efforts to stay competitive. OE volume growth was especially robust for narrow-body platforms as well as in avionics, defense and space. Services also did well with strong demand for carbon brakes, landing gear, nacelles and aero systems. One quick side note. As of Jan 1, 2026, Safran Ventilation System will move from Aircraft Interiors to Equipment & Defense, so we can create more synergies with our power electrical business. SVS is a profitable business. It brings in a double-digit operating margin with revenue slightly under EUR 200 million. Finally, looking at Slide 12. Aircraft Interiors continued to make real progress on its turnaround. Sales reached EUR 3.3 billion, including Safran Passenger Innovations, our IFE business, which is a 14% increase and actually bring us back to 2019 levels. OE sales went up by 15%, mostly thanks to higher deliveries in cabin, especially galleys, inserts and water and waste system for A320 and 737. Revenue also got a boost from our IFE activity as well as from higher volumes and better pricing on business class seats. Services were up 13%, mainly on the back of demand for Cabin spare parts, especially from customers in the Middle East, Asia and the Americas as well as from SVS, which I mentioned earlier, will transfer over to Equipment and Defense in 2026. Seats also did well, both with spare parts and services and passenger innovations helped out on spare parts and repairs. Recurring operating income crossed EUR 100 million with operating margin up 2.3 points. Cabin kept capitalizing on shifting production to best cost countries like Mexico, the Czech Republic and Tunisia and also on renegotiating prices for the lower-margin programs. IFE activities helped lift profits overall and seats kept improving, thanks to ongoing work on pricing and operational excellence. The strong performance really shows our focus on pass-through and price increases, which helped offset the impact of tariff. The very good news is that Aircraft Interiors has now reached cash breakeven with a noticeable EUR 140 million improvement just over last year. Now if we look at Slide 13, we generated EUR 3.9 billion in free cash flow, which is up 23%. That gives us an EBIT to cash conversion ratio of 75%. The strong result came from a 17% increase in EBITDA, so higher earnings less an impact from one-off items, along with a positive impact from working capital changes. For the first time since COVID, we managed to reduce inventory DSOs by 9 days. Also, we did increase inventories in dollar to support the ramp-up that was more than made up for by a strong inflow of advanced payments, which were higher than last year, especially thanks to the Rafale orders and other defense programs. We also paid an extra EUR 1 billion in income tax, reflecting our higher taxable income and including the EUR 377 million French corporate surtax. At the same time, we're still investing to support our growth and prepare for the future. Tangible CapEx was just under EUR 1.2 billion, focusing mainly on expanding engine MRO capacity and increasing production, especially for landing gears, smart weapons and resilient P&T systems. On Slide 14, you'll see that Safran ended 2025 net cash positive at pretty much exactly the same level as in 2024, right down to the nearest million. That's actually just a coincidence. This puts us at about 0.3x EBITDA. In line with the capital allocation framework highlighted at our last Capital Market Day, we made organic investment to sustain our growth and prepare for the future for about EUR 1.8 billion in R&D and CapEx as well as inorganic investment for EUR 1.6 billion, the main cash outflow this year being the Collins flight control and actuation system. We also returned EUR 2.6 billion to shareholders with the balance between dividends and buybacks. We also redeemed our OCEANE 2028 bonds early using shares repurchased in 2023 and 2024, which helped cut out on net debt by EUR 0.7 billion. Bottom line, Safran is still completely deleveraged, and we are in a really solid position with a strong balance sheet. For 2025, we are proposing a dividend of EUR 3.35 per share. That's a 16% increase compared to last year, and it does represent a 40% payout based on the adjusted net income, mainly restated from the capital loss from the SPI divestment. This year, as part of the EUR 5 billion share buyback program, we also bought back 5.1 million shares for cancellation, which cost a total EUR 1.3 billion. In December, we went ahead and canceled all shares that were being held for that purpose, so 5.3 million shares in total, resulting in capital ownership accretion of 1.6%. Also, between '24 and '25, we canceled 8.9 million shares, which amounted to EUR 2.1 billion and led to a 2.13% capital ownership accretion. Looking ahead to 2026, we'll keep moving forward with our share buyback program. The first tranche actually started early in mid-Jan. Just before we wrap up this section, let's quickly look at Slide 16. It's a quick reminder of the goals we set for 2025 back in December '21. I'm happy to say that we met or even exceeded all our key targets for 2025, which really shows our commitment to operational excellence and our focus on delivering strong 2-digit profitable growth. Over this period, both our revenue and free cash flow more than doubled, well ahead of our original outlook and EBIT grew even faster, nearly tripling what -- starting from a 10.2% operating margin in 2020 and landing at 16.6% in 2025, close to the middle of our 16% to 18% target. We achieved all this despite facing plenty of challenges, things like inflation, supply chain disruptions, tariff and even the French corporate surtax. So it really highlights how robust our business model is. Now let's take a look at our outlook for 2026 and our ambitions for 2028 to see what's coming next. Olivier, over to you. Olivier Andriès: Thank you, Pascal. I'm now turning to Slide 18 and our 2026 outlook. We expect to continue the LEAP delivery ramp-up with a further 15% increase. Operating in a still favorable environment, Civil aftermarket should continue to expand with spare parts up mid-teens and services up around 20%. In particular, Q1 should see a strong start in spare parts, helped by an easier comparison base. As a reminder, this outlook excludes Safran Passenger Innovation, which was divested on January 30. In more detail, for 2026, Safran expects revenue up low to mid-teens, recurring operating income between EUR 6.1 billion and EUR 6.2 billion and free cash flow between EUR 4.4 billion and EUR 4.6 billion, including an estimated EUR 470 million impact from the French corporate surtax. Let me now revisit some of the assumptions we shared at our Capital Market Day '24. Starting with LEAP OE on Slide 19. Our Q3 and Q4 delivery performance, more than 500 engines per quarter reinforces our confidence in delivering another 15% increase in 2026 and in reaching around 2,600 engines by 2028. This ramp-up is supported by continued supply chain improvements and the ongoing execution of our resiliency plan. On the performance side, LEAP continues to mature faster than the CFM56. For LEAP-1A, more than 1,450 kits of the new HPT blade have now been produced. This upgrade can more than double time-on-wing in harsh environment, bringing shop visit intervals in line with the CFM56. In parallel, around half of the LEAP-1A fleet is now equipped with the reverse bleed system highlighted at the Capital Market Day 2024, which reduces on-wing fuel nozzle maintenance. And for LEAP-1B, both the reverse bleed system and the HPT blade upgrades are expected to be certified in H1 2026 delivering the same durability improvements to the 737 MAX operators. Continuing with civil aftermarket on Slide 20. We are revising our CFM56 assumptions upward. In line with our partners' comments last July, sustained maintenance, repair and overhaul demand from operators and as a result, very low retirement levels supports a stronger outlook for CFM56 shop visits through 2028. We now expect a plateau of around 2,300 to 2,400 shop visits per year from 2025 to 2028. Compared with our Capital Market Day '24 assumptions, this represents more than 750 additional shop visits over the '25, '28 period. Beyond that, while shop visits are expected to start declining from 2029, we continue to see pricing and work scopes supporting CFM56 revenues through the end of the decade. On LEAP, our assumptions remain largely unchanged. We continue to see strong growth in shop visits with work scopes expanding. And we still expect the share of external shop visits to double from around 15% in 2025 to about 30% by 2030. Moving to Slide 21. The updated assumptions we've just discussed translates into around 15% additional revenue over the period compared with Capital Markets Day '24. As a result, the revenue annual growth between '24 and '25 is now expected to be in the low teens, up from mid- to high single digits at the time of our Capital Market Day '24. Profit growth is expected to follow a similar trajectory. Turning to margin at completion across the LEAP Red per Flight Hour portfolio. Progress has accelerated since our last update. Compared with CMD '24, we have delivered a further 2 points improvement, bringing the total margin increase to around 7 points between 2021 and 2025. This reflects both more favorable terms on new contracts and our continued focus on optimizing existing agreements whenever possible. And just as a reminder, the majority of the profit from the Red per Flight Hour contract portfolio will be recognized after 2030. As a result, on Slide 22, you can see that we are raising our 2028 targets. On revenue, both additional aftermarket activities and the consolidation of actuation support higher growth. We are, therefore, increasing our outlook with 2024 to 2028 revenue compared annual growth now expected to be around 10%. On EBIT, we are raising our 2028 guidance by EUR 1 billion. In propulsion, we are increasing our margin target from the low 20s to 22% to 24% despite tariff and an accelerated OE ramp-up. In Equipment & Defense, we confirm a mid-teens margin in 2028, now including the actuation and flight control activities. In Aircraft Interiors, we now target a high single-digit margin in 2028, which only reflects the divestment of Passenger Innovation and the transfer of Safran Ventilation Systems from Aircraft Interiors to Equipment & Defense. On free cash flow, we now expect an additional EUR 4 billion to EUR 6 billion over '24 to 2028. Despite the higher impact of 2 years of French corporate surtax around EUR 850 million compared to roughly EUR 500 million at Capital Market Day '24 and despite tariff. To conclude, let me briefly highlight a few key priorities. First, we remain fully focused on meeting customer demand while managing the OE ramp-up. We will continue to improve competitiveness and strengthen our industrial resiliency. We will also keep customers flying by providing spare engines, spare parts and by expanding our internal maintenance repair and overhaul network. In parallel, we expect to complete several divestments in 2026 in line with our portfolio pruning strategy. We will pursue our ambitious research and technology road map to prepare for the next single-aisle generation and to drive decarbonization. And finally, we remain firmly focused on our growth trajectory with the objective of increasing operating profit, expanding margin, strengthening cash generation. Thank you for your attention. We are now happy to take your questions. Operator: [Operator Instructions] We will now take our first question, and this is from Christophe Menard from Deutsche Bank. Christophe Menard: Congratulations for the results. I had 3 questions. The first one on the cash conversion in 2028. And this is over clearly the '24 to '28 period, the 70% conversion. If I do a back of the envelope calculation, I'm getting the sense that you're probably targeting more conversion of 65% in later years. So is there a phasing on your cash? And is it linked to, for instance, prepayment outflows that we may have in the coming years? I will follow up with the next 2 questions afterwards, if you want. Pascal Bantegnie: So we upgraded our 2024-2028 cumulative free cash flow guidance to EUR 21 billion. As you rightly said, it could be an EBIT to cash conversion slightly below 70% in the outer years. What I could say is that we have not included yet any impact for 2027 and 2028 from a potential continuation of the French corporate sale tax. It could be EUR 0.5 billion for each year. It's not included in our guidance. At the same time, we have not included any new Rafale advance payments that may come from new contracts, and you can see quite a large one coming in from Asia. So the free cash flow upgrade guidance is coming from upward revision from aftermarket, the upward revision of LEAP engines deliveries as well. When you try to figure out what your EBIT to free cash flow conversion will be, it's all about the working capital expectations. Here, we have put some decrease in our inventory DSOs, as I said during the call, starting in 2025, continuing in 2026 and going forward. Should we deliver more equipment, LEAP or other stuff, then we could be able to have more favorable working cap changes. So we'll see with time. And we have included advanced payments, which are already booked in terms of orders, notably on Rafale. Christophe Menard: Thank you very much for this. So I understand there is a degree of conservatism as well on this. The 2 other questions. I think you said on the call earlier that you were getting ready for rate 75. You mentioned Morocco. This is all for 2027? Or can you share the time line for rate 75 on your [ end for your ] and the capacity you're putting online. And one quick question on the margin '26 per division. My understanding from what we're seeing on your guidance propulsion maybe -- can we assume that propulsion is more at the high end of the range you gave on your Slide 22? Olivier Andriès: Christophe, I'm going to answer on rate 75. I'm just saying that we take decision to invest to get prepared for rate 75. It's not up to me to comment when Airbus is going to be ready to reach rate 75 full year. But basically, what I'm telling you is that we are investing for that because we acknowledge that the demand is there for some time. So it's worth investing. That's why we have announced our LEAP assembly line in Morocco. It will help us meet rate 75. This assembly line is going to be ready by '28. And you may see in the future, we may announce future investment also in line with our objective is to meet rate 75 on other equipment as well. So we are just getting prepared. We have to be realistic. It does not happen overnight, but we are getting prepared. We are investing. Pascal Bantegnie: On your third question about margin per division, when you compute our guidance, you'll see that we continue to expect some margin expansion at group level. We also expect margin expansion at all 3 branches, including propulsion with a starting point, which is 23%. By the way, it's a 2.4% improvement from last year. And a year ago, I told you that we were about to grow our margin by 250 basis points, which we almost did despite tariff. So right, in 2026, we expect to continue to grow our margin in propulsion. The same in Equipment & Defense. It will be a slight improvement in Equipment & Defense because we will have a full year impact of the Collins actuation and Flight Control business, which, as you know, for the time being, is dilutive to our margin. And in Aircraft Interiors, despite the divestment of SPI, Safran Passenger Innovations and the transfer of a profitable business from Aircraft Interiors to Equipment & Defense. And despite that, we will see a decrease in revenues, we still expect to maintain or slightly increase our operating margin in Aircraft Interiors. So all in all, at group level and all branches, we should see some margin expansion in 2026. Operator: We'll now take the next question. This is from Sam Burgess from Goldman Sachs. Samuel Burgess: I've got a couple, if I may. Firstly, just on your free cash flow guidance. I mean, given the strength of the upgrade, sort of 30% on previous, can you see yourself accelerating the existing buyback? And just help us think through how you're thinking about capital allocation with that additional cash? And just secondly, in terms of the LEAP orders that you're signing today, can you just help us have some color on how many are going at the moment proportionately to long-term service agreement contracts versus T&M? That would be really helpful. Pascal Bantegnie: I'll take the first question on the free cash flow upgrade. On capital allocation, there is no need to change our philosophy or policy today because we have a 40% dividend policy -- sorry, 40% payout dividend policy that will remain unchanged for the next years. And as you know, we are executing a EUR 5 billion share buyback program. In 2025, we only executed 1/4 of that. So I would expect to execute another quarter of that program in 2026. We can always decide to speed up or slow down the execution of such a program. But as long as we still have the program into force, there is no reason to change that. Olivier Andriès: Hello, Sam. On LEAP, especially on support and services contract, we see now a good mix of what we call rate per flight driver contracts and material service agreement where we just provide spare parts and repair solution. And by the way, as I mentioned, the announcement we made 3 days ago with Ryanair is a perfect illustration of that. Ryanair has decided to invest in their own MRO shop, and we have decided to support them to do so in their own ramp-up. And also, we have concluded an agreement whereby for all this period, 15 years or more, we are going to provide spare parts and repair solution to them at negotiated conditions. So you see this is really an illustration of our long-term strategy where we see, let's say, a 50-50 share between flight contracts and, let's say, typical time and material or MSA contracts. It's interesting because in the past, usually only the legacy airlines have their own MRO shop, the Air France-KLM, the Lufthansa, the Delta Airlines. And we see now with this first mover, Ryanair has been -- is the first mover. We see a low-cost carrier investing in their own MRO shop, that's interesting. And for me, this is a trend, an interesting trend. I'm not saying that all of them will do that, but I'm sure we'll see more airlines coming into that kind of play. Samuel Burgess: I mean just a very quick follow-on from that, if I may. If you in terms of your MRO capacity expansion ambitions on LEAP, does that change at all with that kind of dynamic? And I guess, as a follow-on implications for propulsion margin over the midterm. Olivier Andriès: No. We -- there is no change. The compass is still the same, meaning that together between both partners, GE and us, basically, we aim at basically having internal LEAP shop visit representing about 50% of the global work. And we incentivize, we make sure basically and we -- yes, we want to favor those airlines and third parties that are jumping in the LEAP MRO. We want it to be an open MRO market. So external shop visits should long term represent 50% of the overall. So we are executing our MRO plan to increase capacity. As we have already said, it's about a EUR 1 billion investment just for maintenance shop, excluding, by the way, repair shop. This is only engine maintenance shop, EUR 1 billion. And basically, the plan is executed as planned. Morocco, India, Mexico, further investment in France and Belgium as well. And I know our partner is on the same path. Samuel Burgess: Okay. So no change to previous guidance on that. Operator: We'll now take the next question. This is from Milene Kerner from Barclays. Milene Kerner: I have 2, please. Olivier, you mentioned that 1,450 durability kits have been produced on the LEAP-1A so far. How do you expect a proportion of Light scope event to involve as the durability kit continues to grow across the rest of your LEAP 1A fleet and then the LEAP-1B. And what does that mean for the medium-term free cash flow trajectory? And then my second question is, as you're exiting now noncore cabin and interior and you're adding targeted defense assets, how should we think about your portfolio in the long term in terms of the mix between commercial and defense? Olivier Andriès: Milene, I'm not sure I got fully your question on the blades. The fact that part of the fleet is already equipped with those blades basically will just increase the intervals between shop visits. So this will push out for those LEAP engines that are equipped with the new blades, the shop visits are going to be pushed out, which in rate per flight hour contract is a positive for us, in fact, because it increases the maturity of the engines. So when are we going to have a full fleet of LEAP-1A equipped? I don't have a precise answer to that question. We'll start with the LEAP-1B as well. What are the consequences in terms of free cash flow? To be very clear, it's a positive as well because as today, most of our contracts are RPFH contract. Basically, any shop visit, any early shop visit is a spend for us. So maybe, Pascal, you can add comment on that? Pascal Bantegnie: Yes, I'll give it a try. With time, what matters is the mix between what we call quick turn and full performance restoration shop visit. And the more new HPC blades we have in the fleet, the less quick turns we need in the maintenance shops, meaning that the mix will evolve in a favorable manner in the years to come, which will benefit both EBIT and free cash flow going forward. But it is already in the plan and in our 2028 guidance. Olivier Andriès: On portfolio management, without entering into detail, I'll just give a tendency that should not surprise you. The tendency is that our Aircraft Interiors exposure should, with time, basically decrease as we are still executing our plan to divest some noncore activities inherited from the ex Zodiac acquisition and a significant part of them being in the Aircraft Interiors activity. So our aircraft interior exposure should reduce should be reduced. And I would say, as we stand ready to seize opportunities and as defense is a strong booster for everybody, if there are some, let's say, opportunities that are just passing by, that could be of interest for us in terms of technology because it's a good complement to what we do. And if it makes sense economically, we are ready and we can be agile and we are ready to jump in. So I would say in terms of tendency, directionally, our defense activity should grow and our Aircraft Interiors activity should be reduced long term. Operator: We'll now take the next question. This is from Benjamin Heelan, Bank of America. Benjamin Heelan: And I wanted to ask my first question on supply chain. We haven't actually touched on it a lot on this call yet. Can you talk about what you're seeing across the business? What are you seeing in LEAP? What are you seeing in the equipment business? Where are the challenges? Where are things improving? If you could just provide a bit of an overview in terms of what you're seeing from a supply chain situation, that would be great. Second question is on the propulsion margin, sort of '22 to '24. Could you provide a couple of swing factors within that, right? What's going to cause you to get to '22? What's going to cause you to get to '24? And how should we be thinking about R&D within that as well? I keen to hear that. And then thirdly for me, interesting on the presentation at the back, you've obviously given us guidance on the number of CFM56 shop visits, but you haven't given us any numbers yet on the LEAP. Could you provide a bit of a range in terms of heavy work scopes for LEAP that you're expecting in 2030. And then associated with that, obviously, you talked about the margin at completion of the LEAP improving 7 percentage points. When should we be assuming that the margin that you're booking on LEAP shop visits is going to be comparable to CFM56? How should we think about that? Olivier Andriès: Ben, many questions. I'll take the supply chain one. Just to say, directionally, we see an improvement of the supply chain. I'm not telling you this is blue sky yet. But we've seen in the course of 2025, let's say, noticeable improvements all across the board, not only on the engine side, but also let's say, the equipment side as well. What are the remaining challenges? They are mostly always more or less the same. It's upstream, I would say. It's about raw materials. It's about forging and casting. And by the way, this is why we have taken the decision at Safran to unlock, let's say, the situation on forging and casting. This is why we've decided to invest in our own casting facility, turbine blade casting facility of our own. We have decided to invest and we are investing in forging. We are the only -- I'm not sure that whether you know that, but we are the only engine manufacturer in the world having forging capacity internally. We are the only one. And we have decided to invest more in forging as well. So we -- basically, we have a strategy to, let's say, unlock the situation and to, how could I say, decrease our dependency or exposure to some big guys that could potentially have a [indiscernible] strategy. Then I would say the one that we are looking at very carefully and for which we have a resiliency plan is relating to rare earth, which is typically one of the areas that has been weaponized by some countries in the frame of those geopolitical tensions. And so on rare earth Basically, we are building stocks. We are also working on some alternative supply chains. I'm not saying that we are going to do that ourselves because this is not it's not our own activity, but we want to make sure that we can find alternative. Again, our compass is not only to continue to work on our competitiveness, but it's also to continue to work on our resiliency. Pascal Bantegnie: Okay. On your second question about the main drivers for profit margin expansion or decrease in propulsion. So there are many drivers. First, on civil engines, it's all about the number of installed engines and the ramp-up that we have in front of us. You know that the more installed engines we deliver, we have a loss per engine, even though it is reducing per unit, but still it is a loss. Then the spare engines, what we are looking at is the number of spare engines or the ratio between spare engines and the total number of engines being delivered. Today, it's pretty high at low double digits, and it tends towards 10%, 12% for the coming years. So it will be a negative if it goes down. Then it's all about aftermarket. As long as we continue to enjoy from very strong spare part momentum, not only on CFM56, but on the LEAP and IRS engines, it will be a positive. Then it's all about our policy to release profit margin on the LEAP RPFH contracts. As you know, we started to release margin on LEAP-1A RPFH contracts last year. As soon as we introduce the LEAP-1B new HPT blade in H1 this year, we will start to release margin on LEAP-1B contracts as well. As you know, it is capped by construction. We don't intend to release much of the margin before 2030. The good news, as Olivier highlighted in his concluding remarks is that the margin or the expected margin at completion of our book has increased by 7 points from 2021 to 2025. So we have more potential in terms of profit into our books that will be mostly released after 2030. So the name of the game, as you know, for us, is to avoid any dip in margin anytime in a year. This is clearly the target we have together with Olivier. And then one item which is not under our control is tariff. Tariff is given today. We know that we are in a fluid environment to say the least. So that may change one way or the other. Then on your sub question, I'm not sure I got all, but I'll try to answer it. I guess it was related to the long-term propulsion margin. And at some point in time, we are expecting a sunset of our CFM56 spare part business, likely starting in 2029 or 2030. We will have to start to release more profits coming from the LEAP RPFH contracts, but also from the LEAP spare parts activity as well. Olivier commented that we are diverting part of the customers from RPFH to time and material, more conventional spare part sales. Again, the name of the game is to avoid any dip in margin. So today, we have a fixed formula to release our profit. By the way, we have made little progress. I would say the progress rate of our LEAP RPFH contract is very low. It's about 5% today. So the potential is huge in terms of dollar profit for the next decade. So I'm not worried that we will be able to have no dilutive impact in the years to come. I hope it answers your question, Ben. Otherwise, please. Benjamin Heelan: Yes. No, it does. Operator: We now take our next question. This is from Chloe Lemarie from Jefferies. Chloe Lemarie: I have 2, if I may. The first 1 is coming back on the 7 points of improvement in the lead portfolio margin I think, Olivier, you said that the assumption from the CMD were actually largely unchanged in LEAP. So should we assume that it's because that change in portfolio margin will mainly flow through the P&L beyond 2028. The second 1 is on the hedge book. In Q1 last year, Pascal, you commented that you were working on firming up the rate to avoid the knockout activation. Could you maybe share how this has evolved and if we should consider that 2028 is now almost fully firmed up. And on the comments you made on 2029. If spot remains where it currently is, should you be able to build a full coverage for that year within 1.12 to 1.14. Is that how we should understand the comments you made? Pascal Bantegnie: Yes, as we said, between '21 and '25, we've been able to improve our expected margin at completion of our RPFH book by 7 points. Most of the profits will be released in the next decade. So it has no impact on the short-term '25, '26, '27 profit recognition methodology as we do cap our profit release by construction. So no change. But what I'm saying is that the overall expected profits within our books is even bigger than what it was a year ago. On hedging, FX hedging, as I say, we had faced a weakening of the dollar against the euro across the year. It now stands at $1.18, $1.19 per euro. all our KO barriers are within 121 to 130 or so. So if there is any peak in euro-dollar at any time as we did face at the end of Jan, then there is a risk that we may lose part of our hedging volume. Nevertheless, I'm really confident that we can deliver $112 in '26, in '27 and '28. For 2029, we are starting to hedge our year at $17 billion exposure. Given the current market conditions, the 1.12, $1.14 range seems achievable. Now the risk is that should the euro-dollar moves up again and stands at 125 or 130, there is no magic in what we do with our trading room. It means that with time, we'll see the hedge rate going up and converge to the spot rate. But there is a lag to that phenomenon. So as long as it stays within the current range, below 120, I'm comfortable we will maintain 112 up to 2028. Operator: We'll now move to the next question. This is from Olivier Brochet from Rothschild. Olivier Brochet: Two questions from my side, please. Could you elaborate a little bit on the growth that you've experienced in defense in 2025. If you could share numbers on that in equipment. And the second 1 is on wide-body programs. Do you see some risk on volumes there coming from seats or the rest of the cabin in terms of your capacity and the ramp-up point of view, please? Olivier Andriès: Olivier, Growth in defense, the dynamic has been extremely strong in some key munitions especially we have what we call a guided bomb, which is named Hanwha, which is extremely successful in export markets and is highly demanded at the moment. You may have seen that -- I can confirm you may have seen yesterday that Norway has decided to order hundreds of them, basically that they want to deliver to Ukraine. So these are what we are talking about. So are guided weapons that we manufacture. We have multiplied by 4 our production in the last 3 years. And I believe we will continue to scale up. Another example is our inertial navigation systems where that do equate mainly military equipment, aircraft, helicopters, tanks, ships, submarines, but also artillery. And here as well, the demand is extremely strong, and we believe we are going to multiply our production by probably 3 to 4 as well. Last example I'd like to mention is missile propulsion. We -- we are a missile propulsion designer and producer. And I think we are the only one in Europe to do what we call turbo reactor for missile. We are equipping the Scalp/Storm Shadow cruise missile or the exocet missile, but we are also equipping missiles that are designed and produced by Saab in Sweden or Kongsberg in Norway. And here as well, the demand has grown very massively. So we've just -- we have decided 18 months ago to invest that's EUR 100 million in our facility to multiply our production by 5. So those are examples of the very significant scale-up that we see in defense. On top of that, the demand is high also on optronics. We are a player in portable optronics or onboarded optronics for UAVs, for helicopters, for maritime patrol aircraft. And here as well, the demand is very strong. So all in all, on Defense Electronics it's 1.6 book-to-bill ratio, and I can promise that the book-to-bill ratio in 2026 will be far above 1 again. On seats and widebody, indeed, the demand for -- especially business class seats is extremely strong. And I think it's unprecedented again. And interestingly, it's not only a demand for line fit aircraft, but it's also a strong demand for retrofit aircraft. So basically, we've delivered this year, I think if I remember well, it's 2,600 business class seats, significantly above what we've delivered last year. And the growth is very, very, very strong. So we are going to invest to increase our capacity in business class seats. And this is what we are talking about with Emirates. We are going to build a new assembly line in Dubai for that because -- just to meet the demand. Now we still face -- I mean, we have significantly improved our development process. So today, we deliver on time. We deliver on quality to the airframers and to the airlines. But we are still facing rising expectation on the certification side. We are experiencing also a tighter interpretation of pre-existing rules. So all in all, this -- and this is an industry-wide situation. It's not specific to Safran. But the consequence of that is that, yes, indeed, seats could potentially be a pacing item for the ramp-up of the wide-body aircraft just because of, let's say, the tighter tightening of interpretation of pre-existing certification rules. Is it clear? Olivier Brochet: Extremely. Operator: We will now take the next question. This is from Adrien Rabier from Bernstein. Adrien Rabier: Just 1 follow-up, if you may, on the CFM56, please. Could you explain a little bit on what you expect to happen after 2028, the trajectory for shop visits? And then you mentioned pricing and scope of potentially in time. So any detail you can provide would be very helpful. Olivier Andriès: Well, I know that the dynamic has evolved in the latter years because, as you know, we were expecting, let's say, the start of what we call the sunset earlier than what we do see today. And this is a consequence of the so-called flying more for longer situation. So it's a dynamic situation. Today, we are very, very confident that the volume of shop visit will remain at this peak of 2,300, 2,400 up to 2028. So how will the dynamic unfold after that is still to be seen. So this is why basically we take a cautious approach there. It's going to be, let's say, it's going to be a combination of how quickly Airbus and Boeing are going to reach their peak rate for, respectively, the A320s and the 737. And they are on a trajectory to, let's say, to go up by then. It's going also to be -- one of the other elements in play is going to be the level of aircraft retirement. And I have to say, in 2025, there has been a very low level of aircraft retirement. We've been -- it's been about 150 aircraft, so more or less the same as in 2024, no change. And therefore, this is not feeling any used part market. So really, it's going to be a combination of traffic growth. The traffic growth in 2025 for the narrowbody has been more than 5% compared to 2024. So is it going to continue at this pace? So this is one entrant. The other entrant is going to be how many new gen aircraft are going to get into the fleet. So how fast are Airbus and Boeing going to be able to reach their peak rate. And the third element is going to be the level of aircraft retirement. So it may well continue for 1 or 2 additional years. It's too early to say. It's really today a question of how this dynamic will unfold. Operator: And the next question is from Ross Law Morgan Stanley. Ross Law: So the first one is just a follow-up on portfolio. You've previously spoken about an ambition to divest about 30% of the legacy Zodiac assets. Can you maybe just give us a progress update here? And how much of this target is covered by the recent deals? And when should we expect you to achieve this target? Second question is just a quick one on your 2026 FX assumption for the spot rate at $1.15. And it's been tracking around the 118, 119 mark year-to-date and at present. I'm just wondering why you are assuming $115 and not higher? And then lastly, just on the media article yesterday suggesting you're working on advanced ducted engine as a possible more traditional alternative to RISE for next-gen narrow-body. Are you able to confirm this? And also what it means for RISE and also your R&D outlook? Olivier Andriès: On portfolio, how do we progress? Let's put it that way. Between Safran Passenger Innovation and EasyAir, we are talking about a revenue of roughly EUR 0.5 billion, more or less, roughly. It's an indication. So how -- what does it mean in terms of percentage of the ex Zodiac portfolio progress? It's a few points, I would say. When we met at the Capital Market Day, basically, we had executed 10% for a target of 30% of the portfolio. I guess I should not -- we should not be far from 15%, but it's indicative. We may come back on that, but it's an indicative number. So there's more to come. We hopefully will progress in 2026. But I will say the obvious. Before launching a process of divesting an asset, we need to make sure that this asset has some kind of appeal to the market. And so this is why we are focused on the performance and economic recovery first. But we are planning to continue to divest, especially in the course of 2026. Pascal Bantegnie: On your second question about FX, true, we took the assumption of $1.15 per euro on the spot rate just because we built up our 2026 budget at the time, it was at $1.15. So now it's $1.18. So that means a slight negative. It will only impact negatively our revenue base. You know the sensitivity, it's about EUR 100 million, EUR 150 million of sales per cent spot rate. So we'll see with time, we could have chosen 1.20. It would be as long as 115. We'll see at year-end. And then your last question is about the RISE program. RISE is a technology program. We are developing technology bricks, new materials, gearbox, an open fan architecture, hybridization that we leave all options open. So there is nothing new in what you may have seen in some press reports about a ducted engine or an open fan engine. Olivier Andriès: Yes. I'll say the obvious as well. We are getting prepared to any scenario because at the end of the day, it's going to be an airframer decision to select a given engine architecture. So basically, RISE, as just Pascal has reminded, is a technology program. There's a lot of common bricks that basically we develop whatever the architecture is. And yes, indeed, we are working on an open fan architecture. But again, we need to be prepared to any scenario. We are still very confident that the open fan is, let's say, the most, let's say, rewarding, let's say, configuration in terms of fuel burn. There's, of course, a lot of challenges that we need to meet and need to tick boxes, if you wish, on this technology plan. But again, we need to be prepared to any scenario. So no surprise. Pascal Bantegnie: We'll take 2 more questions. Operator: Next question is from the line of Rory Smith, Oxcap. Unknown Analyst: You've given lots of color on the call so far about narrow-body engines. So that's very helpful. I just had a question on wide-body. Is it fair to assume that there's a similar sort of margin differential between, let's say, timing materials or spare parts versus services under wide-body service contracts, as you mentioned for under LEAP? That's my first question. Olivier Andriès: To the wide-body, I would say yes, Rory? Yes, indeed. similar. Unknown Analyst: Brilliant. And then just as a follow-up to that, is there anything you can tell us this morning just about this sort of engine durability issue. I'm not saying it's your component, but anything that you're hearing from your partner there that Boeing talked about on their 4Q call that may be impacting the flight test program for 777X. Olivier Andriès: Well, I cannot comment on that, Rory. Sorry for that. That is the last question? Operator: Yes, of course. Last question today is from Ken Herbert RBC CM. Kenneth Herbert: Two questions, if I could. First, you grew spare parts in civil engines about 18% in '25. The guide is for mid-teens growth this year with looks like basically flattish CFM56 shop visits and some growth on the LEAP. Can you just help dissect that a bit and why the slower growth? Is it anything in underlying assumptions on price or work scope or maybe wide-body versus narrow-body as a first question. And then second, we are starting to hear some concern -- not concerned questions from some of the larger CFM56-7B fleets about maybe lowering engine inventory levels this year as we go through the year. And I'm just curious if you can comment on that, if that's anything you've seen and how we should think about that? Pascal Bantegnie: Okay. I'll take the first one on spare parts for 2026. So we are guiding to a mid-teens revenue growth. It's driven by the 3 engine families. First one, CFM56, we should see more or less a flattish number of shop visits. So volume is flat. Price will be up. It's still to be agreed with our partner. It will be applicable from 1st of August. We will benefit from last year price increase in the catalog list price, which was mid- to high single digits. And then work scope. W scope should be a positive because as we saw in 2025, we're expecting a higher proportion of full work scope within the total of shop visits. So CFM56 will continue to be a driver. On the IRS engines, as you know, we have a minority stake on the GE engines. And here, we see good positive drivers as well in terms of pricing and volume and work scope on all 3 components. And then on LEAP, we'll continue to grow the number of shop visits for the LEAP, as we say globally from about 15% shop visit per formed by third parties to 30% by 2030 and with a favorable mix over time, meaning less quick turns and more full performance restoration shop visits. So that should benefit as well our guidance for spare parts in 2026. I would like to say right now, then what we will discuss in April, we should have a very strong start in spare parts in Q1 only because we have favorable comparison base. So you should expect a higher number than the mid-teens when we publish our Q1 numbers. Olivier Andriès: Ken, on your second question, I'm not sure what you are referring to. But what I can say is even if our overall performance has been extremely good on spare parts, especially CFM56 spare parts in the course of 2025. We have been a little bit constrained by some supply chain issues that are getting unlocked. And that's also what is going to be a component to feed 2026. So we see, let's say, supply chain, let's say, some supply chain bottlenecks getting unlocked on CFM56 spare parts as well, and that's going to help us in 2026. Pascal Bantegnie: Thank you all. Have a good day, and happy Valentine for tomorrow. Olivier Andriès: Thank you. Operator: Thank you. This concludes today's conference call. Thank you for participating, and you may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome you to the Air Canada to present Fourth Quarter and Full Year 2025 Results Conference Call. [Operator Instructions] I would now like to turn the conference over to Amanda Murray, Head of Financial Planning, Strategy and Investor Relations. Amanda, please go ahead. Amanda Murray: Thank you, Krista. [Foreign Language] Welcome, and thank you for joining our fourth quarter and year-end 2025 earnings call. My name is Amanda Murray, and I am pleased to hold the role of Head of Financial Planning, Strategy and Investor Relations at Air Canada. I look forward to working with the capital markets and fostering strong relationships with our investment community. Joining us on the call are Michael Rousseau, our President and CEO; Mark Galardo, our CCO and President of Cargo; and John Di Bert, our CFO. Other executives are with us and available for the Q&A portion of the call. I remind you that today's comments and discussion may contain forward-looking information about Air Canada's outlook, objectives and strategies that are based on assumptions and subject to risks and uncertainties. Our actual results could differ materially from any stated expectations. Please refer to our forward-looking statements in Air Canada's fourth quarter and year-end news release available on aircanada.com and on SEDAR+. And now I'd like to turn the call over to Mike. Michael Rousseau: Great. Thank you, Amanda, and welcome, Monsieur. Before I begin, I want to give a special welcome to Amanda on our first call. I know Amanda will do a great job with our analysts and shareholders. And for those of you who don't know, Valerie Durand was promoted to another role within Air Canada. We delivered a strong 2025 with an exceptional Q4, showcasing the robustness of our business plan and the structural advantages we have built over several years. Q4 revenues reached $5.8 billion, up nearly 7% year-over-year, supported by industry-leading passenger unit revenue performance and strong premium demand. We also achieved record Q4 adjusted EBITDA of $867 million, a 25% increase from last year. Our network and revenue diversity played a critical role in delivering strong results in 2025. Key elements enabled us to mitigate the softness in transborder markets, which has remained relatively steady from a trend perspective over the past year. These include the scale of our hubs, strength of our international franchise and our continued Sixth Freedom growth. The loyalty of our premium and corporate customers and the meaningful contributions from Aeroplan, Air Canada Cargo and Air Canada Vacations reinforce our results as well. This year marked a clear step forward in balancing out our traditional seasonality in our business. In 2025, we achieved total revenues of $22.4 billion, a 1% increase from 2024. Adjusted EBITDA totaled $3.1 billion, coming in ahead of our guidance range due to a very strong demand in the last 2 months of the year. We continue to demonstrate financial discipline, maintaining a high conversion from earnings to operating cash flow. This enabled us to invest confidently in our future, deploying $2.9 billion in capital investments. We did this while maintaining a solid balance sheet with $7.5 billion in liquidity and a net leverage of 1.7x and generating $747 million in free cash flow. At the same time, we returned more than $850 million to shareholders through share repurchases. These actions reflect a balanced approach to capital allocation and our commitment to creating long-term sustainable value. Operationally, 2025 was another year that demonstrated the dedication and professionalism of all our teams. We remain focused on operational excellence and improved both our on-time performance and Net Promoter Score by strengthening the overall dependability of our schedule and the premium brand positioning. Recently, our teams again rose to the challenge as Toronto and many cities in North America experienced record snowfall and extreme cold. Managing through severe weather safely and effectively while keeping our operation moving is no easy feat. These moments reflect the strength, the teamwork and the commitment of our people, and they continue to reinforce customer trust in Air Canada. I thank all of our employees for their hard work and dedication. Their efforts were recognized by our customers who voted Air Canada the best airline in North America at the 2025 Skytrax World Airline Awards, along with wins in 8 additional categories, more than any other Canadian carrier. Skytrax also named us as the only North American airline in its global top 20, a testament to the professionalism and commitment of our people. I know we are the employer of choice for aerospace in Canada. And now more than ever, as Canada needs global champions, we stand as one. We will continue to contribute meaningfully to the Canadian economy and create value for all stakeholders. Finally, as we look ahead, we're encouraged by the momentum being carried into 2026. We will continue to drive our commercial strategy, preserve a disciplined financial framework and continuously improve the customer experience. Against this backdrop, 2026 will be a transitional year as we absorb cost pressures and receive the majority of our new fleet deliveries that are scheduled for the second half of the year. We are very confident our investments are setting the stage for improved performance and greater efficiencies in 2027 and beyond. We are building for the long term, and I'm convinced the decisions we're making today will continue to strengthen our airline for years to come. I'll pass it over to Mark. Mark Galardo: Thanks, Mike, and good morning, everyone. [Foreign Language] I'd like to thank our employees for their commitment to our customers and to operational excellence. I'd also like to thank our customers for their unwavering confidence in our airline. Overall, 2025 provided a clear validation point that Air Canada's commercial strategy is sound and delivering robust results. In the fourth quarter, we leveraged our international network, our premium positioning, our Sixth Freedom Advantage and our continued revenue diversity to differentiate our performance. When combined with the strength of our foundation, namely our hubs, our far-reaching network, our modern fleet and the loyalty of our customers, the results start to compound. We proved in managing through uncertainty that Air Canada is agile and can deliver robust performance. We closed the year on a strong note and achieved record fourth quarter passenger revenues of $5 billion with an all-time high Q4 load factor of 85%. Unit revenues grew 2%, a leading result among major North American airlines, supported by our international network and solid momentum in our Sixth Freedom business. In fact, our international performance led the quarter, contributing close to 90% of our revenue uplift and validating our strategic moves across the Atlantic, Pacific and Latin America. Turning to the full year. In 2025, we leaned on the core tenets of our new Frontiers plan to demonstrate the resilience of our commercial plan. We leveraged our diversified geographic exposure to pivot capacity to areas of strength, such as to Canada and the Atlantic in the summer months, fully mitigating the impact of reduced Canada U.S. demand. Our success was notable in the Atlantic and Latin America as each posted load factor expansion from 2024. Combined, they saw a 4% year-over-year growth in traffic with the majority of this increase being a direct result of our commercial playbook. We also leaned on other businesses to drive incremental revenues with Air Canada Cargo, Air Canada Vacations and Aeroplan achieving solid results. In 2025, other revenues increased by 15%, while cargo revenues rose by 4% versus the previous year. Notably, Air Canada Cargo, a key player supporting our long-haul flying, surpassed $1 billion in revenues for the first time since 2022. Throughout the year, we expanded our brand affair offering and advanced innovations within our revenue management tools, delivering clear improvements to our ability to drive incremental revenues. And our positioning as Canada's premium airline is a clear differentiation. We believe that our investments in the premium space will further strengthen our base of brand loyal customers. In 2025, premium revenues increased 2% year-over-year, outpacing the economy cabin by 3 points and representing about 30% of our total passenger revenues. An acceleration of corporate revenue in the latter part of the year was another sign of progress, increasing 8% in the fourth quarter from a year ago. We restored A220 schedules, achieved corporate growth in our long-haul flying and kept working to stay competitive while building loyalty with business travelers. Lastly, we continue building scale in our hubs, reinforcing the competitiveness of our global network. In 2025, we added 13 new destinations in 4 continents. Further, with improved schedule quality, we increased Sixth Freedom revenues by 10% from 2024, reaching record levels. Our Canadian hubs of Toronto and Montreal have enviable geographic placement to connect Europe with Latin America at large. And in the last quarter of the year, we bolstered our competitiveness on these counterseasonal flows to grow our demand base outside the Canadian market and diversify our Sixth Freedom revenues. The initial results of this strategy were significantly above our expectations and our planned additions next winter will enable us to continue to grow this segment. Turning to our outlook. We are very encouraged by the momentum carrying over from Q4 into the early parts of 2026, enabling us to continue balancing the seasonality of our business. We are seeing sustained velocity in bookings for Q1 and into Q2. And as Canada's flag carrier, we are uniquely positioned to capture corporate cargo traffic tailwinds from Canada's diversifying trade strategy objectives. Though it's early to provide more color for the latter half of the year, we're encouraged by the current booking trends. This year, we expect to grow capacity between 3.5% and 5.5% from 2025. We will leverage our fleet investments, network enhancements and product improvements to continue driving scale in our hubs, diversifying our revenue and reinforcing customer loyalty. In fact, this summer, by a measure of seats from North America, Air Canada Global hub in Toronto will be the second largest transoceanic hub, Montreal, the fifth largest transatlantic hub and Vancouver, the second largest transpacific hub on the North American continent. We continue to see favorable demand trends to, from and within Canada, and we continue to monitor market conditions and retain the flexibility to allocate and balance capacity to areas of strength and mitigate our exposure to less favorable conditions. For example, following recent government advisories, we suspended our service to Cuba and moved capacity to other submarkets with a minimal financial impact expected from this shift. In the spring, we will start transborder flying from Billy Bishop Airport in downtown Toronto to major business centers in North America, reinforcing our commitment to making business travel easier for our customers. Further ahead into the summer, we will add 7 destinations to our network, reintroduce nonstop flights to China from Toronto and extend year-round flights to Bangkok, the only nonstop service from North America. And while it's still too early to discuss next winter, we recently announced the addition of Sapporo and Quito to our passenger network to come December 2026. Moving to fleet. In 2026, we're eager to welcome 35 aircraft to our fleet, including our first Airbus A321XLR and Boeing 787-10 aircraft. We've spoken many times about their capabilities. This year, we'll leverage our A321XLRs to unlock new destinations such as Berlin and to enhance our offering to existing markets like Toulouse and Manchester. The A321XLR also has a role to play within North America. Within the year, we will unveil plans to offer a consistent year-round A321XLR product on a set of routes to bolster our premium offering in North America. Early bookings for the XLR are performing well, proving the value proposition of this aircraft. For our 787-10s, we are planning the initial deployment out of Toronto, and we'll unveil details soon. For Rouge, we are upgrading our customer experience and enhancing our competitiveness in the leisure market. Subject to obtaining the necessary approvals, we plan to have the MAX fleet at Rouge by the end of 2026. Wednesday, we made an important announcement for an order for 8 Airbus A350-1000 aircraft with deliveries expected to begin in 2030. These state-of-the-art aircraft will solidify our global ambitions into the next decade. As one of the best aircraft that I've studied, the A350's unique and proven capabilities will unlock new fast-growing long-haul markets. We will leverage its superior economics to fly further and carry an improved customer and cargo payload over the current fleet. With optionality for 8 more, our order offers tremendous flexibility to both adapt to marketing conditions and balance aircraft replacement and growth for the coming decades. In closing, 2025 results underscore that our strategy focused on hub scale, revenue diversity and customer loyalty leads to concrete results. They prove that Air Canada's commercial foundations are robust, the strongest they've ever been. We remain focused on building upon them. With that, I'll turn it to John. John Di Bert: Thank you, Mark, and good morning, everyone. [Foreign Language] Before we begin, I want to acknowledge the exceptional execution across all Air Canada teams during 2025. As we signaled on our last call, we did indeed have a strong finish to 2025 and delivered a record Q4 financial performance. Our Q4 adjusted EBITDA increased by $171 million versus Q4 2024 to $867 million, representing a solid 15% margin backed by a strong demand environment. These results reflect deliberate disciplined actions taken throughout the year as well as a solid commercial execution, leveraging the strength of our network and revenue management capabilities. Full year adjusted EBITDA surpassed $3.1 billion with a 14% margin, exceeding our guidance and market expectations. Full year performance was particularly remarkable given the direct financial impact of the summer labor disruption, a challenging geopolitical backdrop and late-stage inflationary pressures on certain parts of our cost structure. Diving further into costs, 2025 full year adjusted CASM closed at $0.147, the upper end of our guidance range. This is a 6.7% year-over-year increase, including approximately 270 basis points from labor and about 140 points from depreciation, in part reflecting our fleet investments. Further, the year-over-year increase also reflected about 150 basis points in nonrecurring impact from the August stoppages. We are fully focused on mitigating cost growth through targeted management actions across the airline. In 2025, we executed $150 million in cost reduction programs, driven by management restructuring, process improvements, operational efficiency and spend management initiatives. We expect these savings to be recurring. We're also confident that we will see multiyear structural improvements beyond 2026, driven by the cost benefits of expanding our network and operating a modern fleet, increasing both productivity and scale. Turning now to cash flow. 2025 performance was strong, reaching $747 million in free cash flow, with cash from operations generating $3.7 billion, surpassing 100% conversion from adjusted EBITDA. We showcased the strength of our business model and the cash back quality of our earnings. In particular, Q4 cash generation was driven by very strong Q4 earnings, working capital tailwinds from growth in advanced ticket sales and the continued growth at Aeroplan, reflecting a 7% increase in third-party gross billings. In addition, we benefited from approximately $150 million in favorable cash flow timing from a number of items. With 2025 free cash flow margin at 3% of revenues, we remain confident in our trajectory toward our strategic objective of sustainable 5% free cash flow margins. As we generate cash, we remain disciplined on value-accretive deployment by staying true to our priorities, namely executing disciplined investments in the airline, focused on margin-enhancing growth, protecting our balance sheet, maintaining solid liquidity and net leverage below 2 turns. And finally, returning cash to shareholders, allowing them to participate in our cash flow generation. In 2025, we deployed $2.9 billion in CapEx and took delivery of 14 aircraft. We expect 2026 net CapEx to be around 12%, and we view that level of net CapEx as a healthy, sustainable level for the airline. To that end, to support our peak CapEx cycle in 2026 and 2027, we have signed nonbinding letters of intent for up to $2 billion in sale and leasebacks. We plan to execute our sale and leaseback transactions over the next 24 months. This program is expected to bring our fleet ownership levels to our target range of 65% to 70%. In addition, it will achieve various important goals, including fleet flexibility, capital efficiency and enhanced liquidity, all within net leverage targets. We ended 2025 with total liquidity of $7.5 billion, including our undrawn revolver. Net leverage ratio at year-end was 1.7 turns. During 2025, we retired a convertible bond extinguishing almost $400 million in debt and avoided the issuance of nearly 18 million shares. Early this year, we successfully repriced and upsized our Term Loan B by $200 million, further confirming our credit quality and the confidence from capital markets. Finally, since 2024, we have generated over $2 billion in cumulative free cash flow, repurchased and retired over 64 million shares, returning more than $1.3 billion to investors, including over $850 million in 2025 alone, funded entirely through free cash flow generation. With an active NCIB, we remain on track toward our aspiration of $2 billion in share buybacks and reducing fully diluted share count to below 300 million shares by 2028, which at the end of 2025 stood at approximately 307 million shares. To recap, these actions underscore our focus on value-creating capital allocation, our commitment to a strong balance sheet and our conviction in the airline's long-term growth and profitability potential. With these core principles in mind, we announced an order for 8 firm Airbus A350-1000 aircraft with purchase rights for an additional 8 aircraft. The firm aircraft are scheduled to be delivered between 2030 and 2032 and are set to replace the oldest 8 A330s in our fleet. We're excited about the addition of the A350 to our fleet as it will bring new capabilities that will further expand and differentiate our international network. The book of options on the A350s in addition to the ones available on the 787-10s will also provide great optionality as we look at the wide-body replacement cycle middle of the next decade. As we go through the long-term planning horizon, we will continue to ensure that this order fits nicely to our sustaining net CapEx target of 12% or less of revenues. Let me now turn to 2026. We're very encouraged by the momentum we experienced in late 2025, which continues into 2026. We expect adjusted EBITDA growth in Q1, both in absolute dollars and margin percentage. This is supported by unit revenue expansion combined with more capacity year-over-year. Our expectations are inclusive of the estimated impact of the weather disruptions suffered in January and the recent fuel shortage in Cuba. For 2026, we expect adjusted unit costs in the range of $0.1505 to $0.1535. This reflects the anticipated impact from the completion of the major renewal cycle of 10-year agreements with the remaining half of our unionized labor force. Additionally, while we are scheduled to receive up to 35 aircraft in 2026, ASM growth will be modestly constrained due to deliveries being back half loaded, and we will experience some ASM attrition due to the Rouge fleet transition and planned aircraft retirements. Further, the mix of higher narrow-body and lower stage length ASMs will cause some transitory unit cost strength. However, we do believe that load factors will trend higher and PRASM benefits will offset some of the adjusted CASM impacts. Our 2026 guide on adjusted CASM also reflects $150 million in new proactive cost reduction initiatives. Areas of focus include strategic procurement savings and continued overall workforce productivity as we grow. We expect 2026 adjusted EBITDA between $3.35 billion and $3.75 billion. For planning purposes, we are using average jet fuel price assumption of CAD 0.90 per liter, and we're using an FX assumption of CAD 1.36 to each U.S. dollar. Both assumptions are aligned with current market prices. As of today, approximately 17% of our expected first half fuel needs are hedged at CAD 0.69 per liter before taxes, transportation and into plane fees. Our approach to hedging continues to be focused on the shorter-term horizon with the objective of providing some volatility protection to booked revenues. We expect free cash flow in 2026 to be between $400 million and $800 million. Our guidance reflects the expectation of close to 100% conversion rate of adjusted EBITDA to cash from operations. Our guidance also represents net CapEx for 2026, inclusive of $1 billion in expected sale and leaseback transactions. In summary, 2025 was a year that demonstrated once again the resilience of our team and the strength of our franchise. We navigated a complex environment, executed with discipline and delivered solid results. We enter 2026 with quiet confidence. We have a clear plan, compelling growth opportunities, supportive market trends, structural cost improvement levers, strong brand loyalty and a healthy balance sheet. Above all, we have a determined and capable management team. We remain committed to our value creation thesis grounded on profitable growth, margin expansion and cash generation to create sustained value for all stakeholders. Thank you. And with that, I'd like to turn it back to Amanda for Q&A. Amanda Murray: Thank you, John. Krista, please open the line for questions from our analysts. Operator: [Operator Instructions] And your first question comes from the line of James McGarragle with RBC Capital Markets. James McGarragle: So I just had a question on the fleet strategy and the A350. So with that order in place, can you just walk us through the strategic rationale there again, and kind of how that fits into the strategy that you laid out at the Investor Day. So are you prioritizing operational efficiency here in existing markets? Are you looking to kind of expand into new markets? Or is it something that you're looking to achieve both of those objectives simultaneously? Mark Galardo: James, so to answer that question is we have a lot of optionality and flexibility with that airplane. So what we like the most about that airplane, obviously, is the range capability. So that gives us options to grow into new markets, whether it be in the Indian subcontinent, whether it be in Southeast Asia, Australia, et cetera. But it also allows us to do a set of routes that we do today a lot better. So when you combine these 2 elements together, we just have a lot of flexibility with that airplane. But the #1 thing, obviously, the #1 variable is really the range capability of that aircraft on the passenger side and also on the cargo side. James McGarragle: I appreciate the color there. And then in terms of the revenue, the implied revenue guide, can you just talk about how you're seeing load factors and yields trend kind of early in the year, how you expect that to trend during the rest of the year, just kind of within the context of a top Canadian market and some pressures that we're seeing on the yield in the Pacific. And after that, I can turn the line. Mark Galardo: James, we're seeing a very constructive environment for the first half of 2026. We're seeing gains, both on the load factor side and on the yield side, and we're seeing that mostly in international markets, particularly the Atlantic. On the Pacific, we're seeing load factor growth with stable yields. And I think that we expect that to continue all the way through the first half of the year. Operator: Your next question comes from the line of Tom Fitzgerald with TD Cowen. Thomas Fitzgerald: Just want to dig in on fuel a little bit and what -- just how much of your consumption is based off of New York Harbor. We've received some feedback from investors who think that fuel might be a little aggressive just given spot prices today. John Di Bert: Yes. I'll take that question. So I think, actually, we have a very strong fuel procurement strategy and it is diversified. I'd say that probably about 50% of our fuel comes in New York Harbor. The rest is distributed. We have strong procurement in Asia as well. And we also have very good infrastructure to bring that fuel to the airports, both on the East and on the West Coast. So I would say that our fuel assumption right now, if you took our index and you actually ran it against the spot is probably a shade below the $0.90 that we're using on the full year. We think we're fairly reflective. And don't forget, we also hedged almost 20% of our first half fuel, and that was done all in probably in the low 80s. So we feel like we're reflecting the environment very well. Thomas Fitzgerald: Okay. Understood. That's really helpful. And then just as a follow-up, you've talked a few times about playing a role as Canada diversifies its trade flows on cargo and corporate. I wonder if you could dig into that a little bit deeper, just how you see that time line playing out? What kind of conversations you're having with your corporate and cargo customers? Mark Galardo: Yes. We're seeing -- at this time, we're seeing a lot of corporate demand growth on the North Atlantic. We've seen almost a 30% increase in the amount of corporate traffic going to Europe, in the Pacific, and we attribute part of that to the fact that Canada is looking to diversify trade corridors. On the cargo side, a little bit early, but certainly, as we grow into new markets, obviously, that's going to give us an opportunity to further diversify our cargo lane as well. Operator: Your next question comes from the line of Daryl Young with Stifel. Daryl Young: Just as it relates to the capacity outlook later in the year, can you just give us a bit more color on where you're seeing opportunities to place that capacity? It seems like things are going to ramp up relatively significantly from Q3 and Q4 this year? Mark Galardo: Sure. So we continue to see really great opportunities to grow in the North Atlantic. Coming into the second half of the year, we will continue to strategically grow some counter-seasonal opportunities in Asia. And we're also taking advantage of the opportunity that we have in Latin America right now. So we've been very successful early days and really building out a Sixth Freedom franchise from Europe to Latin America by our hubs, and we're going to double down on that with the new aircraft that are coming in. Daryl Young: Got it. And then as it relates to the much longer-term order book and the A350s, should we think about that continuing to be filled here in the future quarters such that your CapEx is at 12% of your projected revenues in the future? Or said differently, is there more widebody orders that are going to come down the pipe here in the next year? John Di Bert: Well, next year, I don't think so. No. I think that you saw us make some moves in the last 12 months, right? We reshaped the 787 order. We have good smooth introduction to service on those aircraft. We've always maintained that, that was the growth vehicle that would give us the growth ASMs over the period of the next few years. The 350 is going to bring incredible capability. And as Mark described, new optionality, but it will also be part of a replacement cycle and so when you look past the 2030 and the orders from 2030 to 2032 and then as you look into the middle of the decade, we will have more replacements on the 330s and eventually on the 777s. In total, there's about 45 of those aircraft. So we'll do that all within a very responsible CapEx envelope and continue to target 12% of revenues as we do that with long-term planning, obviously, being very helpful. Operator: Your next question comes from the line of Nathan Britto with Scotiabank. Nathan Britto: This is Nate filling in for Konark. So foreign exchange has moved in your favor. So what's driving CapEx higher over the next several years? Is there any other factor besides the new A350 order? John Di Bert: No, that's really -- that's it. And I think it's just a matter of also you drop the last quarter of this year and you add a full year. So it's just -- it's math on, I think, the 2030 year be included into our planning horizon. But the real substance of the move up is the 350 order. Nathan Britto: Okay. And how would the migration then of the Boeing 737 MAX to Rouge affect adjusted CASM and margins over time? John Di Bert: Well, I think in 2026, it's a bit of pressure just because we have a transition period that will take some of those aircraft temporarily out of service as we bring them on. So it cost us a little bit of ASMs. But in the long term, I mean, that's going to be a great aircraft in terms of economics, efficiency, density and that should bring margin expansion and for actually a great product to customers as well in that franchise. Operator: Your next question comes from the line of Cameron Doerksen with National Bank Financial. Cameron Doerksen: So my question is on Aeroplan. I know you don't provide a ton of financial details about it, but I'm just wondering if you could maybe discuss the progress on growth for the Aeroplan program. And also, there's been some changes to the program that obviously kicked in this year. I know it's still early days, but any, I guess, expected impact on profitability for you or growth of the program for you from those? Craig Landry: It's Craig Landry, the President of Aeroplan here. Yes, it was a very strong year 2025 for us at Aeroplan. We actually hit a record number of growth in terms of members over 10 million active members. Keep in mind, when we brought the program in from Aimia externally, that number was about $4 million. So we've seen significant growth over the last couple of years in terms of the size and the scope of the program. The expansion of the partners that are in there. If we look at our gross billings, if we look at the purchase volume on our credit card partners and elsewhere, we see numbers in the high single digits, 7%, for example, in gross billings, 8% in terms of card spend. So the economics of the basic indicators of program were very strong. In terms of the new program that we put in place, the revenue-based accrual. The initial metrics we're observing are all very strong. The number of members qualifying for status on a year-over-year basis is increasing. So we continue to see strength in the program. And the activity of those customers, their average fare and their purchase volumes continue to increase. So we're very satisfied with what we're seeing so far. Cameron Doerksen: Okay. That's very interesting. And just maybe a quick follow-up for John. Just on the sale-leaseback expectations for 2026. Do you have any idea on the timing of when that might happen? Like which quarter you would expect to execute on those sale-leaseback deals? John Di Bert: You'll see them probably throughout the year. We have a portfolio of aircraft that we have targeted and some of them are in the fleet and some of them are new deliveries. So they'll kind of -- they'll move through the CapEx through the year, and we'll kind of manage that with delivery. So the intent here is to smooth out CapEx. And so that's what we'll be doing. And you can expect a $2 billion kind of $1 billion this year and $1 billion next year. Operator: Your next question comes from the line of Jamie Baker with JPMorgan. Jamie Baker: So kind of a high-level question. What's your internal measure for determining whether to grow capacity? I'm just curious if it's a margin bar. Ideally, it would be ROIC in excess of WACC. Maybe it's a market share threshold you look at, maybe it's that 12% CapEx to revenue that you cited. But presumably when network or fleet pending comes into the office and says, we need more aircraft, there's some measure you look to before agreeing. Just curious what that measure or measures might be. John Di Bert: Yes. Well, I think first and foremost, right, I mean, you, it's a long-term planning conversation to start with, right? You don't build capacity from 1 week to the next. Now, how we deploy that capacity, one of the things that you should remark from Air Canada is we have incredible agility, and we've demonstrated that. So as we plan to pass it, we plan it based on the expectation of trends in markets where we have growth and where we're bringing on capacity, particularly for long term for long-range aircraft, I mean, we've had -- we've underserved the market, frankly. The opportunity for us to bring narrow-bodies on into Canada and the U.S. is also been a bit underserved in the last couple of years. So in both cases, there's a bit of opportunities to fill in some under capacity. Now the decision about routes, those are made on profitability. We study every route opening with detailed financials. And it's both profitability as well as in the long term, it's ROIC for sure. In the short term, it's about profitability and deploying the aircraft as most effective as we see. And we have several opportunities to move around our fleet when opportunities arise. So I'll turn to Mark, if you have any additional comments. Mark Galardo: Yes. So Jamie, we follow obviously our margin by service. And obviously, as you noted in our prepared remarks, we've got pretty strong margins on our international long-haul business actually comprises the majority of our margin today. And then we also kind of map out expected long-term demand growth. And here in Canada, as you know, is a very international country, multicultural country that's sustained a lot of immigration. So we've got 4 trends in terms of what the market will be, should be at the end of the decade. And of course, we layer on top the opportunity for us to take more market share here in Canada, but also that Sixth Freedom opportunity. You combine this all together, that's really one of the really, really key metrics that we follow. Jamie Baker: Okay. And then second, just on the 2026 guide, any color on specific transborder assumptions for this year, just given the choppiness that we saw in 2025? Mark Galardo: So Jamie, we don't expect the market. We're actually expecting status quo in terms of market conditions on transborder. We don't expect it to get any worse. We're not expecting for it to get any better. However, what's kind of in our favor right now is the demand capacity balance is very much in our favor. And you've probably taken note of some of the recent competitive moves that have been made. And again, that supports kind of a constructive backdrop for rebound in transborder revenue for us this year. Operator: Your next question comes from the line of Savi Syth with Raymond James. Savanthi Syth: I wonder, and maybe for John, could you talk about like what you wait in deciding to do that $2 billion in sale-leasebacks and how that might impact unit costs and the balance sheet relative to maybe doing debt financing. Obviously, the concern here is that you kind of focus on kind of that net, keeping net CapEx and free cash flow targets, but then build in some long-term cost drags. John Di Bert: Yes. No, I think that the capital cost of the leases is going to be very competitive, number one. The recall, I mean, we had a stated objective. We were over-equitized on aircraft to over 80% ownership. And we've set out a strategy, which is to leave some amount of flexibility within the fleet as well, which leases bring you. So our target is 65% to 70% of the fleet owned and 30% to 35% of the fleet leased. So that's a consideration that is beyond just the pure financials of it. It offers flexibility. We've used that flexibility in the past, and we'll be able to use that in the future if necessary. With respect to cost usually within 100 basis points of any other form of financing and to have the flexibility that I just mentioned, a price worth paying. And overall, we do keep a very close eye and are very disciplined in our balance sheet. So the instruments will stay well within our 2x leverage target. So when it's all said and done, I think it's just good capital efficiency and good capital allocation. Savanthi Syth: Makes sense. Thanks for that explanation. And maybe just a follow-up on that. Just what are your expectations for depreciation like this year and next year in terms of step-ups? John Di Bert: Yes, that's a headwind, and it's going to be a headwind for the next few years, frankly. We have about a $200 million annual headwind on depreciation, and that's true in '25. And we are highlighted in the comments, it's a big piece of the year-over-year cost growth. It will be a little bit more than that in 2026 and expect the same thing in '27, '28. So as we kind of converge the CapEx cycle to a depreciation over a little bit of time, that will be a headwind. I think the positive there, it's a noncash item. And so we are managing through the CapEx cycle and the depreciation over time will hit cost, unit cost. But I think the rest of the cost structure, I mean, we've, obviously dealing with a bit of a reset in the labor cycle. But once we're through that in 2026, I see a lot of positive potential for cost structure in '27, '28, '29. Operator: Your next question comes from the line of Chris Murray with ATB Capital Markets. Chris Murray: Just maybe going back to some of the cost inflation that we're going to see, I guess, in the CASM, as we go into '26. I guess a couple of pieces of this question. So first of all, John, you gave us some great guidance or some color on 2025 and sort of the components that go into that. Can you maybe talk to a little bit about exactly how much is going to be labor? You mentioned depreciation over other costs just so we kind of get a flavor for it. But more importantly, I think as thinking kind of the '27, '28 kind of targets, and we get there, how do we think about that, call it, yield cost spread as you get past this transition here. Is this something that we should start seeing CASM start coming down or flattening out as you get that revenue growth from the new fleet? I'm just trying to make sure I understand how this transition is going to work out. John Di Bert: Yes, fair. So a lot in that question. I'll try to take some pieces of that, and then we'll continue the dialogue as we kind of progress the year. But first, just on the math that we put into the script, if you did the math that you kind of probably get down to, I don't know, 150 basis points of cost growth in the structure once adjusted for the strike, the impact of kind of the labor agreements through '25 and then depreciation so that the residual is, whatever, 150 basis points or so. It should highlight to you sort of the ability to manage the cost structure. We've done a lot of cost mitigation programs. We will continue to see some good cost benefits from the actions we're taking and including productivity. So that's '25. I'd say 2026, by and large, if you did a strike adjusted '25 compared to '26, I think you're up almost 5%. So I'd say 300 basis points of that is between the depreciation and labor component. So put that aside, it leaves about less than 200 basis points of cost growth to the rest our structure. It's not to excuse the 5 percentage, just to give you some color about where it's coming from. I do believe that the labor piece is a reset of the cycle that's going to get by here at '26, early '27. And then from there, I think that the cost structure overall can grow below inflation meaningfully for the next few years as we bring on scale. We should see fuel benefits as well. That's outside of CASM. That should be margin expansionary. So I think, as we look over the next couple of years, meaningfully below inflation would be our target. Operator: Your next question comes from the line of Andrew Didora with Bank of America. Andrew Didora: So John, maybe a few finer points on CASM here. For 2026, I guess, one, can you remind us what you include from a labor perspective? I know there's some groups that you're going to be negotiating with this year. Two, do you assume any sale-leaseback gains in your CASM forecast? And then lastly on CASM, should we assume first quarter is sort of the highest growth quarter on CASM just given kind of storm impact and lower capacity? John Di Bert: Maybe I'll ask you to repeat the last part of your question, and then I'll go on if you could just repeat the last piece. Andrew Didora: Sorry, I was just asking if 1Q should be the highest growth quarter for CASM just given the storm impact. John Di Bert: So for the sale-leasebacks, let's just get that and get it out of the way. So there'd be no gains assumed nothing into our CASM that would reflect any sale-leaseback gains where we have -- we assume that to be neutral. With respect to CASM, typically, Q1 is a bit higher. So we will have a little bit of a higher CASM. But over a full year, I think you'll hold probably the first half of the year, I'd say closer to the 4% or 5% range and then the back end of the year, probably half of that. So that kind of gives you a bit of an average of where we think we'll end up. Andrew Didora: Got it. And then sorry, just labor assumptions in '26 CASM? John Di Bert: Sure. So we've been pretty clear in the past about how we manage that. I think we put our best estimates for labor into our overall cost structure as we go into the year. We don't provide any details. Obviously, we'll work through all of that through the negotiation. And we're looking for, as we always have, to make our employees the best paid in their respective roles within the industry in Canada here, and we'll continue to work and focus on that. Our best estimate for cost is reflected in our guide. Andrew Didora: And just want to quickly ask on the buyback, just the way we've seen it in the filings. It seems much more programmatic again. I guess in a volatile industry, why not be a little bit more opportunistic in the buyback and maybe take advantage of some dislocations out there in the market? John Di Bert: Yes. I mean, we had this conversation earlier. I think last year, we were a little bit more aggressive and we did go out early, and we wanted to do that. We had initiated the program. We had very specific objectives. We then went out with an SIB, and that was a very substantial SIB in the middle of the summer. So again, very directed. I think we have a program now. We're at 307 million shares. We committed to below 300 million fully diluted shares by 2028, well on our way. This program is going to be a tool within that objective. And I think we'll just -- we'll continue to do it as we see best. I won't telegraph anything specific. But right now, it's a little bit more programmatic. In fact, we'll leave it at that. Operator: Your next question comes from the line of Sheila Kahyaoglu with Jefferies. Sheila Kahyaoglu: Maybe I feel like all the CASM questions have been asked, so I'll ask about capacity, LatAm in particular. A lot of new net capacity growth this year seems to be pointed at the Caribbean and South America in spite of geopolitically what's going on there. So it still continues to be a competitive capacity environment at least from some of the U.S. carriers. Can you talk about that element of your network, what you're seeing in terms of volumes and yields, given the volatility? Mark Galardo: Look, it's a very broad geography that comprises each destinations in Mexico and the Caribbean all the way down to South America. So there's a lot to unpack in there. On the South America piece, this is not necessarily a diversion of capacity away from the U.S. This is really to take advantage of really amazing geography we have here in Canada and take advantage of the Sixth Freedom opportunity between Europe and LatAm, and also to on the Canadian demand. So you combine these 2 together with strong cargo demand, it's actually been very favorable in terms of revenue generation. On the Caribbean, of course, we've moved some capacity into the Caribbean and we've seen positive load factor and positive yield nearly in every destination that we fly to there. So the capacity has been very well absorbed. Operator: Your next question comes from the line of Alexander Augimeri with CIBC. Alexander Augimeri: I was hoping you can maybe talk about that EBITDA bridge for 2026 versus 2025. Maybe some of the volume recovery, pricing, cost normalization, how you think about it maybe into early look into 2027 as well? John Di Bert: I think we covered a lot of this in the commentary. I think we're going to see strength on revenue. We'll have capacity growth. I think loads and PRASM will be constructive during the year, and Mark has mentioned that. We've seen that in the first half. With respect to cost structure, it's really going to be pressure from the last reset of our labor units, those that are still 10-year cycles, and so that will put some pressure on the year. And then from there, depreciation will be a bit of a constant for the next couple of years as we grow into the new fleet. Beyond that, some very good cost takeout programs. We've seen another $150 million this year of cost takeout. And then when you look at our guide 335 to 375, and we're between 14% and probably 15.5% margin. So our goal here is to point the airline towards '27, '28, where we do see a lot of strength, both in margin accretion and frankly, another step change in, I think, capacity coming from what we believe is going to be very strong long-range aircraft opportunities. So I think the commentary covers most of this, but we see 2026 as constructive and working through the peak CapEx cycle and maintaining a strong balance sheet and still rewarding our shareholders. Operator: Your next question comes from the line of Atul Maheswari with UBS. Atul Maheswari: I had a question on Canadian domestic capacity. It does appear that some of your domestic competitors are adding pretty meaningful capacity in the front half of this year. The question really is what are you seeing with respect to domestic capacity around competitive capacity trends as we look into the spring and summer? And are there any hubs that are facing more competitive pressure than others? Mark Galardo: Yes, good question. So as we look into the, let's say, call it the spring and the summer, we're seeing roughly about 5% domestic capacity growth. But if you were to segment that down to our 3 hubs of Montreal, Toronto, Vancouver, which is part of our stated strategy, again, I think you'd find that the demand capacity balance is pretty much in our favor. And again, we think it's pretty constructive going into spring and summer. There is a bit of pressure in other cities in Canada, but we have less exposure to those particular cities. Atul Maheswari: Got it. That's helpful. And then just as my follow-up, a very quick one on the Soccer World Cup this year. Do you think that is a net positive or a net negative? And how are you thinking of managing the network during that period? Mark Galardo: To be honest, neither it's net neutral. We don't see any particular trends right now in June that would tell us that this is going to be positive or negative. There are some bookings that have come in from Europe for a couple of the games here in Canada. But on the whole, it's neutral at best. Operator: That concludes our question-and-answer session. I will now turn it back to Amanda Murray for closing comments. Amanda Murray: Thank you very much. Operator: Ladies and gentlemen, that does conclude today's conference call. Thank you for your participation, and you may now disconnect.
Operator: Good morning. Welcome to Trisura Group Limited's Fourth Quarter 2025 Earnings Conference Call. On the call today are David Clare, Chief Executive Officer; and David Scotland, Chief Financial Officer. David Clare will begin by providing a business and strategic update, followed by David Scotland, who will discuss financial results for the period. Following formal comments, lines will be open for analyst questions. I'd like to remind participants that in today's comments, including in responding to questions and in discussing new initiatives related to financial and operating performance, forward-looking statements may be made, including forward-looking statements within the meaning of the applicable Canadian and U.S. securities law. These statements reflect predictions of future events and trends and do not relate to historic events. They are subject to known and unknown risks, and future events and results may differ materially from such statements. For further information on these risks and their potential impacts, please see Trisura's filings with the securities regulators. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions]. Thank you. I'll now turn the call over to David Clare. David Clare: Thank you, operator. Good morning, everyone, and welcome. 2026 marks 20 years since Trisura began operations. Over the past 2 decades, the company has experienced transformational growth while remaining committed to quality underwriting and a customer-focused culture. In 2025, we made significant progress towards our objective of becoming a leading North American specialty insurer as we delivered strong profitability, underpinned by an 85% combined ratio, expanded our footprint across North America and continue to shift our earnings mix towards Primary lines with attractive and durable margins. Consistent execution and compounding of book value per share, which grew 18%, reinforces the confidence we have in our strategy and ability to create value for our partners and shareholders. Primary lines, Surety, Warranty and Corporate Insurance remain the foundation of our business grow net insurance revenue 20% in 2025. Surety was a standout, growing premium of 36% with continued success in our U.S. expansion and strength in Canada. In the U.S., momentum with distribution partners and expanded licensing drove growth with Trisura ranking among the top 30 Surety writers by Q3. Early results highlight our team's strong relationships and disciplined underwriting, supporting the significant opportunity ahead. Warranty grew 17%, driven by deeper relationships with existing partners and improving auto purchasing activity. Corporate Insurance grew premium and delivered a strong 31% loss ratio in a balancing market demonstrating our focus on profitability and underwriting expertise despite shifting market conditions. Continued investment in U.S. Corporate Insurance follows the approach, proven out Surety, expanding in areas we know well and attracting experienced talent or relying on established infrastructure and best practices. While still in early stages, this platform is expected to contribute meaningfully to profitability and scale over time. U.S. programs grew 17% in the quarter and 4% for the year, with an 81% combined ratio, benefiting from a strongly performing portfolio, growth in MGAs, improving Reinsurance capacity in a widely licensed platform with admitted and E&S capabilities. Our scale, permanent capital and diversification increasingly positions Trisura as a preferred long-term partner for strong profitability-focused MGAs. Our investment portfolio performed well in 2025, interest and dividend income of approximately $83 million grew 18%, supported by profitable underwriting and active portfolio management. The portfolio remains conservatively positioned, ready to take advantage of market dislocation should attractive opportunities arise. While Trisura has scaled meaningfully over the past 5 years, we believe the opportunity ahead is significant. We remain committed to the pursuit of profitable growth, increasing the proportion of Primary lines and creating a complementary and diverse high-quality portfolio of programs and Fronting business. Above-average underwriting profitability, combined with enhanced investment income is expected to drive consistent increases in shareholders' equity. Expansion into the U.S. builds on 2 decades of disciplined underwriting experience. As these platforms mature, we expect them to equal or exceed the earnings contribution of the Canadian counterparts. The significance and profitability of our U.S. Surety premium in 2025 supports the attractiveness of our geographic expansion. Increased scale has enabled larger limit Surety bonding in Canada with strategic hires and a broader offering are driving broker engagement and producing a promising submission pipeline. MGA premium continues to grow as a proportion of the U.S. market and Trisura is well positioned to take advantage of this trend. The second half of 2025 demonstrated renewed momentum as Reinsurance capacity returned and we move beyond the impact of non-renewed partnerships. Inorganic growth has been an important part of Trisura's evolution, and we remain well positioned to pursue opportunities should they align with our risk appetite and return thresholds. Our strategic initiatives are well funded with capital at the highest level in our history and significant financial capacity, Trisura is increasingly self-funding. Progress through 2025 reinforces our long-term expectations of premium growth, operating return on equity and book value per share growth in excess of 15% and our confidence in outperforming our previously communicated $1 billion book value target. Our earnings are supported by a diversified mix of underwriting income, fee income and stable investment income. Through growth, we have expanded earnings while maintaining returns on equity in the high teens. We continue to expect stability and durability in our earnings profile. We remain committed to the principles that have guided Trisura to success and strategic focus on specialty insurance, supported by structural tailwinds, disciplined profitable underwriting, consistent support for our partners and a prudent approach to growth, risk appetite and Reinsurance structuring. Market volatility will create opportunities to win business and strengthen our reputation. With the strongest capital based in our history and a platform that continues to scale, we are optimistic for the years ahead. With that, I'd like to turn it over to David Scotland for a detailed review of financial results. David Scotland: Thanks, David. I'll now provide to walk-through our financial results for the quarter. Operating earnings per share, which reflects core performance from the business, was $0.75 for the quarter. This drove a modest increase in full year operating EPS of $2.85 and contributed to operating return on equity of 17%, which exceeded our mid-teens target. Gross premiums written was $786 million for the quarter, a 10% increase year-over-year, reflecting continued disciplined growth across the portfolio. U.S. programs maintained its growth in the quarter, posting a 17% increase in gross premiums written and Surety grew strongly at 36% for the quarter, but we expect that pace to normalize going forward. Net insurance revenue, which approximate net premiums earned was $200 million for the quarter, reflecting growth of 11.8% over the prior year. Growth was driven by continued expansion in our Primary lines, which increased by 15%. The combined ratio for the group was 85% in the quarter, which was higher than the prior year. The loss ratio in the quarter was slightly larger as a result of a higher loss ratio at Trisura Specialty that was in the range of expectation and compared against a particularly low loss ratio in 2024. The expense ratio was higher as a result of higher contingent profit commissions at Trisura specialty as well as a more normalized expense ratio at U.S. programs. At 85% for the quarter and 84.9% for the full year, these combined ratios demonstrate our disciplined underwriting focus and are supportive of our mid-teens operating ROE objective. Underwriting income for the quarter was lower than the prior year as a result of a slightly higher combined ratio offset by growth in the business. Net investment income was $21.5 million, increased by 25% in the quarter as a result of an increase in the size of the investment portfolio, driven by new cash deployment. Our operating effective tax rate was 24.7% for the quarter, reflecting the composition of taxable income between Canada and the U.S. and consistent with previous quarters. Overall, operating net income was $36.5 million for the quarter, reflecting consistently profitable underwriting and growing net investment income. Nonoperating results in the quarter and year-to-date period reflected primarily net gains associated with unrealized gains on the investment portfolio. Exited lines had an immaterial impact to net income in the quarter. Strong earnings per share contributed to an 18% increase in book value for the year-to-date period, resulting in a book value per share of $19.42 at December 31, 2025. This was partly offset for the year-to-date period by FX movement associated with a weakening Canadian dollar against -- a weakening U.S. dollar against the Canadian currency. Book value has grown at an average rate of 26% for the last 5 years, ending the year with over $920 million. We are well on track to achieve our book value target of $1 billion by the end of 2027. Earlier this year, we drew down on our revolving credit facility to further capitalize our growing U.S. Surety balance sheet. This increased our debt-to-capital ratio to 12.7% at December 31, 2025, which was higher than December 31, 2024, but still well under our conservative leverage target of 25%. The company remains well capitalized, and we expect to have sufficient capital to meet our regulatory capital requirements and to continue to support our robust organic growth. As we enter 2026, our diversified specialty platform, disciplined underwriting approach and strong capital position provide a solid foundation for continued profitable growth. David, I'll now turn things back over to you. David Clare: Thank you, David. Operator, we will now take questions. Operator: [Operator Instructions]. And our first question comes from Doug Young with Desjardins Capital Markets. Doug Young: Just want to get an update on a few items within the Surety business. So maybe I'll just kind of tick them off as we go. But I guess the first is you've been moving upmarket in Canada. I think you brought a group in about a year ago. Just -- and in Canada, are you seeing at all a pickup in quote activity. David Clare: So Doug, on that Surety piece and the larger limit bonding initiative, we are seeing certainly towards the end of the year, some benefit of that, really manifesting at this stage and some increased submission activity. It's been encouraging. And I think we've started to see some of that activity translate into some early wins, but the best is yet to come in that practice. Doug Young: Okay. And then expansion into the U.S. and -- sorry, I don't know if I got the number right. You said, I think you're now a top 30 Surety writer in the U.S. And so I think that's where, you can correct me if I'm wrong, but just maybe an update on how that expansion in the U.S. is going? And do you need to move more capital into the U.S. to support the growth? David Clare: I think the expansion has been going well. This is now -- we're in 5 years into this project of building out a practice in the U.S. and breaching that top 30 has been a nice metric for us to achieve. There is still some infrastructure buildout that we're excited to achieve that will help us continue to build that. That's separate from the capital piece, Doug. So what we're doing right now is balancing the build-out of the platform, the offices or people with the licenses and the capital that will underpin this overall infrastructure. So I would expect as we continue to get some of these final licenses in the U.S., you'll likely see us in time drop a bit more capital down into that entity. It's worth noting that capital is capital that we have internally already earmarked for this expansion. So you shouldn't expect any material change in the approach. Doug Young: Okay. And then just lastly, as we see in the Surety business, like how do we think about the loss ratio evolving with the mix shift as you're going upmarket as you grow in more in the U.S. is it around that 20%? Should that evolve higher or lower as we see this evolve? David Clare: Yes. Depending on the mix, you could see this. I think usually, we think about this as 20% to 21% over the long term. You kind see this go 20% to 22%, but nothing material in terms of a change. Doug Young: Okay. And then just a few other items. Just you mentioned a few items in the Warranty, but the Warranty has been a pretty good growing business. It's a very attractive business from what I can see. Just wanted to dig into what you're seeing that's driving the growth a little bit more granularity there. And now this business used to contribute, I think, the underwriting profit was in the high single digits. It's now in the low double digits. I mean, is there room for this to be like a 15%, 20% contributor to underwriting profit for Trisura just hoping to get some color. David Clare: Yes. I think the Warranty business has been a great story for us, not only this year but for the last couple of years. The team has done a really good job leaning in with our partners. And our partners have done a great job at extending their businesses. So we should acknowledge the strength of that practice this year. I think there is still opportunity in the Warranty practice, we think next year, it's something that can continue to grow in that -- growing in that mid-teens level, and I think that would imply increasing contribution to underwriting income. Our position in the Warranty space is still relatively small. And so in Canada, I think there's room for us to keep finding both expansion opportunities with our existing partners and new partners to build the business. So it is an area we're excited about and focused on continuing to grow. Doug Young: Okay. And that takes me to my next question. It's just you have capital to grow organically, you've got some debt capacity. Can you just refresh us on your interest from an acquisition perspective? Because Warranty is a very fragmented market. There has been some transactions there. Were us, like would you be interested in that market? What other markets would you be interested potentially inorganically growing? And are you seeing more conversations happen in this current market around potential deals? David Clare: Yes. So the first thing I'd say, Doug, is our priority, as you've noted, is organic growth and we do have quite a bit of opportunities in that space. To the extent we find opportunities inorganically that align with our risk appetite and our focus, we very actively look at those. That would include things in the Warranty space. I think the U.S. is an interesting market for us if ever something was to appear that could be attractive to help us build that practice. But I do note organic growth is our first priority. And you've seen us in the past, execute on inorganic opportunities creatively. So things like book rollovers license acquisitions to add to the platform. I think as we get larger, the opportunities for us to staple on initiatives that scale the platform, we will always be looking at those. Doug Young: And when you say in the U.S., you're talking Primary lines, I would assume? David Clare: Yes. It's tough to find specialty lines businesses that are transactable and digestible for us. But if we found one in the Primary lines space, we would be very interested in it. Doug Young: And then just lastly, you did release your reserve triangle. Maybe I'll just throw it open. Like what's the key message and there was positive developments and thoughts on how we should think about reserve developments as we're thinking through 2026? David Clare: Yes. I think we've got a long history, especially in the Canadian entity that we can track on a reserving basis. I think we talked a lot last year about the expectations around our U.S. practice improving. So worth noting this year on a consolidated basis, there's favorable development of our reserves, which we think demonstrates a lot of the strength of the platform. That expectation is certainly our goal going forward on a consolidated basis, and we very much focus on our reserving practice and businesses that we think can achieve that. Operator: Our next question comes from Jeff Fenwick with ATB Cormark Capital Markets. Jeffrey Fenwick: Just -- I wanted to start my questions off with the subject of AI. I know it's topical for many firms these days. And Dave, I was just hoping maybe you could provide us a bit of color or context around maybe even more broadly on the technology front, how well you feel Trisura is positioned? Or are there areas here that you're thinking about investing into? And I know a number of your peer companies call this out as a strategic advantage. So maybe just some thoughts there you could offer up for us. David Clare: Yes. I think if we take a step back, today, things are moving very, very quickly in this space. And I think it's incumbent on all companies, including insurance companies to be armed and prepared to navigate this. We certainly think that there are opportunities for the industry and for us to improve operations or consider opportunities to evaluate these technologies. I think we have to be pragmatic that we're in a regulated industry that's highly complex. And so the most immediate benefits we expect to see from these types of initiatives are around those operational efficiencies. Frequency lines likely are going to benefit first from this. And so you've likely heard some competitors talk a lot about this around underwriting in the frequency line space or operations in those more typical commoditized lines. That doesn't mean that companies like ours in the specialty space can't benefit from this, and we are very actively evaluating ways that we can look at this, although I wouldn't say that we would highlight anything just yet. That's moving the needle economically. So it's an exciting time. Jeff, it's a time when a lot of people are testing out a lot of new things in the industry, and we have a lot of appetite to participate in that process. Jeffrey Fenwick: And then on a different topic here, just -- I know one of the priorities had been to expand Trisura's presence in the broker channel. Over the last couple of years, really, and I know you've called that out as a benefit for growth. What's the outlook there now? We're seeing obviously some continued consolidation in the space. Just wondering if that maybe creates more opportunities or challenges and where you stand in terms of building that broker network. David Clare: Yes. On the second point, given our increased scale and size. The broker consolidation, we hope, is something we can navigate fairly calmly in some cases, it actually helps us as we consolidate business with brokers we've got bigger relationships with. So that's a nuance in the market that impacts sure probably differently today than it did 10 years ago. I think what you're likely referencing is the opportunity for us to increase wallet share with larger brokers. We tend to do a lot of business with some of the regional or specialized brokers. And I think we're starting to get some opportunity to transact more with some of those larger national broker groups. I will say there's still a lot of opportunity ahead there. So we've got a great set of broker partners and distribution partners in our current space. I think we're keen now as a North American player to expand those relationships on a broader geographic basis, and as we move up market in some of these lines start to build relationships with some of those larger brokerage houses on a more substantial basis. Operator: Our next question comes from Tom MacKinnon with BMO Capital. Tom MacKinnon: Question with respect to really outlook in terms of combined ratio and growth for like Surety and Corporate and Warranty, as well as some of the U.S. programs. You did say you expect Surety to normalize, certainly can't grow at the 36% rate going out. But if you can give us what you think would be a reasonable medium-term outlook for both top line growth as well as combined ratio in those 4 segments, Surety, Corporate, Warranty and U.S. programs, that would be great. David Clare: Thanks, Tom. I think at a high level, if you think about Trisura specialty, which includes Surety Warranty, Corporate Insurance and Canadian Fronting. That group should be writing or should be growing at about a mid-teens level in the top line next year. There's going to be some that are a little faster, some that are a little slower than that. But overall, that group, we think comes out at about the mid-teens level. That combined ratio, we think, is anywhere between 86%, 87%. And so pretty consistent mid-teen or mid-80s combined mid-teens growth on that business for the next year. U.S. programs or target for next year or our expectation for next year is likely mid- to high single-digit growth in the top line. And I think that low 80s combined ratio is what you saw this year and that's what we would expect next year. Tom MacKinnon: Okay. And anything with respect to net investment income as long as the premium growth keeps coming in, I mean, 25% growth year-over-year, it's at least in the fourth quarter, how should we be thinking about net investment income? David Clare: Yes. A great proxy for net investment income, Tom, is if you take a look at the rate of growth in net premiums earned. This is a great way to see as a preview, the capital that's available to be shifted into the investment portfolio. So what you've seen this year is the majority of our growth proportionately has been in those lines with higher retention. So those lines of higher net premium earned growth are feeding into that investment portfolio. I would say for next year, that trend is of net premium earned gross feed into the investment portfolio. That's a great proxy for you to model the growth of that entity. We are working in this environment to make sure we're defending yields. So reinvestment yields in book yields are getting closer than they used to be, but we still think it's a good environment to be deploying. Operator: Our next question comes from Bart Dziarski with RBC Capital Markets. Bart Dziarski: David, I wanted to ask, in your shareholder letter, you talked about the investment portfolio being well positioned to take advantage of market dislocation. And we're definitely seeing a market dislocation now. And so I wanted to just unpack how you're planning to kind of take advantage of that. David Clare: Yes. I think we've got a really interesting opportunity in the investment portfolio, Bart. We are historically, and I think going forward, expecting to be very conservatively positioned. This is a capital preservation and yield-focused portfolio. But as the market moves around, there's always opportunities to optimize that allocation or that positioning. So when we see opportunities or dislocations in the investment-grade market, it allows us to either high grade or optimize the yield on the portfolio by shifting around the margins of duration and credit. We've also got a historically low allocation to equities. And so again, if you normalize or consider any changes in equity allocations. Those types of environments make it very attractive to be considering it. And the positioning and posture that we have today gives us a lot of dry powder to capture these opportunities around the margin side. I do want to highlight, we don't think that the moves here will be dramatic. But given our positioning, our posture, our capital strength, the portfolio has been very, very strong in its performance, and it set us up on a really great platform to launch from into 2026. Bart Dziarski: Great. And then follow-up would be, in your prepared remarks, you talked about strategic hires and a broader offering, I think that was regarding Surety, but let me know if I missed that. But just wanted to sort of dive into that, what are some of the initiatives on the ground in terms of these hires and broader offerings? And how could that impact the growth outlook? David Clare: Yes. It actually -- I'm referring to a couple of things there, Bart. We do talk about bringing on some new talent as we move upmarket in a Surety practice, but we should also acknowledge we're building a de novo practice in a new market in U.S. Corporate Insurance and U.S. Surety. So there's a lot of hiring activity that goes on there and then plugs into our established infrastructure. So those types of capabilities, experience, relationships -- it's just nice to see treasure being able to attract the high-quality people that have been joining the entity over the last couple of quarters. That type of initiative, our ability to bring on those people is really going to inform the next 3, 5, 10 years of us building these practices. And these types of investments that we make today, we're really excited about seeing what they can do in the next few years. Operator: Our next question comes from Tomer Levitin with Raymond James. Tomer Levitin: I'm just filling in for Steve Boland at Raymond James here. But my first question is just on the admitted lines as a percentage of gross premium rating in the U.S. That seems to have gone up. And I was just wondering how the dynamics there. Was that an intentional push or just kind of a reaction to market dynamics at play. So just what's your outlook there? David Clare: I wouldn't say this is intentional or reactionary, Tomer, I would say this is more a function of maturity of some existing admitted lines programs that we've been writing now for a few years. So admitted tends to take a bit longer to build up. But once it builds, it's a very sticky, sustainable business. And we've just seen over a number of years now with established partners, the proportion of admitted premium has just continued to grow. I would say our outlook is that, that remains pretty consistent over the next year. I think we have about 1/3 of our premium in the U.S. program space is admitted right now. We still see the majority of our submission activity in the E&S space. And given the opportunity, complexity and partners that we work with, I would assume that, that majority E&S submission activity continues to stand. But it's nice to see the admitted platform is something we invested in and build starting probably in 2019. So it's been a long build process. But the platform today is very widely licensed and able to provide solutions across both admitted and E&S markets, which gives us a great position in this market. Tomer Levitin: Appreciate the color. And then just my last question here. we saw some softening in Canadian Fronting and you mentioned some softening in specific Corporate Insurance segments or lines of businesses. So just kind of what's the outlook there? Do you see that continuing or potentially improving in the back end of fiscal year '26? David Clare: Yes. I would say we do continue to expect a competitive market in the Canadian funding space. I think that, that line will likely be on a premium basis, flat to down a few points next year. That being said, the top line there, we view as less relevant as a net underwriting income, and we've seen pretty consistent and sustained profitability out of that platform despite some moves up and down in the top line. Corporate Insurance, as you've noted, it's a balancing market. We've seen some softening in certain lines. I think we expect this next year, it continues to balance in certain lines. We expect some lines will be a bit more constructive this year. But overall, I think if that trend will continue. That doesn't mean that we don't think we can grow in the Corporate Insurance space, and we've been doing a lot of work with our distribution partners and with our team to originate opportunities as well as building out our U.S. Corporate Insurance function. So despite those prevailing markets, we do still think we've got a differentiated ability to grow that platform. Operator: [Operator Instructions]. Our next question comes from Jaeme Gloyn with National Bank. Jaeme Gloyn: First question on the U.S. programs business good to see a couple of quarters in a row here of high teens growth. Can you break down what's driving that growth? Is there the breakdown between new relationships between price increases, maybe it's all entirely existing relationships? So maybe talk through some of that. David Clare: I would say the majority, Jaeme, is expansion or maturity of existing relationships. But what we did see differently in Q3 and Q4 is as a result of a support of a more constructive Reinsurance market. we did launch a few new programs that started to get traction into the latter half of the year. You are seeing some benefit of that in the premium growth figures that you've seen in Q3 and Q4. So the U.S. program space from a rate perspective, I would say the property space is gaining more capacity. So we've seen rates in both the Reinsurance space and marginally in the Primary space. decreasing a little bit. However, for us, the Reinsurance availability and the quality of partners there has been a real improvement over the last couple of years, which gives us confidence to lead into the space. Casualty is still fairly firm on the front lines in the Primary lines space. Casualty rates, I would still firm to rising. And I would say the Reinsurance terms, Reinsurance partners that we have are consistent in that space. So it's -- it's been a nice year. It's been a consistent year in that business. And what's interesting to watch is that the Reinsurance market continues to unlock. There may be more opportunities in that space. Jaeme Gloyn: Yes. Great. Shifting to the Canadian front end. Obviously, another challenging quarter here. Can you give us a bit more detail in terms of how you're feeling for next year? Obviously, still down a little bit. I think you were saying. But what gives you that confidence that we -- the declines we've seen in 2025 are not repeated in 2026. Is there a levelly note? Is there -- a just comfort with the relationships you have? What gives you that confidence? David Clare: Yes. I think we're always doing work, James, to figure out what the portfolio is doing. The declines that we saw through 2025 were not a surprise given the state of the market, but we do see, I think, some expectations for those more dramatic declines to level out next year. Part of that is just looking at the portfolio of partners that we have, part of that is looking at the lines of business and the markets that we're in. So it's a mix and it's partly an exercise that we do with our partners for what they expect to see in the market for the next year or so. So I would say, I think it's fair as you pointed out, to expect continued reductions in the top line. But I would say your comment that it was fairly weak, I would push back on underwriting income here is what we care about and the underwriting income sustainability or durability has been relatively stable here. And I think that's a factor or at least an item to make sure we're acknowledging is that as top line moves around, as long as we've got your visibility to continued contribution from an underwriting income perspective, it's a practice we continue to enjoy. Jaeme Gloyn: So just to dig into that last point around the underwriting income. I think it's important as well, flat in 2025 versus '24, is that the view in 2026 that we should expect flat underwriting income, and that would be driven by lower combined ratios than perhaps what we've seen in the last couple of years. Is it like a cost savings? Is it a scale benefit? Like how would you sustain stable underwriting income in a lower gross premiums written environment? David Clare: Yes. What we saw this year is a bit better loss ratio. So most of this is going to be a function of how the portfolio performs on a loss ratio perspective, which is what sustain the underwriting income this year. I think you're right to point out, listen, if premium declines, eventually, there's an impact on underwriting income. And that's a fair comment. And I think one that we acknowledge in the context of whatever loss ratio we achieved. So it's our expectation, certainly, if premium declines eventually underwriting income declines, depending on what you achieved from a loss ratio perspective. So there's lots of opportunities in the Fronting space. I mean we have partners being evaluated all the time. This is a space that tends to be chunky. And so what can happen is all of a sudden a partner can come on midyear and change the structure of the business. And it's tough to predict that at this stage, but it's an opportunity in a practice that can navigate market sometimes in a surprising way. Jaeme Gloyn: Yes. Yes. Okay. And do you -- like in the U.S., we're seeing the Reinsurance capacity increase globally and that's helping to drive a bit of a return to growth in U.S. programs, like why or are you seeing similar dynamics in Canada? Or why is it different and you're not seeing that Reinsurance capacity flow? David Clare: Yes. The drivers of U.S. programs in Canadian Fronting are a little bit different. So the markets here that we talked about in Canada in terms of competition and a bit of softness in the space. it's really a different driver than what we're talking about in the U.S. from a Reinsurance capacity perspective. So when we talk about the U.S. program space at MGA market being more supportive by the Reinsurance space. There's an ability here for these MGAs to continue growing or continue launching or bringing on new programs as Reinsurance appetite unlocks. So as capacity increases in the Reinsurance market, and people are looking for areas to grow or for partners to grow with. This space in our practice becomes very attractive for that group. The Canadian space, the Canadian Fronting space is a bit different. This is really a function of foreign partner interest and ability to grow in the Canadian market. And as that Canadian space has gotten more competitive more partners, more people have entered that space. And so the nuances of capacity exist in both markets, but the execution and the evolution of those markets can be a bit different. Operator: Thank you. I would now like to turn the call back over to David Clare for any closing remarks. David Clare: Thank you very much. I thank everyone for joining today. And as always, if you have any more questions, don't hesitate to reach out. We're looking forward to continuing to work with everyone in 2026. Thank you. Operator: Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.
Operator: Good morning, and thank you for standing by. Welcome to the Flowers Foods, Inc. Fourth Quarter and Full Year 2025 Results Conference Call. Please be advised that today's event is being recorded. I would now like to hand the conference over to your opening speaker today, J.T. Rieck, Executive Vice President of Finance and Investor Relations. Please go ahead. Thank you, Tonya, and good morning, everyone. J.T. Rieck: I hope everyone had the opportunity to review our earnings release, listen to our prepared remarks, and view the slide presentation that were all posted earlier on our Investor Relations website. After today's Q&A session, we will also post an audio replay of this call. Please note that in this Q&A session, we may make forward-looking statements about the company's performance. Although we believe these statements to be reasonable, they are subject to risks and uncertainties that could cause actual results to differ materially. In addition to what you hear in these remarks, important factors relating to Flowers Foods, Inc.’s business are fully detailed in our SEC filings. We also provide non-GAAP financial measures for which disclosure and reconciliations are provided in the earnings release and at the end of the slide presentation on our website. Joining me today are Ryals McMullian, Chairman and CEO, and Anthony Scaglione, our CFO. Ryals, I will turn it over to you. Okay. Thanks, JT. Good morning, everybody. Welcome to the fourth quarter call. I am pleased with the progress that we are making to transform our business. Led by the strong performance of our leading brands and disciplined execution of efficiency initiatives, we produced results at the high end of our 2025 guidance range. Now as we look to 2026, our guidance does reflect ongoing category challenges, one fewer week, inflationary pressures, but also additional investments in our leading brands. In response to the headwinds that we are facing, we are conducting a comprehensive review of our operations, including our brand portfolio, supply chain, and financial strategy, to strengthen execution and position our business to reignite top line growth and expand margins over time. I want to thank our dedicated Flowers team for their hard work and resilience during this period of change, and our shareholders for their ongoing support. We remain focused on navigating near-term challenges while also laying the foundation for sustainable long-term growth. And with that, Tanya, we are ready for questions. Operator: Certainly. As a reminder, to ask a question, please press 11 on your telephone and wait for your name to be announced. We will now open for questions. Our first question will be coming from the line of Steve Powers of Deutsche Bank. Your line is open. Steve Powers: Thanks for taking my question. Great. So Ryals and Anthony, you both spoke to the comprehensive review that you have begun on brands and operations, etc. I guess maybe just if you could, and I know Anthony talked about it being the first inning of that process, but maybe talk a little bit more about how you scoped that exercise, what the project plan is, kind of what things are in or out of consideration? Just any more meat on those bones would be helpful. Anthony, if you have any estimate of how long the game lasts, that also would be helpful. Ryals McMullian: Sure, Steve. I will start and let Anthony fill in. And I certainly will provide more details on this. We are in the early innings of the review. But at a high level, we are conducting a complete review of our brand portfolio, the manner and magnitude with which we are supporting that brand portfolio. We are evaluating other areas that are in additional need of investment. I think we are all aware that, by and large, the portfolio is performing very well across cake and our innovative platform and premium. The real issue for us is traditional loaf where we under-index, and that has been underperforming the category, and that has downstream effects in terms of operating deleverage, etc. So one of the key focus areas, Steve, is how do we reinvigorate Nature’s Own. Reigniting growth of that brand, generating demand for that brand is going to be a key focus area for us. In addition, taking a look at supply chain, inclusive of the distribution network, to ensure that we are squeezing as much efficiency out of our operations as possible is another key area of focus. So as we move through the year, we will continue to provide you all more and more detail as we go through the year. We are just in the early stretches right now. Yeah. And I would just add, I would characterize the review as a measured approach, working with Ryals and the rest of the management team on the evaluation around the portfolio, where it makes sense to invest, and this really leads to the CapEx conversation as well, where we are going to make those investments. It is a thoughtful and broad review. It is really not intended to be just for this year, but it is a multiyear process. I do not know when we are going to get to the top of the seventh, but we will continue to make progress and provide that update along the way. Steve Powers: Okay. Great. And I guess as part of that, Anthony, you spoke in the prepared remarks about the overview of capital allocation, and some of that will be your review of the capital expenditures that you just spoke to. But maybe if you could speak a little bit more broadly to capital allocation. We have spoken on this call in general about the dividend run rate of Flowers, and obviously, cash flow has exceeded GAAP income, but at the same time, the call for 2026 EPS is obviously below the dividend commitment. So just how you are thinking about capital allocation more broadly inclusive of that dividend. Thank you. Ryals McMullian: I appreciate the question. It is a great question. And we understand that the dividend is top of mind for investors, and our focus has always been driving shareholder value. And we want to convey the importance that we place on the evaluation of our capital structure and our capital allocation, and that is obviously a conversation we have with our Board. I think we need to make progress on the overall strategic evaluation to determine if, what, and how much we alter that capital allocation and direction. But I would also like to say we remain committed, and think we mentioned this in the prepared remarks as well, to our strong balance sheet, and we recognize the benefits of the investment grade rating. Steve Powers: Very good. Thanks. I will pass it on. Thank you. Ryals McMullian: Thanks, Steve. Operator: And our next question will be coming from Jim Salera of Stephens. Your line is open. Jim Salera: Hey, Ryals. Hey, Anthony. Good morning. Thanks for taking our question. Hey, Ryals, I was hoping you could offer us just kind of a high-level thought given your experience in the industry. What do you think the industry, both yourselves and other prominent players, can do to really stabilize this kind of traditional loaf piece of the category? Often in your remarks, you call out the pockets of growth for DKB and a lot of the specialized offerings that you have. But it seems like the traditional loaf is kind of the thorn in the side, and it has been that way for quarter after quarter. Is there a point where the marginal household is just finally washed out of the category, we can get to a stabilization point? Or do you see the frequency of consumption even for households that stay in the category continue to decline? Can you try to size up what we should be looking for to kind of get a glide path back to some semblance of flat to then hopefully positive in the future? Ryals McMullian: Yes. Great question, Jim. And as I said, that is the key to everything for us, really, because we do have so much strength in the other parts of the portfolio where we have heavily invested. We have been extremely innovative in those other parts of the portfolio. We have talked a lot about not only the shift to value in this most recent conversation about affordability, but also the shift to premium differentiated, and we have been a key player there and our efforts have certainly paid. You can see that in the numbers and in the share data. You are absolutely right. Traditional loaf is the key for us. It is our largest brand in Nature’s Own. It is also the number one brand. I think that soft variety will continue, or traditional loaf rather, will continue to be an important part of the category. But if the trends that we see continue, whether that is a shift to premium, whether it is a shift to value inclusive of small loaves, because I do think a portion of the current value play, if you will, is driven by macroeconomic factors that we see all the time in the bread category. I think the difference now whereas traditionally you would have seen a shift to private label, you are seeing a shift to lower-priced branded offerings that are priced at parity or slightly above private label, and in the same environment, private label is down. So it is different this time around. But I think that the pure value play is cyclical. I think small loaves, however, offer something different. Not only is it value, it certainly addresses that area of the market, but it is also demographic shifts, Jim. Smaller households, people getting married later, a desire not to waste product, in addition to in the current environment, it being more of a value offering. So my point in saying all this is over time, I do think you are going to see the shelf evolve and change overall. And so it is very important for us to be prepared to shift with that. And we believe there are things that we can do with Nature’s Own, given its high loyalty rate, given its awareness, given that it is the number one brand, to bring additional attributes to consumers that they will value. So I do think that there is a path there. And we are excited about the changes that we have upcoming for that segment of the portfolio. If we are successful in doing that, Jim, that goes a long way to getting us back at least to a stable state in traditional loaf, which will be very meaningful for the business, if not slight growth, and recapture some of that operating deleverage. Also important, though, to say at the same time, as Anthony and I both noted, our supply chain review is involved in this too. So it is important to do both, to both address the demand for traditional loaf primarily but also address our fixed cost base and ensure that we are operating as efficiently as possible. Jim Salera: Thank you. I appreciate all the detail on that. Maybe tying that to 2026, we just think about the kind of interplay between the ramp in Simple Mills and then the legacy portfolio. Can you just give us a sense on the cadence on the top line? I mean, obviously, 4Q has the 53rd week lap, but just should we expect a lot of the Simple Mills to kind of hit at the beginning of the year? Is it more of a gradual rollout, just kind of the cadence of the top line growth as we roll through the year? Ryals McMullian: Yes. So if you think about the guide, the range is down roughly about 180 basis points to slightly up, effectively flat. And from that, we said the category, we expect the category to be down 4% from a headwind, which is anyone’s guess at this point. But we felt taking a rational approach and conservative approach, looking at that from that lens. The extra week adds about 150 basis points of pressure. And then the rest is going to be a combination of the Simple Mills ramp and the growth being from share and rate as we plan out the year. Okay. Thanks, Jim. Operator: And our next question will be coming from Max Gumport of BNP Paribas. Your line is open. Max Andrew Gumport: Hey, thanks for the question. I wanted to come back to the dividend and just get more clarity on why not cut the dividend today. With your payout ratio going to well above 100% of your guidance for EPS, your leverage being in a difficult place. It looks like your current net debt represents anywhere from 3.5 to 3.75 times your outlook for EBITDA this year, which puts you at risk of tripping your 3.75 times covenant. And then, clearly, you are in a difficult place right now in determining how to finance the business going forward as you have come to the market with your outlook for 2026, but with no CapEx plans for the year. So would it not have been simpler just to cut the dividend now and get back to focusing on operations? Just looking for more clarity there. Ryals McMullian: Very much. Thank you. I will take it and then pass it to Ryals. I think the team has stated this before. Dividend is a function of our discussion clearly with our Board, our capital structure, overall allocations. And we recognize the need to address that holistically in light of both our strategy and overall capital structure, and our intent is to plan to provide that detail in the upcoming quarters. But I want to reiterate what Ryals just said. We are in the early days of this comprehensive review. I cannot necessarily discuss the dividend in detail at this point, but it is something that we are reviewing in light of our capital structure, in light of the bank covenant. What I would say, we are in compliance with all the covenants, and we have a strong relationship with our syndicates, and we expect to refinance the upcoming maturity and also make some progress on debt pay down. So it is part of our overall review, and hopefully, that is helpful. Max Andrew Gumport: Great. And then as a follow-up, I am just looking for a bit more clarity on a few factors with regards to what is embedded in your outlook for 2026. So, really, it is on four factors, so I apologize for the long question. But the first is what are you factoring in with regards to the reduced SNAP budgets this year? The second is what potential impacts are you assuming from the Supreme Court case you have in March? The third would be on that debt refinancing, the $400 million in October that is coming due, are you assuming a refinancing at higher rates occurs in your outlook for 2026? And then the fourth would just be it seems like your guidance is embedding very large market share gains. So you are saying the category is down 4%, but it sounds like organic is closer to just below flat. So just what is behind that large market share gain assumption? Apologies for the long question, but thanks very much. Ryals McMullian: So I will start with the SNAP, and we recognize the reduction in EBT purchases and the pressure on the lower income households, which is why I think our diverse portfolio of brands and products are structured to appeal at all household demographics. We do not break that out specifically, but we are monitoring well that channel, ensuring that we are providing value at those price points. Max Andrew Gumport: The Supreme Court. Ryals McMullian: I wanted to talk about the other question. So the debt refi, as I mentioned, we are working with our syndicates as well as looking at the most efficient way to refinance. We are highly confident that that refinancing work would occur. Obviously, rates are going to be slightly higher than the rate of the bond that we are taking out. But we feel confident that is going to be part of our process as we look at the overall capital structure going forward. And then the last two questions were the market share gain. Could you repeat that question? Yeah. I will take that one anyway on the market share gains. Max, if you are still listening, as we have talked about, we anticipate making incremental investments in our brands. Also, innovation that we have coming forth across the portfolio inclusive of Simple Mills having a record year for innovation, introducing 13 new items. The DKB snack brands coming forth with new items. And then obviously further innovation in the core. We also have our increased marketing investment that we are making this year. So all of those would give us confidence that we can continue to gain share in the marketplace. As for the Supreme Court ruling, there is nothing embedded in guidance. So I do not think we would—that is more of an operating issue. We would not expect any material financial impact from a decision one way or the other. Operator: And our next question will be coming from Mitchell Pinheiro of Sturdivant & Co. Your line is open. Mitchell Brad Pinheiro: Hey, good morning. Ryals McMullian: Good morning. Mitchell Brad Pinheiro: Hey. So as it relates to the supply chain review, as you look at the traditional loaf market, and, obviously, that is getting a little smaller. Should we anticipate perhaps some either bakery consolidation or is that part of the review? Ryals McMullian: Yeah. That is part of the review, but I would say that is an ongoing process. You are aware, we have closed several bakeries over the last few years, most recently a bakery in Atlanta, one in Louisiana, one out in Arizona. So this has been sort of normal course for us as we continually review operations. I think when we talk about supply chain reinvention in terms of this review, it is a bit more global in terms of how can we better leverage digital, AI, automation, in addition to network optimization. So it is more fully encompassing and looking at the whole picture and inclusive of the distribution network as well, how we get to market, where we place our DCs, etc. Mitchell Brad Pinheiro: Okay. And you know, I saw that you are moving your DSD, you know, the P&L responsibility to a regional—back to the regional level. And this, you know, obviously, is a return, I guess, to the past a little bit. Is that—where do you see and how do you see that benefiting Flowers going forward? Ryals McMullian: Yeah. So it is not merely a return to the past. I mean, maybe as you said, a little bit. But as we took a look at our operations and how we are operating our business, there are regional differences in terms of consumer preferences, things like that. We also felt that there was a need for greater accountability closer to the individual markets. And by moving—and this is for DSD, which is 85% of the business, does not really apply to the balance of the business—but for DSD, you know, have that higher degree of P&L accountability a bit closer to the market, and in some cases having more local decisions, we thought was a prudent move to make in the current environment we are operating. Obviously, this is a very challenging time for the company and for the industry, and so making sure we have accountability in the right place, the right people in the right place, is of paramount importance. Mitchell Brad Pinheiro: Okay. And then I guess just last question. Does optimizing your brand portfolio—does that mean potentially selling brands? Ryals McMullian: I mean, we are looking at everything. I certainly cannot comment specifically on any contemplated divestitures, but it really is focused on optimizing the portfolio in a way that sets us up best for success. So, yeah, that can mean anything from additional investment in brands to rationalization to, yes, potential divestitures, but there is nothing concrete on the table at the moment. Mitchell Brad Pinheiro: Okay. Alright. Thank you. Ryals McMullian: Thanks, Mitch. Thank you. Operator: And as a reminder, if you would like to ask a question, please press 11 on your phone. Our next question is a follow-up from Max Gumport of BNP Paribas. Your line is open. Max Andrew Gumport: Thanks. Just a couple housekeeping ones. So first would be, is there a level of maintenance CapEx you could speak to just as we are thinking through our models and the lowest level of CapEx we could potentially be putting in the model for 2026? Ryals McMullian: Yeah. Yeah. Yeah. Let me qualify that. So maintenance CapEx for us is just, as you can imagine, the normalized CapEx that we look at across our bakery and real estate network, and that usually runs around $2,000,000 plus or minus per bakery per year. And then looking at that from a historical, you know, there is always going to be a special project or an initiative that is going to require CapEx, and clearly, we have the rest of the ERP project that we need to complete in 2026 and 2027. So that hopefully gives you a little bit of a range of looking at it from the overall picture. There is an amount that we intend to deploy as part of that maintenance. It is really looking at that growth CapEx and really focusing our efforts and being laser-focused on that, and that is what is inhibiting us at this point from providing that range. But as I mentioned in my prepared remarks, most likely, that outcome is going to be the continued prudent approach that we have had in the past. Max Andrew Gumport: Great. And then on the $0.08 impact to EPS from incentive compensation, any color on the cadence in which that wind-down occurred in 2025? I imagine that a large chunk came in 4Q, but partly came in 2Q and 3Q as well. So any more explicit help on cadence you could give us with regard to the $0.08? Ryals McMullian: Yeah. We actually adjust our accrual quarterly. And most of that adjustment occurred in the first three quarters of last year, just given the revised estimate. So when you look at the cadence, it is more first three quarters versus Q4. Max Andrew Gumport: Okay. And then on Simple Mills sales, it looks like in 4Q, you ended the year a bit below the full year guidance, which I believe was 20% to 23%. You reported closer to 14%. So it seems like 4Q came in a bit light of expectations. At the same time, your commentary still sounds pretty good on Simple Mills. So did anything go off that held back Simple Mills sales in 4Q 2025? Ryals McMullian: Yeah. Max, it is Ryals. Couple of things. One, there were some inventory deloading related to one distributor that kind of disrupted the timing of sales during that period. And Simple Mills also had an issue with some coconut sugar that came in. All the affected inventory was in our control, so there was no recall or anything like that. But that contributed to a little bit of a disruption in terms of sales timing in the fourth quarter. But to your point, we still feel great about Simple Mills. We expect them to be top line up double digits next year. Lots of innovation coming. So we are still quite bullish on the business. They are doing fine. Max Andrew Gumport: Great. And last one for me, and I will leave it there. It is just on margins for Simple Mills. So it looks like it dipped to 11% EBITDA margin in 4Q versus 16% in the first three quarters. I think also that was roughly in line with your plan. So I guess, one, is it really just all about tariffs coming on and then maybe some input costs running a bit higher too? And then could you give a bit more color on how we should think about costs for 2026, particularly given what we are seeing with almonds and inflation there? Thanks very much. Ryals McMullian: Yeah. Max, you are spot on. It is almond flour and tariffs, and in addition to additional brand investments in the brand. I think you should expect that to continue in 2026. But, yeah, it is primarily the almond flour and tariff impact for Simple Mills. Max Andrew Gumport: Okay. Thanks very much. Appreciate all the questions. I will pass it on. Ryals McMullian: Okay. Thanks, Max. Thank you. Operator: And our next question will be coming from the line of Scott Marks of Jefferies. Your line is open, Scott. Scott Michael Marks: Hey, good morning all. Thanks for taking our questions. First one for me. You are talking about heightened reinvestment in the business and some brands for 2026. But it seems like you have also already been on this journey since the summer in terms of small loaves and some protein offerings and better-for-you. Just wondering if you can help us understand maybe what is changing and what is going to be different from what you have already been enacting in the portfolio. Ryals McMullian: Right. Yeah. Exactly, Scott. Good question. So, as I was alluding to earlier, over the last several years, we have ramped up our brand investment, not just in marketing, but also in our innovation efforts around DKB, DKB snacks, obviously, the addition of Simple Mills, but also keto, and protein loaves, and Perfectly Crafted. I will not go on and list them all. But we believe that we are one of the most innovative producers in the category. What is different this time, as I said earlier, is when you look at our portfolio, when you look at our market share performance, the clear issue is in traditional loaf, and that primarily means Nature’s Own. And so a lot of the additional investment and innovation that we are speaking to today is around reigniting demand for traditional loaf and for Nature’s Own. Scott Michael Marks: Understood. Thanks for the clarity on that. And then second one for me is you are talking obviously about some of the category pressures. You also spoke a bit about some heightened competition within the category. So wondering if you can just share maybe how you are thinking about the competition. Have you seen competitors do anything like rationalize some of their own production capabilities? Just wondering how competitors are handling the current environment. Ryals McMullian: Yeah. Nothing major that I will report in terms of bakery consolidation or anything like that. I think the competitive environment in the fourth quarter was pretty normal. No major uptick. In fact, for the category, price per unit was actually up a bit in the quarter, and a lot of that is likely a mix shift to premium products. Obviously, like the rest of the food industry, everybody is trying to figure this out: the rise of GLP-1s, the fact that it is coming out in a pill, the overall macroeconomic environment. While inflation has certainly come down, prices remain elevated and some consumers are struggling with that. So you see a lot of move to value, not just in terms of product but also in terms of channel, moving more to club stores and mass, etc. So I think we are going to continue to see a pressured consumer for a bit longer and we will see how all that shakes out. In the meantime, what is important to us is that we are delivering products to consumers that have attributes that they want, definitely with a better-for-you bent, but also across the price spectrum. That is how we are looking at it. In terms of promotional levers, obviously, we have that at our disposal. We tend to use that prudently and use it more for driving trial and repurchase rather than driving volume gains. You have to remember that this is a category with limited expandable consumption. And so we are very disciplined in our use of promotional activity. But where we need to do so to protect share, we will. But we will use our enhanced TPM capabilities to guide us in that process and make sure that we are achieving the desired return on investment. Scott, as an example of that, in the fourth quarter, we pulled back strategically on promotions. As I said, there is limited expandable consumption in this category, and typically, when we get aggressive with promotions in the fourth quarter, we do not get a good return on that investment. And so if you look at the share data, you will see that we pulled back pretty substantially in the fourth quarter, and as we move into the new year and get back to a more normalized cadence. Scott Michael Marks: Appreciate the color. We will leave it there. Ryals McMullian: Thanks, Scott. Operator: I am showing no further questions. I would now like to turn the conference back to Ryals McMullian, Chairman and CEO, for closing remarks. Ryals McMullian: Okay, Tanya. Thank you. I just want to thank everybody for taking time today and joining us for questions. We very much appreciate your interest in our company. And as always, we will look forward to speaking to you again next quarter. Take care. Operator: And this concludes today’s program. Thank you for participating. You may now disconnect.
Operator: Good day, and welcome to the Mohawk Industries, Inc. Fourth Quarter 2025 Earnings Conference Call. Participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your telephone keypad. And to withdraw your question, please press star then 2. Please note, today's event is being recorded. I would now like to turn the conference over to James Brunk, Chief Financial Officer. Please go ahead, sir. Thanks, Rocco. Good morning, everyone, and welcome to Mohawk quarterly investor conference call. James Brunk: Joining me on today's call are Jeffrey S. Lorberbaum, Chairman and Chief Executive Officer, Paul De Cock, President and Chief Operating Officer, and Nick Manthe, who will succeed me as Chief Financial Officer on April 1. Today, we will update you on the company's fourth quarter and full year performance and provide guidance for 2026. I would like to remind everyone that our press release and statements that we make during the call may include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995, which are subject to various risks and uncertainties, including but not limited to those set forth in our press release and our periodic filings with the Securities and Exchange Commission. This call may include discussion of non-GAAP numbers. For a reconciliation of any non-GAAP to GAAP amounts, please refer to our Form 8-K and press release in the Investors section of our website. I will now turn the call over to Jeffrey S. Lorberbaum for his opening remarks. Thank you, Jim. Our fourth quarter net sales were approximately $2.7 billion, an increase of 2.4% as reported and a decrease of approximately 3.3% on a constant basis versus the prior year and in line with our expectation. Across our markets, commercial demand remained stable during the quarter, though continued weakness in housing turnover and sluggish new home construction in the U.S. impacted our volume. Our adjusted EPS for the quarter was $2.00, up approximately 3% versus the prior year, with benefits from productivity, restructuring initiatives, product mix, and lower interest expense offset by market pressures and increased input costs. For the quarter, we managed the impact of U.S. tariffs, covering the cost as planned. Operator: For the full year, our sales were approximately $10.8 billion, flat with the prior year's reported. James Brunk: Approximately 55% of our sales were in the U.S., 30% were in Europe, and 15% in other geographies. Our adjusted EPS for the full year was $8.96, a decrease of approximately 7.5%. For the year, we generated free cash flow of approximately $620 million and repurchased approximately 1.3 million shares of our stock for $149 million as part of our current stock buyback authorization. The fourth quarter reflected a continuation of the macroeconomic factors our industry has faced since 2022. Housing turnover in our major regions remains at historical lows due to affordability challenges and economic uncertainty. Consumer confidence remained weak due to inflation, employment concerns, and geopolitical tensions. As a result, many of our large discretionary investments such as home renovations continue to be postponed. Remodeling activity that did take place was primarily driven by more affluent customers or those addressing essential needs. Throughout 2025, most central banks took actions intended to stimulate economic growth and housing markets, including recent interest rate cuts by the U.S. Federal Reserve. While 2025 U.S. existing home sales did not improve, sales in December increased over the prior year. Currently, U.S. mortgage rates are at their lowest levels since September 2022. We anticipate these lower rates combined with potential government actions will benefit housing turnover. In Europe, interest rates are also the lowest since late 2022. In addition, consumers have built record levels of savings, inflation has eased, and employment has remained steady. These conditions should support greater participation in the housing market as consumer confidence improves. Jeffrey S. Lorberbaum: Across our markets, construction levels have not kept pace with household formations since the great financial crisis. In the U.S., builders completed fewer homes in the fourth quarter as they focused on reducing inventories and lowering the supply of new homes. In Europe, high building costs, land shortages, and labor constraints continue to impede residential construction. Completed housing units in Europe have declined in 2025, though moderate building recoveries in Southern and Eastern Europe have emerged. As housing demand increases, European governments are evaluating options to stimulate construction. The commercial channel outperformed residential throughout the year with strength in health care, education, and hospitality. We anticipate that lower interest rates will encourage additional investments in commercial construction and renovation. In response to ongoing conditions, we took actions during the year to stimulate sales and enhance our mix in soft markets through innovative product introductions, marketing actions, and promotional activities. Our premium product launches deliver differentiated design and performance features to incentivize remodeling, and our new commercial collections help us gain momentum in both new construction and remodeling projects. As residential demand remains weak, heightened competition to absorb the industry fixed cost continues to exert pressure on price. To partially cover inflation, we took pricing actions in regions and product categories as market conditions allowed. In the U.S., we manage the impact of tariffs through pricing actions and supply chain optimization. If necessary, we will adjust our strategies based on the Supreme Court's upcoming rulings and changes in the global trade landscape. During 2025, we initiated numerous restructuring actions and operational improvements that lowered our cost position and will benefit our longer-term performance. In 2025, our markets did not improve and in response, we reduced capital spending to $435 million, about 30% below our depreciation levels. We continue to take the proper actions to manage the present environment, pursue profitable growth opportunities, and strengthen our position when housing markets rebound. Now Jim will share our financial report. James Brunk: Thank you, Jeff. Sales for the quarter at $2.7 billion, a 2.4% increase as reported and a decrease of approximately 3% on a constant basis. The 23% as reported, and 24.3% excluding charges, in line with the prior year, as the benefit from our productivity and restructuring initiatives of $41.5 million, favorable FX of $21 million, and improved price and mix offset weaker volume of $29 million and increased input costs of $22 million. SG&A expense was 19.8% as reported, 18.7% excluding charges, also in line with prior year levels. It gave us an operating income as reported of $68 million, 2.5%. Our nonrecurring charges were $84 million during the quarter, primarily related to restructuring actions undertaken by all segments and legal settlements. It gave us an operating income on an adjusted basis of $152 million or 5.6%. That was only a 50 bps decline versus prior year, as the benefits from our productivity and restructuring initiatives of $51 million, our pricing actions to offset the impact of new U.S. tariffs, and improved product mix were offset by the reduction in volume of $29 million, competitive market conditions, and an increase in input costs of $32 million. Interest expense for the quarter was $1 million. That is a decrease versus prior year due to a reduction in short-term debt and a benefit of increased interest income. Non-GAAP tax rate for the quarter was 17.1% versus 17.8% in the prior year, and we are forecasting the full-year tax rate for 2026 to be between 18.5% and 19.5%. That gave us an earnings per share on a reported basis of $0.68 or on an adjusted basis of $2.00. Turning to the segments. Global Ceramic had sales of just under $1.1 billion. That was a 6.1% increase as reported and basically flat on a constant basis. We experienced softening in the U.S. builder channel offset by gains in our international markets led by Europe, as well as improvements in price and mix driven by the U.S. and our European operations. Operating income on an adjusted basis was $63 million or 5.9%. That was an increase of 60 basis points as the combination of our productivity initiatives of $22 million and a benefit of improvement in price and mix of $16 million offset the increase in input costs of $22 million and decreased volume of $13 million. In Flooring North America, our sales were $893 million. That was a 4.8% decrease as reported or 6.2% on a constant basis. The decrease was primarily in our residential soft surface business, directly impacted by the slower builder channel, partially offset by our hard surface performance through home centers and retail, which were relatively flat versus the prior year. It gave us an operating income of $39 million or 4.4%. That was a decrease of 130 basis points, as the lower volume of $12.5 million, in conjunction with an increase in shutdown costs of $12 million and input costs of $70 million, offset the benefit of productivity and restructuring actions of $24 million and an improvement in price and mix. And in Flooring Rest of the World, we had sales of $737 million, or a 6.5% increase as reported and a 3.5% decrease on a constant basis, with the decrease in volume especially seen in residential remodeling, impacting our flooring categories, as both our panels and insulation business units saw an increase in year-over-year volumes. That gave us an operating income of $65 million or 8.8% excluding all charges for a 120 basis point decrease from the prior year. This was led by a weakening in price and mix of $15 million and lower volume, partially offset by increases in productivity and lower input costs. Corporate and eliminations were $15 million for the quarter, in line with the prior year. In 2026, we estimate the full-year impact of corporate expenses to be between $52 million and $55 million. And now the balance sheet. Looking at cash and cash equivalents of $806 million with free cash flow of $270 million in the quarter and $620 million on a year-to-date basis. Inventories were just shy of $2.7 billion. The growth in inventory year over year was mainly a result of the weakening dollar as inventory days ended the year at 139 days. Property, plant, and equipment was just shy of $4.8 billion with CapEx for Q4 at $189 million and full year at $435 million. The company plans to invest approximately $480 million in 2026 with D&A of $626 million. The capital expenditures will be focused on product innovation, cost reduction, and general maintenance of the business. The balance sheet ends the year in a very strong position with gross debt of $2 billion and leverage of 0.9 times adjusted EBITDA. The company enters 2026 well positioned to leverage the housing recovery. I will now turn the call over to Paul De Cock for our Q4 operational performance. Paul De Cock: Thank you, Jim. Our Global Ceramic segment delivered improved Paul De Cock: sales and profitability year over year as each region executed specific strategies to overcome market challenges. Across our geographies, our performance benefits from successful product launches over the past two years. In particular, our premium collections improved our mix and helped to offset pricing pressures from competition. We extended our advantage at the high end of the market by combining advanced design expertise and proprietary printing technologies to deliver collections with more sophisticated visuals and textures. Though residential remodeling and construction remain soft in most of our regions, our innovative commercial collections continue to enhance our results. We have worked in all markets to expand our customer base across channels by emphasizing the breadth of our product offering and our superior service. Operationally, we continue to find ways to drive productivity gains, reengineer products, and contain SG&A costs to protect margins against higher input costs and pricing compression. In the U.S., volumes were challenged as new home construction slowed in the quarter. We offset this impact through productivity gains as well as improved product and channel mix. Our price increases mitigated the effect of tariffs on our sourced offering. With lower ocean freight costs and suppliers absorbing some of the expense, tariffs have thus far impacted the U.S. ceramic market less than expected. As our countertop business continues to grow, the ramp-up of our new quartz production line remains on schedule and will deliver higher value products through an advanced veining technology that creates unique visuals. In Europe, we improved our volumes despite soft demand as we increased sales in the higher-end categories. Spending on large discretionary purchases remains under pressure from consumer uncertainty related to geopolitical events. Pricing weakened during the quarter as excess industry capacity led to heightened competition. We partially offset this through improved mix, productivity gains, and lower energy costs. The commercial channel remains stronger than residential in most parts of Europe, though we also saw improvements in our higher-end residential offering. We enhanced our porcelain slab production with state-of-the-art printing technology that delivers higher value products. In Latin America, demand remains soft and competitors are pursuing volume with aggressive pricing. In Mexico, we are expanding our customer base, improving service with our expedited shipping programs, and gaining sales with our large-size polished collections. And lastly, in Brazil, the Central Bank's restrictive policies have increased the benchmark interest rates to 15%, compressing the flooring market. In our Flooring Rest of the World segment, our panel and insulation businesses delivered improved sales and margins, while the flooring category experienced lower volumes as well as pressure on our pricing and product mix. Rising building costs, elevated home prices, and economic uncertainty continue to suppress both residential remodeling and new construction. To manage these factors, we continue to reduce our cost structure through product reengineering, supply chain optimization, and SG&A controls. While we pursued volume to improve plant utilization, we also selectively announced price increases in most product categories to offset higher input costs. To benefit our flooring category, we expanded our presence in home centers and extended our participation in better-performing geographies. In the European LVT market, we maintained our volume through expanded retail partnerships and we are enhancing our rigid and loose-lay collections this year. Our panel business increased volume, grew sales, and expanded margins across product categories. We are improving the production and operational process at our new MDF recycling plant, which will improve our material costs when optimized. Though insulation markets remain soft, we increased volumes in most geographies and continue to prepare for the start-up of our new plant in Poland with expanded distribution and growth in Germany and Eastern Europe. Our Flooring North America results this quarter varied by channel. In the quarter, we saw inventory reductions in the retail channel given softer conditions. In the builder channel, sales declined as new home and multifamily construction remained weak and builders slowed new home starts. With lower interest rates improving affordability, we do expect residential construction to improve slightly as we progress through the year. Our commercial business remained stable with strength in hospitality, education, and healthcare, James Brunk: offsetting Paul De Cock: softness in office and main street. Given this, overall volume for the quarter was lower, though productivity gains and benefits from our restructuring actions helped offset the impact of the decline. We initiated pricing actions across most residential product categories to mitigate higher material, labor, and tariff costs. Our hard surface category continued to outperform, driven by our laminate, hybrid, and LVT collections, which are expanding across sales channels. Our PureTech PVC-free hybrid flooring is growing as an alternative with authentic visuals, better scratch resistance, waterproof performance, and dimensional stability. The success of our hard surface portfolio is also benefiting our accessories sales as consumers select coordinating trim, stair treads, and moldings. In residential soft surfaces, our high-end fashion collections improved our product mix and we are expanding our premium polyester collections to grow sales in the mid-price range. To offset higher input costs and tariffs, our commercial business announced selective price increases. The commercial order backlog remains solid and our enhanced commercial LVT offering will create additional opportunities for the business. To support sales growth in the high-performance commercial channel, we acquired Hero Flooring, a small niche U.S. rubber flooring company and authorized licensee of products made with Nike Grind Rubber. I will now return the call to Jeffrey S. Lorberbaum for his closing remarks. Thank you, Paul. Jeffrey S. Lorberbaum: As we previously announced, Jim Brunk will retire as CFO in April and will continue with us in a consulting role to ensure a smooth transition. Jim has been with Mohawk for twenty years and has played a leading role growing our business into the world's largest flooring company. His leadership is reflected in the strength of our financial team as well as our financial position. In April, Nick Manthe will assume the CFO role after serving as VP of Corporate Finance and Investor Relations for the past year and leading the Flooring North America finance team for the prior five years. Nick brings to the role strong financial expertise and extensive knowledge of our business. Now turning to our outlook, first quarter market conditions thus far have been similar to the fourth quarter. While home renovation remains soft, the NAHB Remodeling Index has shown improvement for the last two quarters. We expect our markets to remain competitive and we are implementing price increases across most regions and product categories. We continue to manage the impact of tariffs through pricing actions and supply chain optimization. James Brunk: We anticipate benefits from product mix, productivity, and cost reductions Jeffrey S. Lorberbaum: to offset headwinds from higher energy and labor costs. Our 2026 product introductions are entering the market throughout this quarter; the initial feedback has been positive. Our first quarter seasonality is our slowest and this year includes four additional shipping days. Given these factors, we expect our first quarter adjusted EPS will be between $1.75 and $1.85 excluding any restructuring or one-time charges. The global flooring industry has been in a recession for almost four years and historically we have multiple years of higher growth as markets recover. This year, we anticipate economies in most of our regions will improve with housing markets benefiting from mortgage rates and greater availability. We expect some increases in industry volume as we proceed through the year, though pricing pressures are likely to remain. In response, we will execute our announced restructuring actions and continue to implement productivity initiatives to lower our cost. Given this, we expect our 2026 sales and earnings to improve. The extent of our growth this year will depend on economic conditions, interest rates, geopolitical events, and most importantly, the degree to which residential remodeling rebounds. With our global reach, product advantages, and operational strengths, Mohawk Industries, Inc. is uniquely positioned to deliver long-term profitable growth as we transition into the recovery cycle. We will now be glad to take your questions. Thank you. Operator: We will now begin the question and answer session. At any time your question has been addressed and you would like to withdraw your question, please press star then 2. We do ask that you please limit yourself to one question and a single follow-up. Jeffrey S. Lorberbaum: At this time, we will pause for just a moment to assemble our roster. Operator: And today's first question comes from Eric Bosshard with Cleveland Research. Please go ahead. Jeffrey S. Lorberbaum: Thank you. Just curious, as you look into 2026, what you are expecting in terms of price and mix and mostly focused on receptivity of retail and what the actions of consumers are in terms of trading up or trading down. Well, Eric, as we look at price James Brunk: and mix, we are anticipating continued pressure in the market. Inflation levels should be somewhat similar to 2025, really led by energy, labor, and tariffs. For the year, we would see both the combination of pricing, improved mix, and productivity should help offset that inflation. Jeffrey S. Lorberbaum: That is helpful to know that there is an offset. Is the Mike Dahl: you just give us a sense of the magnitude of the assumption on price and mix. Is that in the market today? Mostly trying to figure out if that is a number that is there, or is that a number that has some degree of risk to it based on how the consumer or retail behaves? Jeffrey S. Lorberbaum: The price increases are being implemented. The market conditions are pressured. Some have been postponed as the competitive environment evolves and we react to it. We anticipate covering tariffs with pricing and supply chains with all the actions that we are taking. Mike Dahl: Okay. Thank you. Operator: Thank you. And our next question comes from Philip H. Ng with Jefferies. Please go ahead. Jeffrey S. Lorberbaum: Hey, guys. Jim, congratulations. Thanks for all the great help. Really appreciate the partnership. James Brunk: Thank you, Phil. I guess to kind of kick things off, demand obviously trailed off a bit in the fourth quarter. Some of that is the builders seeing a weakness, and you called out some destocking. Any early read out of the gates in terms of how the channel is managing inventory ahead of spring selling season, whether it is wholesale, retail, or the builders, any green shoots to call out at this point? Jeffrey S. Lorberbaum: The inventories were taken down in the fourth quarter by different channels as the business softened. We think most of the inventory has been taken out and is close to where they need it to be. We are in the middle of the different shows we are in, and we are a little surprised at the optimism that many of the customers are expecting this year. Jeff, any color between channels in terms of optimism? Is it more James Brunk: heavy in R&R, retail, just builder side of things? Just give us a little more Jeffrey S. Lorberbaum: perspective on that front. Listen. The residential side of the business, people are optimistic about customers coming back into the market, that the existing home sales will pick up a little bit. And on the other side, the commercial builder is mostly expectations of stable, which is in line with most of the forecast by the marketplace. Operator: Thank you. And our next question today comes from Mike Dahl at RBC Capital Markets. Please go ahead. Mike Dahl: Hi. Thanks for taking my question. I guess just to start picking up on that last James Brunk: comment, Jeff. I am still trying to square what is an expectation versus what you are seeing because your comments are that 1Q is actually tracking similar to 4Q, but then there is this hope or this optimism that things can get better. Paul De Cock: Is the Mike Dahl: so what you are hearing from the customers, James Brunk: are they actually seeing activity come back, or they are just expressing the Mike Dahl: same type of hope, hey, look at these macro indicators, James Brunk: maybe things can get better because Mike Dahl: consumer confidence readings and some of the recent housing readings certainly do not seem to have inflected. Jeffrey S. Lorberbaum: I think it is what I am reflecting is the attitude that people are giving us and that I am getting feedback from the sales organization in all the markets that we are having. And as an overview, our view is that 2026, we call it a transitional year with some improvement in the remodeling activity. The expectation we have is that the lower mortgage rates, higher home equity Operator: levels, Jeffrey S. Lorberbaum: and the increased housing supply should benefit existing home sales. There is pent-up demand for large renovations that have been postponed since 2022. We are anticipating both pricing mix as well as volume increasing somewhat as we go through the year. Our restructuring and productivities will lower our own cost structures, and given that, what our expectations are, which we have said, is to exceed last year's earnings. Mike Dahl: Okay. Got James Brunk: the second question, I guess, drilling down on that Mike Dahl: expectation. And then, Jim, I think I heard you say that James Brunk: inflation level is similar in 2026 to 2025, and that price Mike Dahl: mix productivity should help Paul De Cock: to offset. So when we Mike Dahl: think about the earnings bridge, we have two questions. One would be when you make that comment about earnings expected to improve, you did have the headwind in 1Q 2025 from the systems conversion. So is that relative to the $896 million or also saying relative to kind of a further adjusted number ex that conversion? And then on that point about inflation and productivity and price mix, James Brunk: are you suggesting that that net combination will be Mike Dahl: neutral to slightly negative for the year? James Brunk: No. On the contrary, so two parts to your question. One is the increase in earnings would be against that adjusted number, number one. And number two is that my comment on the combination of price mix and productivity that will offset the inflation. Because remember, what you have also in there is in both price actions and in inflation, tariffs are included in that number. Operator: Thank you. And our next question today comes from Susan Marie Maklari with Goldman Sachs. Please go ahead. James Brunk: Thank you. Good morning, everyone. Susan Marie Maklari: First question is going back, good morning, is going back to some of the product side of things. Can you talk a bit about what you are seeing in terms of your ability to gain share, especially perhaps with the home centers and how that is helping you in the channel? And then with that, you remarked about some of the momentum you are seeing on hard surfaces. Can you talk about how that is coming through and the benefits you will see this year? Paul De Cock: Susan, on the home center side, the home center channel is very important to us. And we are providing leading products, leading innovation, leading merchandising. We are supporting their efforts to grow their business on the consumer side and the pro side with differentiating products. And so we are continuing to optimize our business together. And then the comment on the hard surfaces, yes, our hard surface business is doing well. That is fueled by our waterproof laminate business that continues to provide an excellent alternative to LVT, and our domestic laminate is also benefiting from the tariff increases that have increased the cost of other alternatives. And in general, in LVT, our new hybrid alternatives, with improved visuals and performance, are being very well respected and accepted by the market. And in general, we see the LVT kind of continuing to perform in line with the flooring market. Operator: Okay. Mike Dahl: That is helpful color. And then maybe a question for Nick. Susan Marie Maklari: As you step into that CFO role, can you talk about how you are thinking of the initiatives and the areas of focus there and any change to capital allocation? Also, I want to add my congrats to Jim on your retirement. Paul De Cock: Thank you, Susan. Jeffrey S. Lorberbaum: Thanks, Susan. James Brunk: You know, from a strategy perspective, I do not think there is really any change at this point. We are obviously navigating a difficult business environment, and so we will continue our focus on cost and capital discipline. And we will also continue to invest in new products and be able to take advantage when the market recovers. Paul De Cock: Thank you. Operator: Our next question today comes from Michael Jason Rehaut with JPMorgan. Please go ahead. James Brunk: Hi, good morning, and thanks for taking my questions. And Jim, great working with you. All the best. And Nick, congrats on the promotion. Jeffrey S. Lorberbaum: Thank you. Thank you, Michael. First question, James Brunk: I wanted to focus on the outlook for 2026. Jeff, I believe you said that you expect price mix and volume all to be up, Paul De Cock: and so I was wondering how that squares with the market outlook Jeffrey S. Lorberbaum: and underlying market outlook? And, if, you know, what are the reasons for that optimism Stephen Kim: aside from maybe some of the optimism that you quoted in the channel, Jeffrey S. Lorberbaum: which Stephen Kim: could arguably be somewhat premature just relative to what we are seeing at least in the fourth quarter into the first? Jeffrey S. Lorberbaum: Pricing, we have announced a lot of initiatives across the marketplace to try to recover some of the inflation that we have been having. We have the tariff pricing that we are putting through. We see pricing compared to the prior year improving. We have our mix, which are internal actions to create higher value products that have more margin in them. And then our view is, as we have stated earlier, James Brunk: that Jeffrey S. Lorberbaum: we see the commercial business and the new construction business being relatively stable. We are anticipating some improvement in the remodeling business as we go through, James Brunk: as the Jeffrey S. Lorberbaum: along with the existing home sales, which are supposed to increase somewhat. Paul De Cock: Okay. I appreciate that. I guess, secondly, Stephen Kim: I am curious around the outlook for ceramic in the U.S. You know, obviously, there has been a lot of movement with tariffs, and I believe you kind of said that the impact of tariffs from a cost standpoint have been less than anticipated. I am curious if there has been any share shifts as a result of your domestic manufacturing and advantage there. Or if the impact of tariffs being a little bit more muted did not kind of translate to any type of significant share shifts because of your manufacturing advantage. Jeffrey S. Lorberbaum: We believe that we are doing better than the marketplace in our U.S. ceramic business. We have a much larger commercial business in that business than the other parts of our U.S. businesses. So the commercial business is doing better. We have been enhancing our style and design using the knowledge that we have in our Italian businesses so that we are able to offer higher value products and replace some of the products that are coming in at higher cost from Europe as we go through. James Brunk: The Jeffrey S. Lorberbaum: as you know, the volumes declined recently with the residential new construction markets. So the balance is we are getting improvements out of price and mix. And then we have been able to have better service than the importers bringing the stuff in as well. We are also increasing our participation in the countertop business where we put in a new quartz countertop line to enable us to expand that business further. Operator: And our next question today comes from Stephen Kim with Evercore ISI. Please go ahead. Mike Dahl: Yeah. Thanks very much, guys. Susan Marie Maklari: I guess, James Brunk: you have referred a couple of times to, I guess, a higher-end or a high-end proprietary printing technology. And you just mentioned, Jeff, about the Italian style and design allowing you to compete better against. I am just kind of curious if you can talk a little bit more about the innovation that you have been working on over the last few years. Are we at a point now where you are starting to see a particularly significant impact or benefit from some of these innovations, whether it be this Mike Dahl: state-of-the-art printing technology or whether it be this hybrid, you know, PVC-free. I think this is, I just want to make sure James Brunk: that we understand how significant in your mind these innovations are as they come into the market this year? Jeffrey S. Lorberbaum: It is not just an immediate process. We have been doing this for a period of time. In the ceramic industry, as in other ones, it takes specific equipment to make higher-end products. And the complexity is dramatically different as you go up in the scale. And so we have been investing in new equipment as well as the ability to execute the complexity in the factories, which have allowed us to improve our higher-end business. At the same time, you are making James Brunk: both larger sizes, Jeffrey S. Lorberbaum: which the equipment has to be modified. And if you go to the other extreme, think of a two-inch piece; it is much different than handling something that is three feet by three feet. So all of it is very specialized. In all of our different markets across the world, we are enhancing the style and design and sizing across, which is helping us get product mix to offset some or a lot of the inflation which at different times we are not able to pass through. In our other product categories, you mentioned hybrid products that are made out of different materials than LVT. And so those come with different performance features as well. In all the categories, we are putting in new designs and strategies to differentiate them as you go through. And in there, in each category, trying to find new ways, like the countertop business where it is moving from stone products to manmade products. And we are putting in new equipment that has design capabilities we are introducing as we speak that are not in the market at this point. So every division is taking different strategies to get there. Stephen Kim: Yeah. That is really James Brunk: helpful. Thanks for that. Wanted to switch gears, if I could, to your transportation side of your business. Rafe Jason Jadrosich: You know, yesterday, there was a lot of noise about AI potentially dramatically reducing deadhead rates and things of that nature. I was curious if you could talk a little bit about the distribution side, if you will, or the transport side of your company, and to what degree you have been seeing improved deadhead rates over the past, let's say, the past year. Has that been something notable to call out? And do you expect AI tools to be a needle mover to your input costs this year? The ability to find Jeffrey S. Lorberbaum: freight back and forth and enabling it to lower the cost has been going on for a significant period of time. And AI will just add another incremental improvement over the top of it. The biggest freight differences right now are the international freight coming in where the freight rates have dropped as the capacity has increased and the volume has decreased, so those are making up for a lot of the tariff costs or a significant portion of the tariff costs. And then in our own system, most of our system is set up with our own transportation from our factories to our regional distribution points. In most cases, we are backhauling our own raw materials. And that gives us a significant advantage on the fill rates and the time it takes to go through, which is why it costs us less to run our operations than it does to go on third parties. Stephen Kim: Thank you. Operator: Next question today comes from Keith Brian Hughes at Truist. Please go ahead. Mike Dahl: Thank you. You talked a lot about input costs going up on this call. Can you James Brunk: talk Mike Dahl: or give us kind of a rank order of where you are facing the most inflation causing this finished good increase to offset? James Brunk: Well, for the full year, when you look at 2026 versus 2025, the first thing you always have is you have wage and benefit increases. So that is probably, looking at this year, number one. Also, we have seen energy costs, as Jeff said in prepared remarks, kind of fluctuate. So you see energy, especially in the U.S., somewhat spiking. So we will have to see how that kind of materializes over the full year. Obviously, tariffs are part of that, as I said, that inflation footprint as well, and then just kind of general expenses. Operator: The James Brunk: wildcard right now is really on material cost. As I think I said earlier, it kind of varies across our different regions. In some cases, we are seeing reductions, but in others, we are still seeing some inflation. Mike Dahl: So following up on that, we have seen crude come off. They have been moving down pretty ratably through the year. Is there any sign that carpet or LVT inputs are starting to lighten up as we head into the new year? Jeffrey S. Lorberbaum: We anticipate continued inflation in the cost. At this point, at least for the first four or five months, whatever we have in inventory is what is going to flow through our costs as we go through. And so how they evolve over time we will have to see if they come down or not. Most of the people supplying us, we think their margins are very low, so we will have to see how it evolves in the market cost. Stephen Kim: Thank you. Operator: Our next question today comes from Richard Samuel Reid at Wells Fargo. Please go ahead. James Brunk: Thanks, everyone, and congrats, Jim, on the pending retirement. Great partnership there. Jeffrey S. Lorberbaum: Thank you, could text a lot. James Brunk: A little bit on the benefit you are expecting to get in 2026 specifically from productivity. You know, you have done a good job of pulling costs out of the business. So just love to see how big of a lever productivity could be in isolation in 2026. And then remind us, but I believe you have about $60 million to $70 million planned for this year. Just want to double confirm and make sure that is the right number. James Brunk: Yeah. It is a good place to start, Sam, on restructuring. As both Jeff and Paul said, we have taken numerous actions over the last few years. We have delivered in 2025 about $115 million cumulative savings from restructuring. You are right. We are looking at somewhere in that $60-plus million range of carryover into 2026. We also did announce some additional actions in the fourth quarter, most of which is about $30 million of savings. Most of that will actually help and carry over into 2027 given the timing of those projects. In addition, we continue across the company, both in manufacturing and on the administrative side, to look for ways to reduce our day-to-day operating costs. So we also have, on top of that, just normal productivity. For the year, when you look at 2025 versus 2024, we hit over about $200 million. 2026 versus 2025, certainly, we will be building and working towards achieving the highest level we can. But, again, it is kind of restricted to restructuring about that $60 million range and then other projects. No. That is all helpful, Jim. And then maybe switching gears here, it does sound like the builder channel was particularly weak in the fourth quarter. Obviously, we know the builders are pushing back aggressively on price in particular. Mike Dahl: Can you contextualize maybe what the pricing backdrop looks like specifically within that piece of your business? And I am obviously talking here in the context of the U.S. business. Thanks. Jeffrey S. Lorberbaum: As you described, the category is weak. There is plenty of pressure to maintain prices with it. Our input costs are going up, and we are trying to get some of it covered through the marketplace as we go through. We have announced targeted price increases in the different pieces to offset inflation. And as you said, it is not easy. Operator: Thank you. Our next question today comes from John Lovallo at UBS. Please go ahead. James Brunk: Hey, guys. Thanks for taking my questions as well. I guess, Jim, embedded in that first quarter EPS outlook of $1.75 to $1.85, how are you kind of thinking about sales and margins, ideally by segment, either year over year or Jeffrey S. Lorberbaum: sequentially, and can you confirm that there are four extra James Brunk: selling days year over year and one extra day sequentially? Yes. So you are correct that there is one extra day sequentially and four extra days from a year-over-year perspective. With respect to the guidance, a couple things I would say is as we are coming into January and Q1, we have said that market conditions are expected to remain soft. And lower volumes right now are versus the prior year. Obviously, in the first quarter, you tend to have a slower period in terms of sales and volume, and weather, obviously, never helps the situation as well. Housing turnover and consumer confidence continue, right now, to constrain the industry. But we are taking actions, and Jeff talked about a number of them on the product side and on the cost side, to try to protect our earnings the best we can. The international markets continue to be pressured by geopolitical events as well. And, overall, we will again continue to see benefits from our productivity and restructuring initiatives. Okay. Gotcha. And then you guys generated $620 million of free cash flow in 2025. Laura Champine: Is it fair to assume that you are targeting above that for this year? And along those same lines, Mike Dahl: I think it was $40 million of stock repurchased in each quarter over the past three quarters. James Brunk: In the event that free cash flow is stronger, would you anticipate being able to step up the repurchase activity? Thank you. Yeah. We did, as you said, generate about $620 of free cash flow in 2025 with CapEx of about $435. CapEx, we do expect, as I said in the prepared remarks, to be a little bit higher at $480 million, and that is a combination of about 80% in cost reduction, product innovation, and maintaining the business. Then we are also looking at about 20% on targeted growth initiatives, mainly around quartz, laminate, porcelain slab, and then also investing in a new insulation production as well. We should continue in 2026 to see and generate strong cash flow. And with respect to the share buybacks, we will continue to use that as part of our strategy as we move forward. Operator: Thank you. Our next question today comes from Rafe Jason Jadrosich with Bank of America. Please go ahead. Mike Dahl: Hi. Good morning. It is Ray. Thanks for taking my questions. And, Jim, thanks for everything. Stephen Kim: Thank you, Rafe. Mike Dahl: You mentioned the tariff impacts are a little bit less than you are expecting. Can you just quantify what the mitigated and unmitigated headwind was in 2025? And then what you expect for 2026. Jeffrey S. Lorberbaum: For the tariffs that we are paying, they range from about 15% to 50%. We have taken actions to offset them in all different ways in the supply chain with the freight rates we talked about earlier. We have announced price increases as required to go with them and offsetting those as we go through. We are continuing to implement more price increases as we speak. We have to adjust to the market conditions that we are in the middle of, Rafe Jason Jadrosich: and Jeffrey S. Lorberbaum: we are expecting to cover all the costs of them with all those actions combined. Mike Dahl: I think earlier, earlier in 2025, you mentioned maybe $50 million mitigated. Is there a dollar amount that we should be thinking about for 2026 versus 2025 that you need to cover? James Brunk: Well, I think you need to look at kind of over the span of when this started on annualized impact. We had said that we are about a $100 million of cost impact. As Jeff said, over 2024 to 2025, 2025 to 2026, we have taken actions both in pricing, supply chain management; freight costs coming down from an ocean freight standpoint is helpful as well. But our commitment is to offset that over that time period. Operator: Thank you. And our next question today comes from Collin Verron with Deutsche Bank. Please go ahead. James Brunk: Great. Thank you for taking my questions and congratulations, Jim and Nick. I guess just wanted to start on Flooring Rest of World. That has seen a lot of price pressure. Jeffrey S. Lorberbaum: I guess, any comment as to how has pricing stabilized sequentially, James Brunk: and sort of how you are thinking about prices on a full-year basis in 2026? And do you see any further margin pressure in that business in 2026, or have margins really bottomed here? Jeffrey S. Lorberbaum: Yes. So in general, Paul De Cock: the geopolitical events in Europe are still impacting consumer confidence as we speak. Markets continue to see slow demand and there is strong price competition. That being said, in a lot of our geographies and a lot of product categories, we have announced targeted price increases and we are at such low levels that they seem to be sticking as we speak. So we think we will have a slightly positive price effect as we move through the year in our Rest of World segment. Mike Dahl: Okay. That is helpful. James Brunk: And then just a clarification question on the EPS growth expectation in 2026. After you add back the system conversion, can you grow EPS if volumes are flat? Or does that growth expectation include volumes growing in 2026? Thank you. Yeah. It includes the assumption that the top line would grow as well in terms of volumes, at least somewhat. Operator: Thank you. And our next question comes from Matthew Bouley with Barclays. Please go ahead. Laura Champine: Good morning, everyone. Thanks for taking the questions, and congratulations again to Jim and to Nick. Operator: So I just want to Laura Champine: follow up on the pricing side. You have spoken about some being implemented. I think I heard you say some postponed, and, obviously, the overall comments around a competitive environment. So maybe you could be specific around soft surface, hard surface, commercial, residential, just kind of the specific categories where you are most confident that price is going to increase in 2026 versus which categories may still be a bit softer? Thank you. Jeffrey S. Lorberbaum: We have announced price increases generally in the range of 3% to 5% across most of the categories in different places. In some cases, we have focused more on the higher value products in different pieces that have less competition. The pricing is going in the market as we speak. And we are having to react to competitive situations as we always do. No surprises there. James Brunk: And, Matt, I think you have to also remember you are kind of dividing those price increases. One, you have very specific tariff situations, and we talked about LVT and some of the ceramic that some of the price increases that we announced in 2025 and then having to react to the changes in those tariff rates. So you have kind of a box of tariff-related pricing actions. And then, as Jeff just pointed out, you also have general inflation that we are having to attack as well. Laura Champine: Okay. Got it. Thank you for that color. Secondly, maybe if we look back on the tariff and how that has impacted your competitive positioning, I guess I am looking for sort of a postmortem on it. Maybe that is too strong a word. But, can you point to, at this point, tariffs—you guys are a domestic manufacturer—any specific areas where the tariffs have really led to share wins or better margins as you have raised price, or we are still kind of too early in this to see any of that happening? Thank you. Jeffrey S. Lorberbaum: We have seen benefits in different areas. The ceramic imports out of Europe, we have been able to increase our share of higher value products and help our mix in those categories. For instance, we talked about the difference in the sizes and design pieces. We are seeing our laminate business having some benefits from the LVT prices going up in some cases as we go through. We think that the service levels and pieces are helping us when the markets have difficulty with getting the products in and keeping them in stock. So we have seen some pieces within the category, and we have picked up some business with individual accounts. Operator: Thank you. That concludes the question and answer session. I would like to turn the conference back over to Jeffrey S. Lorberbaum for any closing remarks. Jeffrey S. Lorberbaum: Mohawk Industries, Inc. is well positioned today to take advantage of the recovery when it occurs. We cannot predict the inflection point, but we are going to have to come off the bottom that we have been at for a long time. We appreciate you joining us, and have a nice weekend. Operator: Thank you. That concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.
Natsuki Morishima: Welcome to Dentsu FY 2025 Earnings Call, and thank you for joining us at this evening. My name is Morishima from the Group IR office, and I will be your conference operator today. This is a reminder that today's call is being recorded. Furthermore, this call will be held in Japanese and English with simultaneous translation for those joining online. Please choose your preferred language from the bottom of the Zoom screen. For those joining on the telephone line, you will only be able to hear the original language spoken. Today's presentation materials are available on our website. Joining me today are Global CEO, Dentsu, Hiroshi Igarashi. Hiroshi Igarashi: [Foreign Language] Natsuki Morishima: Executive Officer, Executive Vice President and Global Chief Operating Officer, Dentsu and Chairman, and Dentsu Americas, Giulio Malegori. Giulio Malegori: It's Giulio Malegori, good evening, good morning. Natsuki Morishima: CEO, Dentsu Japan and Deputy Global COO, Dentsu, Takeshi Sano. Takeshi Sano: [Foreign Language] Natsuki Morishima: Global CFO, Dentsu, Shigeki Endo. Shigeki Endo: [Foreign Language] Natsuki Morishima: Today's agenda will begin with FY 2025 business update from Hiroshi Igarashi. Shigeki Endo will then present FY 2025 financial update, followed by explanation of strategic update from Hiroshi Igarashi. We will invite you to ask questions after the presentations. Mr. Igarashi, please go ahead. Hiroshi Igarashi: Good evening, everyone, and thank you for joining our fiscal 2025 earnings call tonight. The group's organic growth rate for fiscal 2025 slightly exceeded the guidance we announced in November last year, while our operating margins for both the Japan and international businesses outperformed the guidance, which was revised up in November. Japan achieved organic growth rate of 6.2%, while at the same time, registering highest ever net revenue and operating profit. Despite our international business recording negative growth, we are seeing improved profitability due to the initiatives we outlined in our mid-term management plan, which we announced in February last year. As for international business, we revised the assumption for impairment test and consequently recorded an additional goodwill impairment loss of JPY 310.1 billion in the fourth quarter of fiscal 2025. Following this accounting treatment, the balance sheet of goodwill on our consolidated balance sheet decreased approximately JPY 320.1 billion, which is less than half of the level registered at the end of fiscal 2024. Furthermore, we reached the decision not to pay a year-end dividend for fiscal 2025, which we previously communicated has been undetermined. The reason being the significant negative distributable amount on the balance sheet of the nonconsolidated financial statements for Dentsu Group Inc., which resulted from a loss on valuation of shares in affiliate companies, et cetera, which in turn resulted from the impairment of goodwill. Furthermore, we regret to announce that no dividend is forecasted for fiscal 2026 based on similar reason. As for fiscal 2026, we are expecting the Japan business to continue its steady growth with an organic growth rate of 2% to 3%. For the international business, we are expecting CXM in the United States to return to growth, which was -- which has been recording negative growth since fiscal 2023. We will continue to work towards restoring our competitiveness and improving profitability. Additionally, we have filed a shelf registration for the issuance of bond-type class shares today in order to secure flexibility options for strengthening our financial position in preparation for future growth investments. Now on recent highlights. Globally, our AI-driven advertising strategy was highly appreciated by Siemens and will result in our relationship being updated and expanded in more than 150 countries. In Japan, we were selected by Samsung Electronics Japan as its partner agency based on our comprehensive capabilities that include both our abilities to make annual proposals and to form teams for strong execution. In the Americas, we were able to expand our relationship into the media domain with a major retailer, BJ's Wholesale Club, building upon the trust we have established in the CXM domain. Also in Italy, currently hosting the Winter Olympic Games, we won Esselunga, one of the country's leading food retail brands as well as Fastweb following our success in the Vodafone Group in EMEA and the U.K. we announced in the third quarter. As for industry awards and recognition, Dentsu Creative New York won the Grand Prix Prize at The Drum Awards. Furthermore, Dentsu Taiwan demonstrated its overwhelming competitiveness in the region by winning some 200 awards across various areas. Our CXM division was recognized as a leader in Gartner's Magic Quadrant for Digital Experience services for the second consecutive year, reflecting the consistent strength of our technology and value we provide. In addition, Dentsu Sports & Entertainment launched its operations in the Indian market, making an important step towards expanding our presence across Asia. I'll now pass the microphone to our CFO, Shigeki Endo, to update you on our financial results. Shigeki Endo: This is Shigeki. Let me take you through the financial results for fiscal 2025. I will start with key metrics. The full year organic growth rate was 0.5%, slightly above our guidance of broadly flat announced on November 14. This was due to the strong performance of our Japan business, which widely exceeded expectations. Results in the Americas and APAC were generally in line, while EMEA was slightly below expectations. The organic growth rate for the 3 months of the fourth quarter was 0.9%, maintaining positive growth following the third quarter. Consolidated full year net revenue increased 0.3% year-on-year to circa JPY 1.2 trillion, but underlying operating profit decreased 2.1% year-on-year to JPY 172.5 billion due to internal investments to restore our competitiveness as we explained last February. As a result, the full year operating margin was 14.4%. It fell 40 basis points below the previous year, but exceeded the 13% range guidance upgraded in November. This was due to the strong performance of the Japan business in the fourth quarter and cost controls in the Americas as well as scrutiny of internal investments. Moreover, regrettably, following on from the second quarter, we recorded an additional goodwill impairment loss of JPY 310.1 billion in the Americas and EMEA in the fourth quarter. As a result of the recording of goodwill impairment loss of JPY 396.1 billion for the full year on a statutory basis, we recorded an operating loss of JPY 289.2 billion and net loss of JPY 327.6 billion. The impairment was recorded with new assumption for impairment test, reflecting a revision to the level currently assumed to preclude further impairment losses. I will touch on this later at the end of my presentation. Now let me explain our full year performance by region. Japan business, which accounts for 42% of the group's net revenue, performed well throughout the year, achieving a high full year organic growth rate of 6.2%. Meanwhile, our international business saw negative growth rates in all regions. By market, the United States, the United Kingdom, Australia and China recorded negative growth, while Spain, Poland, India, Thailand and Taiwan saw positive organic growth. Next, detailed explanation of each region. In Japan, the full year organic growth rate was 6.2%, widely exceeding our expectations in November. Both net revenue and underlying operating profit reached record highs. As of November, we had anticipated a slight top line decline in the 3 months of the fourth quarter due to the high growth rate in the previous corresponding period. However, Japan recorded mid-single-digit positive growth with the marketing business exceeding expectations, driven by television, Internet media and marketing promotions and one-off content-related revenues. For the full year, Internet Media, in particular, performed well throughout the period. Due to business expansion with existing clients and revenue recognition from new clients won through pitches, Internet has seen double-digit growth in turnover for 8 consecutive quarters. BX also achieved double-digit growth with DX also performing well. In Japan, staff costs increased as we continue to implement talent expansion for future growth. But the increase in net revenue more than offset this, resulting in a full year operating margin of 24.4%, the same level as the previous year. I will come back on the guidance later, but we expect continued steady growth in Japan in fiscal 2026 with an organic growth rate of 2% to 3%. In the Americas, which accounts for 26% of the group's net revenue, the full year organic growth rate was negative 3%, in line with our November expectations. By business domain, CXM, which has been struggling, continued its sequential growth throughout the year and is indicating signs of bottoming out. We believe that this was driven by more precise analysis and evaluation under the new management structure, which strengthened the pipeline and led to wins of multiple new clients. Meanwhile, Creative saw a top line decline due to reduced client spending and losses during the year. Media continued to remain stable for the year. Furthermore, the full year operating margin was 22.9% 40 basis points higher than the previous year. While making internal investments, the Americas reduced its SG&A expense by approximately 3% on a constant currency basis through cost controlling efforts and maintained its operating margin level despite top line decline. In the Americas, we expect an organic growth rate of circa negative 2% in fiscal 2026 because of the anticipated top line decline in creative due to factors such as client losses that occurred in fiscal 2025, as mentioned earlier. However, CXM anticipates a return to positive growth. EMEA's full year organic growth was negative 1.8% slightly below our November expectations. This was due to delays in projects and change in scope for several clients in CXM. Our business domain for the full fiscal year, both CXM and Creative recorded high single-digit negative growth. It will take some time for CXM in EMEA to recover, whereas as mentioned earlier, CXM in the Americas is indicating signs of bottoming out. Meanwhile, Media, which accounts for more than 60% of EMEA's net revenue remained stable. During the 3 months of the fourth quarter, the United Kingdom continued to face challenges in CXM, but Spain achieved positive growth in all of the domains. The full year operating margin was 12.4%. Despite efforts to control SG&A expenses in response to top line decline, the operating margin was slightly lower than the previous period due to factors, including internal investments. We expect an organic growth rate of circa 1% for fiscal year 2026. APAC full year result was in line with our November expectations. However, the organic growth rate remained negative 6.8%. By business domain for the full fiscal year, Media remained stable, while CXM and Creative continued to face challenges, registering double-digit negative growth. However, the 3 months of the fourth quarter saw a slight turn to positive growth, the first since the fourth quarter of 2022. In China, media, which accounts for a high proportion of the total net revenue is turning to positive growth for the full year with increased win rate. We'll continue to strive for improved performance. The full year operating margin was 2.5%, an improvement from the previous fiscal year, but still at a low level. However, we have implemented thorough cost control and SG&A expenses, including internal investments, decreased by approximately 8% year-on-year on a constant currency basis. This enabled underlying operating profit to increase despite the lower top line. For fiscal 2026, we are expecting organic growth rate of circa 1%. Next, I will explain about the changes in underlying operating profit from the previous corresponding period. Full year underlying operating profit decreased by JPY 3.7 billion year-on-year from JPY 176.2 billion to JPY 172.5 billion. The group net revenue increased by JPY 3.3 billion from the previous fiscal year as the JPY 28.8 billion increase in Japan offset the JPY 24.8 billion decrease on a constant current basis in the 3 international regions. Staff costs increased by JPY 2.6 billion from the previous fiscal year across the group. Although the 3 international regions realized a total reduction of JPY 13.5 billion, primarily in the Americas and APAC, Japan registered an increase of JPY 13.8 billion, mainly due to talent expansion and the additional bonus payments in the fourth quarter. Similarly, operating expenses increased by JPY 3.6 billion from the previous fiscal year across the group. This was due to Japan recording an increase of JPY 9.1 billion due to factors such as the rebounding effect of the gains booked on foreign exchange hedge in the fourth quarter last fiscal year, which was partially offset by the decrease of JPY 6.3 billion realized by the 3 international regions. I'd now like to move on to our guidance for fiscal 2026. The organic growth rate is expected to be in the range of 0% to 1%. Japan business is expected to remain steady with positive growth of 2% to 3%, while the international business, which has recorded negative growth for consecutive years, is aiming to be broadly flat. In the Americas, despite the expectation of CXM returning to positive growth, organic growth rate is assumed at circa negative 2% due to factors such as client losses in Creative last year. EMEA and APAC are both expected to achieve organic growth of circa 1%. Meanwhile, operating margin is expected to be in the 13% range, slightly lower than the level from the previous year. This is due to overall costs being higher than last year, driven by internal investments and the impact of inflation. However, some of these increases will be offset by the benefits gained from the initiatives to rebuild the foundation of our international business. On a statutory basis, the group is expected to return to profitability in fiscal 2026, forecasting operating profit of JPY 152.6 billion and net profit of JPY 69.7 billion despite the continued recording of one-off expenses for rebuilding the business foundation during the fiscal year. Now please allow me to explain in some detail about the goodwill impairment loss. First, I deeply apologize as management for having continuously recorded impairment losses on goodwill. To reiterate, the fiscal 2025 organic growth rate was slightly higher than our expectation and the operating margin exceeded expectations. Americas CXM business, which had triggered the impairment, is gradually indicating signs of recovery and the medium-term outlook for international business has not deteriorated rapidly. However, we have reviewed the assumption for impairment test, as shown on the lower part of the slide in consultation with our auditors. As a result, apologies for the figures -- apologies that the figures are presented on the next slide and a goodwill impairment loss of JPY 310.1 billion was recorded in the fourth quarter. Combined with the second quarter, the total impairment loss on goodwill recorded for the full year amounted to JPY 396.1 billion. The group's total goodwill balance now stands at JPY 320.1 billion, representing a decrease of more than half from circa JPY 700 billion at the end of fiscal 2024. The assumption for this impairment test reflects a revision to the level currently assumed to preclude any additional goodwill impairment losses going forward and is entirely separate from the fiscal 2026 guidance explained earlier. For example, in the Americas, the full year 2026 organic growth rate in our guidance is circa negative 2%, while the impairment test projects negative 8.2%. This reflects a significantly more challenging view, especially considering that the Americas organic growth rate in fiscal 2025 was negative 3%. This severe view is based on 4 points. First, the impairment test assumption excluded all projects with identified potential order losses and adopted a significantly more conservative order outlook than the normal budget. Second, margins were also conservatively assumed. While the fiscal 2025 actual margin in the Americas was circa 23%, the impairment test assumed circa 17% for fiscal 2026. And excluded any future benefits from the ongoing rebuilding the business foundation initiatives, which are already showing results. Third, unlike the impairment recorded in the fourth quarter of fiscal 2024, we applied an extremely conservative assumption for the first year, which has the greatest impact on the impairment test. Finally, we also lowered the medium- to long-term growth rate for fiscal 2028 and onwards for the impairment test from circa 3% at the second quarter to circa 1%. Next is about the dividends. As was the case in the second quarter, goodwill impairment led to a loss on valuation of shares in subsidiaries and affiliates on a nonconsolidated basis and this caused distributable profit to become negative by JPY 234.3 billion, which serves as the source of dividends under the Companies Act. For this reason, we regret to announce that we have resolved to pay no year-end dividend for fiscal 2025 and are forecasting to pay no dividend for fiscal 2026. In response to this, we will endeavor to enhance EPS and maximize TSR by focusing on key areas where we are already making progress in achieving results and by thoroughly executing the initiatives to rebuild the business foundation and to reevaluate underperforming businesses. Additionally, we will make every effort possible to resume paying dividends in the future, including further acceleration of nonoperating asset sales. Furthermore, we have filed a shelf registration for the issuance of bond-type class shares that do not result in dilution of common stock, subject to approval of the partial amendment to the articles of incorporation at the Ordinary General Meeting of Shareholders in order to secure options in advance for enhancing the financial foundation in preparation for future growth investment. That is all from me. I would like to hand back to Igarashi san for the strategic update. Hiroshi Igarashi: Thank you, Shigeki. As explained, we have revised the assumption for impairment test at this time to the level where no further impairment losses on goodwill are expected. We deeply regret to announce that no dividend payments will be made for fiscal 2025 nor forecast for 2026. We remain fully committed to enhancing shareholder value by executing the strategies outlined in our midterm management plan, improving profitability and working toward the resumption of dividend payments in the future. Now I'd like to explain our strategic updates. As stated in our midterm management plan, the most urgent challenge for our group in returning to growth is restoring profitability in our underperforming international business. Our basic strategy is to improve profitability by reevaluating underperforming business and rebuilding our business foundation while restoring our competitiveness through internal investments and a focused business strategy. First, on reevaluating our underperforming businesses, recognizing that markets with significant invested capital and consecutive net losses were the main causes of deterioration in our group's performance, we accelerated the reevaluation of these underperforming businesses and executed initiatives. In the last fiscal year, both China and Australia, which have been loss-making since fiscal 2023, returned to profit on an underlying operating profit basis. This turnaround was achieved through rigorous cost efficiency initiatives, including front office optimization and compensation revisions. Although both markets showed negative organic growth for the last fiscal year, China's organic growth turned positive in the third and fourth quarters, contributing to the improvement in profitability. We will continue to review each market based on recent performance and steadily advance towards our goal to achieve no loss-making markets this fiscal year. In addition, for certain underperforming businesses, we have already begun process for downsizing, withdrawal or divestment. We will make an announcement as soon as possible for this fiscal year and beyond. Next, let me address the rebuilding of the business foundation. In fiscal 2025, we utilized JPY 20 billion as one-off expense and realized cost saving effect of JPY 14 billion. This includes a portion of the savings generated through workforce reductions involving 2,100 employees as part of the broader headcount reduction plan of 3,400 employees announced last August. In addition, we continued initiatives for standardization and sophistication of operations through business transformation driven by AI and automation. As part of this rebuilding of the business foundation, we have established approximately 750 internal initiatives, more than 80% of which are either already completed or currently in progress. The remaining headcount reductions will be implemented in fiscal 2026, adding JPY 28 billion in additional savings and bringing the total cost savings impact to JPY 42 billion. We expect the one-off expenses for this fiscal year to be JPY 26 billion. Our rebuilding the business foundation initiative also includes organizational restructuring such as continuing to integrate and reduce group companies. The number of international entities has been reduced by more than half as of January 2026 compared to January 2021 when we operated over 1,000 entities. This initiative will continue through this fiscal year. By integrating and simplifying headquarter functions, we will reduce costs further while progressing towards creating an organization that can deliver value to clients more quickly. Through the rebuilding of our business foundation, we now expect to achieve cost savings of approximately JPY 50 billion in annual operating costs in 2027 as announced in the midterm management plan. The cumulative efforts, including these initiatives of reevaluating underperforming businesses and rebuilding the business foundation have delivered results, enabling our international business to return to positive operating cash flow in fiscal 2025. Next, I would like to talk about our business strategy to restore our competitiveness. In the midterm management plan disclosed in February 2025, our group sets a policy of achieving global growth by becoming a growth partner for clients in every market. Building on this approach, our aim is to maximize the value we deliver to clients by sharpening our strategic focus across markets, clients and capabilities. I will now outline our progress in the United States, which we position as a focus market. As Shigeki explained, we expect negative organic growth for the Americas due to revenue declines in the creative domain. However, we are seeing 4 clear areas of growth momentum in the United States. First, we are advancing our transformation partner model through strong relationships with global clients. With Adobe, we established a global production and operating model through Dentsu Creative, enabling large-scale marketing support across multiple regions, including North America. And in the second half of last year, the partnership further expanded through Merkle into strategic transformation. Second, we are driving integrated growth with U.S. rooted local clients through the combined strength of media and CXM. With clients such as Principal Financial Group and i-Health, we are deepening relationships at the C-suite level while delivering unified media and CXM solutions, leading to a broader cross-practice expansion. Third, we are implementing and advancing an AI-powered content supply chain. Our capabilities to enhance creative production and automate content creation, activation and optimization through AI is being deployed to clients such as in the hospitality industry. Finally, in CXM, we are strengthening modern CRM using customer data as a core engine, connecting marketing execution with business operations. We are expanding initiatives that drive direct business impact by integrating loyalty and owned media capabilities into a data-driven operating model. We have extensive expertise in the quick service restaurant sector with recent examples, including Dairy Queen and Domino's. These momentums are also supporting the recovery of our CXM business, which accounts for some 35% of the U.S. net revenue. Despite continuing significant negative growth since fiscal 2023, the CXM business is expected to return to growth starting fiscal 2026. We believe this turnaround reflects the new leadership team's strong commitment and their continuous initiatives in improving performance as demonstrated by the increased win rates, reduced customer churn and stronger roster. In terms of capabilities, our CRM domain is driving growth, which among CXM has a strong affinity with media. We will continue to reinforce this area. In addition, we are seeing stronger client demand for new ways of utilizing AI, such as Agentic AI. We expect to generate revenue by combining our strength in commerce, analytics and data engineering within our CXM business. Regarding our international business, we are continuing to execute a strategy that positions media at the core of our growth. Media is an important business for us as it represents more than half of our net revenue in the international business, and it has delivered positive organic growth for 2 consecutive years. In fiscal 2025, media registered a steady performance by maintaining positive growth, not only as the international business, but also in each of the regions. Net wins for new media projects -- new media project also remained positive in both half of fiscal 2025, and we expect to maintain this momentum into the new fiscal year. Internal investments introduced under the current midterm management plan to strengthen core capabilities are also making a progress with a focus on further advancing our media-centered growth strategy. In fiscal 2025, we invested JPY 8 billion in developing data and technology-driven tools such as dentsu.Connect and in accelerating AI implementation. In fiscal 2026, we are planning to utilize up to JPY 14 billion in investing in the data and technology domain with the emphasis on strengthening our media business as we did last year. I would now like to share my concluding thoughts. In fiscal 2026, we will continue to realize a steady growth in our Japan business and achieve a turnaround in the U.S. CXM business so as to further restore our competitiveness and profitability. Given the extremely low likelihood of having to recognize further impairment losses on goodwill, we are confident that statutory profit will return to positive in fiscal 2026. However, considering the current performance and the changes in the business environment, we are withdrawing and will reset in due course some of the key financial targets for fiscal 2027 we disclosed in the midterm management plan. Having said that, we are still targeting operating margin of 16% in fiscal 2027 based on the expected continued realization of outcomes from profitability improvement initiatives going forward. We are planning to announce early this fiscal year our strategy for accelerating the transformation we set out in our midterm management plan. In addition, we are still exploring potential partnerships to enhance our competitiveness, and we will make announcements without a delay should any situation arise that require disclosure. Finally, we filed a shelf registration for the issuance of bond-type class shares today in order to secure flexibility options for strengthening our financial foundation in preparation for future growth investments. And finally, as announced today, we have decided to move to a new management structure to further accelerate our transformation. At our group, the Nominating Committee has been carefully reviewing potential candidates for the next CEO based on our succession plan. Amongst those candidates, Mr. Sano was determined to be most qualified to lead the group going forward during this transitionary period based on his strong track record in improving the performance of the Japan business as well as the efforts that he has been making in business transformation and in maximizing corporate value at a global scale. And so I would like to invite Mr. Sano to say a few words. Takeshi Sano: I'm Sano. Nice to meet you all. With this management structure, I will drive active discussions and mutual collaboration among the executive team so as to accelerate the execution of our strategies. I look forward to receiving your support. And I will certainly contribute to enhancing corporate value. Look forward to receiving your support. Thank you. And thank you for your attention. I'll now hand back the microphone to the operator. Natsuki Morishima: [Operator Instructions] The first question is Abe san from Daiwa Securities. Masayuki Abe: I am Abe from Daiwa Securities. I have 2 questions. My first question is regarding the impairment. So the equity ratio is down as a result of that. And as you said, you are filing shelf registration for the issuance of bond-type class shares. And I would like to ask about how you see the equity level. Do you think that you need further capital infusion from outside? Or do you -- are you simply preparing for further worsening of the financials? So I would like to ask your outlook regarding that. And then next is the business outlook. So outside of the North America, you are forecasting an increase in net revenue. Do you think that this is a conservative figure? How certain are you regarding the growth next fiscal year? Hiroshi Igarashi: Thank you very much, Mr. Abe. Regarding the first question, regarding the shareholder equity ratio from the impact of the impairment and what kind of options we are considering if there is further worsening of the shareholder equity. I would like to invite Endo-san, CFO, to respond. And the second question was that outside of the Americas, each region is expecting an organic growth. And do you think that this is a conservative figure? I will respond to this question. Shigeki Endo: Thank you. This is Endo. First of all, the consolidated equity is JPY 370 billion after impairment. It is not that we will immediately need equity finance. On the other hand, growth investment and structural reforms will continue. Therefore, in terms of the financing, we will consider every option, including equity finance. And as part of this consideration, in order to strengthen the financial basis for making such an investment without diluting EPS, in order for us to issue bond type cash shares in a more agile manner, we are going to ask for the approval of the AGM for the shelf registration. Hiroshi Igarashi: And second question, I will respond to the question. The increase in net revenue outside of the North America, is this a conservative outlook? And the response is, yes. We have -- for each market and for each region, been considering the budget formulation. Of course, we look at both risk and opportunity in detail. And we have incorporated the risks in our calculation for our budget. And we have issued the guidance as a result of that reflection. Therefore, we believe that this is an achievable budget. Natsuki Morishima: The next question will be from Mr. Maeda from SMBC Nikko Securities. Eiji Maeda: This is Maeda from SMBC Nikko Securities. So to begin with, the thinking behind the impairment on this occasion. From our perspective, we feel that it is better to take the impairment as quickly as possible. That is the kind of the position we have spoken previously. But on this occasion, you have embedded an impairment loss that would lead to 2 consecutive years of nondividend payment. But if you look at the recent performance, one may think that you may not have been required to take the impairment. So I thought that there could be a significant message or a significant intent behind it. So you didn't want to keep any negative legacy under the new management structure or did you want to kind of draw a line here to make significant improvement in international business versus that diminish? In order for you to engage in business structure reform, if you had goodwill still, then there was potential risk of having to take impairment in future. So did you actually dealt with that in advance? I think this was quite a bold recognition of goodwill on this occasion -- impairment on this occasion. So I wanted to understand the intent behind this. That's the first question. And for second question, in regards to the international business, based on your explanation thus far, it seems that you can aim towards recovery on your own and the success example from Japan can be implemented for international business that could potentially lead to different results. But the structural reform for the international business and towards the new management structure, what are the views? And if possible, I would like to hear a comment from Mr. Sano in this regard as well. Hiroshi Igarashi: Thank you, Mr. Maeda, for your question. First, in regards to our thinking behind the impairment, we should take the impairment as quickly as possible. And what was the situation on this occasion? It seems that we have recognized quite a significant impairment. Is there a significant message behind this? Have you kind of embedded the risk of the impairment in the future? So well, I would like to ask CFO, Mr. Sano, to respond and I will follow with my comments after him as well. And the second question is in regards to the international business. It seems that we can achieve recovery by ourselves. So inclusive of the structural reform, you wanted to hear a comment from Mr. Sano, who will be leading the company going forward. So I'll ask Mr. Sano to respond to the second question. Takeshi Sano: So this is Sano is speaking. Thank you, Mr. Maeda, for your question. So in regards to the impairment, please allow me to give some detailed explanation. So in the fourth quarter of FY 2025, we registered the goodwill impairment of JPY 310.1 billion and this comprised JPY 230.8 billion in the Americas and JPY 79.3 billion in EMEA last year in FY '25 in the second quarter. If we put the 2 together, we've recognized JPY 396.1 billion of the impairment loss for the full year. And if we break that down, Americas accounted for JPY 299.7 billion, EMEA, JPY 96.4 billion. And as a reference, the full year 2025, the total impairment amount was JPY 402.6 billion. And so apart from these that I have described, there were some impairment of intangible assets as well, which make up that number. And so the thinking behind this and our performance for FY '25, as we have explained, we were able to achieve a positive growth slightly above our expectations and our margin exceeded our expectations. And to say more, the Americas CXM, which triggered the impairment, is now steadily showing the recovery signs. And so it was not the case that we saw a rapid deterioration in the international business. But the assumption for the impairment test and we consulted with the accounting auditor and we have decided to revise the assumption. And the business assumption for the impairment test was such that no additional impairment loss would be recognized in the future. And so we actually lowered the level to such a level. And for FY 2026 we have a guidance, but this is completely separate from the impairment issue. So from our perspective, and I'm kind of repeating myself, but impairment of goodwill; we don't want to recognize any further impairment of goodwill in the future so we revised the numbers to those level. And the guidance for FY '26, which is to achieve profitability, and we have been deeply focused on that and so that was the basis upon which, we recognized the impairment in FY '25. Hiroshi Igarashi: And this is Igarashi speaking. It's exactly as Mr. Sano has explained. But from our perspective as a management, we have essentially caused negative surprise to yourselves and this is something that we regret significantly, the significant impairment loss on the goodwill on this occasion. And this came with the thinking that we do not -- no longer want to cause a negative surprise in the future. And so we took that in mind and discussed with the accounting auditor and made assumptions at that table. It's really based on reflecting all of the risk factors. But as Mr. Maeda has indicated, together with the reform of international business going forward, would there be a potential risk in the future? Well, rather than assuming that for now, we have reflected all of the risk to the maximum level possible so that we no longer will have to come up with negative surprise in the future and we wanted to engage in the reform on that basis and that is the message I would like for you to take. So I would like to ask Mr. Sano to make comment in regards to the international business. Takeshi Sano: This is Sano speaking. Mr. Maeda, thank you for your question. Yes, as you have indicated, at a certain likelihood that we do expect to be able to achieve that growth. Market, as you know, has undergone quite significant changes. Many changes are taking place due to AI or in international markets, we are seeing mergers of mega agencies. So many things are happening right now. So in the era of many changes, as many people say, it's also an opportunity. And from 2025, we've already started to achieve certain results in regards to rebuilding of our business foundation. And as I explained already, we have achieved the outcome, but we need to accelerate that even further. And so for that, revisiting the entities, improve transparency and to make the management structure more simple and they would enable a greater acceleration. The other is in regards to growth. So as you have indicated, many knowledge that we can utilize from Japan and for each of the markets not being completely uniform, but the markets have various strength or there are the client structures or the client -- the nature. So we need to identify how to win in each of the market and we feel that we can certainly do this. This completes my response. Natsuki Morishima: Next question is Mr. Kishimoto of Mizuho Securities. Akitomo Kishimoto: This is Kishimoto from Mizuho Securities. I also have 2 questions. My first question, For FY '26, I'd like to ask about the pitch size or pitch scale. What is the amount of pitch that you are seeing for this fiscal year and what is the ratio of offense and defense amongst the pitches? Next is the outlook for the Japan business. I believe that you have a really good pitch win rate. On the other hand, the organic growth rate is only expected to be 2% to 3%. Perhaps you are being conservative or last year there were some special market factors around TV. So perhaps last year was very strong and maybe as a rebound, the growth rate in FY '26 looks softer. Those are my 2 questions. Hiroshi Igarashi: Thank you very much, Mr. Kishimoto for your question. FY '26, I think your first question was more about the international business, the size of the pitches in the FY '26. So I would like to respond to that question. And regarding your second question regarding Japan business, FY '26 organic growth rate, 2% to 3%. Is this conservative or not? Is there any special factor behind that? I believe that this was your second question. So let me respond to your first question. FY '26 pitch size for Media pipeline, JPY 4.2 billion is the current size. Out of this pipeline, 80% is offensive. So 80% is offense and this pipeline is what we want to realize and also we would like to be winning new opportunities as well by approaching customers. And for Creative, there are some pitches that will be happening, but there is a lot of competitive pressure. Currently, GBP 701 million is the size and 73% is offense. For CXM, the pipeline is different from the other domains, but the pipeline is actually growing for CXM and 14% growth year-on-year, about [ 106 million. ] CXM, we have been doing very detailed analysis since last year so the pitch win rate is very good for CXM. On the other hand, client retention is also very high. So with that considered, we believe that the recovery trend will strengthen. Regarding the second question, I'd like to ask Sano-san to respond. Takeshi Sano: Thank you, Mr. Kishimoto, for your question. To give you the conclusion first. Yes, slightly conservative outlook I would say. One is that 2025, 6.2% growth rate, which is a high growth rate and so there is some rebound from that. And also last year there was the World Expo and the World of FedEx and so there were some large-scale events in FY '25. On the other hand, looking at the very strong share price and -- the stock market and the new administration from the election, the market environment is not bad at all. And there is the WBC, FIFA World Cup, the current Olympics and there are many large-scale events as well as the Asian Games. And so we have a good win rate and the Internet business, which is a growing business, we are growing ahead of our competitors. So against the guidance, we would like to outperform. Natsuki Morishima: So the next question is from Mr. Nagao from BofA Securities. Yoshitaka Nagao: This is Nagao from BofA Securities. My question is in regards to the balance sheet on a nonconsolidated basis. So I understand that the retained earnings is negative right now so we have the loss on retained earnings, but you have cash and you have the reserve capital. So the net asset overall is still positive. But in order to secure a buffer to enhance your capital so the capital policy on this occasion is essentially issuing a bond on this occasion. Is that the right understanding? So I wanted to ask and receive explanation about your capital policy going forward. So that's the first question. The second question is in regards to the North American business. CXM business apparently has started to improve and the Media business has recorded 2 consecutive years of positive and I understand that you want to also add values in the D&T area. So it seems that the forecast is not that pessimistic. Well, going forward when you look at the organic growth for the U.S. going forward, what are some of the concerns? If you could elucidate on that, please? And is it 2 questions per person? And the third question is the midterm management plan and you said that the operating margin target of 16% will be maintained. But you did take the impairment loss on the goodwill, but the ability to generate operating cash flow, I feel that, that has not been damaged. And so I think the operating cash flow target was JPY 140 billion. So do you have concerns about your ability to generate cash to that extent? It does relate to the first question on the balance sheet ability to generate cash flow. I don't feel that, that has been damaged. So could you give some comment on that, please? So those are the 3 questions. Hiroshi Igarashi: Thank you very much, Mr. Nagao for your question. For the first and the third question, Mr. Endo will respond to those together. This is the balance sheet regarding the unconsolidated basis and so the retained earnings or the net asset position, it seems that we still have room. So was that to secure a buffer on the capital policy that we are considering the issuance of class shares. So you wanted opinions about the capital policy and also in regards to ability to generate cash. So Mr. Endo will respond to that together. And the second question in regards to the North American business, it seems that it is starting to show steadiness. Is there are any concerns? And for that question, we'll ask Mr. Giulio Malegori to respond. Shigeki Endo: So this is Endo. Thank you very much, Mr. Nagao, for your question. So the balance sheet on a nonconsolidated basis. Well, the consolidated, the impairment loss that we have taken on this occasion, the distributable amount which is the source of dividend, ended up being negative JPY 234.3 billion. And with that and so whether it be the equity ratio or other financial, the indicators are impacted due to the impairment. And so we want to be able to issue class shares by changing our Articles of Incorporation. But this is more from the perspective of preparing for future big investment and we want to also strengthen the financial position to have greater I suppose flexibility in able to engage in various initiatives. So that's the first point. And the third question is the operating margin of 16% in the midterm management plan. This has been maintained. Well, as for cash, are there any concerns or not? I think that was the gist of your question. Well, in FY '25 and based on the track record, cash flow overseas, this is operating cash flow; this has been negative for several years, but this turned positive in FY '25. So in that regard, it's not the case that we have concerns about the cash. That is our view right now. But over medium to long-term growth going forward, we need to make investments. And so here under the new structure, we wanted to revisit the situation. And so in regards to the financial, the indicator of 16%, we have decided to maintain. Hiroshi Igarashi: So Giulio, please respond to the question. Giulio Malegori: Thank you, Nagao-san, for the question on the outlook of North America and any concern specific to that. Well, as you heard, we are looking for organic growth minus 2% for the full year. Let me elaborate quickly and briefly on each practice and then will comment specifically on the concern. When we look at Media, the solid momentum should continue. We anticipate more demand in performance-oriented and data-driven channels. And so we will accelerate our investment in the Media ++ strategy and we also embed AI-enabled workforce with stronger data integration across planning, activation and analytics. In CXM, I think you already heard about the progress and we intend to further accelerate the content supply chain and modern CRM. So to your specific point on the concern, this is really focused on the creative practice where we anticipate is an area that will face challenge. As Mr. Endo quoted, we've unfortunately seen significant client losses during '25 and they are impacting '26. There will be also -- we are anticipating some client spend reduction that we got in '25. So we hope to stabilize the business throughout services that combine Creative and Media production and social, but we need to factor in the impact of the losses that we got last year. So that's the outlook. It's just factor in the impact of last year, but we have a clear plan going forward. Thank you for your question. Natsuki Morishima: We have passed the planned time, but we do have 1 more hand remaining. So I'd like to ask Mr. Harahata of Nomura Securities. This will be the last question. Ryohei Harahata: This is Harahata from Nomura Securities. Sorry for going over time. I also have 2 questions, if I may. First question is regarding Gen AI and how that will impact the competitive environment for advertising agencies. For overseas ad agencies, there seems to be a headwind regarding the share price. How do you plan to differentiate yourself in the new Gen AI era? And my second question is to the next President, Sano. As a member of the new management, amongst the challenges that were discussed today, which challenge do you think is the most urgent that you need to address first? So I'd like to ask about your priorities. Also, as the new management member, why do you think that the new management will be better positioned to address these challenges? What has been strengthened through the change in management? That is my question to Mr. Sano. Hiroshi Igarashi: Regarding your first question regarding GenAI and the impact on the competitive environment, how agencies will be impacted by GenAI and how Dentsu plans to formulate its strategy against this backdrop. So I would like to address this question. And the second question was addressed to Mr. Sano regarding the new management. What will be the priorities and how the new management structure will allow you to better address those challenges? So in terms of the first question. Indeed, as Mr. Sano also mentioned earlier, our industry -- but not just our industry, AI is making waves across the different industries and we ourselves cannot think about our future business without use of AI either. In terms of rebuilding the business foundation, I mentioned that there are 750 initiatives and these are not just cost-cut measures, but standardization and automation are major themes. So in order to make the operation more efficient, being less labor dependent, using AI for higher efficiency. This is also necessary for building the business foundation. And also we'd like to look at the upside for our business opportunities. This year AI for growth is a major objective. How by leveraging AI we can achieve higher growth? This is a group-wide initiative. And data and technology, dentsu.Connect is the center of our data and technology and so we would like to centralize the AI-related expertise here. There are over 700 clients that have already introduced dentsu.Connect and also many agencies are investing in this area. But for the clients rather than being locked into a closed platform of agencies, which many clients are concerned about, we focus on interoperability which is connected and open to other platformers and the clients themselves so that AI can be adapted and customized or improved to match the needs of the clients. So I believe that the clients will understand this and work with us together to resolve their challenges. And so this is different from other agencies and is unique to Dentsu. And this is something that is now being understood amongst the clients and I believe that we can deliver results based on this policy. So Mr. Sano, please address the second question. Takeshi Sano: Thank you very much for your question, Harahata-san. There is so much that I'd like to say, but I'd like to keep it simple. First is the rebuilding of the business foundation, transparency, simplification, visualization to look at underperforming businesses to choose whether to exit or shrink or to improve the profitability. We need to execute with speed. That is the most important thing. And as the organization, there is going to be a Chief Transformation Officer, which is the first position to be in Dentsu, and to rebuild the business foundation and reevaluate the underperforming business. This is the executive management who will be in charge of that. And second is regarding growth. Our growth is to identify the issues of the client ahead of the client and to help the client resolve those issues. This is how Japanese business grew and we have to expand this globally. And as an organization, we need to be more flat meaning that each head of the region reports directly to me. But also Jean Lin, practice head was in between the reporting to the President. But each Media, CXM, Creative; President will be reporting directly to me. So we will remove that layer so that we can identify the issues of the client and enhance our competitiveness in a more swift manner. So these 2 are what we would like to prioritize. But there's one more thing I'd like to mention. There is a Chief Branding Officer. So there were some weakening of our brand last year with some speculative articles. So for the customers to understand the brand, the Dentsu brand and the Media brand, et cetera, in order to enhance our brand power; Jean Lin will be the Chief Brand Officer. So that is another initiative that I want to mention. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Operator: Good morning, and thank you for standing by. My name is John, and I will be your conference operator today. At this time, I would like to welcome everyone to the Magna International Fourth Quarter Full Year 2025 Results and 2026 Outlook. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the call over to Louis Tonelli, Vice President of Investor Relations. Please go ahead. Louis Tonelli: Thanks, operator. Hello, everyone, and welcome to our conference call covering our fourth quarter and full year 2025 results and our 2026 outlook. Joining me today are Swamy Kotagiri and Phil Fracassa. Yesterday, our Board of Directors met and approved our financial results for the fourth quarter of '25 as well as our 2026 financial outlook. We issued a press release this morning outlining both of these. You'll find today's press release, conference call webcast, the slide presentation to go along with the call and our updated quarterly financial review all in the Investor Relations section of our website at magna.com. Before we get started, just as a reminder, the discussion today may contain forward-looking information or forward-looking statements within the meaning of applicable securities legislation. Such statements involve certain risks, assumptions and uncertainties, which may cause the company's actual or future results and performance to be materially different from those expressed or implied in these statements. Please refer to today's press release for a complete description of our safe harbor disclaimer. Please also refer to the reminder slide included in our presentation that relates to our commentary today. With that, I'll pass it over to Swamy. Seetarama Kotagiri: Thank you, Louis. Good morning, everyone. I appreciate you joining our call today. Let's get started. Overall, I was very pleased with our strong fourth quarter and full year 2025 operating performance. These results reflect the resilience of our business model and the continued traction of our operational excellence initiatives. Throughout 2025, we delivered meaningful margin benefits from operational excellence. We secured important commercial recoveries and across Magna, we executed our tariff mitigation plans, offsetting the vast majority of direct impacts. Together, these efforts contributed to our third consecutive year of adjusted EBIT margin expansion. Our relentless focus on cash generation delivered strong results. We generated $3.6 billion in operating cash flow and $1.9 billion in free cash flow for the full year. This reflects a disciplined approach to capital spending, improving to 3.1% of sales last year and continued improvements in our fixed cost structure and engineering optimization. As a result, we ended the year with 1.58x leverage ratio ahead of our expectations and $1.6 billion cash on hand. Now looking ahead to 2026. Our outlook reflects continued improvements in our operating performance. We expect weighted sales growth over market of 1.5% at the midpoint, adjusted EBIT margin expansion of 40 to 100 basis points and free cash flow of $1.6 billion to $1.8 billion. We remain confident in executing our deliberate and proven capital allocation strategy and driving EPS growth together with strong free cash flow. As of today, we have approximately 22 million shares available for repurchase under our NCIB, and we plan to repurchase all remaining shares during 2026, all while maintaining our strong balance sheet and financial flexibility. Now turning to our financial highlights. As you can see from the slide, we delivered solid performance in both the fourth quarter and the full year. In Q4, sales increased 2% to $10.8 billion despite a 1% decline in global production. Adjusted EBIT margin expanded 100 basis points to 7.5%. Adjusted EBIT increased 18%. Adjusted EPS rose 29%, coming in at $2.18, and we generated more than $1.3 billion in free cash flow, well ahead of a strong 2024. For the full year, sales were $42 billion, down slightly due to softer volumes in North America and Europe. Adjusted EBIT margin rose 20 basis points to 5.6%, adjusted EBIT grew 2%, reaching $2.4 billion despite lower sales and tariff headwinds. Adjusted EPS rose 6% to $5.73. Free cash flow increased $849 million, reaching $1.9 billion. Phil will take you through the quarterly details shortly. Our 2025 results were strong relative to both our initial and most recent outlooks. Sales, adjusted EBIT margin, adjusted net income, free cash flow and capital spending all landed within or better than our stated ranges. Our teams also achieved several important milestones in 2025. We hit our annual bookings target across multiple product areas. Our 2028 business is already about 90% secured. We strengthened our collaboration with NVIDIA, advancing AI-powered active safety solutions. And we were recognized with an Automotive News PACEpilot award for our thermal sensing technology. Let me take a moment to expand on the operational excellence work underway across the company. This contributed meaningfully to margin expansion in 2025 and is expected to add an additional 35 to 40 basis points of margin benefit in 2026, bringing our cumulative contribution to almost 200 basis points over the '23 to '26 period. We have built a unified digital architecture that now covers about 80% of our divisions, giving us clean, consistent data and real-time visibility into performance. Our material flow optimization program continues to expand, supported by our internal fleet management platform and is delivering safer, more reliable material flow while reducing operating costs. We continue to launch and scale AI solutions to provide valuable insights into scheduling, process quality control and condition-based monitoring. The common thread across all these initiatives is standardization, scalability and measurable outcomes. We expect them to support durable margin expansion going forward. And we received an all-time record 151 customer awards for quality and operating performance, another clear sign of our execution. Our performance is driven by our people. Our Operational Management Accelerator Program earned a Best Manager Development Award in just its second year. And Magna was recognized again as one of the world's most ethical companies and one of the world's most admired companies. Our team has a lot to be proud of. With that, I'll turn the call over to Phil. Philip Fracassa: Thank you, Swamy, and good morning, everyone. Let me start on Slide 19 with a detailed review of our strong fourth quarter results. Sales were $10.8 billion in the fourth quarter, up 2% from last year. Adjusted EBIT margin improved 100 basis points to 7.5% and adjusted EPS came in at $2.18 per share, up 29% from a year ago. Each of these metrics came in ahead of our expectations for the quarter. Now I'll take you through some of the details. Let me start with sales on Slide 20. Fourth quarter sales were up 2% overall compared to last year. We benefited from foreign currency translation, the launch of new programs, including the Ford Expedition, Navigator and Xiaomi YU7, higher sales from other ongoing programs and customer recoveries for tariffs. These benefits were offset partially by lower engineering revenue in Complete Vehicles, the end of production of certain programs, including Jaguar E and I-PACE assembly in Graz that ceased at the end of 2024, less favorable commercial items compared to last year and normal course customer price concessions. Global light vehicle production was down 1% overall in the quarter, with North America and China down, but Europe up. On a Magna-weighted basis, light vehicle production was also down about 1%. Our fourth quarter sales were up 2%, as I covered earlier. Excluding currency, our sales declined 1%, roughly in line with the market. And if you take out Complete Vehicles, our sales outgrew the market by 2%. Now let's move to EBIT on Slide 21. Fourth quarter adjusted EBIT was $814 million, an increase of $125 million or 18% from last year. Adjusted EBIT margin was 7.5%, up 100 basis points. Looking at the pluses and minuses, we benefited significantly from operational performance improvements, about 130 basis points. This includes continued progress on operational excellence and other cost savings initiatives, our ongoing efforts to optimize engineering spend and the benefits of prior restructuring actions, which more than offset the impact of higher labor and other input costs. We also saw a benefit of around 50 basis points from tariffs in the quarter. This reflects recoveries from customers for costs we incurred earlier in the year. With customer recoveries and other mitigation, our net tariff costs were less than a 10 basis point margin headwind for the full year, right in line with what we expected. Discrete items in the quarter reduced margins by around 50 basis points. This is comprised mainly of the unfavorable year-over-year impact of commercial items in the quarter, offset partially by the nonrecurrence of expense incurred last year related to 2 Chinese OEM consultancies. And finally, volume and other items reduced margins by about 30 basis points. This includes higher profit sharing and incentive compensation expense, lower engineering income on a tough comp last year and unfavorable mix, which was offset partially by earnings on higher production sales in the quarter. Next, let's take a brief look at our business segment performance, which is summarized on Slide 22. Here, you can see that 3 of our 4 segments posted higher sales year-over-year with a notable 8% increase in Seating. The exception on the sales line was Complete Vehicles, which was down 10%. This was largely expected and reflects lower engineering revenue and the end of production of the Jaguar E and I-PACE at the end of 2024. However, we did benefit from recent new launches with Chinese OEMs, namely Xiaopeng and GAC. Looking ahead, this should continue to represent a growth opportunity for our Complete Vehicles business. Moving to EBIT. Both Body Exteriors & Structures and Seating posted strong increases in adjusted EBIT margin year-over-year. Note that Seating margins benefited from the reversal of a warranty accrual in the current period, but margins would still have been up more than 200 basis points without this reversal. Complete Vehicles margin was in line with last year's solid fourth quarter despite lower sales. And in Power & Vision, margins were negatively impacted by a few discrete items in the quarter, the largest of which was a customer settlement for a product-related matter. Mix was also unfavorable in the period. These headwinds were partially offset by continued productivity and efficiency improvements and net tariff recoveries from customers. Excluding the discrete items, Power & Vision margins would have been up year-on-year and in line with our expectations. And as you will see in our outlook, we are expecting considerable margin expansion in this segment in 2026. Now let's look at cash flow on Slide 23. In the fourth quarter, we generated $2 billion in cash from operations, an increase of almost $100 million from last year. Operating cash flow in the current period includes over $400 million in customer recoveries related to investments for certain EV programs that have been canceled or pushed out. Investment activities in the quarter included $532 million in CapEx, plus $157 million for investments, other assets and intangibles. When you net everything out, we generated free cash flow of $1.3 billion in the quarter, well above our expectations and $316 million higher than last year. The increase reflects the customer recoveries I highlighted earlier as well as lower CapEx, offset partially by a smaller seasonal working capital reduction than we saw last year. And for the full year, free cash flow rose $849 million to $1.9 billion or almost 120% of adjusted net income. And we continue to return capital to shareholders, paying $135 million in dividends, along with $86 million in share buybacks in the fourth quarter. And just yesterday, our Board approved a $0.01 increase in Magna's quarterly dividend, which marks the 16th straight year of dividend increases. For the full year, we returned close to $700 million of cash to shareholders through dividends and share repurchases. Turning to Slide 24. Our balance sheet and capital structure remains strong. At the end of December, we had $5.1 billion in total liquidity, including $1.6 billion of cash on hand. We reduced leverage throughout 2025, including the repayment of a $300 million term loan in the fourth quarter. Our rating agency adjusted debt-to-EBITDA ratio was just under 1.6x at year-end, better than we anticipated 3 months ago, and we expect to be below 1.5x in 2026. This puts Magna in a great position to increase share repurchases significantly in the current year. Let me now turn to our outlook for 2026, starting on Slide 26. In terms of key macro assumptions, our outlook assumes a relatively flattish light vehicle production environment overall with slightly lower output in North America and China, offset by a slight increase in Europe. On a Magna-weighted basis, this would imply about a 1% decline in vehicle production. And with respect to foreign currency, you can see that we're planning for a weaker U.S. dollar against key currencies like the euro, Canadian dollar and Chinese yuan. Turning to Slide 27. Our outlook range for sales in 2026 implies that sales will be near flat to up 3.5% versus last year. Our sales should benefit from the launch of several new and replacement programs, including new assembly business for Xiaopeng and GAC in Graz, higher light vehicle production in Europe and foreign currency translation from a weaker U.S. dollar. This should be offset partially by expected lower light vehicle production in North America and China and the end of production of certain programs, including the BMW Z4 and Toyota Supra that we assemble in Graz and the Ford Escape in Louisville as Ford is changing over that plant for new programs to launch in 2027. If you remove currency translation and take out Complete Vehicles, that would imply growth over market for Magna in the range of positive 1% to 4%, a nice step-up from 2025. Let's move to EBIT margin on Slide 28. Our outlook is for adjusted EBIT margins to be in the range of 6% to 6.6%, which implies margin expansion of between 40 and 100 basis points from 2025. We anticipate positive contributions from operational excellence initiatives, earnings on higher sales, lower costs in areas like warranty and new facilities and higher equity income, which should more than offset the unfavorable impact of normal price concessions, higher launch costs and less contribution from tooling. And while we don't provide a quarterly outlook, I do want to provide a framework for how to think about first quarter margins. Similar to last year, we expect 2026 adjusted EBIT to be more back half weighted with first half EBIT just over 40% of full year EBIT. We also expect first quarter EBIT to be lower than the second. And looking at margins, our full year outlook implies that adjusted EBIT margins will be up 70 basis points at the midpoint. In the first quarter, we expect margins to be up year-over-year, but not as much as the full year guidance would imply. Slide 29 shows a summary of our full year 2026 outlook. I covered sales and EBIT already, so I'll focus on some of the other items. Most notably, we are now providing an outlook for adjusted earnings per share. For 2026, we're planning for adjusted EPS in the range of $6.25 to $7.25 per share. Below the EBIT line, EPS reflects approximately $180 million of interest expense and a 23% adjusted tax rate. With CapEx below 4% of sales, we expect 2026 to be another year of strong free cash flow in the range of $1.6 billion to $1.8 billion or over 90% of adjusted net income. After dividends, we expect to have significant cash available to repurchase shares while still reducing leverage and maintaining financial flexibility to support the business. Last November, we renewed our normal course issuer bid or NCIB share buyback authorization. This permits Magna to repurchase up to 10% of its public float over a 12-month period. There were about 24 million shares authorized for repurchase under the NCIB at the end of 2025. We've been in the market since the start of the year, and our outlook assumes we will complete the NCIB and repurchase the remaining available shares, about 22 million shares as of today. For purposes of the EPS outlook, we have assumed about 270 million shares as our full year average diluted share count, which reflects our planned share repurchases. Slide 30 gives you a view of 2026 sales and adjusted EBIT margins for our business segments. Let me point out just a few things. First, you can see the expected positive sales growth and meaningful margin expansion in our 2 largest segments, Body Exteriors & Structures and Power & Vision, which together represent roughly 3/4 of our sales. In Seating, we're planning for strong margin resilience despite lower expected sales. And in Complete Vehicles, we expect lower margins on lower anticipated sales. That's it for the financial review. Now I'll turn it back to Swamy to wrap things up. Swamy? Seetarama Kotagiri: Thank you, Phil, for walking through the details. Before we take questions, let me recap some of the key points. We ended 2025 with very strong fourth quarter and full year results, including adjusted EBIT margin expansion, adjusted EPS growth and strong free cash flow despite incremental tariff costs. Operational excellence remained a key driver of margin performance in 2025 and is expected to continue delivering benefits in 2026 and beyond. We have a solid outlook for 2026 with a fourth consecutive year of expected margin expansion, further EPS growth and strong free cash flow. We remain highly focused on shareholder value creation. We increased our dividend for the 16th consecutive year, and we expect to repurchase all of the approximately 22 million shares available under our current buyback authorization. We remain confident in executing our proven strategy and in continuing to drive EPS growth and strong free cash flow. Thank you for your attention. Now operator, let's open it up for questions. Operator: [Operator Instructions] Our first question comes from the line of Dan Levy with Barclays. Dan Levy: I wanted to start first with a question on your guidance for outgrowth ex-Complete Vehicles of 1% to 4%. This is better than what you've done the last 3 years now. And this is, I think, a bit of a positive surprise in light of, I would say, your key customers generally being down if we look at D3, D3 or with the exception of Stellantis, Ford and GM both down year-over-year. So maybe you could just talk about the underlying assumptions for the outgrowth of 1% to 4%. Seetarama Kotagiri: I think as I said in my prepared comments, the most important thing was the operational excellence activities that we have been working through over the last 3 years. as I said, I would say still we are in the early innings. We continue to get traction. We have been working at the cost structure -- the fixed cost structure again over years, and we are starting to see benefits into the statements now. We also talked about the new programs rolling in with new economic terms that we also talked about, which is, in some cases, labor being reset at the start of production. We are talking about capital inlay in some cases. And underlining that is our continued self-help activities. So that is the real reason for the margin improvements. And I would still say, if you look at some of the activities that I mentioned in our self-help again, we will continue to see that. This is just the -- I would say, still in the early innings. And as we proliferate these activities even further, we'll see more benefits going forward. Philip Fracassa: And maybe, Dan, I would just add one point relative to the 1% to 4% growth over market, excluding Complete Vehicles. So our organic guide was for roughly minus 1% to plus 2% at the midpoint. So if you take Complete Vehicles out, you get to plus 1% to plus 4%. And that's really driven, as you look at the segments, expected good growth in body Exteriors & Structures, Power & Vision, we do expect revenue declines in complete vehicles, which we excluded in that plus 1% to plus 4%, and also expected some declines in Seating just given model changeovers and end of production. But with good growth coming from DES and P&V and with launches and in the mix that we have, we feel really good about the ability to outgrow the market in 2026. Dan Levy: Okay. Great. The second point is to go back to the comments on the operational excellence. Maybe you could just give us a sense of the 40 or so basis points you're going to do this year was on top of another 30 or 40 basis points last year. How much more runway is there? And maybe you could just talk about also the extent to which commercial recoveries are being factored in here. We know that they seem to help you out in '25. What's the assumption on commercial recoveries in '26 for programs where the volumes maybe didn't materialize as planned? Seetarama Kotagiri: Yes. As I said, Dan, I think the operational excellence is a continuing journey. For sure, we see this continuing going forward. We have very clear visibility of the 35 to 40 basis points this year. But as I said, this is still an early play. This is based on some of the facts that I talked about, like 80% of our divisions now are kind of on a unified architecture, which gives us better visibility, about 140 divisions have real-time dashboards showing uptime, quality and throughput. We are looking a lot in terms of material flow optimization, which are showing the operating cost benefits, we are looking at about 120 divisions that are using vision-enabled robotics. There are applications of cobots, which are helping boost repeatability and to reduce some ergonomic strain. We are having some automated work instruction pilots that are helping cycle times. So all in all, I would say the standardized playbooks make these improvements repeatable across the footprint, and we can scale. So I would say this is a multiyear margin tailwind. Philip Fracassa: Yes. And relative to commercial iterms, the second part of your question, Dan, on commercial, '25 versus '26, we're sort of expecting relatively neutral year-over-year. You are correct. We did see a net benefit in the -- for the full year, it was slightly negative year-over-year in the fourth quarter, but a net benefit for the full year in 2025, and we would expect relatively neutral '25 to '26, and that's what's embedded in the guide. Seetarama Kotagiri: There is some plus and minuses by segment, but that's still said on a consolidated basis, it's relatively neutral. Operator: Your next question comes from the line of Joe Spak with UBS. Joseph Spak: Maybe just to sort of quickly follow up on that last point. But when you're saying commercial benefits neutral year-over-year, so if we relate that back to the organic growth, that is really program win and content win driven. There's no sort of pricing benefit baked into that organic growth assumption. Philip Fracassa: I think that's right, Joe. It would be primarily volume... Seetarama Kotagiri: Launching new programs at higher content. Joseph Spak: Yes. Okay. I guess I just wanted to focus on in Seating here for a second and the outlook. It seems like you're able to manage the margins decently here with a 6% decline. I know you mentioned some program roll-offs. Maybe you could talk about some of the cost actions taken to sort of help manage that margin. And then just bigger picture and longer term, there have been some reports of there being business conquested away from, I think, facilities that you've historically supported. So in those cases, what do you do with those facilities? Do you start selling assets? And just how you're sort of thinking about feeding to the Magna business case going forward? Seetarama Kotagiri: Maybe I'll answer a few questions right one at a time. To clarify, Magna has not lost any incumbent Seating programs to competitors, right? Our customer relationships remain strong. Our launches are on track, and the Seating pipeline continues to perform the way we expect. Maybe a little bit of clarity on Orion, which has been talked about in public. GM pivoted from all BEV trucks and SUVs to all ICE due to market dynamics. And most of the ICE vehicle production moving from Canada and Mexico and some SUV from Arlington, Texas, these were all competitor incumbent seats. Magna still remains incumbent for BEV seats, right? So Magna did not lose the BEV business. This was kind of a customer change in direction. I would say Magna Seating has been core and continues to remain a core and a really good returns business for us and profitable. I have to give kudos to the Seating team for working through all the dynamics that have been happening. And I think you also mentioned, right, the reason why we see a little bit of dip now is due to program-specific end of production, Ford Edge cancellation of EV Explorer and Chevy Equinox moved from Ontario, as I mentioned. And in the past, I also talked a little bit about high-volume North American program with a European-based OEM. That is rolling off or starting to roll off end of this year and the next generation launches fast launching end of this year, finishes into next year. So that drag we had on that program gets back to, I would say, the normal metrics for this segment. So that should be accretive. So all in all, I can reinforce or you would have seen the fourth quarter performance showing up, really good kudos to the team, '26 looks good. If you look at the revenue and the corresponding continuing traction in profitability. So all in all, I would say, no, we have not lost any incumbent programs. Yes, Seating is a core. And yes, we remain focused on executing, winning and delivering product for our customers. Philip Fracassa: Yes. One thing I'll add in '26, Seating continues to launch new programs, but the Ford Escape is a program that we have ceased on it's a high-volume program. As you probably know, Ford has taken that down to retool for another program that starts in '27. So that's what's impacting the '26 number pretty significantly given the size of the project. Joseph Spak: Okay. Maybe just one quick one. I know you're sort of not giving the year -- or forward outlook anymore. But just in terms of free cash flow, right, which is guided pretty strong this year, is that sort of high $1 billion, approaching sort of $2 billion, you think that's fairly sustainable? Or does CapEx need to sort of tick back up to support some of the wins that you've been able to book? Seetarama Kotagiri: Yes. No, thanks for the question. So yes, on free cash flow, obviously, very strong performance in 2025. I did mention the fourth quarter did benefit from some customer recoveries from past EV investments. But when you look at the 2026 guidance of $1.6 billion to $1.8 billion, CapEx last year was around 3.1% of sales. We're guiding to sort of the mid-3s, so stepping up a little bit, but still below 4%. We believe that level of free cash flow is sustainable. And we're targeting a conversion of 100% on net income. So we do expect that level to be sustainable and should support a capital allocation strategy for us, not just in 2026, but moving ahead as well. Operator: Our next question comes from the line of James Picariello with BNP Paribas. James Picariello: I just wanted to first ask about the Ford recall that Magna called out as of last quarter, covering the 3.6 million vehicles tied to your -- the company's camera. Is that now behind Magna? Because I mean, in the fourth quarter, there was a warranty hit. Just curious what's the latest update on that? Philip Fracassa: Yes. Thanks for the question, James. I mean the way we would break it down is really 2 separate matters. There was one matter that relates to a recall that was initiated in 2023 that we've been in discussions with the customer for a while on. We actually resolved that matter in the fourth quarter, made a payment to the customer, that matter is completely behind us. And we did take expense in P&V in the quarter for that settlement. That was settled as a commercial resolution, if you will. And then we also had the recalls that were announced in the third quarter, and that is an ongoing sort of process with the customer. We're working collaboratively with them, kind of developing the facts, getting to the root cause analysis. And that will continue into 2026, if you will. Whether that could be more or less what we've estimated, but we feel like we're pretty well covered. James Picariello: Yes. Because I imagine with that OEM customer, Magna also has some commercial settlement -- commercial recoveries tied to EV program cancellations as well, right, hypothetically. Philip Fracassa: Right. And then circling back on P&V, that was the main driver of the margin decline in P&V in the quarter. If you take the -- we had warranty charges even outside of the camera, but the camera settlements and accruals that we booked really more than explained the decline in margins. And if you take those discrete items out, if you will, margins would have actually been up year-over-year in P&V in the fourth quarter and would have been well in line with our expectations. And as we talked about, we do expect with those matters behind us, a real nice step-up in margins in 2026. James Picariello: And then just on the Power & Vision segment, specifically within this guidance, it looks like you're pointing to up 5% to 7%. Can you just provide some color as to what's driving that strong growth? Seetarama Kotagiri: Yes. I think Phil mentioned some of the things, right? We -- if you take away the discrete items that we had in the Q4, it performed the way we expected in 2025. And excluding this, the PV margins -- the P&V margins were good. All the structural improvements and the cost action support that we've talked about continue to add to the margin expansion in 2026. In 2025, we had some highlights that we're mentioning -- have been mentioning over different calls. We have some significant wins, award of eDrive programs on China-based OEMs, some of the programs we are launching that we had won in the past. So all in all, if you put these things together, including the operational excellence activities, that's what's driving the margin in PMV. Philip Fracassa: Yes. And really the growth being driven a lot by those new launches, James, that are coming on next year -- coming on this year. Operator: Your next question comes from the line of Emmanuel Rosner with Wolfe Research. Emmanuel Rosner: Just 2 quick follow-ups on earlier questions. The first one is on the commercial recoveries and items. I think you said at the EBIT line, it's about neutral on a year-over-year basis. Just curious from a timing of impact to free cash flow, it seems like some of these big, big EV-related payments that the D3 are making, they're all more like 2026 weighted rather than '25. So is the free cash flow benefiting from -- on a year-over-year basis of the favorable timing of some of these recoveries this year? Philip Fracassa: Yes. I think it's a great question. I think if you take a step back, so we did see in the fourth quarter on the free cash flow line, significant recoveries. I said over $400 million in my remarks. Now most of that was balance sheet recovery, if you will, did not affect EBIT. There was a small amount that affected EBIT. But actually in the quarter, commercial settlements or commercial recoveries year-over-year was actually a slight unfavorable on the EBIT line, but positive to free cash flow in 2025. We do expect some additional in 2026. And when I talked about neutral, I was really speaking more on the EBIT line. And oftentimes, the recoveries can be -- they can be a lump sum in the period like we saw in the fourth quarter. They can be spread out over the remaining life of the program through piece price adjustments or other things. But we do expect an incremental benefit in 2026 on the cash line, but not to the same level of what we saw in 2025. Seetarama Kotagiri: Yes. I would say, Phil, the strong operating performance, the disciplined CapEx and our continued effort on engineering optimization and efficiency are really the structural part that's driving the cash flow. Operator: Your next question comes from the line of Colin Langan with Wells Fargo. Colin Langan: Just trying to follow up on the walk of sales and margin. You're talking about $700 million in sales increase. You have -- it sounds like $500 million is FX based on your organic growth comments of $200 million organic growth, you have $330 million at the midpoint of adjusted EBITDA improvement. You've highlighted the 35 bps to 40 bps of help from cost. But if I adjust out for FX, I'm still getting like a 70% conversion on higher sales on organic sales, I sort of convert the FX at average margins. So what is driving that extremely high conversion that I'm missing? Is there additional restructuring actions in there? I mean I assume there's a little bit of positive mix. Philip Fracassa: No, I think you've got -- hey, Colin, I think you've got the FX piece about right. I mean it would be in the order of, call it, 1% to 1.5%, somewhere in that range. So the net organic kind of embedded in the guide would be that minus 1% to plus 2%. Operational excellence is going to play a significant role in the margin expansion. So we've talked about 35 to 40 bps in a neutral environment. I think as we're looking at 2026, likely doing a little bit better than that. And then I would say, yes, getting a pretty good pull-through, not to the level you've talked about, but pretty good pull-through by historic standards for Magna on the incremental volume. And really the range around the margin would be at the low end of the range, that 40 bps of expansion would be sort of at the low end with the operational excellence. And then as if we get some help on -- to the top end of the range on the sales, if you will, getting good pull-through on that volume to take us to the high end of the margin range. Seetarama Kotagiri: And keep in mind the decrementals on the Complete Vehicles decline is not as high. Philip Fracassa: And the other point, too, is on the FX, also keep in mind, so with FX is helping us to the tune of, call it, 1% to 1.5%, the pull-through on the FX tends to be pretty low, just a lot of times, that's coming out of Europe where we run a little lower than the fleet average. So if FX is positive, that can tend to mix you down just slightly as well. Seetarama Kotagiri: But just overall, I would still say, over the last few years, we've been talking about restructuring plant closures and efficiency efforts. So we talked about 40-plus divisions that have -- that we have focused on restructuring and so on. The net benefit of this cost is starting to flow through and will flow through, right? And we continue to look at more of these activities even this year going forward. So I think it's some of this that helps improve our incrementals as the volume stay steady or even increase, that would be a tailwind. Colin Langan: And any color on what you're assuming for DRAM and raw material costs? I think your ADAS business is around $3 billion. That's probably one of the most impacted by the DRAM issue. And aluminum is up a lot. Is that -- how much should we think about that in terms of sales dilution and then potential cost headwinds if you don't get all that recovered? Seetarama Kotagiri: Yes. I think -- good question, Colin. I think there's a little bit of wait and watch to on that DRAM topic. But we are coordinating with our customers on this issue. We have not seen any disruption yet. We do see the potential for higher costs. To the extent we know we have included a modest amount of unrecovered cost headwinds in our guide. But obviously, this is something that we have to work with our customers, and we are working with them. So it's going to be a combination of how do we manage the supply, trilateral, figure out how we address the inventories and how do we protect supply. But as you said, the product line that's going to be exposed to this would be electronics and not much else. But as you said, there could be indirect effects, obviously, right, based on what happens to the production in general for the OEMs, which we have to wait and see. Operator: Our next question comes from the line of Brian Morrison with TD Cowen. Brian Morrison: A few details. So more a high-level question here. I'm curious if a planned rollback in steel and aluminum are speculated to be implemented by the President this morning. Would that be a positive impact on Magna? Or is this largely flow-through and affordability would be the likely benefit? Seetarama Kotagiri: Yes. I haven't seen the article today, Brian, in the morning. But typically, most of our steel is on customer resale, right? And even aluminum and other commodities, we try to either peg and have terms and conditions in such a way that we have an equalization quarterly or yearly or something like that. So we try to mitigate that risk to the extent possible. I haven't read the article today, but that's something we have to work with our customers still. But typically, commodity, especially steel and aluminum are pretty much on some program which mitigates our risk. Brian Morrison: And then second question, Pure announced a turbine contract to power data centers yesterday. I wonder if there are any consideration or anything non-auto you may add to your repertoire. Seetarama Kotagiri: I think our focus has been looking at the skills and capabilities that we have. And if there is a use in terms of our engineering, our capacity that can be used without distracting from our core strategy, then it is something we would look at, right? But I have to say our focus has been efficient use of capital. And if there is something that does not require a specific new investment, then obviously, that's an advantage that we can bring forward. And given the product portfolio and the expertise that we have in different, call it, manufacturing processes and assembly processes, I think there could be opportunities there, but we are really focused on what we need to execute right now. Operator: Your next question comes from the line of Mark Delaney with Goldman Sachs. Mark Delaney: Congratulations on the strong results. I had one on Complete Vehicles to start. You had mentioned the wins with XPENG for Europe on your last call and then in November, also announced the GAC business. So I understand the guidance for Complete Vehicles for '26 that you gave. But as you look at the momentum that you have with some of those new customers, what does it suggest about when complete vehicles can get back to growth? Seetarama Kotagiri: Mark, I think a couple of points, right? One, yes, you got the GAC and the Xiaopeng, you know, it's launching and -- it has launched, and we continue to expand that. One thing to take note, though, the way these contracts are done is just a value add that goes through the revenue, Louis, that's the right way to say it. So when you look at the growth in the past, whether it was the Z4 or I-PACE or E-Pace or a few other programs, the way you would look at the revenue line was bigger, right, although the value add in the EBIT kind of remains unchanged. So you have to consider that when you compare growth. We still see a kind of a slower year this year, as Phil talked about, because of the end of production of the few programs that we mentioned. But as these things come on, there is a few other discussions that continue to. So we see a good pipeline going forward and continuing growth there. And I would say engineering has been a little bit weaker. But we don't have visibility in engineering like we have production programs. So the teams are working through that, and we have optimized that to look at the trends in engineering demand. So we feel pretty good about it. Mark Delaney: Understood. My other question was trying to better understand Magna's exposure at this point to autonomy. You've made some investments bolstering your sensor portfolio. You also have some upfitting you're doing on AVs with one of the leading AV offerings. As you think about some of those opportunities, you're seeing the progress you're making in the P&V segment. Maybe just help us better understand how much might be coming from things like sensors and upfitting AVs and how sustainable you see that over the medium to longer term? And to what extent that some of those bookings you mentioned today? Seetarama Kotagiri: Yes. We continue to see the pipeline. As I said before, our focus has been on assisted drive, right? We stay -- continue to stay very disciplined on that part of it. But the use of any of the products or the software features or technology that applies to AV, obviously, we are looking into that. So we see a good growth in that segment from an ADAS perspective, too. Operator: Our next question comes from the line of Ty Collin with CIBC. Ty Collin: Maybe to start, can you maybe just provide a little color around your plans going forward for incremental megatrend investments, EV investments this year and beyond? And has there been any change in thinking around that in light of some of the announcements recently by some of your larger customers around their EV strategies? Seetarama Kotagiri: I would say no, no change in strategy, right? We have been talking about optimizing engineering investments as well as capital. The significant investments in DES in terms of capital side for EVs for our product line is behind us. If the EV penetration increases and they come forward, I would say, is a tailwind. If you look at the engineering side, our -- we've always talked two aspects of it. One is platform development. That is significantly or substantially behind us. Now we are talking about application. So if you remember, we used to talk about $1.2 billion in the, call it, the PMV megatrend areas. Right now, it's about $850 million to $900 million, that spend would remain at that level. We are not restricting it. We are just optimizing it based on what's out there. If there are program wins, then the application spend would go along with it, but that would be recoverable in the program. So no shift in strategy. Ty Collin: Okay. Great. And then how are you feeling about your positioning at this point with respect to Chinese vehicle exports? Like are you viewing that as more of an opportunity or something that could be a longer-term opportunity, but maybe create some near-term frictions with some of your European and your North American business? Seetarama Kotagiri: We are producing in China for China and international OEMs, right? Of the total revenue that we have from China, about 60%, 65% comes from Chinese OEMs. The reason I make that point is we are in their ecosystem. As they come to different parts of the world, we hope to grow with them. We have done that in the past as Europeans came to North America, I don't know, 15, 20 years ago. So with our presence in China, if it continues to increase, that is helpful. If the Chinese OEMs start producing locally, wherever that is in the world, we are present there, I would say that should be an opportunity for us. Operator: Our next question comes from the line of Jonathan Goldman from Scotiabank. Jonathan Goldman: Most of them have been asked already, but maybe just one, I'm sorry if I missed it. Could you discuss the delta versus the margins for the full year in BES and Seating versus your last guidance in November? And if there are one-timers in there that caused you to beat in both those segments, why should we be using the current run rate as the starting point for next year? Philip Fracassa: Yes. Thanks for the question, Jonathan. So looking at the fourth quarter, BES, really, the story was good pull-through on the revenue and then good performance on some commercial recoveries in BES. So good over 10% margins in the quarter. But we do -- as we've said before, given the year was a little lumpy with recoveries and the like that the full year margin is the good jumping off point, we are expecting another year of margin improvement in BES in 2026, again, driven by operational excellence and good pull-through on the revenue. In Seating, you did see a really nice step-up in margins in the quarter, and I'm glad you asked the question. So we did have a large warranty reversal in the fourth quarter, and it was actually the reversal of an accrual we set up in the first quarter. As we work through that issue that we accrued in the first quarter, it ended up being significantly less than we anticipated. So we did reverse that out. So we had, call it, unusually high margin in the fourth quarter. But even when you take that out, margins would have still been up nicely year-over-year, reflecting operational excellence and really efforts by the team to keep costs in line and then obviously, good leverage on the sales increase, too. And then looking ahead, again, because of the volume reductions we're going to see in Seating with the Ford Escape that Louis talked about and some other things, we are anticipating lower sales in that segment in '26, but we'll -- working hard to kind of hold the margins, as you can see in the range, we're looking for resilience on the margin line just through operational excellence, cost containment and the like. Jonathan Goldman: Okay. That makes sense. So I mean, if we're thinking about the bridge for next year, you talked about OpExcellence, maybe just some pull-through on the FX, Commercial seems flat. On the decrementals, are we supposed to be thinking about them as being higher than the normal kind of historical range, I guess, for BES in the low 20s, BEV kind of 20-ish range in 15% for the Seating business? Philip Fracassa: Yes, I'd say pretty close to normal would be the right way to think about it. The big thing, as I said, is operational excellence will be -- there'll be puts and takes as we show on the slide, but operational excellence is the big plus. FX, we're going to benefit from. But again, from a margin standpoint, that doesn't really help us then it hurts us a little bit just because it pulls through at a slightly lower level than the company average. And then obviously, on the volumes, pretty close to normal in greenhouse too well. Operator: And at this time, we have no further questions. I will now turn the call back over to Swamy Kotagiri for closing remarks. Seetarama Kotagiri: Thanks, everyone, for listening in today. I would say our confidence is rooted in what's within our control. We have demonstrated consistent execution across varying macro environments. I would say operational excellence continues to be a meaningful value driver. The management team here is really focused on delivering another solid year, including margin expansion, strong free cash flow and significant returns of capital to shareholders. We remain really highly confident in Magna's future and in executing our plan. Thanks for listening again. Have a great day, and have a great weekend. Operator: This concludes today's conference call. You may now disconnect your lines. We thank you for your participation.
Operator: Hello, and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Atmus Filtration Technologies Inc. Fourth Quarter and Full Year 2025 Earnings Conference 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 then the number one on your telephone keypad. To withdraw your question, press. We kindly ask that you limit your questions to one with one follow-up. I would now like to turn the conference over to Todd Chirillo, Executive Director of Investor Relations. Please go ahead. Thank you, Regina. Todd Chirillo: Good morning, everyone, and welcome to the Atmus Filtration Technologies Inc. Fourth Quarter and Full Year 2025 Earnings Call. On the call today, we have Stephanie Disher, Chief Executive Officer, and Jack Kienzler, Chief Financial Officer. Certain information presented today will be forward-looking and involve risks and uncertainties that could materially affect expected results. Please refer to the slides on our website for the disclosure of the risks that could affect our results and for a reconciliation of any non-GAAP measures referred to on this call. For additional information, please see our SEC filings and the Investor Relations pages available on our website at atmos.com. Now I will turn the call over to Stephanie. Stephanie Disher: Thank you, Todd, and good morning, everyone. Today, I will provide an update on our fourth quarter and full year results. I will also share details of the significant progress we achieved in executing our four-pillar growth strategy during the year. And I will review our outlook for 2026. Jack will then speak to our financial results. I want to begin by thanking Atmisonians around the world for delivering strong 2025 results. These results were delivered through disciplined execution despite challenging global markets while advancing meaningfully against our four strategic growth pillars. I am proud and honored to lead an impressive team Stephanie Disher: who are committed to solving our customers’ filtration challenges. During the fourth quarter, we announced the acquisition of Cook Filter, which subsequently closed in early January. This established our industrial air filtration platform which is aligned with our strategy and unlocks an opportunity to accelerate our growth. The acquisition also established our new Industrial Solutions segment led by Rakesh Gangwani, Senior Vice President Strategy and President of Industrial Solutions. We are excited to bring the Cook Filter product brand into Atmus and welcome the talented team to our company. Upon closing of the transaction, I met with employees and was inspired by their customer focus and desire for growth. The combination of Cook’s deep industry experience with Atmus’s filtration expertise and footprint will provide benefits for all stakeholders. With the acquisition, Atmus will report on two business segments in 2026: Power Solutions, which serves global on-highway and off-highway equipment markets, and Industrial Solutions, where Cook Filter will be reported. Stephanie Disher: Now let me provide an update on our capital allocation strategy. Stephanie Disher: During 2025, we returned $78,000,000 of cash to shareholders consisting of $61,000,000 of share buybacks and $17,000,000 of dividends. We have $69,000,000 remaining on our share repurchase authorization and expect share repurchases of $20,000,000 to $40,000,000 in 2026. Behind our strong performance is our people, and I want to take a moment to provide some insight into how the culture at Stephanie Disher: Atmus is driving momentum in the overall business. Stephanie Disher: Last quarter, I spoke about the Atmus Way, which incorporates our purpose, our values, and our strategy. It also includes what we call mindset shifts, which reflect specific areas where we want to intentionally shift the culture of our company. One of our mindset shifts is customer-focused. We want every employee at Atmus to be focused on our customer and to understand how their role makes a difference for our customers. Our culture at Atmus is our strength. It is the combination of our culture and the clarity of our growth strategy which makes me confident that we are well positioned to unlock our growth potential. Now let us turn to our four-pillar growth strategy and highlights from 2025. Our first pillar is to grow share in first fit. In 2025, we launched the next generation of our NanoNet media, NanoNet N3. This media enables compact filter designs while delivering superior service life in the harshest environments across a wide variety of fuels. In December, this product was awarded the World Filtration Institute’s Stephanie Disher: prestigious Stephanie Disher: Product of the Year, a recognition of the products that will shape the future of the filtration industry. This technology leadership is a cornerstone in growing our first fit business, along with dedicated sales and technical resources focused on solving the filtration challenges of our customers. We continue to win with the winners by growing our long-term partnerships with global OEMs along with leading regional OEMs across a broad range of applications. Our second pillar is focused on accelerating profitable growth in the aftermarket. We are expanding our market presence in independent and retail channels with new distributors. This allows us to provide broader channel coverage of our industry-leading Fleetguard and Cook Filter branded products and deliver them to our customers when and where they need them. We are also partnered with leading global OEMs who are expanding their own aftermarket businesses and growing market share. We work collaboratively with these industry leaders allowing us to expand our business while simultaneously fueling growth for our partners. Our third pillar is focused on transforming our supply chain. During 2025, we completed our transition to the global Atmus distribution network. This allows us to directly control our customer experience. Additionally, our network is designed to optimize and grow our aftermarket business. We continue to increase the on-shelf availability of products to ensure we have the right products for our customers when and where they need them. Our fourth pillar is to expand into industrial filtration markets. The completion of the Cook Filter acquisition establishes our platform in industrial air filtration, providing us with the opportunity to grow this business both organically and through potential bolt-on inorganic transactions. We will continue to look at opportunities across the verticals of industrial air, industrial liquids excluding water, and industrial water. However, in the near term, we expect to focus our team on integrating the Cook Filter business. Stephanie Disher: Now let us discuss our financial results Stephanie Disher: starting with the fourth quarter. Sales were $447,000,000 compared to $407,000,000 during the same period last year, an increase of 9.8%. We continue to deliver strong outperformance in the fourth quarter, which drives higher sales even as soft market conditions persisted in most of our global markets. We also benefited from increased pricing and favorable foreign exchange. Adjusted EBITDA was $85,000,000 or 19.1% compared to $78,000,000 or 19.1% in the prior period. Adjusted earnings per share was $0.66 in 2025, and adjusted free cash flow was $31,000,000. Now let us review our results for the full year. I am pleased with the strong momentum we saw throughout 2025. Sales were $1,764,000,000, an increase of 5.7% from 2024. Growth was driven by significant outperformance throughout most of the year in the face of challenging global market conditions and from favorable pricing. Adjusted EBITDA was $354,000,000, up from the prior year of $330,000,000, resulting in adjusted EBITDA margin of 20%. Adjusted earnings per share was $2.73 and adjusted free cash flow was $158,000,000. Now I will discuss our market outlook for 2026. Starting with the Power Solutions segment. In the aftermarket, we have not seen a sustained improvement in overall freight activity and expect the market to continue at current levels and be relatively flat year over year. Let us now turn to our first fit market. In the heavy-duty market, our customers have indicated a weaker first half of the year, with recovery in the back half of the year. We expect both heavy and medium-duty markets in the U.S. to be in a range of flat to up 10% compared to 2025. In our Industrial Solutions segment, we expect favorable market conditions. We expect the markets to contribute 1% to 4% of 2026 growth. Our team delivered significant share growth in 2025, which is now in our base business. As we continue to move the bar higher, we expect to build on this track record of strong market outperformance to deliver an additional 1% to 2% of share growth. Overall pricing is expected to provide approximately 1% of revenue growth. We are lapping strong aftermarket pricing during 2025 in our Power Solutions business which resulted from base and tariff pricing. Some tariff pricing implemented in 2025 will not carry into 2026 due to changes in status of global trade agreements, implementation of offsets, and the actions we have taken to mitigate the impact of tariffs on our customers. Based on tariffs in effect as of February 1, we do not expect additional tariff pricing in 2026. However, we will continue to be nimble and adjust pricing as necessary should the tariff environment change, and we expect to remain price-cost neutral on tariffs. The U.S. dollar is expected to weaken year over year and provide an approximate 1% revenue tailwind. Overall, our expectations for Power Solutions total revenue will be in a range of $1,790,000,000 to $1,850,000,000, an increase of approximately 3% at the midpoint from prior year. In Industrial Solutions, we expect revenue to be in the range of $155,000,000 to $165,000,000 which includes revenues from the Cook Filter closing date of January 7. Taken together, we expect total company revenue to be in a range of $1,945,000,000 to $2,015,000,000, an increase of 10% to 14% compared to 2025. We expect strong operational performance along with investment for growth. Our expectations for total company adjusted EBITDA margin is to be in a range of 19.5% to 20.5%. Lastly, adjusted EPS is expected to be in a range of $2.75 to $3. Now I will turn the call over to Jack who will discuss our financial results in more detail. Jack Kienzler: Thank you, Steph, and good morning, everyone. Our team delivered strong financial performance in 2025 despite continuing uncertain market conditions. Let us start with the fourth quarter. Sales in the fourth quarter were $447,000,000 compared to $407,000,000 during the same period last year, an increase of 9.8%. The increase in sales was primarily driven by pricing of 5%, higher volumes of 4%, and favorable foreign exchange of 1%. Gross margin for the fourth quarter was $127,000,000 compared to $107,000,000 in 2024. The increase was primarily due to the benefits of higher pricing and volumes, partially offset by higher logistics and duties costs and other manufacturing costs. Selling, administrative, and research expenses for the fourth quarter were $57,000,000, a decrease of $2,000,000 compared to the prior year. Joint venture income was $9,000,000 in the fourth quarter, $1,000,000 higher than our 2024 performance. Other income was an expense of $10,000,000 compared to income of $5,000,000 in 2024. The decrease was primarily due to unfavorable foreign exchange translation and a one-time charge of $8,000,000 related to asset impairment costs on idled equipment. The one-time impairment charge is excluded from our adjusted results. We do not expect the idling of the assets to have a material adverse effect on our financial position, results of operations, cash flows, liquidity, or capital resources. Adjusted EBITDA in the fourth quarter was $85,000,000 or 19.1%, compared to $78,000,000 or 19.1% in the prior period. Adjusted earnings per share was $0.66 in 2025, compared to $0.58 last year. Adjusted free cash flow was $31,000,000 this quarter, compared to $28,000,000 in the prior year. Now let us discuss our full year 2025 financial results. Sales were $1,764,000,000 compared to $1,670,000,000 in 2024, an increase of 5.7%. We benefited from higher volumes and pricing actions, which were partially offset by foreign exchange headwinds. Gross margin was $498,000,000, an increase of $36,000,000 from 2024. In addition to favorable pricing and volume, we saw lower manufacturing costs, which were partially offset by higher logistics and duties, along with an unfavorable foreign exchange impact. Selling, administrative, and research expenses for the full year were $225,000,000, a decrease of $3,000,000 compared to the prior year. The decrease was primarily driven by lower one-time separation costs, partially offset by increased people-related and consulting expenses. Joint venture income was $34,000,000 in 2025, flat to the prior year. Other income was an expense of $8,000,000 in 2025, compared to income of $7,000,000 in 2024. The decrease was primarily due to the previously discussed asset impairment charge in the fourth quarter and unfavorable foreign exchange translation. Adjusted EBITDA was $354,000,000 or 20% compared to $330,000,000 or 19.7% in 2024. One-time costs related to separation were $16,000,000. The effective tax rate for 2025 was 22.1%, compared to 21% in 2024. The increase was driven by unfavorable changes in the mix of earnings. For the full year 2025, adjusted EPS was $2.73 compared to $2.50 in 2024. For the full year 2025, adjusted free cash flow was $158,000,000 compared to $115,000,000 in 2024. The improvement in adjusted free cash flow was driven by an improvement in working capital. This was partially offset by higher non-trade receivables, primarily driven by the timing of VAT recoveries from Mexico. Free cash flow has been adjusted for the full year by $10,000,000 for capital expenditures related to our separation. Now let us turn to our balance sheet and the operational flexibility it provides to execute on our growth and capital allocation strategy. In conjunction with our acquisition of Cook Filter in early January, we entered into an amended and restated five-year credit agreement consisting of a $1,000,000,000 term loan and a $500,000,000 revolving credit facility. The term loan was fully drawn at closing, and we have full availability under the revolving credit facility. Combined with an estimated $201,000,000 of cash on hand following the acquisition, we had an estimated $701,000,000 of liquidity. After financing the Cook Filter transaction, our leverage ratio is approximately 2.1 times. We expect continued strong EBITDA and cash flow generation to support ongoing deleveraging during 2026. I want to thank the Atmisonians around the world for their extraordinary ability to navigate challenging markets and deliver a full year of strong performance. Our strong liquidity and balance sheet will fuel our four-pillar growth strategy throughout the year ahead as we continue to focus on creating value for all of our stakeholders. Now we will take your questions. Operator: We will now open for questions. To ask a question, press star, then the number one on your telephone keypad. We ask that you please limit your questions to one and one follow-up. Our first question will come from the line of Tami Zakaria with JPMorgan. Please go ahead. Stephanie Disher: Hi. Good morning. Very nice results. I wanted to ask about your acquisition Cook Filters. I think I remember one of the slides said 8% of revenues tied to data centers. Can you give us an update on what kind of growth you are seeing there and what kind of filters specifically are being serviced in that market? Is it genset filters, turbine filters, filters for the racks? So any color would be helpful. Good morning, Tami. Nice to speak to you. Thank you for the question. So a couple of things I think I will touch on. This is the first time we have talked about Cook Filter and the integration with our results and the establishment of the Industrial Solutions segment and the first time we are providing guidance for that segment. So I might take a moment to just talk through the pieces of that for you. As a reminder, we are including revenues for Cook Filter from the date of the closing of January 7. So what this means, essentially, is there is $3,000,000, one week of sales for that first week, that will not be a full year this year. So if you take out that sort of $3,000,000 stub period, the way we see the opportunity or the guide of the industrial business, it is a fairly wide range at this stage, but it is about a 1% to 8% range. And the way I am thinking about that is 1% price, about 1% to 2% share, and the market will pulse largely around GDP at the midpoint at this point, around that sort of 2.5% to 3%. And so most of our business there is commercial HVAC and industrial HVAC. So that is the majority of the business. I expect that to pulse around GDP at this stage. And then you rightly pointed out that there is 8% of the business that is supporting the data center market and growing at, you know, a high teens rate, is how I would think about that part of the business. Obviously, we are looking to understand that business, the opportunity to invest in greater product development capability to support growth, outgrowth in that market. And we are working with the team on that. They support that segment already. They have very strong customer relationships with the top 10 players in those markets. And, really, we see an opportunity to continue to invest in the product development range to grow with existing relationships, strong relationships with customers. Understood. That is very helpful. And I think you are expecting 1% pricing for the year. Just wanted to understand if some of the existing tariffs get rolled back, does that mean pricing at some point could turn negative this year as you give back some of it or this 1% is just core pricing and is not really related to tariffs? Yes. I think the way that you are thinking about it, the 1% really is core pricing. We saw a much higher pricing rate in 2025 and that was largely associated with tariffs. And as a reminder, our aim with tariffs is to be price-cost neutral. And so we are seeing some changes in the tariff landscape. Recent announcements regarding an agreement with India, obviously, resulted in, you know, reduced tariffs in some places. So, and we will adjust. Obviously, if we are not incurring the tariff cost, we will not pass that in price to our customers. In addition, we have continued to pursue cost reduction strategies to mitigate tariffs, and as we do that, we will not pass on that cost if we are not incurring it. And then, additionally, it is yet to play out on how the offset mechanism will work for tariffs, you know, in terms of our customers being able to claim offsets when it is manufactured in the U.S. So the way to think about the 1%, it is our base pricing. We are not assuming additional tariff pricing actions, so you will not see the same level of pricing you saw in 2025. Operator: Our next question will come from the line of David Emerson Ridley-Lane with Bank of America. Please go ahead. David Emerson Ridley-Lane: This is David Ridley-Lane on for Andrew Obin. David Emerson Ridley-Lane: Congratulations on the close of the Cook Filter acquisition. You were very deliberate, and it seems like a really good fit. And I know you said you will focus on integration in the near term, but could you walk through the opportunity that you have to insource filtration media at Cook? Because I think it is really important to understand that you have real, true gross margin synergies when you acquire an industrial filtration company that buys third-party filtration media. Thank you. Stephanie Disher: Right. Well, thank you, David, and we are very excited about the Cook acquisition. We have been patient. I have spoken to many of you on quarterly calls telling you that we have a strong, robust pipeline, and so I am really pleased to be able to close this deal and integrate the Cook business into Atmus. Really, the way I would think about it, the first six months is very much focused on integrating the business. We have got a couple of IT and activities that we need to stand up there, and I expect that to be largely completed here in the first six months. Really, our priority in that time is supporting the Cook business to continue to do what they do well. They have served their customers well. They have continued to grow their business. And we want them to continue doing that throughout the first half and ongoing whilst we work with them to complete the integration in a seamless way. So that is how I would think about 2026. As we look ahead, really, we have identified synergies as part of closing of the deal. Most of those synergies are procurement synergies. We have already started working those and getting on with them. And then what we started kicking off with our team is more integrated workshops around innovation. So when we combine our filtration expertise, as you rightly point out, such as our in-house media design and manufacturing capability, with Cook’s end-customer market and their product ranges, not only what sort of synergy does that provide from a material perspective, because we certainly see some opportunity there, but the greater opportunity is how we innovate together to create products to support the end markets and the customers into the future. It will take some time to just think through exactly what are the best of those opportunities. The team have already started those innovation workshops, and I am looking forward to what that unlocks as we progress throughout the year. David Emerson Ridley-Lane: Thank you for that. And then just as a quick follow-up, you were kind enough to give your view on the first fit markets being flat to up 10%. Could we get perhaps a little more color on if you see any rebound or signs of life in the off-highway markets. Stephanie Disher: Yes. So I think the off-highway markets largely we see flat year on year. Overall, I would say a lot of our first fit business is pulsed by on-highway, and we are obviously more heavily weighted there. So a lot more of the impact that we see in off-highway is in the aftermarket businesses, and we see it reasonably flat year over year. Operator: Our next question will come from the line of Robert Brooks with Northland Capital Markets. Please go ahead. Robert Brooks: Hey, good morning, guys. Thank you for taking my question and congrats on the great results. Robert Brooks: I wanted to dive a little bit more on the guide and specifically on the sales for Industrial Solutions. It seems pretty conservative, Steph. You mentioned the favorable market conditions in that end market of 1% to 4% growth, I believe. And then if I take into account, you know, Cook’s fiscal year 2025, they did $155,000,000 in sales. I know that you are missing $3,000,000 of sales based on the timing of the close. But ultimately, that $155,000,000 to $165,000,000 guide for Industrial Solutions sales in 2026 just seems a little bit conservative. So I was just hoping to get a little bit more clarity on that. Absolutely. Well, good morning, Bobby, and thanks Stephanie Disher: for the questions. I am very happy to have your question, and I hope Rakesh Gangwani and the Cook team are listening in, because that will only help me, of course. But, look, here is how I would describe it. When we are talking the smaller numbers, and we wanted to make sure we split this segment out so that we focused on the growth in that segment and we gave full transparency to the market of how it was performing. But, obviously, it is a pretty wide range of 1% to 8% when you take out the $3,000,000 stub period. And so you are talking a $158,000,000 to $168,000,000. And at the top end of that range, that is pretty impressive if the team can do that. And at the midpoint of the range, I expect them to be able to do that. And so how should you think about the midpoint, and what are the drivers of, you know, opportunity that drive you to the top of that. I would think about price at around 1%. We certainly, Cook have put in a price increase at start of the year here. We are still learning exactly how their price, you know, impact flows through, but around 1% is about right. I would think about share at 1% to 2%. The team have got a clear outline of what they are going after in terms of share opportunities. And so that really leaves you with the question is what is the market? And largely, I would have this pulsing around GDP at around the 2.5% mark. There is, with the range we have got there on market, 1% to 4% at this stage, but that really is if we see stronger, you know, stronger position or we are able to more quickly pivot into higher growth markets, that would be the further. But this is what we see as the guide for 2026. Rakesh and his team do not see it as conservative. There is a lot to do here in the year ahead, but, hopefully, that gives you the color to help understand how we are thinking about it. Robert Brooks: Absolutely. Appreciate it. That is great color. I can definitely appreciate the moving factors of getting everything integrated and some hurdles there. But to the next question is, you know, the administration rolled back some pretty significant emissions or kind of emissions legality pieces. Was just curious to hear, like, how do you think the customers are thinking of that rollback? You know, kind of how I think about it is it seems like there has probably already been a lot of engineering to spec in your filtration pieces. So it is Robert Brooks: kind of Robert Brooks: very costly to then spec it out. But just wanted to hear your broad thoughts on that piece. Stephanie Disher: Yes. So I think we are all aware of the rule being finalized to rescind the 2009 EPA endangerment finding for greenhouse gases. And so the way I think about that, it eliminates the legal foundation for all federal vehicle greenhouse gas standards. So it has broad-based implications, not only to the heavy-duty truck markets that we support, but also more broadly for passenger vehicles and so forth. What is important, explicitly, it does not repeal criteria pollutant standards such as NOx. So when I think about this at the moment, I think about two main impacts for Atmus. The first is the near-term impact associated with 2027 standards for the 2027 engine launch. And we still expect, based on feedback from our customers—there has not been an official announcement or this being confirmed at this stage—we still expect the NOx standards to hold for the 2027 engine launch, and at that 35-milligram level. What is included in our guide is an element of pre-buy in 2026 on the basis that we see, you know, the cost of engines or cost impact on trucks to be about $10,000 to $15,000 associated with the NOx standards coming in 2027. So in the near term, we really do not expect a change to the product development that we are doing and will likely launch in 2027, but that will still be confirmed. There has been no announcement explicitly on that. That is based on feedback from our customers. And then as I think about the longer term, really, this has implications for the trajectory of electrification and so forth. So, you know, obviously, our business potentially has tailwinds associated with the changes in regulation here. Operator: And, again, that is star one for any questions. We will pause for just a moment. We will take our next question from the line of Siobhan Srivastava with R.W. Baird. Please go ahead. Siobhan Srivastava: Hey there. Good morning, guys. Thanks for taking the question. Just a quick one around your adjusted EBITDA guidance. It seems to be flat year over year. Just wondering what any puts and takes are around that. Also, I was wondering if you had any self-help levers that you are planning on implementing throughout the year. Stephanie Disher: Jack, do you want to take that? Absolutely. So, hey, thanks for the question. Jack Kienzler: Yes. At the midpoint, you know, it is flat year over year. You know, I think a lot of different puts and takes, of course, as we think about how that will move throughout the year. But overall, I think it reflects still strong incrementals for the business, particularly as we think about different investments we want to make to continue to fuel that top-line growth. You know, and I think about how that will move sequentially through the year will largely just be pulsed by the volume that is flowing through our different manufacturing plants and how much leverage we can get out of that. In terms of opportunities and whatnot, we are continuously evaluating how we can continue to take cost out across the business. I think more to come on that. We are really pleased with the supply chain transformation work that the team has delivered over the past three years. And I think, as we set our sights on the future, we are excited to continue to look at that landscape and continue to identify efficiency opportunities. And that will conclude our question-and-answer Operator: session. I will now turn the call back over to Todd Chirillo for closing comments. Todd Chirillo: Thank you, Regina. That concludes our teleconference for the day. Thank you all for your participation and for your continued interest. Have a great day. Operator: This concludes today’s call. Thank you all for joining. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Fingerprint Cards AB Q4 Results 2025 Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Stefan Pettersson, Head of Investor Relations. Please go ahead. Stefan Pettersson: Thank you very much, and good morning, everyone, and welcome to FPC's earnings call following the release of our Q4 and year-end report this morning. So we'll start by a presentation of the report by our CEO, Adam Philpott; and then by our CFO, Fredrik Hedlund. And if you're following this call on the web, you can post questions throughout the call. And with that, let me now hand over to our CEO, Adam Philpott. Adam Philpott: Thank you very much, Stefan. Good to be here. Let me just start on the agenda. So fairly typical agenda that you would expect from us over the last few quarters. We'll start with an executive summary of the financial performance and highlights. A couple of key focus areas that we'll have is really digging into AllKey. You will have seen us talk a lot about AllKey in the report, and we started talking about AllKey over the last few earnings calls. And we'll also talk about asset and licensing deals, which you've also spoken a lot about as well. Then I'll ask Fredrik to help me out on the key figures before we summarize and spend some time answering your questions. So let me move then to the summary of the quarter. So firstly, for the quarter alone, and then I'll talk about the year, down slightly, 4% year-on-year down for revenue, but actually in constant currency up. So FX started to make a bit of an impact. But I think what it shows is quite stable revenue given the transformation that we've driven as a company as we migrate and evolve some of our customers up the value chain towards AllKey. Not only that, but you can see that same stability in terms of the gross margin. So really strong performance in maintaining gross margins at very high levels compared to our history, of course, also. And then for the year, 1 quarter could be a trend -- can be a data point rather, a year, of course, is a trend. And so as you look at the full year, up 30% year-on-year, 40% if you account for FX as well. So I think that paints a really clear picture on the direction and trending of the company as well. So really pleased with that overall performance also. But as you know, we've been going through a transformation as a company. And a big part of that is how we transition or evolve beyond sensors into systems. We will, of course, continue to drive a strong sensor product line with some of our key customers there. We've got some great customers in the sensor business. That's our bread and butter. We'll continue to develop that business. But of course, we have many customers who get greater value from us as we move into systems. And that's evidenced not only by some of the customer sentiments that we've shared in the past, and we'll share a bit more of that today, but also evidenced in our pipeline. We know that 50% -- around 50% of our existing customers see the value in AllKey for their products and are on an upgrade path going through evaluation into productizing and then shipping AllKey as part of their products. So really pleased, that's been our primary focus is on our existing customers, those for whom AllKey makes a lot of sense. And as you can see about 50% of our customers are involved in that. But at the same time, AllKey opens up opportunities for us to acquire new clients, really important to build out the customer base. And so as we look at our pipeline for the future, 50% of our pipeline is made up of new clients, and that's driven largely by AllKey. So really pleased to see that, and we'll spend a bit of time on that a little bit later, too. And we also continue to launch new AllKey products. We're seeing that bet really playing out strongly, so we're continuing to add to that portfolio, opening up different markets. Most recently in December announcing the AllKey Ultra product, expanding our lineup with the Secure Element variant, very differentiated for us as a company as well. So really pleased on how that bet is playing out. And of course, we've done some good asset monetization deals throughout the last year or 2, and that's something we see a great opportunity to continue as biometrics continues to be super important to organizations looking to ascertain identity, stay ahead of cybersecurity and move away from password. So iris has a big part to play there as to some of our other IP. And so we see a great opportunity to leverage those sorts of models into adjacent verticals also. So really pleased with the performance, resilient revenue during Q4, great performance for the year as we expand into AllKey. And so what I also want to do is, kind of take you back. Take you back to where we've come from and where we're going this year. This is our first earnings call of 2026, and that means that we're now in the third year of our transformation, the transformation program that I put in place when I joined the company. And so just to take you back briefly, when I joined, the first thing we needed to do, we had a burning platform. We needed to look at how we stabilize the company. We needed to rearchitect the company because the world around us had changed. And that meant a number of things. You may remember the 6-point plan, you can see on the left here, and that was a few key elements, really about cutting costs, getting OpEx to the right level, leaving some of those markets that were just taking money out of the company rather than putting money in because they were so unprofitable, tidying up the balance sheet and a few other fundamental elements. So that was year 1 in stabilizing and rightsizing the company. The second year was then about saying, well, what are the vectors we have for growth, looking at a few growth opportunities, and that was last year, our second year. And those growth opportunities were looking at cloud identity, looking at our iris assets and of course, moving up the value chain in the product that is AllKey. And so those were the bets that we placed last year to open up new growth avenues for the company. Cloud was a really promising one, and it was evidenced by things like a lot of M&A in that cloud identity segment. But what we found with cloud with is quite a long-term development cycle and therefore, quite asset intensive. And so for us, we still very much have our eye on that opportunity, but we're monitoring it rather than investing heavily in that. What we are focused on because of the bet that's taken off is AllKey. AllKey has shown huge promise throughout last year. And therefore, we are really focusing our investments, our attention on AllKey to really get behind the genuine and real demand that we're seeing for that product. We had a few bets. We looked at the ones that were really taking off, and we're focusing exactly on those. It's showing huge potential with existing customer demand. And as you remember, AllKey is about 3x the ASP of traditional sensors. It's showing new customer demand as well, so our job is to feed that demand. So as we look at year 3, it's really about focused growth. Looking at those bets we placed, focusing on the ones that are paying off and really doubling down on AllKey. The beautiful thing about AllKey is it absolutely leverages our core competence. The things that made us great in the first place, it really builds upon those. And therefore, it's a near adjacent, it's got less risk and it's got genuine demand from our clients. Of course, we saw the asset bets that we've placed pay off as well. Those are more episodic deals. They happen here and there, but we believe there's a lot more gas in the tank on those also. Those are like big deals. They happen occasionally. And so we're really focused on where are we going to get the next ones from. We've proven the model out and so continuing to get additional ones, which then also funds the business as we drive this transition up the food chain and into the segments that we're focused on. And then as we now dig into a couple of those focus areas. So I said AllKey and assets, those are the key things we want to focus on, particularly AllKey for our core business. So let's spend a bit of time on those 2 items. And so on the right here, you can see some demo products that we created. This is based upon AllKey and AllKey Ultra as well. You can see in those photographs, the little bit sticking out. That's a USB-C. So that gives you a sense on how small these are. They're incredibly elegant devices. We were at TRUSTECH, which is a fintech show in Paris in December. We have these with us and just the buzz around them was phenomenal. So really exciting product, really exciting market, obviously ties to FIDO market access or number of different markets, and I'll touch on some of those markets a little later. But a real buzz around these products from lots and lots of customers. And you can see the 2 different form factors there as well. And so our focus with AllKey was to, first of all, talk to our existing clients. We know that there's a lot of benefits for them in simplifying and taking complexity out of their products and also making it easier for them to integrate. And so our focus was to work with existing clients. I'm going to show you some pipeline in a second about how that's going. But really pleased. I talked a minute ago about 50% of our existing clients are upgrading to AllKey. So real demand, real pipeline for that product there. At the same time, because it's easy to use, easy to consume, it doesn't mean that we, as a company and the few engineers that we have, have to be involved deeply in every single deal, which means that we can scale the business without having to be a bottleneck based upon our internal capacity. And so we're starting to see a lot of new clients come on board. And again, I'll show you some data on that in a second. And in my opinion, we're only just getting started with new clients. We've been very opportunistic about incoming leads. The sellers have focused -- been opportunistic about a few clients that they've approached. We are now ruggedizing and doing campaigns at scale. So we'll start to see more new clients come into our pipeline as well. And then the third great thing about AllKey is because it's very simple to consume and adopt for a client, it's perfect for the channel because they don't need to come back to us for every question. They can be self-sustaining. They can go out and drive the market. And we're starting to see a lot of leads come from the channel that we specifically set up because of our AllKey product. So those are 3 key focus areas. We're actually going to focus more on the channel with some coverage in 2026 as well to unlock additional source of new customers there, too. Here's another interesting one, though. We see the potential to develop AllKey into the smart card because we're actually starting to see some early smart card demand. You may remember, it was probably 3, maybe even 4 earnings calls ago, you may not remember, that we talked about Payment that the company has been in for a long time and actually seeing that evolve into multifunction cards. We're seeing a bit of demand for that. Now I'm not going to stand here today and say it's going to take off, it's going to be the next big thing, because I think we hoped that Payment was going to be a bigger market than it has so far become. But we are starting to see some early demand. I'm not going to talk boldly about it today, but I will talk about it some more if we start to see some of the demand that we're starting to see manifest in genuine opportunities and real converted deals. So we're going to keep an eye on that. I didn't want to say nothing about it today because I want to be transparent about what we're seeing in the market. But at the same time, I'm not going to double down and say this thing is going to be huge because I think we've seen some false signs in the past, and I want to make sure we're really focused on real evidence and real conversion on the smart card. But we are seeing some demand. We do see that as a future vector for AllKey, particularly AllKey Ultra with a Secure Element on there, too, and it's something we're keeping our eye on. And of course, we have a volume center business. We're going to continue to do that. AllKey isn't about moving away from that. It's about expanding beyond that so that we can offer a broader portfolio and different value based upon our different -- based upon our clients and what they're really looking for. So huge opportunity for us, really nice to see how that is developing. And so let's talk about some evidence. We've talked about where the market is going. We've talked about AllKey a bit, and we've introduced it for a few quarters now. But I want to talk a little bit about pipeline. Now pipeline isn't something we've really shared on earnings calls before. So it's quite a new thing to start sharing. Pipeline isn't equal to revenue. It's not equal to invoicing. It's not equal to budget. It's simply an indicator of the opportunity we see out there. Here's what I will tell you, we run strong pipeline rigor. As a CEO, I used to be a Chief Revenue Officer for a $1.8 billion company. So I've kind of got some capabilities in pipeline management. And so pipeline is something I'm really focused on because it tells us where -- as long as we've got the right rigor, it tells us where the opportunity is that we need to invest behind. So we're really confident that we've got good pipeline. But it doesn't mean it's all going to close, of course, but we're pretty confident about some of the signals we get from our pipeline. And let me just talk to you quickly about the 2 charts here then. So the chart on the left is product mix by revenue. So of the total pipeline we have for '26 or '27 or '28, we split that by how much is AllKey and how much is sensors. And what you can see here is that we are really starting to grow the mix of our pipeline that is coming from AllKey. We're shifting customers to AllKey, but we're also acquiring new customers in the pipeline that are AllKey. And of course, 100% isn't flat. We're growing the pipeline at the same time. So from '26 to '27, the pipeline growth is greater than 20%. So we're getting more pipeline in, as you would expect, as we shift customers from sensors to systems, it's greater ASP. You would expect the pipe to grow. And of course, we're bringing new customers in as well. I won't talk about growth for 2028 because that pipeline is immature. We're still building pipe for 2028, but it gives you an indication of what's going on there. So really pleased to see the mix increasing significantly. Does it mean that 60% of our business in 2027 will come from AllKey? Not necessarily as this is about conversion, but it gives you directional insights into how we see the mix evolving. And then the chart on the right, I talked about we're bringing new customers into the pipeline as well because of AllKey. The chart on the right shows our total pipe for each of those years and how much of that pipe is from new customers versus existing. That's on quantity, so how many customers in our pipeline are new versus how many are existing. Historically, we've run at less than 20% of our pipeline from new customers. We've really been farming existing customers once we settle down in the access space. Now we're really starting to grow that customer mix as well. And that's obviously something we're very focused on. So great to see that already increasing in the pipeline. Of course, we need to convert and you would have a lower conversion on new customers than you would have on existing. But again, it gives you some direction around how we're growing or planning to grow our customer base. So exciting data for us to look at. And of course, as we think about what we're doing here, 3x the ASP, sustaining our margins at 50% to 60%, we track gross margins in our pipeline as well so that we can intervene should there be a low-margin deal, but really sustaining those margins as we move up the value chain and offer greater value to our clients, too. So a very exciting view on the pipeline. And then the other thing I said is, we have lots of good customer feedback as well. I talked to not all of our customers, I talk to most of our customers, and the team are deeply engaged both on the sales, of course, and on the engineering side as well. And so the interesting thing about the feedback we get from our customers, and we haven't had negative feedback, by the way. Sometimes people don't always like price, but we offer great value, and we're able to sustain our margins. But you can see the breadth of verticals that we're serving, fintech, crypto wallet providers, FIDO providers, software companies -- big software companies for that matter, IoT and wearables, access control, more of the traditional market. And then you can see there the blend of existing and new that we're seeing in those different segments with those different types of customers. And at the end, you can see the value drivers. So really broad range of feedback from different types of customers for some of the different levels of value that AllKey provides. So if you look at the fintech example, that kind of talks to where we're taking AllKey. I mentioned it in the smart card form factor earlier, but it doesn't just have to be smart card, it could be any type of device where that client, in particular, is really interested in putting their own custom applications on top of our MCU on the AllKey platform so they can use identity through fingerprint biometrics to do other types of tasks within their organization, too. So again, thinking of it as more of a platform that you can use biometric identity on for other software applications as well as some of those that we've spoken about previously, physical, logical access, Payment, et cetera. So that's a really exciting one. As we think about the crypto providers, the hardware wallet providers, obviously, security is really critical for those guys. So they love the MCU that we're using. And they also look at as a really trusted player because we're a European with a long track record of a credible company in this space. And they meet our people. They meet our engineers, and they love what we're able to do and the level of capability that we have in the organization. On the FIDO side, because it's a turnkey solution that we offer rather than the customer themselves having to put pieces together, it allows different types of FIDO players to come to the market and have a much less complex product, but also integrate our product far more quickly so they can get to market quickly. On the software side, you saw the design earlier in the photos that I shared. That really resonates as you think about how you plug this into a PC, FIDO, for example, or do other things on Windows Hello for authentication. So the design piece is critically important also. And then finally, a couple of other things. I talked about reduced complexity in our traditional customers, particularly for those customers who are slightly up the volume chain as well and therefore need an all-in-one solution. Having something less complex takes a lot of cost out, not just in creating the product, but in not having returns and things like that because it's a high-quality, durable, reliable product. And then on the wearables side, some of the feedback we've got is, these are consumer wearable companies who often want their consumers to be able to use their product for enterprise security because we offer enterprise-grade security as a company, particularly as it relates to our AllKey Ultra, they are able to access new markets or be able to offer new services in existing markets in extremely credible way. So really good feedback across the board from our customers that substantiates the quality of pipeline I shared previously. So there's a lot going on, on AllKey, very excited about it, very focused on getting behind that demand to ensure we capitalize and convert it, but that's obviously a very key focus for us for 2026. The other focus I did want to touch on is assets and licensing deals. We've done quite a few of these now, built a track record and some credibility around that. I wanted to talk quickly about one of those deals, and then I'll talk about how I see us replicating that. And so on the left, you can see a photograph. This is from Smart Eye booth at the Consumer Electronics Show just a month ago in Las Vegas. And so we signed a deal with Smart Eye in early 2025. They've been busy working on the developing the product, integrating it with theirs, working with our team as well. And I think what they demonstrated at CES proves what's possible with the iris asset. I wasn't at CES, some of our team were there. But I went over to meet the Smart Eye team and go through the demo myself recently. And they're now productizing this demo just for our reps to be able to go out and resell as well. As you know, from that deal, we have a 50-50 revenue share as we take that to market jointly. But looking at the product, it's extremely long range. You can approach from a few meters away. And even before you get within a meter, the camera starts to authenticate you. That's very different to every other iris asset on the market. Every other iris asset, you're pretty much going up to some binocular, either one eye or both eyes. It's not a very nice user experience. So this is much more intuitive, much easier, much less invasive for the user. And so it's quite unique on the market. So it works at a longer range. I think when I did it, I was authenticated about 70 centimeters. So just within a meter, longer range, really powerful. Also very easy to use. That's a big part of biometrics is if it feels invasive, it doesn't always work for users. But at the same time, very, very high efficacy. There's no point in being able to authenticate a distance if you can't do so with high efficacy. And iris is right up there at the highest efficacy along with Fingerprint. And at the same time, what the team have been able to do is be able to do that, but on ever lower cost hardware. That's a really important part of unit economics so that it makes it much more viable in the market as well. So Smart Eye have really proved out what's possible when we partner on iris, and we see many other areas where we can go and do that. Physical access is a really obvious one. Logical access is another obvious one. Health care comes up a lot because of the unique environment, and PPE, et cetera, the operators are working within there. And those are just a few. We see about 15 or so global markets that we're actively engaged in to look at where there's partnerships that we can do to jointly develop that asset for those markets where we otherwise couldn't fund it on our own, but also, of course, licensing that asset out in order to fund the business and get additional income in. So really powerful opportunity for us, big deal approach to that one, highly strategic, and we have some folks focused on doing exactly that. So with that, that's a bit of a round of ground on where we've come from, how we've performed, but also where we're going this year as we continue to execute the transformation plan with a real focus on AllKey and on our assets. And with that, let me hand to Fredrik Hedlund, our CFO, just to do a slightly deeper dive into the Q4 and 2025 numbers. So Fredrik, over to you. Fredrik Hedlund: Yes. Great. Thank you, Adam. So let's walk through the fourth quarter numbers. So in the fourth quarter, our revenue was down 4% year-over-year. But if you look at revenue from a constant currency perspective, our revenue increased by 9% year-over-year. And from a total year 2025 perspective, our revenue was up 30%. And from a constant currency perspective, revenue was up 40%. And if we turn to gross margins in the fourth quarter, our gross margin was 65.8%, which is in line with the fourth quarter of 2024. And if you look at our gross margins for the total year 2025, we ended up with a gross margin of 60.7%. And from an EBITDA perspective, we were slightly positive. And from a free cash flow perspective, we were also slightly positive in the fourth quarter. And when we look at cash, we ended our cash balance at SEK 27.1 million, which is SEK 1.2 million lower than the third quarter of 2025, so last quarter. And if you look at headcount, our headcount was down 31% year-over-year, and it kind of started to flatten out. So our headcount was flat versus last quarter. And as Adam mentioned, we managed to close the PixArt deal in the fourth quarter. And with that, Adam, back to you. Adam Philpott: Thank you, Fredrik. And so let me just move to summarize and then hopefully, we've got a bunch of questions coming in, and I'll hand to Stefan at the end to help us answer those questions. So as a summary, the fundamentals are stable. Revenue was slightly down for the quarter, but it was actually quite far up in constant currency. So we feel good about the transition that we're managing. And at the same time, we've been able to do that whilst maintaining very strong gross margins, particularly if you compare it to history. And we're doing that whilst having continued operational discipline and rigor around cost. So we took a lot of cost out of the business to right size the company, and we're maintaining that cost level whilst augmenting it with AI. We've got a number of agentic practices in place to ensure that our people are as productive as they're able to be using AI tools. So for us, AI doesn't replace staff, it augments them. And we're teaching people every day and encouraging people every day to experiment with how they use AI in a safe and secure way for our company's data. So pleased about how we're doing that also. And then the other key call out both for Q4, but also throughout this year, I think, is the progress we've made on the AllKey. That it's so encouraging where we have a number of bets and you see one of them, particularly one that's so close to our core competence really taking off and resonating with customers. It's one thing to have a great idea and then to build a product but you aren't always guarantee that, that product is going to take off. And so it's really -- I'm really pleased for our team, honestly, as much as our business there that things that they've done have manifested with our customers so far in such a positive way. Our job, of course, is to see that through and drive conversion, but really pleased about the customer sentiment we're getting, really pleased about the evidenced pipeline that we're getting as we help existing customers upgrade to AllKey, but then also very encouraged about the new customer pipeline that's coming in both direct and through our new channel partners in that space. So that's really exciting to see. So on the strategic focus, that's what it's all about, focus. We're focused on investing in the AllKey demand. We're also focused on expanding our asset deals and licensing deals that we've done to help fund that continued expansion and get more weight behind it. And also, of course, from a business perspective, driving to positive EBITDA and free cash flow through that operational discipline. So with that, I'm going to pause there. Thank you so much for your attention. Bang on half an hour. Stefan, let me hand back to you, and perhaps we can take some questions. Stefan Pettersson: Yes. Thank you, Adam. I think we'll begin by taking any questions there are from the phone lines. Operator: [Operator Instructions] We will now take the first question from the line of Markus Almerud from DNB Carnegie. Markus Almerud: Markus Almerud here from DNB Carnegie. So let me start with AllKey. Obviously, I was going to say. But you look at the -- if I start with the existing customer base where you say that 50% of customers are on an upgrade path. If you talk a little bit about the mix of that customer base, and I don't know what the mix is today. But in terms of volume, is it evenly split? Or do you have any single customers which are particularly large? And can you talk a little bit about that sort of trend? Adam Philpott: Yes. Do you want me to answer that one, Markus? Or do you want to -- if you got more on that one, sorry, I just jumped in there. Markus Almerud: No, no, no. I was just elaborating. So I'm just talking about volume basically. Adam Philpott: Yes. Yes. No, really, no. So I'll tell you how we've looked at it. We've looked at it by revenue. We've looked at the pipeline by quantity of customers, and we've looked at the pipeline by volume, of course, as well. Because exactly where you're going with this is because AllKey is 3x the ASP, you need minus 3x the volume in order to achieve the same numbers. And so as we look at the new customers, which I think your question was specifically about, there are some bigger customers in there. So when you think about revenue, but also to a degree, volume. There are some bigger customers in there, but it's actually spread quite broadly. So the quantity of customers as well is pretty good. That's what I was focused on when I talked about the pipeline data earlier is the number of customers that we're bringing in. Now typically, what you'll find is that we don't, as a company, go and target super small customers because, obviously, that doesn't make sense to get the right return on investment. We tend to target medium and then large customers so that we have a balanced pipeline. Larger customers, obviously, take longer to close and perhaps there's higher risk around those if you depend upon them. And so having medium customers to fill in the peaks between those are exactly the sort of pipeline balance that we look for. So I would say we've got a really balanced pipeline in terms of medium and large customers and the volumes would reflect those size of customer. Markus Almerud: And looking at the current customer base that you do have, which are now converting, you talk about 50% -- 50% of the current customer base, which is sort of on an upgrade path. What's the kind of size among those customers? Is it fairly even? Or are there any really large ones sticking out? Adam Philpott: I would say that actually, the bigger -- some of the biggest customers we have in our pipeline are newer customers to the company. We've got some very high-volume customers who are going to stay as sensor customers. That's why it's really important for me to emphasize that sensors remains a really important business to us. We're not moving out of it. We're not competing with it. We're expanding beyond it. So we've got some really big customers who remain in sensors. We've got some new big customers on AllKey. And then the bulk of our customers who are migrating, I would say, are kind of medium to large customers in that space as well. So it's a real variety of customers we're moving across. I think as we look at it on aggregate, both the quantity of customers around 50%. And then I also shared with you the pipeline data, of course, earlier. So you could see, for example, this year, about 30% of our pipe is AllKey because we only announced it at the end of 2024. The bulk of it really starts to kick in end of this year and definitely into 2027. That's when you see the revenue mix start to shift as well. But to your point, in that 60% in 2027, it's not dependent on one massive customer. I think the risk is relatively well spread. Markus Almerud: And on Ultra, which you released now in Q4, how is that progressing? And given that there is a Secure Element in there and you're looking at the kind of pipeline on that, or kind of just interest on that, is it mainly the types of FIDO and tokens and crypto? Or does it also tie into the Payment cards and maybe access cards? Adam Philpott: It's actually -- you're absolutely right. It's across all of those things. I think the thing I'm -- it was interesting. We put this package together called AllKey because we wanted to, A, move up the value chain ourselves, but B, take complexity away for customers to make their life easier, right? And so there was a really nice value equation for our clients. And it was our first foray into doing that. As we then introduce the Secure Element into that, the complexity that comes with the Secure Element is even greater. So taking that burden off our customers has been even more powerful, I think, and actually even more differentiated because to be -- to have the credibility and skills to operate at that level of security is even fewer people who can do that. So the competitive moat around us is even greater as is the value to our customers. So I'm really excited about the AllKey Ultra product. The pipeline is phenomenal, but we're really seeing that resonate as well as the AllKey product. I would say, to answer your question about the segments, definitely FIDO. You have some specialist FIDO providers who are probably going to want to provide their own Secure Element, because that's how they see their value add. That's fine. We'll continue to sell sensors to those guys. You've got others who just want to be quick to market and have a turnkey solution. They'll be more applicable for AllKey Ultra. So there's different types of players out there, but we can -- that is definitely a core market for the AllKey Ultra. You mentioned Payment. Absolutely. I shared with you earlier a feedback from a wearable customer. We're seeing a lot of demand there in terms of wearables as people start to tokenize. And also organizations who provide, whether it be consumer or personal wearable devices, want to add more services to it. They want to be able to start to have Payment. But rather than just have this device on your finger or on your wrist or in your ear or on your body, some other place, I don't know where they can do Payment. Of course, you want to be intention-based Payment where you probably have a step-up level of security using biometrics. So there's real demand in that space for our Secure Element product for Payment also. And then there's other markets around logical access. Of course, that probably ties closely into FIDO, Windows Hello as well. So certainly, Payment and FIDO, I would say, are key markets for AllKey Ultra. Markus Almerud: And in terms of timing, I mean, you talk about back end of '26 and then 2027 in terms of kind of getting into mass production of this. Is it the kind of timing here depending on your producers? Or is it more the kind of life cycle than the kind of time it takes for your customers to kind of get there? And tied to that, of course, I mean, how easy is it to scale production, is that a bottleneck? Adam Philpott: That's a really good question. So I think of it like a critical path. What pieces do we need to accelerate to get that business in quicker? It's not our ability to invest. It's not our supply chain. It's the productization cycle. So if you think about it, we go and talk to a customer, we've got this new integrated product. It's going to make your life easier. Okay, I'm interested. I'd like to see it, then we do a demonstration, and we -- then they like to evaluate and we give them an evaluation kit. Then they test us against most of other people. They select us because we're the best. And then they go to design in. So they design that into their product and build a prototype and then they move to full production design. That takes quite a long time. And then they have to start marketing, shipping, et cetera, their products. So it can be an 18- to 24-month cycle. It can be quicker as well. There's a lot of rapid prototypes, a lot of rapid engineering companies out there today. So actually you can come down with AllKey Ultra through even 9 months, but that would be best practice. So that would be, in my mind, what the critical path looks like to get this out. What I would say is, AllKey does accelerate that because they don't have to go and find our products, go and find an MCU, go and find a Secure Element and tie this stuff together, it rapidly simplifies the overall productization cycle. So that's kind of how I see it. What I do think, though, Markus, is that there's an opportunity to invest more behind this to build more pipe and to get more customers on board. Markus Almerud: A couple of more, if I may. On the licensing deals, first of all, I mean, I assume there's more to come. We spoke about that earlier, but our PixArt came in Q4 in October. And I assume there is -- I mean, you were alluding to that in the presentation, but I assume there is more to come and you expect these kind of to continue to come on a sort of ongoing basis, right? Adam Philpott: Yes. Absolutely, because I think of our company is an organism that produces products that we sell. That's our core business, but has a level of capability that other people want that they will pay for. And if you look at other companies, they actually ground this as one of their business lines. They say it's our corporate services or our design services or whatever. We don't do that because we want to focus on our products. But equally, we go and look out for those opportunities to bring in net income into the company that we can successfully monetize without distracting our resources away from the core business. So we absolutely see more of those. We've got incredible ASIC team. We've got an incredible algo team, and that's what partners, particularly, are interested in because they lack that. So we have a number of partners who want best-in-class talent. So there's a talent aspect to it, but there's also an asset aspect to it as well. I mentioned iris earlier. We're now -- we're seeing more and more demand for sort of biometrics and iris is a high-efficacy modality and people are looking for that. In the world of deep fake, people want high efficacy, not just vanilla access. So we're seeing demand for that. But that's very much a partnership model for us. We don't have so much resource that we can develop the different modalities. We want to focus on where we can make an impact and then partner where we need support, but that would be through a licensing mechanism to allow someone to develop that for their specific market rather than us do it for them. So iris is the second one. And then the third one, I call it assets and licensing deals. There's lots of different ways that we can ensure customers can benefit from our products in their market. We can sell them products and the more they buy, the better price they get or we can license technology to them as well, allow them to use their own supply chain, if that's a core competence of theirs so that they can unlock the right aspects of value that they're seeking. So those are really how I think about the assets and licensing. Markus Almerud: And the PixArt money, is it all in now? Or is there more to come in... Adam Philpott: I think -- yes, Fredrik, I would defer to you now. I think it's pretty much all in. But Fredrik... Fredrik Hedlund: You're correct, Adam. All in. Markus Almerud: Okay. And then finally, maybe I was excited to read the word inorganic in your release. Maybe you can share some more thoughts on kind of what you're looking for and what should we expect and all that? Adam Philpott: Yes, absolutely. Here's how I see it. I shared a picture on the last earnings call for those of you who have recognized. And it showed the fragmentation in the markets we serve. There's lots and lots of different vendors doing things that are adjacent to what we do. And so I think there's opportunity for industry consolidation because in isolation, we're all quite small. But when you aggregate it together, there's overlapping capabilities. So there's the opportunity for cost optimization, but there's also the opportunity for upsell revenue growth through cross-selling, for example, because there's kind of some adjacencies in complementary nature. We're not talking about getting the same company 5x integrated, not really about that. There's actually adjacent companies that can aggregate together, realize some cost optimization and deliver some benefits on the top line whilst they do so. So that's how I think about the inorganic opportunity due to the market fragmentation. Markus Almerud: Okay. Adam Philpott: Awesome. Thanks very much. As always, I appreciate your questions as well, Markus. Stefan, maybe we'll come back to you, see if there's anything that's come in on the chat. Stefan Pettersson: Yes. Let's take a couple of questions here. So after the first major JLR cyberattack, have you already observed a significant increase in interest from current customers and potential new customers on spending more in your security solutions? Adam Philpott: That's a great question. And as a cyber guy, I particularly like that question. So I've been in cybersecurity for probably, I don't know, more than 15 years now. And so I think what really interests me here is that identity has always been the weak link in cybersecurity. I don't know how long we've been talking about passwords is the #1 vulnerability, but it was very slow to change because passwords are free. People have to remember them. So the burden is on the end user, except the risk is on the organization. And so JLR was absolutely an identity-centric attack. It was stolen credentials through help desk account recovery. And so we're seeing not just increased demand in cybersecurity, which is pretty big anyway, but a focus on identity. If any of you follow me on LinkedIn, you'll see recently, I've been posting about identity. There's this phrase in the industry at the moment, which is attackers don't hack in, they log in. So think about it. It used to be hackers come in and they smash the back window or break down the front door. They don't do that. They put the key in the door, turn the lock, and walk straight on in, right? And so our job is to ensure that they can't do that because they can't steal the keys or they can't copy the key or they can't be given the key. They have to be unique to the individual through biometrics. So an answer to that great question, we are absolutely seeing an increase in demand. Is it attributable to JLR? Who knows, right? No one does attribution in cybersecurity because it's such a difficult and thankless and meaningless sometimes thing to do. But we are seeing increased demand, and we're seeing increased focus on identity. So it means we find ourselves in the right space. And so our job is to capitalize upon that. Stefan Pettersson: All right. Thank you, Adam. And another question on staff. I see that FPC has the same number of staff in Q4 as in Q3. Do you need to grow staff for more sales to generate more sales in the future? Adam Philpott: Yes, it's a good question. It's a fine balance, isn't it? We need to maintain operating rigor on our costs. But at the same time, we need to manage the growth lever as well. And if we're too limited in capacity, it can have an effect on that. I think the question specifically mentioned sales, not necessarily sales resources, but getting more sales, i.e., more revenue. Here's what I would say on that. I would say 2 things, and Fredrik, I'll pull you in because you probably got some other views as well. The first thing I would say is that I think there's additional capacity in our sales engine. And the way we think about that is to augment our salespeople with AI. I'll give you an example. We have an AI agentic model where when a lead comes in through our website or if we scan someone's ID at an event or wherever a lead comes from, we have a set of AI engines that will look at that contact, look at that customer and deliver a bunch of consolidated research to the rep on who the customer is, what they're doing, why biometrics might be of value and some of the things that our reps can talk to them about that create value for that company and help us as a company, too. That takes time away from the reps having to do that. That would be quite a lengthy research exercise. So just think about how we can support our reps is really important. So I think there's -- we've created more productivity for our reps. I know they wouldn't agree with me. They probably say they're too busy, but that's good. And so I think that's part of it is augmenting our staff with AI so they can be more productive. We are very active in doing that. We don't pretend we're the best at it. We don't hype it. But equally, we're definitely not doing nothing. So we feel good about our pragmatic approach to AI for capacity augmentation. That's the first thing. The second thing is we have actually expanded slightly. So we had a couple of reps, one who's business development, one who's sales in the U.S., who are looking at the cloud identity piece because that was taking too long and AllKey was taken off, we pivoted those guys towards AllKey. So we've increased our capacity. And what we're focusing one of them on is on our channel. We've got some big disties in North America. And if you don't go and see them and remain top of mind and keep educating them and building relationships with them, they forget about you and go and do something else. When you see them, we instantly see leads coming out of them through their networks. So lighting up that channel is really important, also focusing the business development on more campaigns that can then feed the rest with new leads. Those are some of the things we're doing to ensure that we are growing capacity and focused on putting our investments where the market is taking off. Stefan Pettersson: All right. Thank you, Adam. Does FPC have the opportunity for new customers in the defense industry, which is growing today due to the uncertainty? Adam Philpott: Yes. I would love to be more active in that space. I would say that with our ability to invest, that's quite capital intensive in the sense that it takes quite a long time. We do -- we are opportunistic in that segment at times. We approach clients, particularly manufacturers, et cetera. We need to be a little careful about what we can do there because of the nature of that industry and some of our contracts. But I think that is quite a focused undertaking. And so we just need to be very balanced because if we tie up our resources in something long term, it means our short-term funnel starts. So we just need to be a bit balanced about where we focus. Today, we tend to focus on sales cycles that are 12 to 24 months. That's kind of the sweet spot. If we start to get into much longer sales cycles, it means that we're kind of building for the long term, which is great, but not having any bank on the near term. So I do see us over time, expanding our aperture to longer-term deals once we've built out a much stronger base of short-term customers, but it's not something we have a specific campaign or focus on or assets on today. Stefan Pettersson: All right. Thank you very much. And thanks, everyone, for good questions. And I'd like to hand over to you, Adam, again, for any closing remarks. Adam Philpott: Yes. Thanks very much, Stefan. So I appreciate all of the questions, really good questions. I really enjoy answering those and hearing what's on your minds by the nature of your questions. As I said, the business is stable. We put some good stability in place on the fundamentals. We do, of course, focus on funding the business, both through accelerating the transition and spread up to AllKey, but also through those asset deals. So that's a key focus on our minds. I think what's really important that we've seen over the last year is proving out which bet is going to take off, observing it and then rigorously investing behind it. And that's really what we're doing on the AllKey bet with additional products to come off that roster as we continue to see proof points of demand such as those in the smart card space. So thank you for everyone. I appreciate you joining us for the first call of 2026. I appreciate you being with us on the journey as we're now in the third year of this transformation and look forward to speaking to you all again soon. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good day, ladies and gentlemen. Welcome to Pacasmayo's Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note that this call is being recorded. I would now like to introduce you to your host for today's call, Ms. Claudia Bustamante, Investor Relations Managing Director. Mr. Bustamante, you may begin. Claudia Bustamante: Thank you, Louis. Good morning, everyone. Joining me on the call today is Mr. Humberto Nadal, our Chief Executive Officer; and Ms. Ely Hayashi, our Chief Financial Officer. Mr. Nadal will begin our call with an overview of the quarter focusing primarily on our strategic outlook for the short and medium term. Ms. Hayashi will then follow with additional commentary on our financial results. We'll then turn the call over to your questions. Please note that this call will include certain forward-looking statements. These statements relate to expectations, beliefs, projections, trends and other matters that are not historical facts and are therefore subject to risks and uncertainties that might affect future events or results. Descriptions of these risks are set forth in the company's regulatory filings. With that, I'd now like to turn the call over to Mr. Humberto Nadal. Humberto Reynaldo Nadal Del Carpio: Thank you, Claudia. Welcome, everyone, to today's conference, and thank you for joining us today. As I'm sure most, if not all of you, already know by now, on December 16, a significant milestone was achieved with the announcement of an agreement for Holcim to acquire Inversiones Aspi which owns 50.01% controlling stake in Cementos Pacasmayo. The agreed upon valuation of PEN 5.1 billion represents a strong multiple of 9x record EBITDA calculated based on the last 12 months ending July 2025. This transaction is pending regulatory approvals and is expected to close in the upcoming months. However, much more relevant than this final evaluation is the fact that Holcim's decision serves as a powerful endorsement of Pacasmayo's long-term strategy, its operational excellence and the consistent hard work delivered by generations of employees over nearly 7 decades. This milestone underscores the strength of our team, our commitment to our values and our dedication to building a profitable, ethical world-class company with a clear sales of purpose. We are immensely proud of a global leader like Holcim, which we have admired so long has placed it's trust in Pacasmayo and in Peru. Looking forward we'll collaborate to promote sustainable development, create new opportunities and contribute to the growth of both the country and the wider region. That being said, I would like now to move on to a quick overview of our results for the quarter and for the full year 2025. We continue to see very strong momentum in sales volumes with an 8.2% decrease this quarter compared to the same period of last year and a very solid 7.2% increase from full year 2025 relative to 2024. This growth was driven mainly by stronger demand for infrastructure projects and a very consistent performance in the always reliable self-construction segment. Our excellent financial performance this quarter was driven by disciplined execution and a relentless focus on cost efficiencies. Excluding the one-off expenses related to the share purchase agreement signed with Holcim, EBITDA reached $158.7 million, an 11.4% increase compared to the same period last year. This growth confirms the success of our efforts to permanently enhance profitability across our market. This strong quarter capped off a record-breaking year once again, as we have done in 2024. We achieved an all-time high EBITDA of PEN 594.2 million for the full year, marking a 6.4% year-over-year increase when excluding one-off expenses. Given our commitment to operational excellence and climate action, we are continuously making progress in decarbonizing operations. We are proud to have announced that we have achieved 3 star recognition from Peru's Minister of Environment, MINAM through the Peru carbon footprint [indiscernible]. This recognition is awarded for demonstrating consecutive years of reduced greenhouse gas emissions, and it followed a collaborative effort with MINAM, including the submission of verified data for 2022-2024 period. Specifically, our Rioja plant recently earned its [indiscernible] start for 2024 emission reductions, building upon the recognition previously secured by both our Pacasmayo and Piura plants for our 2023 performance. In [ the same spirit ], we are very pleased to highlight our continued leadership in the Merco ESG responsibility ranking. For a tenth consecutive year, we are recognized as an industry leader in this evaluation, which assesses the three dimensions of sustainability: environment, society and customers, and ethics and corporate governance. Furthermore, we maintained a top-tier position in the general ranking of the most responsible companies in Peru, placing ninth overall this year, which is a tremendous achievement for a regional company like ours. This recognition strongly reinforced our commitment on sustainability strategy, which remains central to our core business operations. We are confident that these positive results are only the beginning that the momentum we've built will continue to strengthen in the future. At the same time, the confidence placed in us by such a prestigious global cement player reinforces our focus on operational excellence, profitability, disciplined execution and always people at the center of every strategy. We're confident that the momentum we have built is there and we remain motivated to keep improving our performance while continuing to serve our clients, support our communities and most of all, always continue the development of our country. I will now turn the call over to Ely, our CFO, to go into a more detailed financial analysis. Ely? Ely Hirahoka: Thank you, Humberto, and good morning, everyone. For the first quarter of 2025, revenues increased by 6.2% year-over-year, reaching PEN 559.5 million. This growth was primarily driven by higher sales of [indiscernible] cement along with increased sales of concrete and [ pigment ] for infrastructure [ prior ]. We delivered strong profitability this quarter with gross profit increased 11.4% year-over-year. This improvement was mainly due to a lower cost of raw material, greater consumption of our own clinker and operational efficiencies due resulting from our maintenance and production plans. Consolidated EBITDA excluding transactional expenses also rose by 11.4 percentage to PEN 158.7 million. Looking at the full year 2025, revenues grew by 7 percentage compared to 2024. Gross profit increased by 10.8% driven by the same factors as the quarter, lower raw material costs, higher use of our own clinker and operational efficiencies from our production plan. Full year EBITDA after excluding the one-off transactional expenses, increased by 6.4 percentage over 2024. Turning now to operating expenses. Administrative expenses for the first quarter 2025 increased by 5.7 percentage and by 50% for the full year -- corresponding period in 2024. This was mainly contributable to higher personnel expenses resulting from collective [indiscernible] negotiation from our labor union. Selling expenses decreased by 8.3% in the fourth quarter compared to the previous year, primarily due to lower depreciation and reduced advertising and promotion expense. However, for the full year 2025, selling expenses increased by 40% driven by higher advertising and promotion expenses during the first 9 months of the year as well as the union models mentioned before. In the first quarter of 2025, cement sales saw a notable increase of 30.6 percentage. This growth was primarily fueled by robust demand for fast cement within the third construction sector. Likewise, for the full year 2025, cement sales increased 8.7% when compared to 2024. This elevated in demand is linked to the continued strength of the agro, industrial and fishing sector which are key income drivers in the North. Regarding profitability, the gross margin increased by 0.4 percentage points in the fourth quarter of 2025 compared to the fourth quarter of 2024. Over the full year, gross margin increased by 1.9 percentage points versus 2024. These margin improvements are mainly attributable to a reduction in raw material costs and lower consumption of imported clinkers. During this quarter, concrete, pavement and mortar sales decreased by 25.1% year-over-year. This decline was mainly due to lower sales volume as the Motupe riverbank defense project was put on standby. We note, however, that this project has been prioritized to restart in the near future. Conversely, for the full year 2025, sales increased by 6.3%, mainly due to higher volume of mortar and concrete for infrastructure projects. Gross margin decreased by 7.8 percentage points in the fourth quarter of 2025 and 3.2 percentage points for the full year. This contraction was primarily due to the execution of the Piura airport project and lower [ fixed ] cost dilution reported from the hold of the Motupe project. During 2025, sales of concrete, pavement and mortar increased 6.3%, mainly due to higher sales volumes of mortar and concrete for infrastructure projects. Gross margin decreased 7.8 percentage points in the fourth quarter of '25 compared to [indiscernible] in 2024 and 3.3 percentage points in compared to 2024. This decrease was mainly due to the execution of the Piura airport project as well as lower dilution of the stock from the [ hault ] of the Motupe project as mentioned before. Regarding precast materials, sales decreased by 16% in the fourth quarter compared to the fourth quarter of 2024, mainly due to lower sales volume and a high comparative base in the fourth quarter '24 from a road improvement project. However, full year 2025 sales increased by 3% driven by higher demand for the public sector. Gross margin improved by 5.4 percentage points in the fourth quarter of 2025 and 1 percentage points in 2025, lately due to relative pricing and higher dilution of fixed costs. Consolidated net income for the quarter was negative due to the transactional expenses mentioned before. Excluding this one-off expenses, [ net income ] would have been PEN 59.8 million, making a 19.6% increase over the same period last year. Similarly, for full year 2025 net income, including the expenses would have been PEN 231.8 million, an increase of 16.5% compared to 2024. Our net debt to EBITDA ratio grew at 2.8x. We continue to lower our debt to amortization payments, although it was partially offset by a lower EBITDA figure. To summarize, we continue to deliver solid financial results this quarter by capitalizing on favorable market positions while significantly managing cost to achieve sustained profitability. Operator, can we now open the call for questions? Operator: [Operator Instructions] So our first question is from Johan Clavijo from Sagil Capital. Thank you for the call. Could you please provide more details about the transaction with Holcim? Which steps are planning to close the transaction? Is there any risk we should be aware of? And how do you feel about the regulatory approvals for the deal? Humberto Reynaldo Nadal Del Carpio: Thank you. Like I explained in the transaction, [indiscernible] Holcim has acquired Inversiones Aspi who controls 50.01% of the common shares of Pacasmayo. We are waiting for [ in the copy ] approval. The process is running smooth, and we expect it to be approved in the coming months. That's why we can't comment at this point, but we don't see anything coming up. Operator: Thank you. Our next question is from Mariane Tadeo from CreditCorp. Thanks for the presentation. Please, could you explain why your acquisition-related expenses are assumed by Pacasmayo and why are they so high? Humberto Reynaldo Nadal Del Carpio: Yes. We -- I mean, -- most of the agreed transaction expenses are related to change of control issues that were -- I mean, contracts that were in the company for a very long time. Part of these transaction expenses will be all seen by Holcim [indiscernible] all of it was approved by our Board, and we consider that, I mean, given the price achieved by the -- for the sales of the company. This was very reasonable and had to do with contractual obligations [indiscernible]. And like I said, part of these expenses will be assumed by -- will be the next [indiscernible] price. Operator: Our next question is from Gerald Fort from AFP Integra. Could you help us understand why Pacasmayo had to recognize the PEN 77 billion to PEN 80 million in expenses related to the Holcim transaction, considering that Holcim is acquiring Aspi's majority stake not the company itself. And the deal is still pending approval depending on the [indiscernible] approval. What about the obligations required Pacasmayo to incur these costs? Humberto Reynaldo Nadal Del Carpio: Like I said, this was discussed in the Board [indiscernible] decided to be done like this. We don't foresee any impediments by the authority. I mean we're very respectful of all the legal framework and we think this will be approved. And this was a decision that I can say, this has to do with contracts that are already in place for many, many years that had to do with the change of control. And if I may add, and we have -- please realize, I mean, as we are all aware, after this transaction of buying [indiscernible] Holcim is required by law to launch an [indiscernible] for part of the remaining shares. So we consider -- the board considers that this transaction that will benefit all shareholders, and only the controlling shareholder. And the price has to be at least the price that was paid by -- for the controlling shares. Operator: We have a question from Gabriel Ramos from Kallpa. Given the pause of the Motupe River Bank protection project and its impact on volumes and margins in the fourth quarter of 2025. Should we expect similar project-related disruptions or margin pressures in the coming quarters? Additionally, how could this affect concrete pavements and mortar performance and overall margins looking into 2026? Humberto Reynaldo Nadal Del Carpio: I think margins -- I mean every concrete project has in particular reality margins. Looking forward, we think EBITDA margins should remain at the levels we have achieved on the -- over the last year, maybe a little bit higher. We have some energy-saving projects coming in the second semester of this year as we enhance margin. So have very positive outlook in what's going to happen in the coming -- in this year with the margins. And also, we have to -- we hope that the [indiscernible] traditionally start spending slow at the beginning of the year. We have election coming up in two months, I mean, this should probably pick up after the second, third quarter of this year. Operator: We have a follow-up from Gerard Fort from AFP Integra. Could you provide any guidance on revenue growth and EBITDA margins expected for 2026? Humberto Reynaldo Nadal Del Carpio: Well, we can't say. I mean, we achieved a record EBITDA year on 2025, and we persist that this year should be stronger than the last one in terms of volumes. We also think price will remain in a very competitive space as they have been giving us very good margin. So the results coming -- going forward, we're optimistic about the volume growth for the year, and we are also very optimistic that the EBITDA margins will remain stable by pointing towards an increase due to some efficiencies like I mentioned, [ energy ] among them in the second semester of this year. Operator: Thank you very much. We would like to thank everyone for the questions and the participation. I'll now hand it to Humberto for the closing remarks. Humberto Reynaldo Nadal Del Carpio: We are indeed deeply proud that global leaders such as Holcim has placed its trust in Pacasmayo and more importantly, in Peru. This investment is a very strong validation of what we have long believed and consistently communicated that Peru's long-term growth potential remains solid and that the country offers meaningful opportunities for sustainable development and value creation. I think as CEO, this consequence of the effort displayed by thousands of employees over the years, and we are all extremely proud of this transaction. And I'm sure this will bring only good news for all stakeholders, the shareholders, the employees, our communities and the country. Thank you, everybody, for today and always thank you for your renewed interest in our company. Have a very nice day. Operator: We'll now be closing out the lines. Thank you, and have a nice day.
Operator: Good morning, ladies and gentlemen, and welcome to Bladex Fourth Quarter 2025 Earnings Conference Call. A slide presentation is accompanying today's webcast and is also available on the Investors section of the company's website, www.bladex.com. [Operator Instructions] Please note today's conference call is being recorded. [Operator Instructions] I would now like to turn the call over to Mr. Jorge Salas, Chief Executive Officer. Please, sir, go ahead. Jorge Salas: Good morning, everyone, and thank you for joining. Today, we will discuss Bladex's Fourth quarter and full year 2025 results. I will begin with the key highlights and then, Annette, our CFO, will walk you through the financial results in more detail. After that, I will comment on the macro environment and its implications for Latin America and for Bladex. Finally, I will discuss our guidance for 2026. After that, we will open the call for questions. This same week a year ago, we shared detailed guidance for 2025. As you can see from our 2025 guidance slide, we delivered in all key metrics we guided for in 2025. Achieving this in a year marked by high global liquidity, declining market rates and elevated geopolitical volatility, speaks to our execution capacity and focus on building an even more resilient earnings profile through different cycles. Moving on to the next slide on the highlights of the year. 2025 was the fourth consecutive year of record results. And turning to the balance sheet, our commercial portfolio grew 11.5% year-over-year, driven by a solid expansion in our loan book and an even stronger increase in our contingent portfolio of more than 20% year-on-year. Loan growth was led by Guatemala, Colombia, Mexico, the Dominican Republic and Argentina, reflecting our ability to originate selectively where we see attractive risk-adjusted opportunities and strong client activity. On the funding side, deposits grew 22% year-over-year and now represent more than 60% of total funding. Class A shareholder deposits remain a core anchor of our funding base, and our Yankee CD program performed strongly, reaching $1.5 billion by year-end. Beyond deposits, we remain active across capital markets and syndicated financing. As you probably recall, in September 2025, we successfully completed our first AT1 issuance, marking an important step in further strengthening our capital structure and enhancing our ability to support the growth of our commercial portfolio going forward. Moving on to the P&L. Despite rate cuts and in a more competitive environment, net interest income reached another record, increasing by 5% year-over-year, supported by volume growth and active balance sheet management. Our net interest margin ended the year at 2.36%, slightly above guidance, reflecting a very active optimization of our portfolio exposures by type of client, industry and geography. In 2025, we continue our progress on revenue diversification. Noninterest income also set a new record, growing 54% year-over-year, and now representing 20% of total revenues coming from 13% 4 years ago when we started executing this plan. This was driven by strong performance of our 2 main fee-generating businesses. Letters of credit, was definitely a very good year for letters of credit in. Fees were up 20% year-on-year while the team completed the implementation of the new trade platform. It was also a record year for our syndication team. Fee generation increased more than 70% from last year. The team was able to close on a record of 13 transactions across 11 countries totaling over $5 billion. On expenses, operating costs grew according to plan as we continue to invest in transformation. We ended the year with an efficiency ratio of 26.7%, again within guidance, reflecting our ongoing cost discipline. All of this translated into a record net income of $227 million, up 10% year-over-year, and a return on equity of 15.4%. In summary, we continue to strengthen our balance sheet, and we continue to diversify our revenue streams, delivering record results year after year. We're doing so while we implement top-of-the-line IT platforms that will enable us to scale our fee businesses going forward in an even more efficient manner. Let me now hand it over to Annette, our CFO, for a detailed financial analysis. Annette, your turn. Annette van de Solis: Thank you, Jorge, and good morning, everyone. Let me start with the net income and returns for the year. As Jorge mentioned, 2025 was a record year for the bank. We delivered net income of $227 million and an adjusted return on equity of 15.8%, reflecting another year of strong and consistent profitability. These results were driven by sustained commercial portfolio growth, solid revenue generation across both net interest and fee income, disciplined cost management, well-contained credit costs and a strong capital position that continues to support expansion. Importantly, 2025 also shows that Bladex is becoming structurally less rate sensitive. Over the past year, the Federal Reserve implemented 75 basis points of rate cuts. Despite that, we increased net income year-over-year, maintained stable return on assets and kept margin above our target range. This reflects 2 structural improvements in our model, a more diversified revenue base with record noninterest income and a more balanced funding mix with growing deposit balances. Full year net income grew more than 10% year-over-year, demonstrating our ability to perform in a declining rate environment. In the fourth quarter, we generated $56 million in net income, one of the strongest quarters in our history, supported by robust top line generation across both interest and fee income. Moving to returns. Full year adjusted ROE was 15.8% compared to 16.2% in 2024, and fourth quarter adjusted ROE was 14.2% compared to 15.1% in the third quarter. While both comparisons show a moderate decline, it is important to frame this correctly. Returns on assets remained stable in both cases, confirming that underlying operating performance and asset profitability were unchanged. The moderation in ROE was driven primarily by the impact of the [ 175 ] basis points of rate cuts since late 2024 and the higher capital base following the AT1 issuance. In other words, the core earning power of the balance sheet remains intact even as rate decline. Looking ahead to 2026 as we expect 2 additional rate cuts, returns will continue to be influenced by rate environment. However, as we deploy the balance sheet capacity created by the AT1 issuance and move forward towards our target capitalization levels, we expect that continued commercial portfolio growth, further improvement in funding mix and increasing contribution from free base income will support profitability and returns over time. With that context on profitability and returns, let me now walk you through the evolution of our credit portfolio. At year-end, our total credit portfolio reached $12.6 billion, representing 12% year-over-year growth. This was driven by loan growth of roughly $800 million or 10% year-over-year, while contingent business grew 21% versus 2024. Importantly, this growth was achieved with that compromising sector or geographic diversification and was supported by a 9% expansion in our client base. This outcome reflects a planned growth strategy, aligned with prudent capital management and our focus on preserving margin and maintaining strong risk discipline. During the first half of the year, growth were primarily driven by off-balance sheet capital-light activity, particularly in letter of credits and commitments. This allow us to support client activity while preserving balance sheet flexibility in a highly liquid and competitive market. In the second half of the year, loan growth became more pronounced as we began to selectively deploy balance sheet capacity. This was especially visible in the fourth quarter following the AT1 when the loan balances increased by 5% quarter-on-quarter, driven mainly by longer-tenor transactions with attractive risk-adjusted returns. As a result, medium-term loan balances increased by more than $750 million in 2025, while short-term balances remain broadly stable. This mix is reflective of our business model. Short-term loans provide flexibility and active risk management while medium-term transactions allow us to lock in returns where pricing and structure justifies the use of capital. As shown in the chart, the commercial portfolio remains well diversified with a duration of approximately 15 months and about 67% of exposures maturing within the next 12 months, supporting an agile business model. Geographically, growth during 2025 was driven mainly by Guatemala, Argentina and Colombia, with the Dominican Republic contributing in the fourth quarter. From a sector perspective, growth was well diversified across corporate clients, while exposure to financial institutions remain a stable and meaningful component of the portfolio. Overall, this evolution reflects disciplined execution, a capital-aware approach to growth and a prudent risk management. As we move into 2026, the bank is well positioned to continue expanding the loan book without altering its credit risk profile, deploying capital selectively and in line with our return thresholds to support sustainable and resilient profitability. Before turning to asset quality, a brief update on liquidity and the investment portfolio. At year-end, the investment portfolio totaled $1.4 billion, representing a 19% increase year-over-year, in line with balance sheet growth and our liquidity objectives. The portfolio is managed with a conservative risk framework with approximately 91% investment-grade exposure and a composition largely outside Latin America, supporting credit diversification and our liquidity contingency planning. By design, the portfolio remains short in duration and is held through our New York agency with their securities are eligible for use as collateral at the Feral Reserve Bank of New York discount window. Total liquidity closed the quarter at $1.9 billion, representing about 15% of total assets within our target range. As of December 31, approximately 91% of liquidity was placed with the Feral Reserve, reinforcing our conservative liquidity management approach. Overall, our liquidity position remains strong and prudently managed. With that, let me now turn to asset quality. Asset quality remains very strong and stable. As of the fourth quarter, Stage 1 exposures represented 98.2% of total credit portfolio, up from 97.2% in the third quarter, reflecting the high-quality profile of the book. Stage 2 exposures declined to 1.5% from 2.6% in the prior quarter, representing a decrease of roughly $128 million, driven mainly by improvement in credit quality with exposures migrating back to Stage 1, scheduled repayments and maturities and the migration of a single exposure of approximately $20 million to Stage 3. As mentioned in the prior call, Stage 2 provisions this year were largely driven by a single client exposure added in the third quarter from the petrochemical sector. This exposure represents just under 1% of the total credit portfolio and is split roughly 50-50 between trade acceptances and uncommitted bilateral facilities, all with a short remaining tenor. This was an isolated situation, and we continue to see no sign of systemic risk in the portfolio. During the fourth quarter, the client made a scheduled payment, further supporting our Credit assessment. At the same time, we increased coverage as part of our ongoing credit oversight. This explains the increase in Stage 2 provisions even as overall Stage 2 balances decline. Stage 3 exposures remain very limited, representing just 0.3% of total credit portfolio at quarter end. The increase reflects the reclassification of the small exposure that had been in Stage 2 since 2024. Importantly, this exposure was already closely monitored and well provisioned while in Stage 2, so its migration to Stage 3 did not require a material increase in provisions. Exposure represents less than 0.2% of total portfolio and relates to a client in the upstream gas sector. From a reserve perspective, coverage remains very strong. Total allowance for credit losses stood at $107 million at year-end, representing 276% of impaired credits, underscoring the discipline of our provisioning approach and providing a solid buffer against potential credit deterioration. In addition, during the fourth quarter, we recorded $0.6 million in recoveries related to a loan previously written off, reflecting the continued effectiveness of our recovery processes. Overall, while provisions increased modestly due to this single client, they were partially offset by recoveries and upgrades in other exposures that migrated back to Stage 1. The portfolio continues to demonstrate strong credit quality and disciplined forward-looking provisioning. Let me now turn to funding. Throughout 2025, our funding strategy remains centered on supporting balance sheet growth while strengthening funding stability and optimizing our cost of funds. Deposits continue to be the foundation of our liability structure, representing 62% of total funding at year-end despite the usual seasonality we see in the fourth quarter. This funding structure has allowed us to grow the balance sheet with lower reliance on wholesale markets, reinforcing funding resilience and supporting a more efficient cost structure as volumes expanded. From a composition perspective, Class A shareholders remain a structural anchor, representing 35% of total deposits at year-end. Deposits from financial institutions increased steadily during the year, reaching 27%, while corporate deposits remain a stable component of the mix, representing roughly 24% of deposits in the fourth quarter. This growth was accompanied by a broader and more diversified depositor base with the number of depositors increasing by approximately 10% during last year, further strengthening the resilience and the granularity of our funding profile. From a product perspective, the bank's deposit offering remains primarily investment oriented, including demand deposits, time deposits and Yankee CDs. Within this structure, Yankee CDs represented 23% of total deposits at year-end, with about 13% distributed through brokers, contributing to a more diversified and longer tenor financial liabilities. Beyond deposits, we maintain ample access to corresponding bank's credit lines, preserving flexibility to support loan portfolio growth as capital deployments accelerate. During 2025, we executed 2 important transactions that expanded our funding capabilities and investor reach. We completed a Costa Rica and [indiscernible] issuance under our Panamanian program, the first foreign currency bond ever issued in the Panamanian market, which enabled us to begin offering local currency financing to our Costa Rican clients. We also executed a 3-year global syndicated loan with first-time participation from several Middle Eastern banks, raising $150 million and further diversifying our funding sources. Looking ahead, while the pace of deposit growth is expected to normalize, we expect deposit balances to continue increasing in 2026, preserving deposits as our core funding source. At the same time, we are advancing in initiatives aimed at attracting more stable transactional balances, which should support a gradual improvement in our cost of funds over time, with initial contributions beginning in 2026. Now let me briefly turn to capital. Following the AT1 issuance completed in September, its full impact is now reflected in our capital ratio and returns, moderating ROE in the fourth quarter ahead of full deployment. Capital deployment has already begun through new medium-term transactions, reducing our Basel III Tier 1 ratio from 18.1% to 17.4%, still with ample headroom as we continue deploying capital to support portfolio expansion. From a regulatory perspective, our capital position remains very strong. Our Panama regulatory capital adequacy ratio stood at 15.5%, well above the required minimum. Given our fourth quarter performance, the Board approved an increase in the quarterly cash dividend to $0.6875 per share, up from $0.625, representing a 46% payout of fourth quarter earnings. We believe this level appropriately balances returning capital to shareholders, maintaining strong capitalization and preserving financial flexibility to support growth while safeguarding our investment-grade profile. Overall, Bladex enters 2026 with strong capital buffers, a solid transaction pipeline and the flexibility to support balance sheet growth while maintaining prudent capital management and full regulatory compliance. Let me now turn to net interest income and margins. During 2025, we delivered another year of growth in net interest income and maintain margin resilience despite a more challenging rate environment. Since late 2024, policy rates have declined by 175 basis points and the yield curve remain inverted in 2025, creating a less supportive environment for spread generation. At the same time, we experienced the rollover of fixed rate funding raised during the low rate period of 2020, which was replaced this year at higher rates, adding pressure to interest spreads. Active balance sheet management allow us to absorb these headwinds gradually over roughly a 12-month horizon. Strong deposit growth improve our funding mix and supported a more efficient cost of funds. In addition, we maintained disciplined loan pricing and efficient yet prudent liquidity levels. As a result of these combined actions, the fourth quarter delivered the strongest margin of the year with a NIM of 2.39%. For the full year, net interest income increased by 5% year-over-year, and we closed 2025 with a net interest margin of 2.36%, above our guidance of 2.30%. Net interest spread declined modestly to 1.67% compared to 1.75% in the prior year, reflecting the rate environment and funding repricing dynamics. Looking ahead to 2026, while additional rate cuts are expected, we believe that continued deposit growth, disciplined pricing and active funding and liquidity management will allow us to keep margins broadly in line with our guidance. Let me now turn to fees and noninterest income. For the full year, noninterest income reached $68.4 million, reflecting strong execution and continued progress in diversifying our revenue base. As a result, fees and other noninterest income represented close to 19% of total revenues, up from 15% last year, reinforcing the growing structural contribution of fee-based income. In the fourth quarter, noninterest income totaled $8 million. Excluding the extraordinary fee associated with the Staatsolie transaction earlier in the year, quarterly performance remained above our historical run rate with contributions across all major fee lines. The largest component on noninterest income continues to come from fees and commissions linked to our core trade finance and structuring activities, which generated $59 million in 2025, mainly driven by letter of credits and guarantees steady growth throughout the year, generating $31.8 million. Loan structuring and distribution was another important contributor, executing 13 transactions across 11 countries with total transaction volume of approximately $5 billion. Bladex underwrote about 30% of that volume and retained roughly 24% on balance sheet, generating $17.7 million in upfront structuring and syndication fees. As our participation in medium-term structured transaction continues to expand, credit commitment have become an increasingly stable and recurring source of fees, contributing $11.6 million during the year. Secondary market loan activity was an important complementary source of income as well, generating $2.6 million as we proactively manage capital and optimize client credit lines. While activity may normalize following the capital raise, we continue to see selective opportunities in 2026, where pricing and balance sheet optimization justifies execution. In derivatives, income remains modest for strategically important, totaling $1.1 million in 2025. Our focus remains on building the commercial pipeline and deepening client engagement. These early transactions are positioning us to scale derivative-related income meaningfully once the treasury platform is fully deployed in the second half of 2026. Overall, fees and noninterest income performance in 2025 reflects stronger diversification, disciplined execution and growing momentum across trade finance, restructuring, commitment and treasury-related activities. As our platforms mature and client penetration deepness, we expect fee income to play a progressively larger and more stable role in the bank's earnings profile. Let me now turn to operating expenses and efficiency. Total operating expenses for 2025 reached $90.6 million, representing a 13% increase year-over-year. This increase reflects investments to support the bank's strategic priorities, particularly in technology, digital capabilities and business initiatives, including its associated operating cost and depreciation. Personnel expenses also increased, reflecting selective headcount growth aligned with the strengthening of our execution capacity. These investments are directly linked to higher business volumes and long-term strategic execution, and we expect revenue growth to absorb incremental expenses over time. In the fourth quarter, operating expenses totaled $27.4 million, up 20% year-over-year and 28% quarter-on-quarter. This increase primarily reflects seasonal year-end effects, including higher accruals and variable compensation adjustments aligned with the full year performance as well as the continued implementation of key initiatives. As a result, the fourth quarter efficiency ratio was temporarily elevated. However, for the full year, the efficiency ratio closed at 26.7%, broadly in line with 26.5% in 2024, demonstrating our ability to absorb strategic investment while maintaining cost discipline. Looking ahead to 2026, we expect expenses to normalize toward a more consistent quarterly run rate. Cost disciplines will remain a core management priority. We will continue to invest selectively in a strategic initiative and capabilities while carefully managing our talent base to support the next phase of execution. This balanced approach is designed to preserve operating leverage and maintain efficiency ratios around 28%. Overall, 2025 reflects disciplined execution across growth, profitability capital and cost management, positioning the bank to continue delivering sustainable returns as we move into 2026. With that, let me now turn the call back to Jorge and thank you very much. Jorge Salas: Thank you, Annette. Let me now share our perspective on the macro and trade environment and our guidance for this year. 2025 was clearly a year of heightened uncertainty and renewed trade pictures, yet global activity remained resilient and trade flows held up better than many expected. This was in part by a pull forward of shipments ahead of policy changes and ongoing supply chain adjustments. There is no doubt that policy uncertainty, particularly in tariffs, and pace of rate cuts will continue to shape confidence and risk appetite. In the United States, our base case scenario is a soft landing with inflation gradually converging towards the Feral Reserve's target. In that scenario, we are assuming that the Fed will proceed with gradual easing, including 2 additional rate cuts in 2026. We anticipate, however, that the markets may remain sensitive to policy changes and political developments during the year. Now turning into Latin America, the region remained relatively insulated from global trade tensions in 2025. Latin America has had relatively low tariff exposures compared to other parts of the world. Fundamentals were broadly resilient. International flows into LatAm improved on the back of ample global liquidity and better risk sentiment. This is all consistent with tighter credit spreads and a constructive FX backdrop across several markets, including Colombia, Mexico and Brazil. Looking ahead, we expect regional growth to converge towards potential, supported by the easing cycle and the recovery in consumption and investment. At the same time, elections in several countries, including Peru, Colombia and Brazil, can create pockets of volatility, and therefore, potential opportunities as the year progresses. Let me now turn into our longer-term strategy and positioning. At our Investor Day back in 2022, we laid out a 5-year plan with clear targets for 2026. 4 years into the plan, we have achieved 1 year ahead of schedule every single objective in the guidance we shared back then, size of our commercial portfolio, margins, efficiency, reserve coverage, capital and return on equity. The significance of reaching these goals a year early goes far beyond the metrics themselves. It reflects the renewed culture of focus and execution in Bladex. Our next phase is essentially about scalability. Our Investor Day on March 24, will evolve essentially about scalability and our 2030 vision. That day, we will walk you through the next phase of Bladex's Evolution, including how we're expanding our role from a specialized trade lender to a more transactional trade banking platform for Latin America, scaling fee-based products and capturing trade flows across the region. We strongly believe that this, together with a robust enterprise risk management framework, will be key in our path to a sustainable value creation. Going on to the next slide. Let me close with our guidance for 2026. We see 2026 as a transition year for Bladex, bridging the final stretch of our 2022-2026 plan, and the next stage of our evolution as we look towards 2030. We enter this transition year with strong momentum as we continue to scale what we have built. Having said that, in 2026, we expect a highly liquid and competitive environment, with additional rate cuts and ongoing spread compression in the region. In that setting, our guidance reflects a disciplined approach on profitable growth, price discipline and prudent risk management, while we keep investing in the capabilities that will support the next phase of our franchise. So for 2026, we expect commercial portfolio growth between 13% and 15%, average deposit grow at a similar pace, net interest margin around 2.3%, efficiency ratio in the 28% area, reflecting disciplined expense control while continuing to invest in our strategic IT platforms. ROE will end up between 14% and 15%, and Tier 1 capital will be in the 15% to 16% range. Thank you again for your time and your continued interest in Bladex. Operator, please open the call for questions. Operator: [Operator Instructions] Our first question comes from Ricardo Buchpiguel from BTG. Ricardo Buchpiguel: Everyone of making questions. First, I just wanted to clarify if the ROE guidance is for the accounting or the adjusted figure? And for my questions, we noticed that 2025 was a very strong year in terms of fee income, particularly if you look at the restructuring fees pipeline, which is naturally provides a tougher comp for 2026, right? But at the same time, you have all these new initiatives that you mentioned with treasury products picking up and also the new trade finance platform. So my question is, what is reasonable for us to expect in terms of noninterest income with these moving parts for 2026? And for my second question, if you can provide more color on how much the duration of the portfolio increased in Q4? And how much that contributed for a higher NIM during the period? And also, if you should see a continued increase in the duration of the portfolio being a tailwind for NIM? Jorge Salas: Thank you, Ricardo, for your 3 questions. First question, yes, the guidance is adjusted ROEs where it doesn't take into account the additional Tier 1 capital we issued back in September. Guidance for 2026 in terms of fee income will be around what we saw back in 2025. Recall that 2 things, 1, we had some one-off important transactions that generated fee income, including, but not limited to the statutorily big loan. And then the other thing is that, as I mentioned, 2026 is a transition year, right, a transition year because it's where we'll be transitioning to the scalable business model. So this is where the the 2 IT platforms gradually start to gain traction. So that's why we're targeting a similar fee income for next year in terms -- in relative terms. So it will be higher in nominal value, but around between 18% and 20% for next year. Do you want to add something, Annette? Annette van de Solis: Yes. To the last part of your question regarding how duration is impacting the NIM of the bank, especially in the fourth quarter. I think there is more than one factor that impacted the record NIM of 2025, which is, it does include the impact of medium-term transactions that were deployed during the fourth quarter resulting from the strong pipeline that we've been building up. And that indeed represented a higher margin and -- but -- and that protected the short-term margin that we are seeing in the short-term loan origination that we have mentioned that we -- there is a lot of margin pressure in the market and ample liquidity. So that protected on the asset side of the balance sheet. Another component that was important was a very efficient level of liquidity especially compared to the third quarter in which we had the $400 million maturity, and we were in the execution of the AT1. So since we did not have any clear date for the -- going back to -- going to the market and issuing the AT1, we did kept a little bit of extra liquidity during the third quarter. So that impact is another factor that improved the NII -- I'm sorry, the NIM in the fourth quarter. And the last factor, which is very important is that during the fourth quarter, even though the end-of-period balances of deposits are lower in the third quarter, the average balances of deposits were higher than the third quarter and the overall cost of funds of the other liabilities that we have in the balance sheet also improved margins just as we're seeing pressure on the asset side, we are also capturing those tightened margins in the liability side. And all of that allow us to improve our net income spread resulting in a higher NIM in the fourth quarter. As far as looking at 2026, regarding our guidance of the NIM of [ 2.30% ], we are factoring the rate dynamics not only the ones that we are projecting for 2026, but also the cuts that happened in late 2025 that will impact the results of 2026. However, this is compensated by growing deposits and active asset and liability management as well as very disciplined pricing on the loan side. Operator: Our next question comes from Ms. Nelli Miranda from Santander. Unknown Analyst: Just 2 quick ones from my side. The first 1 is regarding the 13% to 15% portfolio growth guidance. How much of this is driven by overall market growth? And how much is market share gains? And my second question, a quick follow-up on NIM. I understand there were extraordinary factors helping NIM in the fourth quarter, and your 2026 guidance shows stability, but more on a medium-term sense, is that 2.3% NIM through the cycle margin? Or should we expect it to normalize more in the 2028? Jorge Salas: Thank you, [indiscernible]. Let me tackle the first part of both questions and then probably Sam can give you some additional color. In terms of market share, it's hard to understand what Bladex's market share is. We are essentially a very small fish in a big pond, if you consider trade flows in our Latin America. I mean we're talking -- we're essentially a trade bank and trade in Latin America is $3 trillion, and we're a $12 billion back. So we are seeing a lot of opportunities all across the region, but it's hard to put it in terms of market share. I don't know if you want to give additional color there? Samuel Canineu: Yes. Not sure. Thanks. I mean, to be honest, we don't even look at market share. I mean it's not how we measure our business, our opportunities. We feel that the -- well, the region in which we play is not only growing, but we're still very small to what we can become. So that's not a relevant metric for us. But that said, Yes, like Jorge said, the growth in 2025 came, I would say, well balanced. Of course, there were some countries like Guatemala that we, let's say, grew more than the average and for all the good reasons, sorry. And we see, for example, a country like Guatemala, as s a very attractive market to us, given the combination of a persistent moderate growth, fueled by the drive of a very punching private sector. And that's a -- and as those conditions persist in a country like Guatemala, we will continue to grow, always, of course, with clear boundaries and very defined risk appetite. But for 2026, that grow as -- what we see right now, it should be balanced as always. For example, a country like Argentina is a country that we're still very underexposed by the size of the economy, but that was the [indiscernible] because of what the whole -- what the country was going through. But now, for example, there is quite some good opportunities and investments in the [indiscernible] complex, which is very competitive, and we see as could be a driver for growth for us. So that's how... Jorge Salas: I don't know if that answers your first question, Daniella? Unknown Analyst: Yes, very clear the first one. Jorge Salas: And then so targeting your second question, as far as margins going forward, yes, it will certainly be a challenge as we're all seeing, there is significant pressure on margins. Currently, they have reached probably the lowest level of spreads in the last 20 years. Now structurally, the only way to continue to -- is to continue to be disciplined in executing the strategy we've been working, which is centered on value-added transactions. Sam, do you want to give more color on that? Samuel Canineu: Yes. Well, I think in the context that we're seeing in the market, a few have been doing a pretty good job in defending and even more challenging, defending our margins while we are growing our credit book. In the short run, as Jorge said, the pressure is there. And I think we have enough capital to defend net interest income with more volume, if needed. In the medium run, as Jorge also mentioned, we just need to continue to execute our strategy. In times like now of a more friendly market, we noticed a significant more stability in margins in the more structured business such as working capital solutions, event-driven lending, project finance, infrastructure. So our margin stability or, let's say, falling less than the market is not by luck, it's really by design. Operator: Our next question comes from Mr. Daniel Mora from the CrediCorp Capital. Daniel Mora: I just have 1 follow-up question regarding loan growth. I would like to understand what will be those countries or regions that should drive the growth of 13%, 15% amid available cycle for emerging markets? You already mentioned Guatemala and Argentina [indiscernible], but I would like to know if there are other cost region regions that should go to the loan growth of 13%, 15%. And also, what will be those countries in which you anticipate reducing the exposure, or in which you see high competitive pressures? Samuel Canineu: I'll start by the second. Well, actually, reinforcing a remark that was already made. I think at this point of the year, besides what was already mentioned, like in a country like Argentina that we're underexposed, in a country like Guatemala that we see a lot of like higher demand compared to other countries for quality indeed, we expect to achieve the guidance. We expect a good balance. We don't expect, at least in what we're seeing right now any like, let's say, a much larger grow in any specific country. But given our businesses is dynamic, our book is so short that could happen as we see good opportunities. In terms of the like countries that were more concerned, I would say Colombia and Brazil and for 2 different reasons. In case of Colombia, as much we see improving performance from many of our clients there, the country's fiscal situation is a point of concern. And if that continues, there is a real risk of a sovereign rating downgrade. In case of Brazil, though from a macro perspective, there seems to be good improvements, there is an increased number of bankruptcies as well as potential cases of default from very large corporations that can materially increase refinancing risk to other companies, and that's something that we're watching very closely. On the other hand, for the same reasons of concern that I've just mentioned, that could open interesting opportunity for Bladex to grow in such countries. So in the past, as we saw deterioration in specific countries, we were able to grow as other banks step down. This could happen with both Brazil and Colombia, while we monitor very closely our current client base. So that takes me back to the first question, and not to be repetitive, I think it's -- it will be well balanced. And at this point, there's no other than was mentioned. There's no specific ones that we can bring it up. Jorge Salas: Remember also that still 70% -- almost 70% of our portfolio matures in less than a year. So this is -- I mean, you have to understand that this is all about a constant reshuffling, trying to maximize risk return exposures. So it's hard really to say. I think some gave a very good. You want to add something? Samuel Canineu: Just one last thing that I think it's worth mentioning. In times like this, there could be opportunities in the secondary loan market as for example, the situation of Brazil, situation of Colombia. And today, we have, let's say, a very strong capital base that will allow us to capture opportunities more than in the past. So that's something we're monitoring very closely, and that could drive growth as well. Operator: That's all the questions we have for today. I will pass the line back to Mr. Jorge for his concluding remarks. Jorge Salas: All right. Thank you again for your time and your questions. Just a quick reminder that our Investor Day is on March 24. It will be a virtual event. Sam, Annette and a few other members of the team will cover the next space of Bladex's evolution, including, as I said, the shift towards a more transactional trade banking platform in our 2030 vision. We look forward to see you all there. Bye now. Thank you very much. Operator: This concludes Bladex's conference call. You may disconnect your lines right now. Thank you, and wish you a very good day.
Operator: Good morning, ladies and gentlemen, and welcome to the Galiano Gold Inc. Full Year 2025 Results Release Conference Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press 0 for the operator. This call is being recorded on Friday, 02/13/2026. I would now like to turn the conference over to Matt Badylak, President and CEO of Galiano Gold Inc. Please go ahead. Thank you, operator, and good morning, everyone. Matt Badylak: We appreciate you taking time to join us on the call today to review Galiano Gold Inc. fourth quarter 2025 results that we released yesterday after market close. We will be making forward-looking statements and referring to non-IFRS measures during the call. Please refer to the cautionary notes and risk in our most recent MD&A as well as this slide of the webcast presentation. Yesterday's release details our fourth quarter 2025 financial and operating results. They should be read in conjunction with our fourth quarter financial statements and MD&A available on our website and filed on SEDAR+ and EDGAR. Please also bear in mind that all dollar amounts mentioned on the conference call today are in US dollars unless otherwise noted. With me on the call today, I have Michael Cardinaels, our Chief Operating Officer, Matt Freeman, our Chief Financial Officer, and Chris Pettman, our Vice President of Exploration. This presentation, I will initially provide a brief overview of the quarter. Michael will discuss operations and touch on our updated mineral reserve and resource statement. Matt will discuss the financials and then Chris will review the recent exploration success his team has had at the AGM. I will then provide some closing remarks and open the call for Q&A. Here on Slide 5, we can see the team continued to build momentum during the fourth quarter towards an improved operational outlook in 2026. Let me walk you through some highlights on this slide. Safety remains our top priority, and I am proud to report that again no lost-time injuries were reported for Q4, maintaining a strong safety record and demonstrating our unwavering commitment to our workforce. Turning to production, we produced 37.5 thousand ounces of gold in Q4, up 15% from the 32 thousand ounces produced in Q3. As you can see from the chart, this marks the fourth consecutive quarter of improved gold production at the AGM, with Q4 production 80% higher than Q1, and full-year production totaling 121 thousand ounces, in line with our revised production guidance. Importantly, mill feed grades improved quarter over quarter and throughput in December exceeded the targeted 5.8 million tonne per annum run rate. From a financial perspective, cost control remains robust on site with all-in sustaining costs reducing quarter on quarter to $2,033 per ounce and ending the year in line with the guidance range. Revenue came in at a record $160 million, up 40% quarter over quarter from $114 million. This was driven by higher production and improved gold prices. Our balance sheet remains solid with cash balance remaining stable despite increasing our rate of spend on stripping at Enkran and making a $25 million deferred payment to Gold Fields. During the quarter, we also established a $75 million revolving credit facility providing us with further financial flexibility to continue to invest in our operations, particularly as we advance stripping at Enkran and invest heavily in exploration activities in 2026. The inclusion of a maiden underground mineral resource reshapes the future potential of resource growth at the asset. We have planned an aggressive exploration program for 2026, targeting the expansion of these underground resources and reserve growth at Esaase through conversion drilling of inferred ounces. The momentum we have built throughout the year positions us strongly to meet our production guidance target of between 140,000 to 160,000 ounces this year, which is a 25% increase from 2025 levels. Michael will provide more color on this later. And with that, I will hand it over to Michael to discuss operations in more detail. Thank you, Michael, and good morning, everyone. Starting with safety, the previous quarter's improvement continued without any lost-time or recordable injuries in Q4. Michael Cardinaels: We finished the year with a lost-time injury frequency rate of 0.24 and a total recordable injury frequency rate of 0.48 per million hours worked. In terms of mining production, Esaase mining restarted in early November and is currently ramping back up production in Q1 2026. Late wet season rains had a slight impact on mining movement, but the necessary switch to concentrate on production from Abore in 2025 provided positive movements in terms of mined ore tonnes, and the average grade of ore mined increased 9% compared with the previous quarter. Enkran pre-stripping continued ahead of plan with 23% more material moved compared with Q3, including some small quantities of oxide ore which are being identified during the mining process and opportunistically blended with Abore fresh ore to supplement the plant feed. An additional excavator fleet is expected to be operational before the end of Q1 2026 to continue the expansion of cut three. Matt Freeman: of cut three. Michael Cardinaels: We plan to mine in excess of 30 million tonnes this year, which is three times the movement of 2025, for an approximate spend of between $100 million and $120 million of development capital. This maintains an Enkran cut three schedule to deliver steady-state ore production from early 2029. On Slide 8, we can see the processing performance. Ongoing modifications in the circuit to fully optimize the performance after the commissioning of the secondary crusher continued in Q4 and yielded further positive results, with December production achieving an annualized rate at the target. Milling rates increased approximately 7% compared to Q3 to 5.8 million tonnes per annum, with an average of 1 gram per tonne for the quarter. Mill feed grade also improved approximately 9% compared to Q3. The increased grade and feed blend also had a positive impact on plant recovery with Q4 achieving an average of just above 91%. Matt Freeman: The increased grade throughput Michael Cardinaels: and recovery all culminated in an increase in gold production for Q4, up 15% versus Q3's production of 32.5 thousand ounces to 37.5 thousand ounces. We finished the year producing just over 121 thousand ounces, which was in line with our revised forecast. Matt Freeman: Overall, you can see Michael Cardinaels: a production increase for each of the last four quarters, showing a strong positive trend for performance across all of our metrics. On Slide 9, we are providing information on the guidance. Looking forward to 2026, we once again expect the majority of ore supply to come from the Abore area where we have made modifications to our reserve pit design to take advantage of higher gold prices. This will result in a slightly slower ramp-up of gold production in 2026 but enables us to further increase the recovery of our resource. Grades will continue to increase with depth at Abore as was seen in 2025. Production will be somewhat weighted towards the latter half of the year and continue into 2027 as we recover the higher-grade material at depth. We expect a range of between 60 to 70 thousand ounces in the first half of the year, and 80 to 90 thousand ounces in the second half of the year. We are providing production guidance for the full year in the range of 140,000 to 160,000 ounces, at an all-in sustaining cost of between $2,000 and $2,300 per ounce. I will now hand over to Matt Freeman to discuss Q4 financial results. Thanks, Michael. Good morning, everyone. Matt Freeman: As Michael outlined, the fourth quarter was Michael Cardinaels: from this operation in 2025 and assisted by the very strong price of gold, we generated record revenues of $160 million and generated cash flows from operations of $56 million. Matt Freeman: Our headline earnings numbers continue to be impacted by the losses on hedges, but we now have only 60,000 ounces left to settle, which represents a lower percentage of production in 2026. Michael Cardinaels: Therefore, this allows us to more fully participate in the price of gold going forward. Matt Freeman: Adjusting the unrealized losses on hedges to be settled in 2026, we recognized adjusted net income of $0.15 per share. From a treasury perspective, the balance sheet remains very healthy with over $100 million in cash even after paying the first deferred amount to Gold Fields. Additionally, we were pleased to close the $75 million credit facility, which remains undrawn but will provide us with additional liquidity should the need arise. Slide 11 illustrates that our operating costs remain consistent period on period. Michael Cardinaels: And have generally been well controlled by the site. Matt Freeman: In particular, you can see processing costs have consistently fallen on a unit basis through 2025 as the throughput has improved. Capex remains focused on critical projects, such as the tailings dam raise. AISC, as expected, fell significantly compared to the preceding quarters in 2025. This is primarily due to the higher production levels and demonstrates the leverage our margins have to higher production. Michael Cardinaels: We have guided AISC for 2026 to between $2,000 and $2,300 per ounce for Matt Freeman: that period, much of the elevation compared with Q4 2025 due to the growing royalty burden with consistently high gold prices being forecasted in 2026. Ultimately, this is good for business, but it does increase AISC in a manner which is beyond our control. The chart does demonstrate the increasing royalty burden we have seen through Michael Cardinaels: 2025 as a result of a significant increase in gold prices. Matt Freeman: But it also demonstrates the unit costs we can control will continue to fall as production improves. As many of you know, a new royalty regime has been proposed by the Ghanaian government, so we will assess that impact on AISC if it finally becomes enacted. As noted in my opening remarks, we have been able to maintain a strong cash position at around $100 million, and we are very happy with this given we have now settled the first payment to Gold Fields, continued to ramp up stripping activity at Enkran, having invested approximately $35 million in 2025, Michael Cardinaels: and have made our first annual income tax payments in Ghana. Matt Freeman: Looking forward, we do expect 2026 to be another year of investment in the mine with further acceleration of stripping at Enkran, Michael Cardinaels: and the final deferred payment to Gold Fields. This year is a real inflection point Matt Freeman: because in 2027, we will be past the fixed payments to Gold Fields Michael Cardinaels: and fully exposed to the gold price. Matt Freeman: This means that even assuming the new royalty regime comes into play as proposed, or there is a significant reversion in gold prices, the company will be well positioned to generate significant cash flows for shareholders. And with that, I will turn the call back over to Michael to run through our updated mineral reserve and resource statements. Michael Cardinaels: Thank you, Matt. Here on Slide 14, the key highlight for this year is the declaration of our maiden underground resource. The open cut resources for Enkran and Abore have been limited to the current reserve pit shells to allow us to target higher-value underground ounces in our underground maiden resource definition as we look to the future for both pits transitioning to underground operations. Chris will outline the potential for reserve expansion that we see at Esaase over the next twelve months. The table shown is a summary of our MRMR as at 12/31/2025. For detailed tables, please refer to the appendices and the recent news releases. Here on Slide 15, this section through the Enkran deposit shows the current reserve shell and the newly defined underground resource stopes. As you can see, we have a strong correlation between drilling density and stope generation, which gives us a great deal of confidence that this resource will likely expand with additional drilling. On Slide 16, we show a comparable long section view for the Abore deposit, and, again, it shows a similar story that stopes are able to be generated where we have drilling data, and because, like Enkran, these mineralized systems are open in multiple directions, there is a likelihood that additional drilling will also yield additional underground resources here at Abore. And with that, I will turn the call over to Chris to outline the recent exploration successes at the mine and future exploration plans. Chris Pettman: Thanks, Michael. Michael Cardinaels: Q4 was another busy quarter at exploration as we ended the year with a concerted effort to maximize the amount of infill and step-out drilling at Abore completed by December in order for results to be included in the maiden underground resource Chris Pettman: outlined by Michael. I am very pleased with the team's ability to safely and cost-effectively deliver an additional 10,950 meters of drilling in partnership with our drilling contractors in Q4. As we have discussed in prior quarters, drilling results at Abore were excellent in 2025, leading to the expansion of the program to include a total of over 33,000 meters by the end of the year. Q4 drilling continued to deliver excellent results, including expanding the high-grade zones at Abore Main and Abore North, further proving continuity of high-grade mineralization at Abore South, and expanding the footprint of mineralization up to 200 meters below previous drilling as outlined in our January 22 press release. Some of the highlighted intercepts of this drilling are shown here on Slide 17. Operator: Slide Chris Pettman: Slide 18 shows a gram-meter long section of Abore with Q4 drilling locations and intercepts, along with areas where high-grade mineralization has been expanded and continuity improved at the Abore South, Main, and North pits. This image also shows the location of four step-out holes drilled between 100 and 200 meters below existing drilling. These holes were designed to test for continuations of the Abore granite and further high-grade mineralization. All four holes successfully intersected mineralized Abore granite, showing once again that the Abore system has significant growth potential. Particularly encouraging is OLP-448, which intersected 87 meters of granite containing three zones of mineralization at grades of 2.5, 3.0, and 3.4 grams per tonne over 27, 11, and 15 meters respectively, in an area that is 200 meters below existing drilling and open in all directions. That hole, 448, is shown in cross section here on Slide 19, along with hole 444, which intercepted a wide high-grade zone consisting of 30 meters at 4.4 grams per tonne, and 18 meters at 2.0 grams per tonne immediately below the previous open pit resource. This is a really good example of the room we have to grow the mineral resource in 2026. While we have confidence in Abore as the driver of future value at the AGM, exploration work in 2026 will focus on continuing to build on the momentum generated by the success of the 2025 program. With an initial budget of $17 million, work will focus on three primary growth objectives as we look to support a potentially transformational life-of-mine update in 2027. We see significant opportunities to grow the underground resources and reserves at Abore, and we are planning for a minimum of 30,000 meters of drilling in 2026. At Esaase, we will be focused on growing the open pit reserves at higher gold prices with up to 35,000 meters of conversion drilling. We will also continue to advance our portfolio of greenfield targets, where our focus will remain on early stage work and drill testing of targets in the Ensaroma area, located approximately six kilometers southwest of Enkran. First-pass drilling in 2025 confirmed the extension of the Enkran shear through this area along with favorable host rocks, quartz veining, and alteration patterns, and we remain enthusiastic about the potential for discovery of new open pit resources in this area. At Abore, we will continue to aggressively test for continuations of mineralization through step-out and infill drilling designed to increase the underground mineral resource while also conducting targeted conversion drilling to increase the amount of indicated resource available for inclusion in a potential maiden underground reserve in 2027. Slide 21 here shows a long section through Abore with the locations of Q4 drilling and the new underground resource showing all grades greater than 2 grams per tonne. High-priority targets for 2026 are shown by these yellow stars. As part of our short- to medium-term exploration strategy, we will also be working in conjunction with the mining team to advance the necessary studies and workflows for potential development of an underground portal and exploration drilling adit that would be used to conduct future underground delineation drilling and deeper exploration target testing. Due to the density of existing drilling below the current mineral reserve pit shell, we are uniquely positioned to realize immediate reserve growth at higher gold prices without additional drilling, allowing us to add value to the AGM quickly in the current gold price environment. In order to maximize that value, exploration will return to Esaase in 2026 with a campaign of conversion drilling designed to convert additional inferred resources to indicated category at a gold price of $2,500 ahead of the 2027 MRMR and long-term plan update. Here on Slide 22, we are showing a cross section through Esaase with an example of a target area for conversion drilling in 2026 and it is indicative of our targets across the entire deposit where drill density limits the extent of the indicated resource. Our 2026 program is well underway with rigs active at both Abore and Esaase, and we anticipate 2026 will be even busier than 2025 for our exploration team, but we are well resourced and well positioned to deliver significant value to the AGM through resource and reserve growth this year. Matt Badylak: Back to you, Matt. Thank you, Chris. In closing, I would like to reiterate Operator: that Matt Badylak: I would like to reiterate that the positive momentum built through 2025 places us in good stead to realize meaningful production growth in 2026 and to execute our medium- and long-term organic growth plans. Our steadily growing production profile, execution of the final deferred payment to Gold Fields, and the expiry of hedges later this year will result in a near-term inflection point in cash flow generation which should subsequently drive shareholder value. Beyond this, we have developed a robust exploration strategy and clearly understand where further expansion of mineral reserves and resources will come from. I am excited about the potential mine life extension beyond eight years as we look to include underground mining Operator: and target expansion of open pit reserves. Matt Badylak: Our strong cash balance and access to the revolving credit facility allow us to aggressively invest in exploration while comfortably funding waste stripping activities at Enkran. Also, a reminder that Galiano Gold Inc. is highly leveraged to the gold price and remains Ghana's largest single-asset gold producer. With production increasing by approximately 25% in 2026, line of sight to reserve expansion, and high and record gold prices, the potential for value creation for our shareholders remains high. With that, I would like to turn it back to the operator and open up for questions. Thank you. Operator: Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by 2. If you are using a speakerphone, please lift the handset before pressing any keys. One moment please for your first question. Your first question comes from Vitaly Kononov with Freedom Brokers. Your line is now open. Vitaly Kononov: Yes. Hello, gentlemen, and thank you for the presentation. Heiko Ihle: I have several questions. For the production, heavily weighted towards 2026, what are the key execution risks we should monitor and how confident are you in achieving the ramp-up profile? Matt Badylak: Risks. Well, I think the key risks that we see, obviously, are we are aware of the fact that throughput has an important role to play here and we are really pleased in terms of the way that crusher has ramped up over 2025, and I am comfortable that that crushing circuit will help deliver nameplate production in the range of 5.8 million tonnes per annum. The other thing I think that Michael touched on here is the fact that we are expecting grades to increase steadily as we continue to mine through lower elevations of Abore. And those two factors will be driving that production higher in 2026, and as we said, slightly weighted to the tail end of the year as well. Thank you. Heiko Ihle: Well, given the downward revision to the guidance that was provided early in 2025, it was lowered down. How does that impact your five-year outlook from now on? Michael Cardinaels: Well, we expect to, as I said, have a slightly lower production profile in 2026, but we expect to ramp up further in 2027 more in line with previous guidance in terms of production levels. Matt Badylak: Thank you. Thank you. So just the last one. Heiko Ihle: Following the maiden underground resources of Abore and Enkran, when should we expect the initial economic studies published for those mines? Michael Cardinaels: We will be working on, as Chris mentioned, additional drilling to supplement the underground resource that was just released, and we will be working through the studies this year with the aim of having something available in 2027. Heiko Ihle: So that will be released with the annual results of the next year, right? Michael Cardinaels: That is correct. That is the plan at this point in time. Got it. Thank you. I think I am good. Operator: There are no further questions at this time. I will now turn the call over to management for closing remarks. Matt Badylak: Thank you, operator, and thank you everyone for dialing in and asking questions. Thank you for your time today. I wish you a happy Friday and a good weekend. Thank you very much. Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.
Operator: Good day, and thank you for standing by. Welcome to the Moderna, Inc. Fourth Quarter 2025 Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you will need to press *11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press *11 again. Please be advised today’s conference is being recorded. I would now like to hand the conference over to your speaker, Lavina Talukdar, Head of IR. Please go ahead. Lavina Talukdar: Thank you, Kevin. Good morning, everyone, and thank you for joining us on today’s call to discuss Moderna, Inc.’s fourth quarter 2025 financial results and business update. You can access the press release issued this morning as well as the slides that we will be reviewing by going to the investors section of our website at investors.modernatx.com. On today’s call are Stéphane Bancel, our Chief Executive Officer; Stephen Hoge, our President; and James Mock, our Chief Financial Officer. Before we begin, please note that this conference call will include forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Please see slide two of the accompanying presentation and our SEC filings for important risk factors that could cause our actual performance and results to differ materially from those expressed or implied in these forward-looking statements. With that, I will turn the call over to Stéphane. Thank you, Lavina. Stéphane Bancel: Good morning or good afternoon, everyone. Thank you for joining us. We will start with a quick review of 2025, Stéphane Bancel: Jimmy will present our financial results and 2026 outlook. Stephen will review our commercial outlook and clinical programs. And then I will come back and share key value drivers as we look ahead before we take your questions. Let me start with a review of 2025. Revenues were $1,900,000,000, driven by sales of our COVID vaccine Spikevax and MNEXT Spike. We continue to make tremendous progress on cost in 2025. Operating expenses were down $2,200,000,000, or 30% for the year. I would like to thank the entire Moderna, Inc. team for this great accomplishment in 2025. I am very proud of this. Net loss for the year was $2,800,000,000, and we ended the year with $8,100,000,000 in cash and investments. Before I start a review of 2025, I want to express a disappointment with the FDA refusal to file letter on our flu program mRNA-1010. The current uncertainty in the U.S. FDA regulatory environment creates real challenges for businesses, patients, and the broader innovation ecosystem. When expectations and review timelines are unpredictable, companies face greater risk and can hesitate to invest, slowing the development of breakthrough medicines. These delay patient access and increase overall health care costs. Sustained regulatory uncertainty threatens U.S. leadership in innovative medicines. This can also result in transformative medicine developed by U.S. companies becoming available to patients outside the U.S. before reaching American patients. Turning now to the execution on commercial and pipeline. On the commercial side, in 2025, we have three products on the market, Spikevax and MNEXT Spike, and then Emresvia. MNEXT Spike was approved in the U.S. in 2025. It has an excellent launch. It quickly became our leading product in the U.S. In the past two weeks, we announced two commercial agreements. First, an agreement with Recordati for the global commercialization of our propionic acidemia rare disease candidates currently in a pivotal study. Recordati brings deep rare disease commercial expertise and an established global infrastructure with a propionic acidemia community. We also announced earlier this week a five-year strategic agreement with the government of Mexico for respiratory vaccine supply. We currently have two products under regulatory review in multiple countries. Our seasonal flu vaccine is filed and under review in Europe, Canada, and Australia. Our flu plus COVID combination vaccine is filed and under review in Europe and Canada. Additionally, we made strong programs across the pipeline. For INT, our individualized cancer therapy, developed in partnership with Merck, we recently reported positive five-year phase 2 data in adjuvant melanoma, demonstrating the durability of clinical benefit, reinforcing our confidence in the program’s long-term potential. I am very happy to announce that we have completed enrollment in our phase 2 study in muscle invasive bladder cancer. This marks three late-stage studies in three different cancer types that are now fully enrolled: adjuvant melanoma, adjuvant renal cell carcinoma, and now muscle invasive bladder cancer. We look forward to the data readout from these studies. For cancer antigen therapy, mRNA-4259, we announced positive phase 1b data and the program is now in phase 2. Our phase 3 norovirus program is now fully enrolled. We could see phase 3 data in 2026. In our PA program, it is still fully enrolled, a registration study, and we could see data in 2026. I am pleased to welcome to Moderna, Inc., our new Chief Development Officer and Executive Committee member, Dr. David Berman. He has contributed to the development of more than a dozen clinical-stage immunotherapies at BMS and AstraZeneca. His expertise will serve Moderna, Inc. well, as we continue to expand our oncology pipeline. David served most recently as Head of R&D at Immunocore. We very much look forward to David joining Moderna, Inc.’s team on March 2. I would like, of course, to take this opportunity to thank Jackie Miller for her many contributions in the very last five years of the company, especially her tremendous leadership during the pandemic. With this, I would like to turn it over to Jamie. Thanks, Stéphane, and hello, everyone. James Mock: Today, I will cover our fourth quarter and full year 2025 results, and then wrap up with our 2026 financial framework. I will begin with our 2025 revenue performance on slide eight. For the fourth quarter, total revenue was $700,000,000, coming in at the higher end of our recent guidance. Our revenue split in the quarter was $300,000,000 in the U.S., and $400,000,000 from international markets. For the full year, total revenue was $1,900,000,000, with the majority generated from COVID vaccine sales, along with approximately $100,000,000 of other revenue. From a geographic perspective, U.S. revenue totaled $1,200,000,000 while international revenue was $700,000,000. In the U.S., while overall COVID market demand declined year over year, we had strong market share in the retail channel supported by the successful launch of MNEXT Spike. In international markets, we landed at the higher end of our range driven by operational performance and vaccination rates, which were above or in line with our expectations. Turning to slide nine, I will review our fourth quarter results. As we discussed on the prior slide, revenue was $700,000,000. Compared to the fourth quarter of last year, operating expenses were down 31%, reflecting continued cost discipline and execution across the organization. I will discuss these expense trends from a full year perspective on the next slide. Net loss for the quarter was $800,000,000 compared to a net loss of $1,100,000,000 in 2024. Loss per share was $2.11, compared to a loss per share of $2.91 last year. Now turning to slide 10, I will walk through our full year 2025 financial results. As I mentioned earlier, total revenue was $1,900,000,000. Cost of sales was $868,000,000, representing a 41% decrease compared to 2024, primarily driven by productivity, lower inventory write-downs, contract manufacturing wind-down costs, and sales volumes. R&D expenses were $3,100,000,000, representing a 31% decrease compared to 2024, driven by continued investment prioritization and efficiency gains in the execution of our clinical trials. These reductions were partially offset by increased investment in our norovirus vaccine and oncology programs. SG&A expenses were $1,000,000,000, representing a 13% decrease compared to 2024. The decline was driven across all functions and reflects our continued focus on operating efficiently while supporting the business in a disciplined manner. Our income tax provision for 2025 was immaterial. We continue to maintain a global valuation allowance against the majority of our deferred tax assets, which limits our ability to recognize tax benefits from losses. Net loss for the full year was $2,800,000,000 compared to a net loss of $3,600,000,000 in 2024. Loss per share was $7.26 compared to a loss per share of $9.28 last year. We ended 2025 with cash and investments of $8,100,000,000 compared to $9,500,000,000 at the end of 2024. The year-over-year decrease was primarily driven by operating losses, as we continue to invest in R&D and advance our pipeline. Stéphane Bancel: Partially offset by the $600,000,000 initial draw James Mock: of our $1,500,000,000 credit facility. Excluding the credit facility draw, we would have ended the year with $7,600,000,000 of cash and investments, which was above our 3Q guidance of $6.5 to $7,000,000,000 due to lower operating expenses, lower capital expenditures, and working capital improvements. Now let us turn to our financial framework for 2026. We expect total revenue growth of up to 10% in 2026. This growth is expected to come primarily from international markets. We estimate our geographic mix will be well balanced between the U.S. and markets outside the U.S. in 2026. This is a shift from our 2025 revenue split of approximately 62% U.S. and 38% international. We will begin selling locally manufactured products in both the U.K. and Australia in 2026, which is the largest driver of our international growth. Our 2026 revenue guidance factors in future potential declines in COVID vaccination rates and also assumes no revenue from our flu vaccine or our flu COVID combination vaccine. Similar to 2025, we expect 2026 revenue to be weighted to the second half of the year with approximately 15% of our revenue in the first half and approximately 85% in the second half. Cost of sales is projected to be approximately $900,000,000. While this is flat year over year in absolute terms, we are expecting gross margin rate improvement from manufacturing efficiency gains and volume leverage. R&D expenses are anticipated to be approximately $3,000,000,000 as we continue to invest in our late-stage pipeline while maintaining financial discipline. It is a relatively small decline from the $3,100,000,000 we had in 2025 due to the continued execution of our late-stage trials in infectious disease. For modeling purposes, we expect our R&D spend to be relatively balanced in the first half versus the second half of 2026, similar to what we experienced in 2025. SG&A expenses are expected to be $1,000,000,000, flat versus the prior year. We remain focused on driving efficiency and cost savings across the organization, which we will use to fund new commercial investments to support both geographic expansion and future product launches. Similar to 2025, our commercial spend will be more heavily weighted to the back half of the year, due to the seasonality of our commercial business. In aggregate, we are expecting total GAAP operating expenses of $4,900,000,000 and $4,200,000,000 of cash costs, which excludes stock-based compensation, depreciation, and amortization. We expect taxes to be negligible in 2026. Capital expenditures are projected to be between $200,000,000 and $300,000,000. This guidance includes our previously announced investment in building our own fill-finish capacity in the United States at our existing site in Norwood, Massachusetts. We expect to end 2026 with $5.5 to $6,000,000,000 of cash and investments. Our cash guidance does not assume any additional drawdown from our credit facility. In summary, 2025 was a key turning point in our financial story. We improved our commercial execution, exceeded our cost reduction plan by over $1,000,000,000 compared to our original 2025 guidance, and ended the year with over $2,000,000,000 more cash, all while still advancing our pipeline. I want to thank the entire Moderna, Inc. team for their efforts over this past year. We have strong momentum heading into 2026 with multiple levers for revenue growth and a strong commitment to drive additional cost reductions across the company. With that, I will now turn the call over to Stephen. Thank you, Jamie, and good morning or good afternoon, everyone. Today, I will review our commercial outlook as well as progress across our pipeline. As Jamie mentioned earlier, we expect 2026 to mark a return to revenue growth for Moderna, Inc. This year, we expect growth to be driven primarily by our strategic partnerships and the second year of launch for MNEXT Spike, which I will discuss in more detail in a moment. Operator: But first, looking forward to 2027, we see three additional growth drivers. James Mock: We look forward to significant expansion of our addressable market, with the opening of the $1,800,000,000 European respiratory vaccines market, Operator: As a reminder, we have been excluded from this region for several years due to a competitor Stephen Hoge: pandemic contract, which expires in 2026. We expect to launch MNEXT Spike, our stand-alone flu vaccine mRNA-1010, and our combination flu COVID vaccine in the European region by the 2027 winter season, adding to Emresvia and Spikevax, which are already approved. This broad portfolio represents the opportunity to grow our share in the large European market, which will contribute to meaningful revenue growth from 2027 forward. Second, we expect growth from our new multiyear strategic agreements in Latin America and Asia Pacific. And third, with the acceptance of our flu filings in Europe, Canada, and Australia, we anticipate that our flu vaccine will begin to contribute to revenue internationally. In 2028, we expect continued new product-driven growth opportunities with both our combination flu COVID and norovirus vaccines potentially being launched across many of our markets. Recent execution supports this growth strategy with approvals for MNEXT Spike in Canada and Australia and the approval of our strain-updated Spikevax COVID vaccine in the U.K. We have already shown strong momentum against the 2027 growth drivers. We announced a multiyear strategic agreement with Mexico earlier this week, and Taiwan last month. And we continue to make progress under our previously announced strategic agreement in Brazil. Finally, although not a major driver, we also signed a global commercialization collaboration in PA with Recordati, as we prepare that potential launch in 2028. James Mock: The U.K. is the Stephen Hoge: Let us take a closer look at the key contributors to that growth in 2026. Beginning with our strategic partnerships with the U.K., Canada, and Australia. As a reminder, these are long-term agreements under which Moderna, Inc. has built local manufacturing sites and committed to ongoing domestic research and development. These partnerships are core to each country’s national security and public health strategy, strengthening preparedness against current viruses and future pandemic threats. The U.K. is the largest of these markets, and we expect a $200,000,000 U.K. COVID order to be fulfilled in 2026 for their spring booster campaign. We also expect to supply vaccines for the U.K.’s fall vaccination campaign, initially this year for COVID with the potential to expand to other respiratory vaccines such as flu, RSV, and our combination vaccine in the years ahead. In Canada, we were thrilled to deliver made-in-Canada COVID vaccines in 2025 and expect to see the full annualized impact of the agreement in 2026. And in Australia, we expect to deliver the full annualized benefit of our agreement in 2026 as well. Moving to slide 15, our second major expected growth driver in 2026 is our new COVID vaccine, MNEXT Spike. MNEXT Spike had a very successful launch in 2025. This is especially notable because MNEXT Spike was approved midyear in 2025 and was only available commercially in the United States. We are extremely pleased with the market share achieved in that first season, with 24% of the total U.S. retail market and 34% of the retail market among adults aged 65 and older. As a reminder, the retail market is the largest customer segment, representing approximately three quarters of the U.S. COVID market, and the majority of that volume is in seniors. Looking ahead to 2026, we expect to continue to drive the uptake of MNEXT Spike in the United States. And internationally, we look forward to approvals and launches in multiple countries this year and the years to come. Moving to slide 16. This outlines the latest developments in our infectious disease portfolio. Starting with our approved products, the updated formulation of Spikevax is approved in countries around the world. And importantly, in 2025, we received supplemental BLA approval in the United States for high-risk children as young as six months. As mentioned earlier, MNEXT Spike was approved and launched in the U.S. It was approved in Canada in 2025, and recently approved in Australia as well. We are targeting further approvals of MNEXT Spike in Europe, Japan, and Taiwan this year. Emresvia, our RSV vaccine, has been approved for adults aged 60 and older in 40 countries, and approved for high-risk adults aged 18 to 59 in 31 of those 40 countries. In addition to those three approved vaccines, we have filed for two additional approvals. mRNA-1010, our flu vaccine, has been accepted for review in Europe, Canada, and Australia, with the first potential approvals coming late in 2026 or early 2027. We were disappointed with the FDA’s refusal to file letter for mRNA-1010 and have requested a Type A meeting to understand the path forward for the program in the United States. mRNA-1083, our flu plus COVID combination vaccine, is under review in Europe and Canada, with first potential approvals in 2026. And finally, our norovirus vaccine is in an ongoing phase 3 trial, which is fully enrolled in its second Northern Hemisphere season and is accruing cases towards its interim analysis. Now turning to our therapeutics pipeline. INT, our individualized cancer therapy, developed in collaboration with Merck, has a total of eight phase 2 or phase 3 studies ongoing. The most advanced of these are our phase 3 adjuvant melanoma study, as well as our phase 2 randomized adjuvant renal cell carcinoma study, both of which have been previously announced as fully enrolled. As Stéphane mentioned previously, we are very excited to announce that we have now fully enrolled our phase 2 randomized muscle invasive bladder cancer study. Bladder cancer is the third cancer type now in a fully enrolled late-stage study. In addition to these three trials, we are looking forward to completing enrollment in our ongoing phase 3 studies in adjuvant non-small cell lung cancer. We also look forward to completing enrollment in our ongoing phase 2 trials in non-muscle invasive bladder cancer, first-line metastatic melanoma, and first-line metastatic squamous non-small cell lung cancer. Beyond these phase 2 and phase 3 studies, we are fully enrolled in our phase 1 studies for adjuvant pancreatic cancer and perioperative gastric cancer, and we look forward to data from these studies in the year ahead. Aside from INT, aside from our collaboration in INT with Merck, we continue to make progress in additional oncology programs. In the phase 2 study of our cancer antigen therapy mRNA-4309, cohorts are enrolling in first-line metastatic melanoma, second-line metastatic melanoma, and first-line metastatic non-small cell lung cancer. In mRNA-2808, our T cell engager in multiple myeloma, we are dosing in our phase 1/2 study. We are also dosing in the phase 1 study of our cancer antigen therapy mRNA-4106. And rounding out our early-stage oncology programs, our phase 1 study is also dosing in our cell therapy enhancing program, mRNA-4203, in collaboration with Immatics. In rare diseases, our propionic acidemia, or PA, program is fully enrolled in its registrational study, and in methylmalonic acidemia, or MMA, we expect our registrational study to start in 2026. With that, I will hand the call back over to Stéphane. Thank you, Stephen and Jamie. Stéphane Bancel: Looking ahead, we see multiple commercial, pipeline, and financial value drivers that will move Moderna, Inc. forward in 2026. Commercially, we believe the market share gains from MNEXT Spike continue into 2026 and beyond. We will also benefit from a full-year contribution from our strategic partnerships in the U.K., Canada, and Australia. That will be an important growth driver for Moderna, Inc. in 2026. James Mock: And we expect up to 10% revenue growth in 2026. Stéphane Bancel: From a pipeline standpoint, we look forward to potential regulatory approval of MNEXT Spike in Europe, in Japan, and in Taiwan. We also expect potential approval of our combination flu plus COVID vaccine in Europe and Canada, where regulatory filings are under review. In the U.S., we plan to refile pending further guidance from the FDA. For the seasonal flu vaccine, we look forward to the approval in Canada this year. It is going to be an important year for oncology patients and for Moderna, Inc. We also expect continued clinical momentum from our INT program as Stephen described. Last month, we reported positive five-year phase 2 data in adjuvant melanoma. Potential clinical milestones from the INT program include phase 3 adjuvant melanoma data, phase 2 adjuvant renal cell carcinoma data, and phase 1 data in adjuvant pancreatic and perioperative gastric cancers, all of which have been fully enrolled for quite some time. We also look forward to a phase 2 readout from our cancer antigen therapy mRNA-359, the phase 2 results for norovirus, and the pivotal data readout from our PA program. It will be a busy year. From a financial standpoint, teams across the company continue to make progress on cost discipline, and we expect cash costs to decline to approximately $4,200,000,000 in the year. As part of our cost efficiency program, the adoption of AI tools has touched every part of our business, and we expect further productivity improvement in 2026. Moderna, Inc. has strong momentum as we head into 2026. We are poised to deliver up to 10% revenue growth as we continue to reduce costs. We expect to see approvals of infectious disease vaccines that will expand our commercial portfolio. We foresee multiple potential clinical data catalysts driven by our late-stage oncology programs, in rare disease and infectious disease. In closing, I want to recognize the entire Moderna, Inc. team for their relentless drive. All our progress—clinical, commercial, operational—is dedicated to one mission, delivering the greatest possible impact to people from mRNA medicine. With this, Operator, we will be happy to take questions. Operator: Thank you. Ladies and gentlemen, if you have a question or a comment at this time, please press *11. If your question has been answered and you wish to remove yourself from the queue, please press *11 again. Our first question comes from Terence Flynn with Morgan Stanley. Your line is open. James Mock: Hi. Thanks so much for taking the question. I had two-part. I guess the first one is just on the flu RTF, implications for the 2028 cash flow breakeven guidance, and then timing of the Type A meeting, when you might get some visibility on next steps. And then Stéphane Bancel: INT James Mock: program in adjuvant melanoma, I know that is a very important program and catalyst for the company. And so, can you refine at all the timing of that data, whether it is going to be first half or second half? Thank you so much. Stephen Hoge: Sure. Maybe I will take the questions on regulatory first, and then, Jamie, hand it over to you on any breakeven implications. So, we are actually very pleased that the flu file is under review now in Europe, Canada, and Australia. We will be filing in additional countries this year. And all of that is with an eye towards having that start contribute, as I said a moment ago, in 2027, to our growth. We also are pleased that the flu COVID combination product remains under review and making progress in Europe for this year. As relates to the U.S. timing, we really need to engage with the FDA in the Type A meeting. That is usually 30 days as a process and understand from them what is going to be required to get that product moving forward in the U.S. We absolutely feel that American seniors should have access to the same innovations. We do think this year, in particular, where there is a potential for a mismatch in one of the strains, it is particularly important that technologies like Moderna, Inc.’s mRNA platform are used to advance new and potentially improved products. But at this point, until we have that Type A meeting, we will not really know how quickly we can get moving forward with the 1010 file in the U.S. as we have been doing outside the U.S. Jamie? James Mock: Yeah. So, Terence, thanks for the question. I appreciate it, and I recognize that it is on investors’ minds. As Stephen just said, though, this is a bit of a fresh and fluid situation. And without understanding the resolution of what is next for our flu product, it is a little bit difficult to comment at this time. But here is what I would say. If you go back to the growth drivers we laid out at Analyst Day as well as Stephen had in his prepared remarks, we have 10 large shots on goal to increase revenue over the coming years, all with a wide range of potential outcomes. And Stephen mentioned some of the progress. We announced our long-term partnerships with Mexico and Taiwan. We are excited about, as I said, we are excited to deliver for the U.K. and Australia this year, which will be substantial revenue growth. MNEXT Spike had a great first year. We are excited about the second year, both in the U.S. and outside the United States. We are looking forward to Europe opening up. So there are really still so many scenarios that could happen here, Terence, that it is a little bit too early to tell. On top of that, we have a ton of momentum on what we are doing from a cost perspective. So we are really excited about our financial profile. We ended the year with over $8,000,000,000 in cash. We have a ton of momentum from a cost perspective, and we have a lot of opportunities for growth. So at this point, without knowing resolution to what is going to happen on flu, I think it is a little too early to tell. Stephen Hoge: And on INT, the second question, we do not have obviously more specific guidance than we previously put out there. I had highlighted, I said, a moment ago, that there are five histologies now under the different stages of clinical development. So INT for melanoma, the adjuvant melanoma study, is one that we are confident will read out this year. It is an event-driven trial, and so it depends upon the accrual of those events. We have RCC, so renal cell, and bladder now fully enrolled. And so, again, those are going to be event-driven and milestone-driven. It is possible. And then the phase 1 data that we referenced before for our peri-adjuvant gastric and adjuvant pancreatic monotherapy cohort. And so it is going to be a busy year for us over the next number of months. But we do not have more specific guidance because some of the most important readouts are ultimately event-driven. Operator: Thank you. One moment for our next question. James Mock: Our next Operator: question comes from Salveen Richter with Goldman Sachs. Your line is open. Lavina Talukdar: Good morning. Thank you for taking our question. This is Elizabeth on Unknown Analyst: for Salveen. We wanted to ask about the flu and COVID combination vaccine and, just given the RTF for 1010, how should we think about this refiling, and is there any read-through from a regulatory in the U.S.? And then maybe just remind us of the study data that went into the submission initially, and what the latest thinking is on what might need to be added for refiling. And then a second question on INT. We wanted your thoughts on which of those five histologies you just mentioned have the highest probability of success, kind of based on the read-through from data generated to date? Thank you so much. Stephen Hoge: Thanks for both questions. You know, so first, on the 1083 file, again, I will underscore that we are hoping for approval of the flu COVID combination product in Europe first, this year. And so we will move forward there. As it relates to the U.S., we were holding back on refiling the combo vaccine until we had completed some portion of the review of the flu vaccine. With the refusal to start the review of the flu vaccine, I think that is now gated on, again, the feedback from the Type A meeting, which we have not had, about what more would be necessary for us to refile for the mRNA-1010 program. And then we would be able to provide more clarity on the flu COVID program and refiling there, again, all of this in the U.S. because all those files are moving forward internationally. You asked about the data that was in the file. We had a phase 3 study for the mRNA-1010 file, which we have previously presented the results on. And actually, it is out for a peer-review publication right now. We are really excited by that phase 3 study, which is a randomized 41,000-person study that we had agreed with the FDA and agencies around the world prior to initiation. In that study, as a reminder, we saw 27% superior relative vaccine efficacy compared to the standard dose control. And just to give you a sense of where that stands relative to comparators, you know, two of the 65+ vaccines had run essentially the same study design, one of them even with exactly the same comparator. And those, if you look at the USPI for Fluzone, they had seen 24% relative vaccine efficacy; for Flublok, if you look in their USPI, you see 30% relative vaccine efficacy. So at 27%, we felt very good that we were in line, in demonstrating superiority in exactly the same way that those standard of cares have, in the same population, those over the age of 65. We also ran a phase 3 study, an immunogenicity and safety study, comparing our vaccine candidate for flu against Fluzone High-Dose, and in that case, we showed statistical superiority to Fluzone High-Dose on immunogenicity. That study has been published in the journal Vaccine and is available, I think, on our website, for those who are interested. So that package was in the initial file. We think it is a very comprehensive dataset. We do think if we can get the review initiated, it will support the use of the product. But we do need to understand first from FDA in that Type A meeting what they would need to initiate the review of the file that they previously had agreed to review. Moving to INT, I think it is obvious that you asked where we see the highest probability of success. It is hard to argue with the phase 2b results that we have for adjuvant melanoma. As we announced last month, the five-year survival data continues to look really strong, approximately 50% reduction in the rates of relapse or death from melanoma. Real stability in those curves through now five years. And if you ask me where do I think the read-through of that is, I think it is clearly, we hope, into the phase 3 adjuvant melanoma study that is testing in largely the same population, exactly the same standard of care. You know, I think if it works, we see that there. One of the reasons we and our partner Merck went in with renal cell and bladder, muscle invasive urothelial cell carcinoma, is we thought those would be places where we might also see relatively quick read-through. And so I hope that those also have positive readouts, but I think you are asking where we think the probability of success is highest. It is clearly in the phase 3 adjuvant melanoma. Operator: Thank you. One moment for our next question. Our next question comes from Eliana Merle with Barclays. Your line is open. Unknown Analyst: Just can you elaborate a little bit on how you are thinking about the European COVID vaccination market and how you see the vaccination rate and pricing evolving there? And also how, outside of the U.S., you are thinking about the pathway for a potential flu COVID combination vaccine approval? And then also on that topic around flu, just in your filings for flu in Europe and Canada, has there been any discussion around potential strain selection in the future and potentially selecting the strains closer to the season? Thanks. Stephen Hoge: Yeah. Thank you for all three. So, first, I will take the COVID question. MNEXT Spike is moving forward with approvals internationally, and we are really pleased with the profile of that product. As I will remind you, we had demonstrated, in that phase 3 study, higher relative vaccine efficacy. In fact, in a post hoc analysis, very high, approximately 25% higher relative vaccine efficacy compared to Spikevax in older adults with comorbidities. And so we really do think it has got a strong profile as the European COVID market reopens. Now as to pricing, you know, we have not issued that yet, but we do believe that the current market is, as we have shared, approximately 700,000,000 shots today, and that does not account for waste that exists in the market. There are many doses that are being purchased under pandemic contracts that are not getting used. That estimate of approximately 700,000,000 is just what we see as shots in arms. So we do believe that market will be larger than that, larger than even if we see nothing more than the approximately 20,000,000 shots in arms that currently are happening. And we do hope to get a sizable share. We think MNEXT Spike will be a very competitive product profile in that market. And we are scaling up for that launch. As you know, Europe is not one market. It is a series of different markets, and some places we will compete traditionally with sales and marketing activities. Other markets are more tender-driven, and we are preparing for all of those activities, really starting this year, but as we said, as a meaningful driver of growth in 2027 and beyond. On the combination product, we actually think that is the next step in that strategy. We are very pleased by the combo product’s progress in its international reviews. As we have said, based on timing, we do expect a European review to move forward, and we are hoping for approval this year, which gives us a chance to launch as early as this year, more likely in 2027. Again, it just depends on timing of these events because proximity to the season will make a launch very difficult. But it is clearly a great opportunity for us to move beyond just COVID in a combination product and an opportunity to both expand our share in the COVID space but also grab share in the flu space. And we are proceeding with the filings elsewhere. I think we referenced in the press release Canada for that combination product as well, and hope to similarly bring forward that innovation because we believe there is strong demand from health systems as well as patients for one shot, or one vaccine, that does multiple things. Now as it relates to the flu, we have been having those conversations. So mRNA-1010, as we have proceeded outside of the U.S., there has been strong appetite for the question of better strain matching. And in fact, in some public comments, you have seen some European regulators, but also some from other markets, locally advocate for later strain selection and more diverse strain selections happening in flu vaccines because of the precedent we have shown with COVID vaccines. I will remind you that we sometimes forget in the U.S., but in this country, the FDA has chosen different strains of COVID vaccine than the rest of the world in two out of the four past seasons. And the data has shown that that better matching for the market has led to slightly better efficacy. In fact, we ran a clinical trial once head-to-head back in the bivalent days and showed higher point estimates for efficacy, which makes sense. A better matched vaccine, you would expect to be better at protecting people. And what we are hearing from the international flu community, including, as I said, in Europe, is quite strong support for that. It is a real question today. I mean, just to make the point, there are a couple of different strains of influenza B circulating around the world right now. In the United States, it is a different strain than is circulating in the rest of the Northern Hemisphere, and there does not look like there would be great cross-protection. And so it just highlights that the right answer for this fall could be very different from a composition perspective for Europe, or North America, or other regions. And that is where the technology that we have that has allowed us to tailor and meet regional needs with COVID, we think, can have an impact. There are many other things we need to do to improve flu vaccines. This is one we know we can do right now. Operator: Thank you. One moment for our next question. Our next question comes from Tyler Van Buren with TD Cowen. Your line is open. Stephen Hoge: This is Greg on for Tyler from TD Cowen. Some investors have been surprised by the higher-than-expected cash balance at year-end. So can you explain why that occurred and what the additional levers to lower cash costs are moving forward? Thanks. James Mock: Yeah. Sure, Greg. So maybe I will just go back to our original guidance. When we laid out our original guidance, we said $1.5 to $2.5 billion of revenue, so $2,000,000,000 at the midpoint. And we said $5.5 billion of cash costs. So if you take those two together, it is a $3.5 billion usage, from a starting point of $9.5 billion, which is why we guided to $6,000,000,000. Since then, revenue essentially came in online. We have $1.44. Let us call that pretty close. And cash costs came in at $4.3. So we beat by $1,200,000,000. On top of that, we took $600,000,000 of the initial draw from the loan. So that is now $1,800,000,000 better. Our capital expenditures were $100,000,000 less than we forecast at the outset of the year, so that is $1,900,000,000 better. Then if you look at the working capital, I am really pleased. It does not get a lot of attention, with how the team has performed. Our receivables are at $180,000,000. Inventory was flat year over year at $270,000,000. Payables at $300,000,000. We have a net working capital balance of $150,000,000 to which we run this company, and that is really incredible performance from the team, and that drove the last $200,000,000. So I do not think it should be too much of a surprise that it is mostly cash costs, $1,200,000,000 above our original guidance, the loan, a little bit less capital expenditures, and then terrific performance on working capital from the team. Operator: Thank you. One moment for our next question. Lavina Talukdar: Our next question comes Operator: from Michael Yee with UBS. Your line is open. James Mock: Great. Thanks. We had two questions as well. Stephen Hoge: First, on the adjuvant phase 3 melanoma study, can you remind us Michael Yee: that that study has interims built in and then, of course, a final? And so, like other design studies you have done, there is a certain number of cases accrue, you take a look at it, then if it does not stop, you move to the next case, next interim. Can you just describe a little bit how that works and remind us the phase 2, I think, did stop at an interim, if I was correct there? And then on norovirus, I do not think anyone has asked on that, but can you just remind us there you are enrolling or expect to complete enrollment, and then there is actually a readout, I think, planned this year. What is your confidence level there? I know there have been a lot of disappointments previously, but I think you are targeting a different approach and using three different strains, which I think I assume you believe will capture the majority of coverage. Can you just remind us there how you think about that result? Thank you. Stephen Hoge: Yes. Thanks, Mike, for both questions. So first on the INT phase 3 for adjuvant melanoma. You are correct, the first analysis that we will see this year will be an interim analysis, looking at our primary endpoints of relapse-free survival. We have a number of additional analyses. If you get there and we do not have the power to declare early success, then we would move forward to subsequent analyses, and ultimately additional endpoints, including things like distant metastasis-free survival. What I would remind you is the phase 2 hit essentially its statistical hypothesis at the interim. Then what we have been following since are the others. And we believe we have conservatively designed this study so that if those results are repeated, we would be well powered to see that in this first interim. But if, for whatever reason, we are told to continue forward, there would be a subsequent analysis. And that, again, would be event-driven but presumably would come, you know, the year after. As to the norovirus study, we are very excited to see those results potentially this year. Again, a case-driven trial. As you highlighted, there have been some previous efforts in norovirus. Ours are quite different. So first, the composition of our vaccine, as you highlighted, is a trivalent here, and we are looking at strain-matched efficacy, which is important because it does allow us to make sure that we are looking at the performance of the vaccine, which is matched at strains that are in, you know, approximately, in most years, two-thirds to 70% of the circulating norovirus disease. And so that trivalent composition and the VLP that our technology makes, we think, is a differentiator. But perhaps the more important one relative to the trial I think you were referencing is we are looking in seropositive populations, not children. And so earlier studies that have struggled in norovirus have looked in children in primary vaccination, you know, often a couple of doses, as opposed to really where the burden of disease is as you become an adult, which is in older adults, those particularly over the age of 65, where, you know, the threat of really profound dehydration can lead to hospitalization and complications of a whole number of medical comorbidities. And so there is actually an even bigger need in that population. And in that case, it is more of a booster trial. It is much more like, you know, it is a bit like primary vaccination for RSV or flu or COVID being very, very different than boosting seropositive people so that they can protect, which is a lot more like what you see with our senior flu, COVID, and RSV vaccines, which have obviously been successful. Norovirus is a different one, but we do believe that that difference in population will make a difference in terms of the ability of a vaccine to help protect them against this disease. Michael Yee: Thank you. And as a follow-up, do you think that the guidance with FDA or the discussion or regulatory path for this would be very different or, put another way, much more obvious than perhaps what is going on with flu? James Mock: So, look, Michael, I Stephen Hoge: I would remind that we have got three products approved last year in the U.S., you know, some label expansions, RSV, a new COVID product, and a pediatric COVID. And, you know, in those cases, you know, the guidance was different. What we are experiencing with flu is, I think, we hope, flu-specific. Our norovirus study, to your point, is a very large, placebo-controlled study. And so the refusal to file letter that we have received from the FDA on flu really speaks to a change in their perspective on the comparator used. But in the case of norovirus, there is no comparator to use. And so the comparator in that clinical trial is placebo. If we are able to demonstrate efficacy over placebo, it is hard to argue that there is a problem with the comparator. Michael Yee: Perfect. Thank you. Operator: One moment for our next question. Our next question comes from Luca Issi with RBC Capital Markets. Your line is open. Lavina Talukdar: Oh, great. Hi, team. This is Shelby on for Luca, and thanks Unknown Analyst: for taking the question. Maybe on INT, congrats on the recent five-year data for melanoma. And it is great to see the hazard ratio for RFS remaining consistent with prior cuts. However, what about OS? I remember at ASCO in 2024, you showed some pretty compelling data with the initial separation of the curve. But the press release this time was silent on OS. How should we read that? Does that mean the OS curves are no longer separated, or are you just keeping the details for maybe an upcoming medical meeting? Any color there much appreciated. Unknown Analyst: Thanks. James Mock: Yeah. Let me say it this way. Stephen Hoge: We look forward to sharing the OS curves at an upcoming medical meeting. We, you know, where you see relapse-free survival holding, obviously included in relapse-free survival is survival. And so we obviously did not put that out because we want to make sure that we are able to bring that forward to the community in a place where they can see all of that data. But all data from this five-year interim analysis will be presented at an upcoming medical meeting. Until then, I really should not say more. Operator: Thank you. One moment for our next question. Our next question comes from Courtney Breen with Bernstein. Your line is open. Lavina Talukdar: Hi. Thanks so much for taking our question today. Unknown Analyst: Just a couple and building off the conversation around the RTF that you got for the flu 1010. We had defined kind of as an immunogenicity sub-study, I think, of that phase 3 efficacy study, which suggested, and it was a very small population of that study, suggested there was a 50/50 ratio between those under and over 65. Can you just remind us or share with us what percentage of patients Lavina Talukdar: in that efficacy study were 65 or older? Unknown Analyst: And then, additionally, as we think about kind of Unknown Analyst: INT and the path to approval and kind of Lavina Talukdar: have you had any feedback in the design of that clinical trial that perhaps provided some recommendations that were not followed? Additionally, Unknown Analyst: kind of will it be you or Merck taking that file forward and can we assume that CBER will be the FDA group that will Lavina Talukdar: assess that particular file? Thank you so much. Stephen Hoge: Yeah. Thank you for the questions. So first on the phase 3 trial design for our flu vaccine, you are correct and your memory is right. More than 50% of the population of the study was stratified that at least 50% would be 65+. We also had a very large population of, you know, north of 10% that was above the age of 75. And as we have presented at medical meetings, and will be available in the upcoming publication, we have seen really strong superior efficacy across all of those populations. In fact, it is remarkably consistent, and as you add frailty or other risk factors to age, or as you look to severe outcomes such as hospitalization, you will see those point estimates for superiority go even higher, and in many cases become even more statistically significant. So we feel very good about that 41,000-person study, which, as you just described or as I just said, has more than 20,000 people over the age of 65 in it. I did describe a separate phase 3 study just to avoid confusion, the P303 study Part C. That has 3,000 people in it, and that was the study that was head-to-head against Fluzone High-Dose. That showed superior immunogenicity. But the efficacy study, I think, was the one that you were asking about. Now as it relates to INT, INT is—we are moving forward in a very novel field. And so we have had robust and, I would say, highly productive engagement with the FDA and truly global regulators around what will be a first-of-its-kind individualized neoantigen treatment. Those dialogues are detailed and, you know, I think, you know, broadly, we are very aligned, both ourselves and Merck, with those regulators. It is with CBER at FDA. Obviously, other offices are involved because it is, as an oncology therapy of high import, it gets a lot of attention. And I would just say, generally, we are working closely with regulators to make sure that we are doing everything they want so that they can conduct rapid reviews of the file. Merck is our partner in this. Merck is the sponsor for the phase 3 study. So we and they participate in those discussions and back and forth, and we each have different responsibilities in our 50/50 joint venture partnership. But the BLA submission, if it goes forward, will be from Merck. Operator: Thank you. One moment for our next question. Our next question comes from Alex Rinnehan with Bank of America. Your line is open. Open. Hey, guys. This is Matthew on for Alex. Stephen Hoge: Appreciate you taking our questions. Maybe for RCC, can you walk us through what makes you confident that phase 2 could be registrational and what hazard ratio or benefit you think would be compelling? And then if you do need to run a phase 3, curious whether you think Keytruda would be the appropriate comparator arm or whether Keytruda + belzutifan combo would be preferred, pending the LITESPARK-022 data. Thanks. James Mock: Yeah. That is a great question. You know, one of the Stephen Hoge: exciting things in oncology is it is a fast-moving space. And in individual histologies, sometimes the standard of care will evolve, and you are highlighting belzutifan for RCC. Look, first, I would say the phase 2 study is blinded, it is powered, and if we see a really profound benefit—we have not guided on what that hazard ratio would be—but let us assume it is something that would look really dramatic and highly statistically significant, then it is structured so that it could be a registrational study. But, you know, it was not initially intended and powered as that. It is not a phase 3 study because our primary goal here was we wanted to confirm the hypothesis that INT works well across a range of tumors, and in particular places that we thought there was an opportunity to improve upon pembro as a standard of care. And since we started and enrolled that study, there has obviously been the good news of the belzutifan results. Again, that is with our partner Merck. And so, if we see equally great response here for INT, we will have a conversation with Merck about what we do with INT. It may mean going forward. It may mean adding it to those, because there is always a desire to improve outcomes in cancer. It will entirely depend upon what the data actually says. And so at this point, we are just excited to look forward to it. But once we have it, the thing that, you know, I think we will be most focused on is does this confirm the opportunity for INT to work across a range of different cancers, other histologies. Operator: Thank you. One moment for our next question. Our next question comes from Cory Kasimov with Evercore. Your line is open. Michael Yee: Hi. This is Adi on for Corey. James Mock: We had a question on the adjuvant melanoma Michael Yee: as well. Could you share how do you anticipate use Stéphane Bancel: across the broader PD-1, PD-L1 class Unknown Analyst: or primarily only with pembrolizumab? Separately, as pembro and other options become more prevalent, do you see any impact on regimen selection, logistics, or ultimately uptake for INT? Stephen Hoge: Thank you for both questions. So first, I think we will be pursuing a label—obviously, it is on top of a standard of care in the trial, which is pembro. But we believe that that label could broadly apply to other PD-1, PD-L1s that are approved in the same indication for adjuvant melanoma. Obviously, that will depend upon discussions with regulators, but I think that would follow the precedent of other approaches. And it is in our mutual interest with Merck. We want to see INT be used for as many patients as possible regardless of the choice of the PD-1 or PD-L1 backbone. As relates to subcutaneous, you know, I think that is really within the PD-1 class question. And so how do those antibodies, you know, get subbed out for each other going forward? It really would not relate, in our mind, to INT, which would be a category of one, and the benefit that INT provides, we believe, would apply equally well—although we will have to see what regulators want to see—but we think the community would agree that it would likely apply equally well whether you are doing a subcutaneous or IV use of a PD-1 antibody. That is really a question about what they are doing in terms of class share there, because INT will be in a category unto itself. Unknown Analyst: Thank you. Operator: Ladies and gentlemen, this does conclude the Q&A portion of today’s presentation. I would like to turn the call back to Stéphane for any further remarks. Stéphane Bancel: Well, thank you very much, everybody, for joining. We look forward to speaking to many of you in the coming hours, days, weeks. Have a great day. Thank you. Operator: Ladies and gentlemen, this does conclude today’s presentation. You may now disconnect, and have a wonderful day.