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Operator: Good morning and welcome to Agios Pharmaceuticals, Inc. Fourth Quarter and Full Year 2025 Conference Call. At this time, participants are in a listen-only mode. There will be a question and answer session at the end. Please be advised that this call is being recorded at Agios Pharmaceuticals, Inc.'s request. I would now like to turn the call over to Morgan Sanford, Head of Investor Relations at Agios Pharmaceuticals, Inc. Please go ahead. Morgan Sanford: Thank you, operator. Good morning, everyone. Thank you for joining us to discuss Agios Pharmaceuticals, Inc. Fourth Quarter and full year 2025 financial results and business highlights. You can access the slides for today's call by going to the Investors section of our website agios.com. Please note, we will be making certain forward-looking statements today. Actual events and results could differ materially from those expressed or implied by any forward-looking statements because of various risks, uncertainties, and other factors, including those set forth in our most recent filings with the SEC and any other future filings that we may make with the SEC. On the call with me today from Agios Pharmaceuticals, Inc. are Brian Goff, Chief Executive Officer; Cecilia Jones, Chief Financial Officer; Tsveta Milanova, Chief Commercial Officer; and Dr. Sarah Gheuens, Chief Medical Officer and Head of Research and Development. Following prepared remarks, we will open the call for questions. With that, I am pleased to turn the call over to Brian. Thanks, Morgan. Good morning, everyone, and thank you for joining us on today's call. Next slide, please. Just last month, we outlined our 2026 strategic priorities, which are focused on delivering long-term shareholder value. First, we are focused on executing a high-impact launch of Afesmi for the treatment of thalassemia in the U.S. Operator: Second, Brian Goff: We see meaningful opportunity to expand our PK activation franchise into additional high-value indications including sickle cell disease, and lower-risk myelodysplastic syndrome, with key catalysts this year for both opportunities. Third, through the advancement of our early-stage pipeline with AG-236 and AG-181, we have the potential to unlock future value in hematologic and other rare diseases. And finally, we remain committed to long-term sustainability, supported by disciplined capital allocation and continued operational efficiency. Building on those priorities, the next slide marks key pipeline catalysts in 2026 across multiple high-value indication opportunities. The Afesmi launch in thalassemia is underway in the U.S., and we look forward to the potential to expand our PK activation franchise into sickle cell disease and lower-risk MDS. These milestones and continued progress in our early-stage pipeline position the portfolio for growth and long-term value creation. Next slide, please. We exited 2025 with solid momentum across the business, commercial execution, pipeline progress, and continued focus on financial discipline, which together provide a strong foundation to deliver on our 2026 strategic priorities. Starting with commercial performance, Pyrukynd delivered $20 million in net revenue in the fourth quarter, bringing full year 2025 revenue to $54 million reflecting robust year-on-year growth. In the fourth quarter, we reported top-line data from the RISE UP Phase III trial and will meet with the FDA this quarter as anticipated for our pre-sNDA meeting to determine the regulatory path forward. Importantly, just before the end of the year, we received FDA approval for Afesmi in the U.S. Thalassemia launch is underway. Finally, we recently completed enrollment in the Phase II sickle cell disease trial of tebipivat with top-line results expected in the second half of this year. Importantly, we continue to operate from a position of strength, ending the year with approximately $1,200,000,000 in cash, providing flexibility to maximize the Afesmi thalassemia U.S. launch, pursue the path forward for mitapivat in sickle cell disease, and continue to advance our pipeline programs. Please move to the next slide, and I will turn the call over to Cecilia to provide additional details on our 2025 fourth quarter and full year performance as well as our 2026 outlook. Morgan Sanford: Thank you, Brian. Next slide, please. Our fourth quarter and full year 2025 financial results Cecilia Jones: Be found in the press release issued earlier this morning and additional details can be found in our 10-K which will be filed later today. Fourth quarter worldwide Pyrukynd revenue was $20,000,000, an increase of 86% compared to 2024, and a sequential increase of 55% compared to $13,000,000 in 2025. In the U.S., fourth quarter revenues of $16,000,000 were driven by continued commercial focus in PK deficiency ahead of FDA approval for Afesmi, an additional ordering week in the fourth quarter, and favorable gross-to-net adjustments. In 2026, we expect U.S. PK deficiency revenue to be in the range of $45,000,000 to $50,000,000. Outside of the U.S., revenue of $4,000,000 in the fourth quarter primarily reflects inventory stocking ahead of demand driven by PK deficiency patients in Europe transitioning from our global managed access program where Pyrukynd was provided free of charge to commercial supply. We anticipate a sequential decline in U.S. revenues into 2026. Cost of sales for the fourth quarter was $1,900,000. R&D expenses were $88,100,000, an increase of $5,300,000 compared to 2024, associated with the advancement of our earlier-stage pipeline program. SG&A expenses were $51,600,000 in the fourth quarter and roughly flat year-on-year. We ended the fourth quarter with cash, cash equivalents, and marketable securities of approximately $1,200,000,000. As a reminder, in future quarters, we will report mitapivat revenue as a whole, breaking out U.S. and ex-U.S. performance. Next slide, please. We remain committed to financial discipline as we work toward our goal of becoming a sustainable rare disease company. We anticipate operating expenses in 2026 to be roughly flat with 2025. This guidance assumes investment to maximize launch of Afesmi in thalassemia in the U.S., gated investment for sickle cell disease, and operating model refinement. Importantly, we see a clear path to profitability through our existing commercial presence in thalassemia and PK deficiency. Please advance to the next slide, and I will turn the call over to Tsveta to share commercial highlights for the quarter. Thank you, Cecilia. Next slide, please. As Cecilia noted, in the fourth quarter, Pyrukynd delivered $16,000,000 in net revenue in the U.S., up 50% year-over-year, driven by continued demand in PK deficiency, an additional ordering week in the quarter Brian Goff: And Morgan Sanford: Certain gross-to-net adjustments Cecilia Jones: Fourth quarter ex-U.S. was roughly $4,000,000 which primarily reflects supply ahead of demand pull-through as PK deficiency patients in Europe transition onto commercial supply. We expect this ordering to moderate in coming quarters. As expected, we continue to see quarterly variability driven by ordering patterns, Morgan Sanford: Inventory dynamics and gross-to-net adjustments. Cecilia Jones: Fourth quarter performance underscores the strength of our commercial model and the foundation we are building for future growth. Starting with the recent U.S. approval of Afesmi for the treatment of anemia in adults with alpha- and beta-thalassemia, regardless of transfusion burden. Operator: Please move to the next slide. Cecilia Jones: I am pleased to share that as planned, the final implementation of the Afesmi REMS was completed in late January to align with the approved FDA label. Operator: And Cecilia Jones: Have already begun dispensing products. As of January 30, we have seen 44 prescriptions written by a REMS-certified physician in the U.S. Operator: Which reflects strong early recognition Cecilia Jones: Of Afesmi’s clinical value and excellent execution by our field team. Morgan Sanford: Is especially encouraging is the healthy breadth Cecilia Jones: Of early prescribers at this stage of the launch, with strong geographic distribution and, as expected, predominance of community physicians as early prescribers. We are also seeing in these early days of launch emergence of the patient profile we anticipated, largely transfusion-dependent patients along with a group of highly engaged non–transfusion-dependent patients. These early signals speak not only to our launch readiness, but importantly to our deep understanding of this patient community and their unmet needs. Please move to the next slide. Morgan Sanford: We are very encouraged by the early market Cecilia Jones: Response to Afesmi. Physicians consistently view its profile as addressing meaningful gaps in the current treatment landscape for thalassemia. Importantly, this aligns with what we heard ahead of FDA approval. Operator: We are not seeing the REMS as a barrier to prescribing, Cecilia Jones: With early experience suggesting the certification process has been straightforward. We have also seen strong engagement with our patient support program. Initial experience indicates that patients do not view the REMS as burdensome given the potential for meaningful clinical benefit, including reduction in transfusion burden and improvement in fatigue. Taken together, this early feedback reinforces both the significant unmet need in thalassemia and the value proposition of Afesmi. It also reflects the strength of our prelaunch planning. On the next slide, I will take a few moments to discuss how we anticipate this demand will convert into treatment initiation and ultimately revenues in the first few quarters of launch. There are three key steps in the Afesmi REMS certification process. One of those steps, pharmacy education, is already completed as we use a single specialty pharmacy to dispense prescriptions and coordinate on delivery. Additionally, physicians are required to be educated and certified on the Afesmi REMS. In parallel, once a prescription has been written, patients need to receive insurance authorization and complete a baseline liver test prior to initiating treatment. Our comprehensive patient support service, MyAgios, has a strong track record assisting patients with the insurance authorization process for PK deficiency, which we expect to continue with thalassemia. Once these three components are completed, the pharmacy is authorized to dispense the prescription. Patients will then complete monthly liver tests for the first six months and as clinically indicated thereafter. Initially, we expect the time from first prescription to treatment initiation to be on average 10 to 12 weeks. As physicians are onboarded and access expands, we see opportunity to shorten this timeline as launch progresses. Operator: Turning to the next slide. Cecilia Jones: The thalassemia opportunity presents a major potential growth inflection for Agios Pharmaceuticals, Inc. Today, we have received approval of mitapivat for thalassemia in two regions, marketed as Afesmi in the U.S. and Operator: Pyrukynd in Saudi Arabia. Cecilia Jones: Our capital-efficient global commercial model enables us to focus our investments on the U.S., which presents the most significant revenue opportunity. Outside of the U.S., we have executed commercialization and distribution agreements with Avanzanite Bioscience in Europe and NewBridge Pharmaceuticals in the GCC. Given access dynamics, we currently distribute Pyrukynd in Saudi Arabia on a patient-by-patient basis, with potential to expand access following national procurement agreement. In Europe and UAE, regulatory Morgan Sanford: Reviews remain underway. Cecilia Jones: We anticipate a potential EC decision in the coming months following the positive CHMP opinion received Morgan Sanford: In October 2025. Cecilia Jones: Across these regions, we see real potential to expand access and deliver meaningful growth as we scale the launch globally. Please move to the next slide. And with that, Morgan Sanford: I will hand the call over to Sarah to cover key R&D highlights from the Cecilia Jones: Quarter. Thank you, Sarah. Next slide, please. Since we reported third quarter results, we have continued to make progress advancing our robust rare disease pipeline. We received the FDA approval of Afesmi for alpha- and beta-thalassemia regardless of transfusion burden on December 23. Morgan Sanford: And as you heard from Tsveta, the U.S. launch is underway with strong reception from Cecilia Jones: Physicians. Following the RISE UP Phase III top-line data of mitapivat in sickle cell disease, we will have our pre-sNDA meeting this quarter to inform the regulatory path forward. We continue to advance our more potent PK activator, tebipivat, in two Phase II trials and anticipate results in lower-risk MDS in the first half of this year and in sickle cell disease in the second half. We continue to advance our early-stage Morgan Sanford: Pipeline to important decision points this year and are on track to initiate a Phase 1b proof-of-mechanism trial of AG-181, our phenylalanine hydroxylase stabilizer, in PKU patients in the coming months and report top-line data from the Phase I healthy volunteer Cecilia Jones: Study of AG-236, our siRNA targeting TMPRSS6 for polycythemia vera, in the first half. Please move to the next slide. Turning to tebipivat, we look forward to understanding more about the potential role of this more potent PK activator in low-risk MDS and sickle cell disease this year. We remain on track in low-risk MDS where top-line data from the Phase IIb trial are expected in the first half of this year. This study will provide important insights into dose optimization as well as the potential role of tebipivat in different patient subgroups, including low- and high-transfusion burden patients as well as potential applications in later lines of treatment. In sickle cell disease, enrollment in the Phase Morgan Sanford: II trial is now complete, an important milestone that reflects the growing Cecilia Jones: Enthusiasm for PK activation following the RISE UP Phase III results of mitapivat in this debilitating and deadly disease. Morgan Sanford: This 12-week double-blind trial is designed to further explore tebipivat’s Cecilia Jones: Potential to deliver meaningful improvements in hemoglobin, Morgan Sanford: As well as broader markers of hemolysis. In turn, we see potential for higher hemoglobin response building on the Cecilia Jones: Strength of the data established with mitapivat. Together, these programs underscore the potential for tebipivat to expand our leadership in hematology and address multiple high-value populations where unmet need remains significant. We have an exciting year ahead of us, and we look forward to updating you on our pipeline progress throughout the year. With that, please move to the next slide, and I will hand the call back to Brian for closing remarks. Brian Goff: Thank you, Sarah. Next slide. In closing, we have another pivotal catalyst-rich year ahead of us. In line with our 2026 strategic priorities, we are focused on executing a high-value Afesmi U.S. launch in thalassemia. In sickle cell disease, we are preparing for our pre-sNDA meeting for mitapivat this quarter, an important step towards defining our regulatory path. We also expect Phase II top-line data for tebipivat in sickle cell disease later this year, which will give us deeper insight into the potential of higher potency PK activation in this population. In lower-risk MDS, Phase IIb top-line data for tebipivat remain on track for 2026 and will be a key readout as we assess its ability to drive transfusion independence and broader improvements in anemia. We also anticipate Phase I top-line data for AG-236 in polycythemia vera and Phase Ib proof-of-mechanism data for AG-181 in PKU, two important early-stage programs that expand our reach across hematologic and other rare diseases. Please move to the next slide. As we look beyond 2026, our opportunity set continues to expand. The combined global market potential across our current pipeline indications is $10,000,000,000 reflecting both the breadth of unmet need and potential to deliver transformative medicines to patients. Beginning in 2026, we are focused on delivering a high-impact U.S. launch of Afesmi in thalassemia, which we believe has the potential to establish a strong foundation for our leadership more broadly in rare hematology. Our combination of near-term catalysts, disciplined investment, and a maturing pipeline creates a clear pathway to deliver long-term value. Agios Pharmaceuticals, Inc. is well positioned for the next chapter of growth while advancing the next wave of innovation across our rare disease portfolio. Before we move into Q&A, I would like to acknowledge the dedication of our employees whose unwavering focus and commitment continue to make a meaningful difference for patients with rare disease. With that, I would like to open the call for questions. Operator, please open the line. Operator: Thank you. To be announced. To withdraw your question, please press 11 again. And our first question comes from Gregory Renza with Truist. Your line is open. Great. Thanks. Good morning, Brian and team. Congrats on the quarter and, of course, another eventful year. Maybe two questions from us on Afesmi and then on sickle cell. First, just on the Afesmi launch, we appreciate all the color you are sharing early and getting patients engaged and prescriptions written. Just on that translation perhaps, on the prescription updates that we are seeing, how do you see that not only translating to treatment initiation but also to revenue recognition, maybe not asking for guidance on early quarters, but any color you can provide on the first quarter and even subsequent early days of the launch with respect to how it holsters to revenue? And then I have a follow-up. Thanks. Brian Goff: Yeah. Thanks, Greg. Very happy to talk about the launch. And before Tsveta gets going here, I just want to say I am really proud of the way the team has executed. It is early days, but Tsveta is excited to finally have a chance to begin talking about the Afesmi launch. Cecilia Jones: Absolutely. Definitely excited. And Greg, as I mentioned in my prepared remarks, we are really encouraged by the early demand that we are seeing with Afesmi. As you mentioned, we reported that we had 44 prescriptions from REMS-certified physicians up to January 30, which is the first five weeks of the launch, and that is fantastic to see. With regards to your questions, what we expect is to see in the initial quarters prescriptions and demand Morgan Sanford: To grow ahead of revenues. And the main reason for that is that it takes about 10 to 12 weeks for us to convert Cecilia Jones: Prescriptions to treatment initiation and ultimately revenues. So, we anticipate, in Q1, the majority of the prescriptions to turn into treatment initiation. And as the year progresses, Morgan Sanford: We will expect to see revenues and demand start tracking more Cecilia Jones: Closely? Morgan Sanford: We get a lot of questions about potential analogs. So when I think about another product which also has a liver REMS, that is Truseltiq, so that is a good analog Operator: For you to look at of how the actual revenue Sarah Gheuens: Trajectory throughout the first year of the launch actually evolved. It is a very different disease, of course, but from a shape of the curve of the revenue, I think it is a good one to look at. Gregory Renza: Great. Thank you. That is very helpful. And maybe just moving on to sickle cell and tebipivat. And of course, not to overlook the MDS readout in the first half, but with enrollment complete in the Phase II in sickle cell and Sarah, the color that you have provided, maybe if I may just ask a bit about how you are pegging expectations for what you want to see to get excited about the Phase II data in sickle cell coming later this year. You had spoken about the potency and the higher hemoglobin response potential. Any color that would help to get you excited and how that kind of fits into the larger portfolio relative to mitapivat and the larger sickle cell space even. Thanks so much and congrats again, guys. Brian Goff: Thanks, Greg. Thanks, yes, thanks for the question, Greg. So the Sarah Gheuens: Phase II tebipivat trial that we have just indeed announced full enrollment is a dose-finding trial. So we are looking indeed to explore the doses. We are looking at the hemoglobin. Morgan Sanford: It is a standalone Phase II trial, so VOCs are included as Cecilia Jones: Safety assessments, which is different than how the Phase Sarah Gheuens: II/III seamless operational design was for RISE UP. But, obviously, we are now in a position that we can leverage data across the PK activation franchise, basically. And we are able to use the RISE UP data to also model what we anticipate a hemoglobin response can lead to for clinical benefit. So we are very excited about the trial. We think actually the fact that we can announce the enrollment completion also reflects the excitement of the community. You know, the RISE UP data announcement really led to a faster enrollment in the tebipivat Phase II trial, so we are very excited about that. Thank you. Operator: Our next question comes from Samantha Semanko with Citi. Your line is open. Morgan Sanford: Hi, good morning, and thanks very much for taking the questions, and congratulations on all the commercial progress. Cecilia Jones: Just one follow-up on Afesmi. I am wondering if you could speak to a bit of the cadence of scripts that have come in since approval. And particularly, are you seeing an increase Emily Bodnar: In the scripts written since January 30 after the REMS has become fully operational? And then just a second question. I am wondering if you could speak to the potential outcomes from the planned sNDA meeting with FDA on the sickle cell disease. What are the outcomes that could come out of that meeting? Thanks very much. Brian Goff: Thanks, Sam. So we are going to stick with the 44 that we have so far for Afesmi, but I think Tsveta could continue to provide color on the early days of the launch. And so I will have Tsveta start on that and then Sarah can speak to the pre-sNDA meeting. Sarah Gheuens: Absolutely, Sam. And a reminder, we started basically engaging and educating physicians and generating demand as soon as the product was approved. So within the first five weeks of the launch, we have been educating physicians on the value proposition of Afesmi and the REMS itself. So, we are very encouraged with what we see in terms of demand in these early stages of the launch. A lot of the things that are happening, and I am really, really pleased with the execution of the team, are happening as we expected. So we are seeing prescriptions coming from the transfusion-dependent patients and the very engaged symptomatic non–transfusion-dependent patients who have frequent interactions with the health care system, which is fantastic. And we see a very healthy dynamics of the launch in terms of the physicians. We see prescriptions coming from across the country. And a lot of them are in the community setting where the majority of the patients are treated, and I am really pleased with the progress that the team is making. Brian Goff: Great. And then, Sarah, the pre-sNDA meeting and Sam's question about the potential outcomes. Cecilia Jones: Yes. Thanks, Sam. So we have guided to the Morgan Sanford: Pre-sNDA meeting in the first quarter of this year. The goal for that meeting is, of course, to gain insights in the regulatory pathways that we can use for mitapivat. As stated, we are, of course, going in with a data package that we would like to present for Sarah Gheuens: Full approval based on the data that was generated in RISE UP with the strong anti-hemolytic profile that is now Morgan Sanford: Confirming again the anti-hemolytic profile of mitapivat now in a third hemolytic anemia, with additional strong clinical benefit observed in those hemoglobin responders. Sarah Gheuens: And, once we have that meeting, we Morgan Sanford: Are planning to give an update Sarah Gheuens: Once we have the meeting minutes to you guys. Emily Bodnar: Great. Thanks very much. Operator: Thank you. And our next question comes from Alec Stranahan with Bank of America. Your line is open. Brian Goff: Great to see the continued progress for both the commercial and the clinical stage portfolios. Two questions from us. I guess, first, is sort of the main bottleneck informing that 10 to 12 week prescription to treatment initiation? Is it getting the patient in for their baseline liver test or maybe something else and how do you anticipate this shortening over the course of this year? And then second, for tebipivat in MDS, what does good look like on transfusion independence in this lower-risk population? And I guess given what you learned from the Phase IIa do you expect you could see activity at the 10 mg dose based on Eric Schmidt: Of the emerging PK data, or is this maybe more likely at the 15 and the 20 mg doses? Thank you. Brian Goff: Thanks, Alec. So we are going to follow the same sequence here. Tsveta gets to talk about the Afesmi launch and then Sarah, thankfully we have a robust pipeline, so she can discuss the MDS trial with tebipivat. Absolutely. So the 10 to 12 weeks is driven by Sarah Gheuens: Two things. The first aspect is the insurance authorization, which is very standard for any specialty rare disease drug. That is not unique to Afesmi. And most of the patients would need to go to prior authorization, which can take on average a month. And for some patients, it happens faster. For some patients, it takes longer, but that is one of the main drivers. The second aspect is the requirement for a liver test ahead of the treatment initiation. So when we combine both of these factors, we anticipate the conversion from prescription to treatment initiation to be on average 10 to 12 weeks. As I said, we will see patients falling on either end of that time frame. And over time, we will, of course, look to shorten the time from prescription to treatment initiation on both fronts. We have an excellent market access team that will be engaging with payers. So as some of the payers actually put the product on formulary, that can be an opportunity for us to move faster through some of the prior authorizations, and supporting patients as well as we will be learning throughout the launch and identify areas to support to have efficiency in their liver testing initially as well. Brian Goff: Great. And, Sarah, for tebipivat and MDS, just some of the you know, what are we expecting and then the different dosing Cecilia Jones: Yeah. Thanks, Alec. And so to your point, we indeed are testing higher doses than the dose that we tested in the Phase IIa. So we have a 10 milligram, a 15 milligram, and a 20 milligram dose. So, indeed, we are looking Sarah Gheuens: To explore the doses here in this Phase II to see which dose would be best. And then in addition, we are, because it is a heterogeneous Morgan Sanford: Patient population, this trial will also allow us to further define patient populations. So we have low and high transfusion burden, plus additional lines of therapy that have been used. So it will really give us a lot of insights on where this drug can play a role. Obviously, it is an oral therapy, which Sarah Gheuens: Of course, can be very meaningful for a patient population like this because if patients would have treatment response, it allows them to be really untethered from the clinic. Brian Goff: Yeah. It is going to be an exciting year for tebipivat in 2026. We have two catalysts, as we noted. We have the MDS Phase IIb trial in the first half of the year, and then as we have already discussed, for sickle cell disease, the second half of this year, we look forward to that Phase II result. Eric Schmidt: Great. Thanks for the color, and congrats on the continued progress, guys. Brian Goff: Thank you. Operator: Thank you. And our next question will come from Marc Frahm with TD Cowen. Your line is open. Gregory Renza: Questions. Maybe to start on Afesmi with the REMS-certified physicians. Just Brian Goff: Can you maybe talk about kind of where that is from a quantitative perspective, Marc Alan Frahm: Within these first few months? And kind of what do you think that trajectory looks like in terms of number and breadth of certified physicians over the next quarter or two as that part of the ramp really happens? And then I will have a follow-up on the pipeline. Brian Goff: Okay. So I can start. Yeah. When it comes Sarah Gheuens: To the REMS, for in this initial stage of the launch, I am really pleased with what we are seeing, and things are happening exactly as we anticipated. Physicians do not see the REMS as a barrier to prescribing and the patients that we have engaged with they basically do not see it as burdensome given the strong value proposition of Afesmi and their willingness to consider and initiate therapy. What is happening with the REMS? Initially, a lot of the bigger academic centers and KOLs are getting certified. And when it comes to the community physicians, actual certification happens almost simultaneous with the first prescription. And we will see in a way the certification and REMS progressing simultaneously over time. But as I said, REMS has not been a reason for not to prescribe. It is the opposite. When physicians have patients that they want to initiate, they are more than willing to complete the REMS, which can actually take one visit. It is a very quick process. Marc Alan Frahm: Okay. Thanks. That is helpful. And then maybe just following up on Sarah's comments about the pre-sNDA meeting and that the package is really aimed for supporting full approval. I think at other times, you have also mentioned possibilities of an outcome of accelerated approval. Is that still something you think is a reasonable outcome, or are you more confident in a full approval than maybe you have been as you have gotten a little deeper into the data and conversations? And then assuming accelerated is on the table, what is your latest thoughts on kind of what a confirmatory trial might look like under that scenario? Emily Bodnar: Yeah. So thanks, Marc. So for us, the data package Sarah Gheuens: Really the benefit-risk profile generated in RISE confirms a strong anti-hemolytic profile, as I mentioned. And we really see those clinically meaningful changes in the hemoglobin responders. So our view is that benefit-risk here is seen in this trial, and it is a supplemental NDA. Now as you also know, at ASH recently, the FDA highlighted that hemoglobin can be a surrogate endpoint for sickle cell disease. So either one of those pathways for us allows us to discuss the data, and have that meaningful conversation with the agency. Under any of those circumstances, then there is always the normal filing procedure that one would have to go through. But we are very, very excited about the data as it stands. Then in regards to your question on confirmatory trials, obviously, we have several options Cecilia Jones: That we can discuss in which Sarah Gheuens: Some of these options have endpoints that have been used before. Some of them are novel endpoints as well. So we are ready to discuss, as needed. Cecilia Jones: K. Thank you. Operator: Thank you. And our next question will come from Eric Schmidt with Cantor. Your line is open. Brian Goff: Hey, guys. Sorry for any background noise, but Cecilia mentioned a direct path or clear path to profitability. I was hoping you get a little bit more detail on thinking around the breakeven point of revenue needed to hit that and maybe timelines to profitability. And then were there any sales at all in the GCC countries in Q4? Thank you. Cecilia Jones: So we have thanks, Eric. We gave the guidance on profitability with PKD and thalassemia regarding Sarah Gheuens: Of the path forward for sickle cell? Anovacar base case there. We have not given a specific timing of when that will happen. We believe Cecilia Jones: You know, thalassemia is a meaningful opportunity. We are excited about the initial stages of the launch. We also have, as you mentioned, ex-U.S. Sarah Gheuens: Being part of that opportunity as well. And then part of that profitability path also requires us to proactively manage our Cecilia Jones: OpEx as we navigate the multiple catalysts on the horizon. But we also have other earlier programs. So we have not given specific timing Sarah Gheuens: On that Cecilia Jones: My god. Second time. GCC? And then for GCC, what we have seen, the ex-U.S. revenue we saw in Q4 is mostly driven by Sarah Gheuens: Europe, and that is in anticipation of demand. So that is why we guided to Cecilia Jones: An expected decrease, Q4 to Q1. GCC, as a reminder, today is on an equivalent of a named-patient, case-by-case. So you see some consistency quarter-over-quarter until we get to the point where we have more broad access negotiated over the next 12 to 18 months or so. Brian Goff: Yeah. And, Eric, I will just add. We are pleased with the partner we have in place in GCC with NewBridge. Tsveta and I spent some time in Saudi Arabia late last year and really got a kind of a street-level sense about how the team is doing, the enthusiasm from clinicians, as well as even at the Ministry of Health level, and you know, that is going to take some time to build traction, but I think in the early days, feel quite good about the opportunity. Thank you. You bet. Operator: And our next question comes from Emily Bodnar with H.C. Wainwright. Your line is open. Cecilia Jones: Hi. Good morning. Thanks for taking questions, and congrats on all the progress. I guess for the first one, can you give some Morgan Sanford: Color on the type of physicians who are initially prescribing Afesmi? And whether they are mainly physicians who have used Pyrukynd in the past or you are getting physicians who are more new to drug? And then on sickle cell disease, assuming you achieve alignment with the FDA, are you expecting potential approval in 2026? And can you maybe discuss some of the launch preps that you are planning to do this year ahead of approval? Thanks. Brian Goff: Thanks, Emily. Tsveta, you want to start with Afesmi and the types of physicians in the early days? Sarah Gheuens: Absolutely. As I said, a lot of the early launch dynamics are playing as expected. The team did a fantastic job ahead of the launch profiling and prioritizing accounts, and the initial prescriptions are actually coming from the physicians we anticipated to see prescribing. As I mentioned, Emily, they are primarily the community heme-oncs, where majority of the patients are, and these are physicians we have engaged with previously. We do not see that much overlap between PK deficiency and thalassemia, and that is because PK deficiency is an ultra-rare disease. So there are very few physicians who have experience with Pyrukynd in PK deficiency. And as I said, I am very pleased with the start of the launch. It is a very healthy breadth of prescribing that we see across the country. Different physicians are engaged and really trying the product in the patients that they would think will benefit the most initially. Brian Goff: Great. And, Sarah, for sickle cell disease and potential timing. Yes. So, Emily, we have not guided Cecilia Jones: To potential approval dates Sarah Gheuens: Yet. We are now the first guidance we have given in process is our pre-sNDA meeting anticipated Q1. And then, in regards to the launch prep, I will ask Cecilia to comment. Cecilia Jones: Yeah. So as a reminder, we did not, very similar to how we did thalassemia, we did not build for sickle cell until we saw the data. Sarah Gheuens: That is what we refer to when we talk about the gated sickle cell investments. We will look into that timeline and understand the path to start building investment there accordingly. Thank you. Operator: And our next question will come from Salveen Jaswal Richter with Goldman Sachs. Your line is open. Lydia Erdman: Good morning. This is Lydia on for Salveen. Thanks so much for taking our questions and congrats on the update. Is there any additional color you can provide on the split between the transfusion and non–transfusion-dependent patients amongst these 44 scripts that have been written? And then given scripts will be the key metric to watch, do you anticipate third-party services like IQVIA to accurately capture these scripts? Thanks so much. Yep. So the initial prescriptions, as I said, very much as we anticipated, come from a combination of transfusion-dependent patients Sarah Gheuens: Obviously, a large proportion is transfusion-dependent patients. And very engaged symptomatic non–transfusion-dependent patients who are in active interaction with the health care system. So when you think about the evolution over time, as anticipated, I think we will see initially more transfusion-dependent patients, but the scale-up of the launch will come from the non–transfusion-dependent patients later on. When you think about IQVIA, we have a single specialty pharmacy that distributes the product. So IQVIA will not be the right source for you to look at. It is just the information will not be available. And this is the reason that we are looking to provide you initially with prescriptions and revenue, as well as we gave you the guidance on PK deficiency so you can see where the growth of thalassemia will be coming throughout the year. So much. Operator: Thank you. And our next question will come from Tessa Thomas Romero with JPMorgan. Your line is open. Lydia Erdman: Hey, guys. Thanks so much for taking our questions this morning. So first one is just on Sarah Gheuens: Afesmi. Just can you just quickly touch on initial payer dynamics over the first couple of quarters here and Lydia Erdman: Remind us of payer mix. Just want to make sure that we are thinking about potential free drug the right way. And then second question, a bit of a housekeeping question here. If you are indeed approved in sickle cell disease, how does your SG&A line change, just trying to think through what you might need to successfully launch a drug in sickle cell from an expense perspective. Cecilia Jones: Thanks so much. Brian Goff: Okay. Thanks, Tessa. And, Tsveta can start on payer aspects, and maybe we could also just remind our gross-to-net assumptions too. Think we Sarah Gheuens: Yep. Would be good. Answering Tessa, I will start here. So the payer mix in thalassemia is similar to PK deficiency with majority of the patients being under the commercial payer bucket. Very similar to PK deficiency and any other drug initially, the actual market access and payer authorization route will happen through medical exceptions because payers would take time, about six months, six to nine months, to actually start putting the product on formulary. We have a very experienced market access team that is very familiar with how to navigate the medical exceptions process. And so far, in these early stages of the launch, I must say, as expected, we have not seen any payer hurdles at all. I think the value proposition of Afesmi speaks for itself, and the team is doing a great job in terms of those interactions. Brian asked to comment on the gross-to-net assumptions. Given that we do not expect that to be a managed category, very similar payer mix to PK deficiency, our gross-to-net assumptions for thalassemia are similar to PK deficiency, 10% to 20%. And then on the SG&A question, Tessa, as we think about it, Cecilia Jones: We are going to update and manage our spend based on the regulatory discussions and the timing. But if you want to think about it, Sarah Gheuens: We have an infrastructure that we have paid for PKD and thalassemia that we would Cecilia Jones: Leverage, but the scale of sickle is much bigger. So we will have to scale up those functions that we built, but we have a really nice foundation to build from. Thank you. Operator: Thank you. Thank you. And our last question will come from Hiro Nagayumi with RBC Capital Markets. Your line is open. Morgan Sanford: Oh, great. Hi, team. This is Shelby on for Luca, and thanks for taking the question. Could you remind us what is the rationale for dosing higher in lower-risk MDS Sarah Gheuens: Versus the Phase II for sickle cell disease? Morgan Sanford: And then maybe one more. Now that we have the label and REMS program for thalassemia, do you expect any read-through to sickle cell, and has it changed any internal expectations on the commercial opportunity there? Lydia Erdman: Any color is much appreciated. Thanks. Brian Goff: Yeah. I think, well, so we could start with MDS and the rationale for all three of the doses being higher than what we tested in the IIa. And then we will talk a little bit about REMS and sickle. Yes. So for the rationale of higher doses, we originally had a Morgan Sanford: Phase IIa with the five milligram dose based on modeling from the healthy volunteer trials, but we learned in that trial that MDS patients metabolize the drug faster, and so we pushed the dose higher in the Phase IIb to do further dose exploration, versus sickle cell disease patients who are exactly the same as healthy volunteers. So that is why we have those differences between those two indications. Brian Goff: And then, Sarah, you could start on the sickle cell question about REMS and read-through, and Tsveta can certainly comment on how we see it commercially. Sarah Gheuens: Yes. So as you know, in the sickle cell disease program, we did not have the same observations as we had in thalassemia. So Morgan Sanford: It is much more like the pyruvate kinase deficiency program where we do not have a REMS, as you know, versus thalassemia where we do have a REMS. So all of this actually does give us optionality. So our going-in position based on the data observed is that that would not be needed, and we would propose something more like the pyruvate kinase deficiency path. Now a read-through, if it would turn out to be a REMS, I will hand that one over Sarah Gheuens: To Tsveta. Absolutely. Obviously, sickle cell disease is a devastating disease with high morbidity and mortality. No treatment options. So we see a meaningful commercial opportunity assuming we have a label in the U.S. And the team will be ready to execute on it. We are ready, and executing successfully on the REMS for thalassemia gives us a very solid foundation to continue to execute if we were to have something similar in sickle cell disease as well. Brian Goff: Yeah. And I will just take a moment to say. So Tsveta's team has continued to navigate through PKD as a launch, which is ultra-rare and certainly not the easiest of launches that began back in 2022. And now we have Afesmi and off to, you know, really good start in the first month of January. So I feel very confident the team in any scenario will be very well prepared. So I think that is our last question. Lydia Erdman: Yes. Sarah Gheuens: Okay. Then Brian Goff: I will go ahead and close it down. First, I just want to thank everyone for joining us this morning. It is an exciting time for Agios Pharmaceuticals, Inc. As you heard throughout the call, we are entering 2026 with quite strong momentum and really pleased that we are already seeing strong initial progress with the Afesmi launch in the U.S. We have meaningful clinical and regulatory catalysts ahead, as we have talked about, and we will continue to operate with financial discipline. These near-term drivers combined with our advancing pipeline position Agios Pharmaceuticals, Inc. to deliver sustained growth and long-term value, and we very much appreciate your continued engagement and look forward to updating you on our progress throughout the year. Thanks a lot. Operator: Thank you. This does conclude today's conference call. Thank you for participating and you may now disconnect.
Operator: Welcome to BioGaia Q3 Report for 2025. [Operator Instructions] Now I will hand the conference over to CEO, Theresa Agnew; and CFO, Alexander Kotsinas. Please go ahead. Theresa Agnew: Hi. This is Theresa Agnew, CEO of BioGaia. We are here to present our Q4 results. So first off, our financial highlights. We had strong organic growth for the quarter of 32%. We had an EBIT margin of 27% and overall free cash flow at SEK 77 million. In terms of an overall summary, for the year, we hit SEK 1.5 billion, an increase of 14% in organic growth compared to last year and overall 8% growth adjusted for currency effects. In the fourth quarter, as I said, we had 32% organic growth and 21% including currency effects. We did experience some order variability in the fourth quarter as is typical across some of our quarters, and that was approximately SEK 35 million. Our overall operating profit for the quarter was SEK 121 million, which is an increase of 17%. And our EBIT margin, as I said, was 27% for the quarter. In terms of our strategy, we have 3 strategic pillars. Our first is what we call grow the core, and these are our core health areas, of which gut health, colic is a part of that for infants, oral health and immune health are our 3 core health areas that we focus on through our marketing and commercial excellence. Our second strategic area is what we call expansion through direct markets. So I'll talk about this a little bit in terms of how we have been expanding our business through new direct markets in 2025. And then our third strategic pillar is what we call breakthrough innovation. So think about this as market creation opportunities for probiotics, where probiotics are not used regularly. And the foundations that underpin our strategy are, of course, our people and culture, investing for profitable growth, digital as an enabler of our business in terms of how we go to market with our omnichannel approach as well as digitizing our business internally for more productivity and efficiency. One of our foundations, which has been a foundation for many years is driven by science. It's a key differentiator of who we are as a brand and in our products. And then finally, sustainable solutions, where we're focused on sustainability in multiple areas, packaging, raw materials and so forth. How did we deliver on our strategy? So in terms of our first area, grow the core, we're driving growth, as you saw in both the Pediatric and Adult segments for the quarter as well as for the year. We're investing in marketing and selling activities to drive very strong growth in the direct markets. And we are growing ahead in our direct markets, so strong double-digit growth versus our partner markets. We continue to roll out new products. So we launched a product called Gastrus Pure Action In the fourth quarter of 2024. And so in 2025, we continue to roll that out across a number of countries. And I'm very happy to report that in Q4, this product really set a record. It is the third highest growth contributor in terms of SEK 1 million to our business. So it's doing extremely well in the markets where we've launched. And then finally, in Q3, we launched Prodentis Fresh Breath. We launched that in the U.S. market and have also been rolling that out in Q4 and we'll continue to do so in 2026. So these 2 product launches have been very beneficial for us in terms of driving our growth, and we'll continue to roll them out in more markets in 2026. In terms of our second strategic area, expansion through direct markets, our direct market sales now in Q4 represent 40% of our sales. And as I said, are growing ahead of our partner markets. So this has been a change over the last 2 years in terms of our sales used to be around 30%. Now it's 40% driven by our direct markets. We launched in France in 2025 and also the Netherlands. So those 2 markets are doing well. France had a strong Q4 sales with record sales. Australia, we had launched in 2024, and that market, in particular, is doing very well for us. Our Protectis drops are now #1 in the market in Australia, whereas they previously were not with our previous partner. And in 2025, we had record sales in our U.S. market, SEK 316 million, which this represents 30% organic growth. So very strong performance by our U.S. market as well as our Canadian market, also strong double-digit growth. In the terms of breakthrough innovation, in 2025, we established a new subsidiary called BioGaia New Sciences with a strong focus on skin health. We have our probiotic ointment that we had launched and now is rolling out to more markets in 2025 and is also doing well where we launched it. So this is our overall how we've delivered on our strategy in Q4 as well as in 2025. In terms of our product launches, as you can see, we had a lot of product launches in Q4. So this lists all the different countries where we have launched different products, whether it be Pharax drops, which is one of our immune health products, Prodentis Fresh Breath lozenges, as I mentioned, Gastrus products, Prodentis products, so various new launches across markets in Q4. And as you see here, we've highlighted the markets where we rolled out Gastrus Pure Action, which I mentioned in Q4. Some of the key events that we have talked about in the quarter. In October, we announced a study on a new patented strain, which is called BG-R46, and that was published in a journal called Beneficial Microbes. Also in October, we talked about a study on a new bacteria for us that actually produces serotonin. So this is a first for bacteria. So more to come on this. This is a preclinical discovery. So we'll be doing more work on this in the future. And as you know, serotonin dramatically affects the brain in terms of mood and overall well-being of mental health. And then just recently, in February, we announced that our fourth quarter results exceeded our market expectations. And the Board is proposing an ordinary dividend according to our policy and also an extra dividend for a total dividend of SEK 4 per share. And overall, when you look at the business for Q4, as I said, we had 32% overall organic growth in the quarter for Pediatrics, 34%, for Adult, 27%. So Pediatrics represents about 75% of our overall revenue. And in the quarter, we saw some significant increases for Protectis drops in China as well as France. And also in the quarter for Adults, we saw some significant increases in Gastrus as well as Prodentis, mainly in the U.S.A. And in the chart, you can see our quarterly variations over the last 2 years. So you can see the various fluctuations. Sometimes we'll have more orders from partners in one quarter, less orders from partners in another quarter. And in terms of our sales per segment, I mentioned Pediatric and Adult for the quarter. But overall for the year, we had organic growth in Pediatrics of 11% and 22% in Adult Health. So both of these areas growing very well overall for the quarter as well as for the year in 2025. In terms of our regions, for Europe, Middle East, Africa in the quarter, we grew 34% and this is organic growth. And in terms of the year, we grew 1% in Europe, Middle East, Africa. A couple of comments here. For the quarter, we saw some increases in sales in France and Eastern Europe as well as in Italy. But also overall for the year, we took our business direct starting in April. So in Q1, we did -- we had much lower orders from our partner and also we had a period of time where our partner sells through their inventory. So then it takes a while then for our sales in the direct market to build. So that's also what impacted the overall year for EMEA as well as Germany. So we're now taking Germany direct. We've now launched that in Q1, Germany and Austria. So same thing in 2025, we see our distributor partner have less orders, so we have less overall sales, and then we start to see that pick up. So we will see the continuing decline of those orders from our partner in the beginning part of this year, 2026, and then start to see the sales growth for Germany in the second half of 2026. So for Asia Pacific, for the quarter, organic growth of 46%. Overall for the year, 19% organic growth, very strong for the quarter in China and the Philippines. We also had some quarterly variations for China in terms of orders in the quarter for Q4. So overall, Asia Pac doing extremely well in terms of overall growth, strong performance, as I said, China, Philippines as well as Indonesia for the year. For the Americas, for the quarter, we saw 20% organic growth and overall for the year, 22% organic growth. So in the Americas, as I said, U.S. is a standout market for us in terms of growth. So 30% overall organic growth for the year. In addition, we saw strong growth in Guatemala as well. And as we've discussed previously, especially in the U.S., we had increased our marketing investments to drive our overall brand awareness and equity and expand our market share, and we successfully did that in 2025. So now I will turn it over to Alex to go through the financials in more detail. Alexander Kotsinas: Thank you, Theresa. So if we start to summarize, we had a sales growth, as we heard of 21% from SEK 365 million to SEK 441 million. And we had a growth in gross profit of 25% to a margin -- gross margin of 74% compared to 71% in the same quarter last year. Our EBIT increased with 17%, and the EBIT margin was 27% versus 28% in the same quarter last year. As we heard, we had a total sales growth of 21%. However, we had considerable negative currency effects of minus 11%, so that our organic growth was 32% in the quarter. In terms of gross margins, we had an overall gross margin of 74% in the quarter compared to 71% 1 year ago. If we look at the 2 segments, Pediatrics increased its margin from 72% last year to 76%. This is mainly due to mix effects, both geographic mix effects and some product effects and also that we have done some price increases continuously here. And if we look at the Adult, we saw a slightly lower margin of 64% in the quarter versus 67%. This is really only related to some variation in some larger order mix effect that we had in the quarter. And as you can see for year-to-date, our Adult Health margin was 66% higher than in the quarter and also substantially higher than compared to the full year last year. So for the full year, we had an increase of our gross margin to 73% versus 72% a year ago, driven both by increases in margin, both in Pediatrics and Adult Health. If we move on to the operating expenses. Our total expenses were SEK 203 million in the quarter versus SEK 155 million 1 year ago, which was an increase of 31%. We didn't really have any adjustments in the quarter. However, we had it for the full year. For the sales and marketing, our costs increased 21%, basically in line with the sales increase. R&D costs increased 9%, administration, 8%. And then we had negative currency effects of SEK 6 million in the quarter. If we look at the full year, we had a cost increase of 18%. However, there were some one-offs in the same last year -- in the previous year in 2024. We had a write-down of an impairment for the MetaboGen acquisition, which affected the R&D costs. So if you normalize for that, our OpEx increased with 29%. For the full year, the sales and marketing also increased in line with what it did in the quarter, 21% and our administration costs increased 14% and we had considerable negative currency effects of SEK 40 million for the full year last year, which obviously affected our margin negatively. And this is mainly an effect of the weakening dollar versus the Swedish crown (sic) [ krona ]. We move on to the next to summarize the profit and loss. We had a total sales of SEK 441 million, OpEx of SEK 203 million and an EBIT of SEK 121 million, which then was a margin of 27% versus 28% last year and an earnings per share of SEK 0.98 versus SEK 0.81. And as we heard Theresa mentioned, for the full year, total sales of SEK 1.54 billion, an increase of 8% and an EBIT that was slightly lower, 3% lower due to the higher operating expenses and an EPS for the full year of SEK 3.29 versus SEK 3.48 last -- in the previous year. In terms of our cash flow, we had a cash flow from operating activities before changes in working capital of SEK 109 million, an improvement of SEK 14 million. The changes in working capital were, however, in the quarter negative SEK 25 million compared to plus SEK 9 million in the same quarter last year. This is mainly due to an increased number of receivables because we had a lot of sales in the later part of the quarter. So this will normalize in the first quarter this year. There is no one-off special effects. It's more an effect of the fact that some of the sales came later in the quarter, for example, those orders that -- the one-off orders that we mentioned. Cash flow from operating activities then at SEK 84 million versus SEK 103 million in the same quarter last year. We had very, very low investment -- cash flow from investments in the quarter, basically 0. Some cash flow from financing activities, minus SEK 7 million and a total cash flow in the period of SEK 77 million and the cash at the end of the period of SEK 800 million. And for the full year, we had a cash flow from operating activities of SEK 307 million, and we had a cash flow for the period of minus SEK 407 million, mainly then due to the negative cash flow from financing of the dividends, which were approximately SEK 700 million that we paid out last year. So with that, I hand over to Theresa for some final remarks. Theresa Agnew: So overall, in summary, our organic sales for the fourth quarter grew 32%. As we said, we had some order variability as we often do in the fourth quarter, approximately SEK 35 million. Our Pediatric segment, very healthy growth of 34% in the quarter. And overall, as I said, Protectis drops increased across all of the regions and mainly in China and France saw some significant growth. And the Adult Health segment in the quarter grew a very healthy 27%. So strong growth of Gastrus as well as Prodentis in the United States. All regions for the quarter delivered double-digit growth. All direct markets also delivered strong growth, as I mentioned. We, in 2025 as well as in Q4, invested in marketing activities to drive growth across our direct markets, specifically the U.S. is an area that we had strong investments in 2025. We did see strong double-digit growth in the quarter as well as year-to-date in the U.S., driven by these investments in marketing activities. We also saw strong sales in Europe, Middle East, Africa for the quarter. And as I explained, weaker sales overall for the full year, and this is due to establishing our direct markets of France and Germany. And overall, for the operating margin, 27% versus 28% last year for the quarter. So for the full year, we saw organic growth of 14%, 8% adjusted for currency. As we discussed, we have successfully delivered on our strategy with growing our core business around oral health, gut health and immune health. We are expanding our direct markets, very successful in driving growth in those markets ahead of our partner markets. And we've been successful in launching and rolling out new products across our global markets. And as I said, we have some particular very successful new products such as Gastrus Pure Action as well as now Prodentis Fresh Breath that we will continue to roll out in more markets in 2026. And as we look towards 2026, we remain committed to our ambition of growing low double-digit growth in terms of our top line, and we have a long-term EBIT margin target of 34%. So based on revenue, controlling our costs, we will see margin expansion in 2026 that will guide us more toward not quite yet to that long-term goal for margin. And we are proposing a Capital Markets Day in 2026. We have an annual strategy review process that we will be doing with our Board as we typically do each year. And then we will be doing a Capital Markets Day with more information to come on that later this year. So we open it up now to questions. Operator: [Operator Instructions] The next question comes from Mattias Vadsten from SEB. Mattias Vadsten: Can you hear me? Theresa Agnew: Yes. Mattias Vadsten: I have a few. So first one, in terms of understanding the U.S. sales growth. So the 30% organic sales growth you had here in 2025, sort of what products are growing the most, would you say? And what sort of efforts from BioGaia has been central to achieve this impressive figure? That's the first question. Theresa Agnew: Yes. So in answer to that question, the products that are growing the most are Prodentis, so the adult oral health area. So Prodentis, we do a lot of activities with dentists and dental hygienists to build recommendations for our brand. And then we see that strong growth through online channels. as well as last year, we got distribution for Prodentis in CVS, which is the #1 pharmacy chain in the United States. Most of our growth, I would say, is coming from online sales for Prodentis. So Prodentis is one of the winners. Another one is Gastrus, our adult gut health area. So we've seen strong online sales for Gastrus as well as strong sales for our Protectis drops. And our Protectis drops, we have sales online on Amazon as well as other channels. But in addition, in 2025, we expanded distribution into Walmart. That's going extremely well. Walmart is very pleased with the growth and is now expanding our product into more stores in 2026. So those are the main products where we saw growth in the U.S. Mattias Vadsten: And then I think you mentioned what share of sales was direct markets in 2025. If you could just remind me of that figure, I didn't. Theresa Agnew: Yes. So it's around 40% is now direct market sales. Mattias Vadsten: In full year '25 or in Q4? Theresa Agnew: Both. Mattias Vadsten: Okay. And then you focus on immune health, gut health, oral health, of course. And sort of could you -- you grew 14% on a group level for 2025. Could you just say, are you sort of satisfied with all of those 3 areas? Or could you expect better momentum in any of them if you follow what I mean. Theresa Agnew: I mean I would say we are very satisfied with growth across all of our sectors and extremely pleased with the gut health and the oral health areas. Those are the areas that are disproportionately growing for us across the world and also in very specific markets as well, such as I was talking about the U.S. with oral health, but also Canada with oral health, I would say, is another market, Japan as well as some of the other Asian markets. Mattias Vadsten: Perfect. And then last one, if you see a more modest OpEx growth from Q1 onwards on a year-on-year basis, driven by... Theresa Agnew: So for 2026 -- I'm sorry, go ahead. Mattias Vadsten: No, if you see that coming through and if you're also sort of looking at more modest U.S. investments? Or how do you view that? That was my last question. Theresa Agnew: Yes. Yes. So we look at -- for 2026, we'll be looking at controlling overall costs and OpEx so that we can drive our margin expansion with also strong revenue growth. And in the U.S., we will be spending less than we were previously in terms of our marketing expenditure. We learn what channels have the highest ROI for us and then focus our marketing spend in those channels with those creative executions. So we will be continuing, of course, our always-on marketing spend in the U.S. and in other markets. And we just -- we have a lot of information now in terms of what drives the strongest ROI, and we'll continue focusing on those particular channels. Operator: The next question comes from Mattias Haggblom from Handelsbanken. Mattias Häggblom: So even if I adjust for the one-off order, organic growth was 22% in Q4 despite a very tough comparable last year. So help me understand what that suggests for the momentum in the business heading into 2026 because I guess the instinct is, of course, that we should think of this pull forward order as Q1 will then be weak as a consequence. But if I adjust for the order and you grow 22%, that tells me another story. So help me understand the dynamic of the 2. Theresa Agnew: Yes. So why we communicate some of the order variability is because we do see this sometimes in our quarters where some partners will order more in one quarter versus another. So we like to signal that. So especially when we've had a strong quarter like Q4, so we make sure that estimates as we look at future quarters are appropriate. So we will continue overall as we look at growth, but not at the levels of our Q4 because we've had some orders that move in from Q1. Hopefully, that makes sense. Mattias Häggblom: So maybe -- yes, sure. Absolutely. We welcome the disclosure. But I'm still trying to better then understand the 22% growth adjusting for the one-off order, which suggests that the business is having a very strong momentum. So maybe although with the risk of repeating ourselves, remind us, in particular, what drove that strong underlying growth even adjusting for the one-off order? Alexander Kotsinas: Yes, I can try to answer that. I mean, as you can see, we had exceptionally strong growth in mainly -- well, in APAC and in EMEA. And this is also those areas where we did have those exceptional orders, so to speak. So -- but you can probably guess that, I mean, we would have a very strong growth even excluding that effect in EMEA, which is driven then by what we mentioned, the strong development in France, for example, where we have a strong development there and also some other EMEA markets performing a lot better, so to speak, which we saw sequentially last year during the quarter. So actually, EMEA from being negative was less and less negative and then turned into growth now in the fourth quarter. So in EMEA, it's driven by an underlying improvement in several markets in EMEA. And then it was a continued very strong development in Asia Pacific, even excluding the Chinese variable variation in orders. Mattias Häggblom: That's helpful. And then perhaps the German transition. So is it possible to help us understand the magnitude of that transition? Is it as large or smaller than the French transition? Just to understand the dynamic when you move from the distributor to direct sales? Theresa Agnew: Yes. It's a little bit smaller than France because France is one of our largest European markets. So it is smaller, but there still is an effect because in Germany, we've had strong sales, not just for our Protectis drops, but also for Prodentis. So there's that transition across both of those key areas. Mattias Häggblom: That's helpful. And then in terms of capital allocation, I'm curious to understand, we get the extraordinary dividend, and we know the policy of 50% plus up to 100% extraordinary dividend. But we have a new chair, and we have a somewhat different shareholder cap table basically. So has the management team discussed alternative ways of distributing capital back to shareholders beyond the extraordinary dividend, including buybacks? Theresa Agnew: Yes. So we have the management team as well as the Board, we have discussed various ways to return value back to the shareholder, and we'll be having more discussions on this as we go through the year. Mattias Häggblom: That's perfect. And my final one then is you spoke about the lessons learned in terms of marketing spend and what channels had in particular, best ROI. To the extent you can, can you share more color on where things work and where they work less so? Theresa Agnew: Yes, I can. So where they work better is when we use platforms to drive to our main sales channels such as Amazon. So there are some very specific advertising channels that you can use to drive consumers to specific points to purchase. So that works really well. And so we tested a lot of different channels, but we've also tested different amounts of spend, different creative. Your creative is a big part of your ROI. So also, we look at things such as there's more branded created. There's more things such as what we call user-generated content. So videos and testimonials of consumers talking about our brands. So we do a nice mix between those in our markets. But specifically, those channels that are driving to where our product sells the most have been very successful for us. Operator: The next question comes from Kristofer Liljeberg from Carnegie. Kristofer Liljeberg-Svensson: Yes. Coming back to this, the phasing effects and volatility in orders. So if you look at full year 2025, would you say that the total effect has been neutral, positive or negative? Theresa Agnew: I mean, I'd say overall kind of neutral, I guess, when you look maybe a little bit more. But if you look past at our quarters, we have some order variability. You can see that in terms of our overall business as well as our Pediatric and Adult business. And if you look at the page earlier that we were sharing in the past quarters, sometimes our Pediatric business is a little bit different in terms of quarterly variations versus the Adult business. So overall, we will continue to see order variability because of our distribution network through our partners. As our direct market sales get to be a larger percentage, we'll see less of that order variability. Kristofer Liljeberg-Svensson: Okay. So even if you were growing 14% organically here for the full year, that shouldn't stop you from continue to grow double digits in 2026. And I'm thinking specifically here also as you will scale back a bit on U.S. marketing, which I think has boosted sales somewhat in 2025? Theresa Agnew: Yes. I mean our ambition is to continue to grow and to grow in the low double digits. Operator: The next question comes from Mattias Haggblom from Handelsbanken. Theresa Agnew: We can't hear you. Is there a question? Mattias Häggblom: Apologies for that. So a question on direct sales. You said it's up at 40%, growing faster than the rest of the group. Is it fair to assume that you anticipate direct sales to grow faster than the group also in 2026 based on what you know today? Theresa Agnew: Based on what we know today, yes. We anticipate that we will continue to see this, especially because we've just established our direct market in France, which is a large market for us in Europe as well as Australia is growing well, Canada, U.S., Finland. So a lot -- we have much higher growth in our direct markets, and we anticipate that to continue. Alexander Kotsinas: And the addition of Germany. Theresa Agnew: Yes. Mattias Häggblom: And a follow-up to that then as my final question. Is there any ceiling in the business model? Or how do you think about these 2 different sources of sales for the company over time as it continues to march north as its growth faster, so to say. Where do you think things shakes out over time? Theresa Agnew: Yes. I would say we anticipate the percentage of our sales from direct markets to accelerate and grow higher because we have a lot of our larger markets now as direct markets. So that is what we anticipate. So that 40% will get larger over the coming years. But our distributor partner model is a very important part of how we go to market. And we are in markets -- we're in over 100 markets globally. So we don't ever anticipate that we will take all of our markets direct. So there will be key strategic markets where we have our business as a subsidiary. And in those markets, as you know, that's where we drive the marketing, the selling activities, the new product launches, all those aspects. So it's a very different setup for us versus working with a pharmaceutical company as a distributor partner. But we do, in answer to your question, we anticipate that percentage will continue to grow over the coming years. Operator: The next question comes from Mattias Vadsten from SEB. Mattias Vadsten: Just 2 follow-up questions, if that's okay. First one, I remember in Q3, we talked about a slow Eastern Europe development, and it sounded like you had a big distributor there covering, I don't know, if I remember, 14 or 16 markets. So just what happened there? And if that has coming back as you expected and if it's sort of good momentum in that region? Theresa Agnew: Yes. So in terms of Eastern Europe, we had a very strong 2024 across those markets. And then in 2025, we saw a little more softness in certain markets. Poland, which is the largest of those markets. And as you said, it's about 16 markets across Central Eastern Europe. Poland is really coming back nicely. And our partner has invested more in terms of selling and marketing activities in that market. So we anticipate Poland, a really good growth market for us for the future and one of the top probiotics markets globally. Some of the other markets are much smaller in terms of size. And so -- but we anticipate solid growth in those areas. Mattias Vadsten: That's very clear. And then on the U.S., you say 30% growth for the full year. I don't remember -- last quarter, we talked about some 25% year-to-date. So if you're willing to give any color on how Q4 organic growth looked like in the U.S. That's my last question. Theresa Agnew: Yes. We haven't given information specifically on the quarter-by-quarter. So we will report the U.S. on an annual basis more. But we've had some really nice consistent growth in the U.S. in the strong double digits really throughout 2025. Operator: [Operator Instructions] There are no more questions at this time. So I hand the conference back to the speakers for any closing comments. Theresa Agnew: So this is Theresa. Thank you so much for your questions and for listening for our Q4 results, and we will then be presenting later this year on Q1. So thank you so much.
Operator: Good day, and thank you for standing by. Welcome to AMP Full Year 2025 Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I'd now like to hand the conference over to your first speaker today, Alexis George, Chief Executive Officer of AMP. Please go ahead. Alexis George: Yes. Thank you very much, and welcome to the full year results for AMP. Before we start proceedings today, I'd like to acknowledge the traditional custodians of the land which are holding this meeting which for us is the Gadigal People of the Eora Nation and pay my respects to Elders past and present. Of course, today, I am joined by our CFO, Blair Vernon. And before starting proceeding today, I would like to acknowledge the negative reaction to the results, but I believe these incredible results, we've delivered what we said we would, and we want to give you some color on that today. So if I look at the agenda, I firstly want to take you through an overview of the results, together with the achievements and deliverables of '25, then I'll allow Blair to walk through the individual business unit performances, what we've done around cost management, capital management and, of course, guidance and we'll then have ample time for Q&A. So if I look at where AMP is today, I think we're in a strong position to enter the next era of truly positioning us for growth and owning that space of retirement. We got to this point through sheer hard work over the last 5 years. We've simplified the portfolio, strengthened the balance sheet and returned $1.1 billion of capital to shareholders and recommenced dividends. We've reset the cost base and efficiency muscle is now well developed. We have a strong and talented team as demonstrated by the internal succession, and we resolved many of the legacy issues that we were dealt. And on top of that, we've restored reputation to the highest level since 2008. In my mind, this execution now allows us to focus on growth and to make AMP that place that can help all Australians to have a dignified retirement. We are unique in having all the building blocks for making this happen. If we look at those starting out, we have digital banking. We have simple super which has been added to by the release of Boost, which gives people the option for greater retirement incomes with no decisions. We have rewards to help people with everyday spending. And we're lucky enough to have a simple adviser menu grow on MyNorth. If we move to the building wealth base, we have all the investment options from managed accounts to managed funds. We support all forms of advice, digital, intrafund, and we are a vocal supporter of professional advice and the challenge it can have for individuals. We have lending both for individuals and many businesses. If we come to that preretirement phase, we have guarantees, which gives certainty but also exposure to the market, as we know, we're all living longer now. And we've just introduced SMSF loans in our bank, and we're working on many more solutions. And in retirement, I think it's fair to say we're the leader in terms of innovation here, where we have the full menu, account-based pensions, lifetime pensions and all forms of advice. And on top of that, we're dealing with the social aspects with our lifestyle at Citro. So when we come to the AMP strategy from my perspective, it's simple, growth, innovation and embracing change, whether it's new models, new tools or new partnerships. On growth, we want to continue to support those loyal advisers who stood buyers over many years, but on top of that, we now have the solution, the service, the price and the innovation to grow our new adviser base. We want to build that D2C capability utilizing our restored brand, and we want to grow AMP Bank GO deposits, which is part of the strategy to return -- to improve return on capital in our bank. On the innovation space, we want to build off lifetime solutions. We are unique in having that intersection of wealth and banking, and we want to use this to create new opportunities for our customers. And in change, we are embracing AI. 95% of people are now using it on a daily basis, and we have over 400 agents deployed across the organization. But on top of that, we acknowledge we're a small company, and we use the expertise of partners to help embellish this. So let's look at the highlights of '25. Our NPAT and NPS were both up greater than 20%, NPAT 21% and EPS 25%, and our cost base has been reset and the program complete, but it doesn't mean that we won't stop focusing on costs, and that's why we put CPI into our KPIs. The platform's cash flow was up 85% on last year at $5.1 billion, and the S&I flows are improving, too. We launched Bank GO in February of '25, and have $310 million in deposits and more customers and transaction accounts than we expected. And on top of this, we've resolved most of the legacy issues, including the last ones remaining from the Royal Commission. And of course, today, we again announced a $0.02 per share dividend at 20% franking. Diving a little deeper into each of the business units. In our platforms area, we've demonstrated strong momentum with growth in adviser numbers and licensees. Our innovation continues, not just in managed portfolios that are MyNorth, North interactive, which is a platform that helps advise the productivity, where we continue to pursue ideas to make advisers lives easier so they can focus on their customers. And the AI Filenote is a great example of this. And also, our lifetime solutions are now showing great momentum and we're the only one in the market who is yet to launch a decumulation product. And pleasingly, the Akumin or ex-AMP advisers despite now being completely separate from AMP continue to support us. I think [ MMG ] recently said that we're in the top 3 platforms for adviser satisfaction and where their lead users were in the top 2. If I move to our S&I business, cash flows are improving in Q2. We continue to have top quartile performance, good insurance, inter-fund advice and we're expanding our digital advice journeys constantly with over 30,000 users now going through those journeys, helping to improve education with our customer base. Also in '25, we launched Lifetime Boost, which is the equivalent of Lifetime Solutions, and we'll put the income stream portion of that in, in the first half of this year, and we put in an AMP rewards program for our customers. If we come to the bank, it was a year of execution, and our traditional bank would continue the mantra of margin over volume where we are focusing on higher-margin investor-only and the 10-year interest-only. We also recently launched the SMSF offering. We've had a renewed focus on balance sheet and particularly our risk-weight asset management with a view of removing or reducing capital usage as new opportunities now arise in the market to address this. And on the AMP Bank GO, as I said previously, we have $310 million in deposits with new offerings of overdraft, allowing us to focus on the mini business sector in the last half of '25. In New Zealand, the business just continues to deliver in reasonably difficult economic environment. We've had good performance there in KiwiSaver and the shift to supporting retirement through both advice and solutions is starting to demonstrate some benefits. And the revenue diversification there does offer some protection for our business. So on that note, let me ask you to go through the details, Blair. Blair Vernon: Thanks, Lex, and good morning, everyone. As Lex mentioned in our opening comments, underlying NPAT is up almost 21% to $285 million for FY '25. Revenue increased 2.8%, while pleasingly, controllable costs fell almost 7% off the back of our business simplification program, which saw EBIT increase over 21% in the year. Earnings per share are up over 25%, and our cost to income fell more than 6% at the group level, noting our rebasing of this metric and recent disclosures. Return on equity at the group level continues to improve and is now reported at 8% for FY '25. Turning to the reconciliation of statutory NPAT, where 2 key drivers have influenced this outcome. Litigation and remediation-related costs of $95 million for FY '25 reflects the significant progress we made in resolving legacy class action matters during the year and recoveries against prior remediation programs. Business simplification expenses for the year totaled $50 million on a post-tax basis, in line with our previously announced business simplification program. This has resulted in statutory NPAT result for the year of $133 million. With now total AUM, which is up 9% to $161.7 billion, with increases posted across all 3 of our Wealth Management operating units. While market movements have contributed positively in FY '25, a significant increase on platform's net cash flows stands out compared to prior years. Across our Superannuation & Investments and New Zealand businesses, we also continue to see improvements in cash flow trajectory. Across our 5 reported business units in our group, we continue to see our strategy delivering results. These business unit results reflect the restatement of costs as advised to the market recently. Strong cash flows continue to drive momentum platforms, as Lex mentioned, while consistent performance improvements underpin our Superannuation & Investments result. At AMP Bank, our existing bank division showed underlying improvement on prior year while our AMP Bank GO division continues to scale. New Zealand Wealth Management continued to perform well, and the group's operating unit is significantly influenced by the strong performance of our China partnerships and those rebased group costs. Turning now to individual business units in a little more detail. Underlying NPAT for platforms is up over 9% in the year to $106 million. Average AUM is up almost 11% in the year, with the highlight being more than 85% improvement in net cash flows to over $5.1 billion for the year. Cost to income fell over 3%, reflecting continued disciplined cost control against a backdrop of sustained investment in our platform business. Margins contracted during the year by 2 basis points on a net AUM basis or 3 basis points at a gross level. This following slide breaks out the margin trend compared to prior periods. 58% of AUM, on North, generates investment-related fees on top of admin fees. Below the shifting mix from managed funds to managed portfolios has seen margin compression through the year, similar to the experience in previous periods. In addition to the mix stream, AUM growth at a client level continues to intersect with tiered fee structures and fee caps. Year-on-year improvement in net cash flows are reflective of our growth strategy and partnership with advisers across the industry. We continue to grow the number of advisers who have material volume on North, and extend new distribution agreements. Pleasingly, the cash flow dynamics for advisers with material volume on North also continued to improve, as highlighted at the bottom right of the slide. There remains a significant addressable market for North for new advisers, and that remains a particular focus for us in our growth plans for 2026. AUM mix is predominantly super and pension oriented, again, reflecting our clear focus on this segment of the market and in line with our strategy. In our Superannuation & Investments business, NPAT is up almost 15% and $62 million for FY '25, predominantly as a result of average AUM increasing 7.7% in the year. Net cash outflows almost halved in the year to $542 million, reflecting our continued progress in this business. Cost-to-income continues to improve, down almost 5%, noting that rebasing of cost allocations as previously disclosed. Margins on a net basis are steady at 48 basis points. Gross margins are down 1 basis point for the year, although this was matched by reduced IMEs, broadly delivering net-net margin stability as I mentioned. Admin margin compression is a function of continued AUM growth against fee structure and caps, analogous to our Platforms experience. Overall fund composition is largely unchanged year-on-year, although the underlying investment choices have delivered that IME compression. S&I cash outflow is $542 million compared favorably to prior years, and we maintain our ambition to reach positive net cash flows in FY '26. A number of initiatives targeting retention and new member acquisition were delivered throughout 2025 by the team and are anticipated to underpin the continuation of our results improvement across the S&I business unit this coming year. Turning now to bank. We're underlying NPAT for AMP Bank on a combined basis with $55 million for FY '25. NIM improved by 2 basis points year-on-year while our mortgage book growth was below system at 3.8%, consistent with our strategy. Return on capital for the combined bank was down 40 basis points, which reflects the impact of delivering and beginning to scale AMP Bank GO. AMP Bank ex of GO delivered improved NPAT, return on capital and cost to income metrics in FY '25, as highlighted in the middle panel of this slide. AMP Bank GO was successfully launched during 2025, and the launch and run costs began to emerge as reflected in the bottom panel of the slide, consistent with our strategy and previous guidance to market. The launch of AMP Bank GO is a key plank in our retail funding diversification strategy as we seek to improve NIM over time, specifically by growing transaction account balances. During FY '25, we continue to adjust the composition of funding overall for AMP Bank. This saw additional utilization of securitization off the back of favorable market conditions. Deposit funding mix were influenced by the planned runoff of rate-sensitive term deposits. And both our deposit and wholesale funding decisions added positively to NIM while the bias towards further wholesale funding to achieve capital relief had some downward impact on NIM, together with the redemption of our remaining H1 capital notes. Those funding mix decisions have been an important ingredient in our continued focus on capital consumption across our banking business in particular. We continue to see a reduction on risk-weighted assets relative to our mortgage book, allowing capital release back to the group. As noted earlier, the AT1 reported issuance of Tier 2 capital have impacted NIM during the year. However, this is a one-off change. Credit portfolio metrics and competition remained positive with our strategic focus on investors and interest-only options shown positive trends in the portfolio breakdown table on the slide. We continue to see improvements in arrears rates over prior year, while bad debts and LOEs remain nominal. 64% of borrowers are more than 1 month ahead in payments, up from 60% in FY '24. New Zealand Wealth Management reported an NPAT of $39 million, which is up over 5% year-on-year, against a backdrop of modest reduction in total revenue, which was partly impacted by New Zealand dollar weakness. Net cash flow has improved over prior year despite difficult economic conditions persisting in the New Zealand economy. Overall, cost performance continues to be a strength of New Zealand business with a broadly flat cost-to-income ratio. The group result of $23 million underlying NPAT is significantly influenced by the previously announced rebasing of costs across our business units. Controllable costs attributable to the group were $70 million for the FY '25 year. Equally significant is the continued improvement in our partnership performance, up over 15% for the year. Our China partnerships combined delivered more than 53% improvement to $72 million for the year, offsetting the improvement is a reduction in our other partnerships as a result of more normalized property valuations in our U.S. property fund when compared to the one-off benefit experienced in FY '24. Given the significance of our partnerships in China, we have summarized gain on this slide, some of the key drivers underpinning the performance of China Life Pension Company, or CLPC. CLPC is the preeminent pension company in China, managing over AUD 440 billion of assets in Australian dollar terms. CLPC has a commanding position in the Pillar 2 segment of the 3-pillar pension system operating in China. The Pillar 3 opportunity remains significant as the pilot phase across 4 provinces is expected to expand to all provinces during 2026, something CLPC has proactively positioned itself for. As noted at the half year, we saw an increased dividend payout ratio of 35% from CLPC and remain focused on ongoing dividend payouts. Across the balance of our partnership stakes, China Life AMP Asset Management or CLAAM, delivered its first dividend in July '25, which is a key milestone in this partnership performance. PCCP continues to deliver steady performance. However, as previously noted, we do not see exposure to a property investment business in the U.S. as core to our growth strategy for the group, and we will continue to explore divestment options at the appropriate time. We continue to pursue realization of [ Keary ] related to former AMP Capital business and a recent sale by DigitalBridge may create potential for Keary, however at this stage it remains subject to a range of conditions. Our business simplification program has continued to deliver against the commitments we made to address the cost base of AMP over the past 2 performance years. Controllable costs reduced almost 7% during FY '25 with reductions noted across all of the categories and work streams in this program. Our closing cost of $603 million reflect the absorption of $5 million of controllable costs associated with AMP Bank GO as we launched this business to market. Now turning to capital. Group CET1 capital has increased 4.5% during the year against a capital requirement falling by over 4%. This collectively sees our CET1 surplus capital position at year-end improved to $287 million. Allowing for the $0.02 per share dividend, which Lex has discussed earlier, this delivers FY '25 pro forma capital surplus of $236 million for the group. Deferred tax assets were consumed during the year, in line with our strategy and business performance, and we retired our group credit facilities given the positive cash and liquidity position now established across the business. FY '25 has seen capital generation as a result of our continued improvement in business performance, and we aim to continue to actively manage capital efficiency with a particular focus on improvements across AMP Bank in the coming year. We continue to assess the range of inorganic opportunities for scale or capability that are emerging across the wealth segment, which influences our immediate perspective on further capital management. Today's announcement of a $0.02 per share final dividend brings FY '25 dividends to $0.04 per share, and we anticipate consistency in this dividend approach through FY '26 and '27, noting our limited franking credit balances. And the absence of a compelling alternative use of capital, our preferred method of capital return to shareholders beyond our current dividend approach would be by on-market buyback. Now turning to guidance for the FY '26 year. Subject to market conditions, we expect margins in our platforms business to be 40 to 41 basis points and 60 to 61 basis points for our Superannuation & Investments business. At AMP Bank, we are targeting deposit balances of $1 billion in FY '26 for AMP Bank GO and expect NIM in the range of 125 to 130 basis points. Partnerships are anticipated to deliver 10% per annum return over the medium term. And controllable costs, as previously advised, are expected in the range of $630 million to $640 million for FY '26. Finally, our business simplification program remains on target to complete during FY '26 with a further $20 million of investment. I'll now hand back to Lex to summarize. Alexis George: Thanks, Blair. So if we look to the year ahead, what do we see and what are our priorities? We still are an industry where they are a tailwinds. We have an aging population, we're living longer, and the certainty of income remains an issue. We know that wealth and the homes are the main 2 assets that Australians have, and we're lucky and uniquely placed in having exposure to both of these. We remain a player in a growing but changing market. And over the last 2 years, I believe we've shown that we're both agile and able to execute on our strategy. So in '26, what are our priorities? Growth. Organic first, but we have to have flows with a real focus on direct-to-consumer. We want to continue to grow that supportive adviser base, we want to focus on the deposits in AMP Bank GO. From an innovation perspective, we want to continue on the journey that we've demonstrated in retirement. We know that Australians need income solutions. We think we're best placed to deliver those. We want to focus on adviser efficiency as we've been doing, enabling NIM to focus and grow their customer base. And we know the next years will be changed. That's inevitable. We want to leverage what we've built with AI. As I said, 95% of staff are using it, and we're now starting to deploy agents across the organization. But we want to use our partners wisely because they have skills that we as a small company cannot hope to build. And on top of that, we want to continue to help the JV experience the growth they've done so today. So AMP is in the next chapter. We have repositioned the business and returned capital to shareholders. We have restored our reputation to the highest level since 2008. We've resolved most of the legacy matters, including those from the Royal Commission, and we're leading in retirement innovation. Our Platforms business is demonstrating strong growth and the S&I business is turning around, New Zealand continues to perform, and the bank is doing what we've asked of it, focusing on return on capital. So we are demonstrating strong growth. I believe we've got a great team in play and that we're ready to be able to deliver on the achievements of the last year. So on that note, I'll ask the operator for questions. Operator: [Operator Instructions] We will now take our first question from the line of Julian Braganza from Goldman Sachs. Julian Braganza: Just first question for me. Just on the China partnerships, obviously, it's very, very strong over the second half period about $45 million. Can you maybe just touch on if there were any one-off impacts in that number that led to the strong growth? And also alternatively, should we be expecting continued growth from these levels into 2026? Alexis George: Yes. Thanks for that question, Julian, there were no particular one-offs in the year. We're just seeing strong growth in that Pillar 2 and also the emergence of the Pillar 3. I mean there is continued government support for personal savings in China so we are expecting the growth of 10% through the cycle to continue. And obviously, we remain pretty optimistic about that investment. Julian Braganza: Okay. Got it. That's clear. And then maybe just in terms of the bank, if you could maybe just touch on the moving parts in the NIM from second half '25 going into FY '26, just how you're thinking about it? And also just the expected benefit from the additional deposits, the $1 billion deposits that you're expecting in GO. How does that benefit the NIM into FY '26? Alexis George: Yes. Thank you. Maybe I'll let you, Blair, go through that. Blair Vernon: Yes, absolutely. Obviously, you can see there was a little bit of softening in NIM in the second half relative to first half, but we did achieve a year-on-year improvement slightly in NIM, and I think it's broadly in line with our guidance. In terms of the mix issues, we obviously benefited from a shift towards more saver-style deposits and away from the very rate-sensitive term deposits that we saw, but there was also a broad mix change in the way we funded the bank. So we were using securitization more. There was obviously very positive conditions through the year. That allowed us to run off some of the very rate-sensitive turn deposits. You can see that some of the mix groups. So they were positive. I think what you see in the walk though is also some downward pressure. And there are a couple of key things going on, as I mentioned, was a one-off and rather unique scenario in terms of the replacement of the AT1 instrument. That had an impact of about 2 or 3 basis points downward in NIM, which is obviously a one-off impact as we replace that with a Tier 2 instrument. And also, we began to utilize again some wholesale funding to give us more capital relief on assets that have high risk weighting. So that is part of our strategy to drive capital release from the bank. And so when we think about margin as we go forward, that's important to us, and we've obviously guided to that range. But critically, it's about capital release from the bank. And so we will continue to explore different balance sheet strategies to allow us to liberate more capital out of the bank back to the group. Alexis George: Yes. I think it's important to highlight that for the bank return on capital whilst we have to guide towards NIM, return on capital will be the measure we'll be measuring success against. Blair Vernon: And Julian, just the final point of your question, which was on the GO deposits. I mean the goal we've got of $1 billion of GO deposits in FY '26 is an important scaling -- I would call it, a scaling proof point that the math, I think, quite obviously, would suggest that, that's not going to have a hugely impactful -- impact on the total NIM position. We've always indicated that we expect that to be more meaningful in FY '27. But undoubtedly, every dollar that we can add in to GO and transaction accounts is going to be positive. And so that's why that growth number is really critical to us. As I said before, the focus on balance sheet management to release capital is the most potent component in terms of levers we've got right now as we look at FY '26 for the bank with GO, continue to scale over the top of that. Julian Braganza: Okay. No, that's clear. Then maybe shifting to the platform business. I know in the past you've talked about opportunities to help stabilize the margin and offset some of the mix impacts. Can you maybe talk to those options? Because at the moment, the margin has been diluted. But I just want to understand if there's any initiatives being put in place to support that margin? Or have they already been done and that the underlying margin is actually weaker ex those initiatives? Alexis George: Yes, thanks. I mean, I think it's clearly a very competitive space in the platform space. There's many things that we're looking at. And I think we do have the advantage of having an investment management capability internally as well as the administration. So that does give us some options. I mean this things we're looking at with the trustee right now, we've got to have that best interest duty always in mind when it comes to customers. But I think if you look at our cash rate, we're clearly the most competitive in the space both from the fees and return. And so we're continuing to see new developments we can put in place there. And just looking at the investment management capability as we've improved performance, how can we make sure that we're more part of those managed portfolios and all those things are happening as we speak. Julian Braganza: Okay. And that's not factored -- is that factored in your guidance for next year? Alexis George: Look, when we're thinking about guidance, we're thinking about all of those things. But clearly, we want to make sure we can deliver the guidance, hope we will constantly be looking for upside, but we absolutely want to make sure we can deliver within that guidance. Operator: We will now take our next question from Andrei Stadnik from Morgan Stanley. Andrei Stadnik: Can I ask my first question just around Slide 20, talking about, I think, almost 100 new advisers added in the second half that are using -- starting to use North maybe over 100 for the year. That $50 million per adviser, does this imply this $5 billion to $6 billion additional flows that could be coming through? And how are you thinking about some of your adviser relationships and penetration? Alexis George: Yes. Thanks for that question. I mean, clearly, we want to continue to grow advisers. And as you said, we want to continue to grow advisers that support us. For us, we've designated that an active adviser has got greater than $1 million in assets under advice. Many others use different metrics. The important thing for me is that we continue to grow that number because we know we don't see flows from new advisers probably to about 12 months after we started to interact with them or flows of any significant. And I think the benefits you're seeing in our Platforms business today being that $5.1 billion is really the hard work, signing up advisers and showing them our solution over the last couple of years. So that is a really important number for us. Guessing whether that's $5 billion, $10 billion, $2 billion is a little hard, but I certainly want to see the flows grow, the net flows grow from the $5.1 billion today. I would say that it's also important, though, that we keep support from those existing advisers, particularly Akumin or the ex AMP, and we're seeing that support continue right now. And even in the recent surveys, we were top 2 in terms of those advisers that do -- that use us as a lead platform. So we've just got to keep on delivering on this solution. And I think with the recent change in our sales team, we can be a bit more aggressive yet again on the sales front because we know that we'll see benefits come through in the following 12 months. Andrei Stadnik: If I can ask kind of a follow-up question around the flow thematic. So I know that Netwealth and HUB give guidance and flows more revenue margins, whereas you continue to stick with this view of giving guidance revenue margins, but not on flows despite showing very clear pipeline and improvement in structural and flows. So why wouldn't you consider given guidance and flows? Alexis George: Yes. Look, we can consider that. But I think for the size of our book, which is large relevant to the flows, it's still the size of the book and the margin that make more difference for the future. I mean as we continue to build on that flow and if we got $10 million -- $10 billion next year, we can have another look at it. But I mean we believe right now, the margin and the total AUM are better things for shareholders to be able to predict the future. Andrei Stadnik: And maybe one final question. Just around managed portfolios. So managed portfolios, I think you mentioned is one of the reasons why the platform revenue margin is heading lower. But that's just the revenue margin. Can you talk about the profitability of managed portfolios and also some of the other benefits of driving growth there? Blair Vernon: Yes. I'll maybe pick that one up, Andrei. You're absolutely right. I think I mean, the profitability signature of managed portfolios is still really positive. It just is, for us, there is a mix issue as we come out of the traditional managed funds, but we see the growth being a managed portfolio. I think the thing that we see that as the value-add combined financial portfolios is the same as advisers see. The simplicity of managing clients and the managed portfolio construct has the potential for them to, therefore, manage more clients and more volume per adviser and that's a key metric for us because we know advisers are in short supply across the market. So to the extent to which we can deliver efficiency benefits to advisers allows them and their practice to manage more clients and, therefore, drive more revenue. And there's kind of 2 key levers of that. One being the managed portfolio construct, and we've got a really diverse range of those managed portfolios. And as Lex mentioned earlier, there is clearly an in-house investment capital that gives us opportunity to participate in the financial flows. And then the work that we and the team are doing around digital tools, AI and so forth, we're running companion with that to drive that efficiency back down. Operator: We will now take our next question from Lafitani Sotiriou from MST Financial. Lafitani Sotiriou: Can I start with a follow-up on Andrei's profitability question on investment platform? Just so we're clear. So yes, there is lower revenue margin coming through from the managed account side, but is the EBITDA margin the same for the revenue being generated? Or is there an offsetting because of the scale benefits and it's again the automation benefits, have you got less cost that you're needing to invest in the process? Blair Vernon: Maybe I'll answer that, Laf, thanks for the question. We've absolutely got the capacity to continue to invest in the North platform. So that's effect into our plans. And from my point of view, the growth and the way that's growing through those different product components doesn't give us any concerns in terms of the cost signature in the business. Lafitani Sotiriou: But the profitability from, say, as it shifts across and what your sort of if the mix shift continues as it is into the next couple of years, do you -- can you -- do you anticipate continuing to be able to grow the earnings? Alexis George: Yes, we do, Laf. Categorically, yes. I mean, I think we've demonstrated that we can deliver growth. Yes, there has been margin reduction over the last few years, but I think that's been tempered by the growth in the volume, which has helped us contain the variable cost, and we want to continue to make sure we can grow there. I would say, again, we've got investment management capability as the returns improve. We've got greater opportunities to make that part of the managed portfolio. And there's some other ideas we're working on at the moment to improve margin. So I'm not saying it's not a competitive environment. But I've got -- I think we've got the foundations in place to make sure that we can build profitability and clearly, growth is an important component of that. Lafitani Sotiriou: Got it. Can I move on to the bank now. And so it was about nearly 3 years ago, 2.5 years ago, you mentioned the initial change in bank strategy and investing. The guideline, the time line given to us at the time was around 3 years before you started seeing some returns. And you're saying that the focus is on return on capital and the return on capital was probably 6% to 7%. Now it's down to 4% handle. So what is the key focus? Now look, what are we looking for? What are the hurdles that we need to see that materially improve? Alexis George: Yes. Let me point out a few things. Firstly, you're right. We announced about 18 months ago that we were going to launch AMP Bank GO. We in fact, launched that in '25 for all the reasons you said. We needed to have a diversification in funding and a cheaper base of funding, and that's the whole purpose of AMP Bank GO. Our criteria for the bank very clearly state is return on capital. If you look at the bank, that's why we're not growing the volume of lending. And in fact, the return on capital from last year in the bank traditional has grown from 5.2% to 5.7% for that reason. I think the other thing I would point out is there is quite a bit of innovation happening in the balance sheet phase in the market at the moment. You can see what we've pulled down our risk-weighted assets, which gives capital relief in the bank, and we'll continue to look at new opportunities for that but nothing has changed from what we announced. We expect '25 to be the execution and '26 and '27 for AMP Bank GO to be about build when you'll start to see the benefits. Lafitani Sotiriou: And so what's the target ROE? Where do you -- return on capital that you think you can get to in the next 2 years, right? So you're sitting at 4.4% in the second half. Alexis George: Well, as I've said, the benefits would start to flow through the end of '27. I mean we're in a fairly dynamic market now when it comes to capital, when it's got to be in relative to the cost of capital, which is why return over cost of capital becomes the most important measure. I would see accretion in that '27 year. Lafitani Sotiriou: 50% accretion -- but even 50% increase from here is still well below your cost of capital, right? So what kind of accretion are you expecting in the next year -- like what -- this is a long time for the market to wait for you to get a turnaround on the bank. Like are you a natural owner in having a bank? So historically, we asked you 2, 3 years ago, why do you own the bank, what's your competitive advantage, and you couldn't articulate one, right? And you still haven't shown it yet. So why should the investor community or shareholders continue to sit back and watch money being torched going into the bank? Alexis George: Yes. Laf, I think that's a fair question given the current environment, but I would say a couple of things before I'll ask Blair to comment on the ROC that you questioned. Firstly, I think we're always looking at opportunities. That's the role of us as the management team. That's the role of our Board to continue to look at the best mix of portfolio. And AMP Bank GO firstly gave us options in terms of cost of funding, and it gave us options in terms of something else in the toolkit that we didn't have because I remind you before we just lend and we took deposits at a higher margin. And I think we're just continuing to execute on that. But we're very well aware of the returns versus the cost of capital, and it's something that is discussed frequently. I think the other thing I would point out, as you can see in the results, we are starting to release capital from the bank by utilizing better balance sheet management, and we'll continue to do that. I'll let you comment on the returns, Blair. Blair Vernon: Yes, I absolutely take your feedback, Laf, and the valid points. I think clearly, our focus on improvement is return on capital in the foreseeable future because as you point out, frankly, it's not an acceptable level for us. And we don't want to be in a situation we will deploy capital on that return. So improving return is critical. I think the more -- the other immediate lever right now, though, is also, frankly, reducing the amount of capital that is deployed against the bank and as Lex was mentioning, we're exploring aggressively a range of options around balance sheet management because if you look at the capital deployed in the bank, I think there are clearly opportunities to release that back to the group. And that will drive improvement at a group level while we continue to address the underlying metrics in the bank itself. Lafitani Sotiriou: What -- can I move on to the inorganic opportunities you flagged potentially in scaling up in wealth. Can you give us some kind of framework as to what you're looking at? So in particular, either capability gaps? Or are you -- can you rule out whether you're looking at stuff like Panorama or CFS at the moment? Alexis George: Yes. I mean, as you know, it's not about capability gaps that we might have today. I don't believe there's any glaring gaps in our portfolio, especially on the wealth side. But we're in a dynamic environment. And particularly in our platforms business, our primary objective is trying to make advisers lives easier, so they can focus on working with our customers. So if there's capability there that we can bring in that would accelerate what we can deliver to advisers, we will. And there's many opportunities we look at constantly in that space to bring in capability that it would be about augmented. I mean we -- yes, there is scuttle back in the market and there's change happening in the market, and we have to be completely open about that. We are all aware of that's happening. We're all aware that scale is important. I mean are we specifically looking at some of those at the moment? We're always looking in the market, but there's not anything active happening, and we have to listen to our shareholders when we consider any options like that. But we absolutely will look at capability. Lafitani Sotiriou: And just finally, with the buyback given where the share price is now, could we expect the relative investment now makes more sense, you're at a discount to NAV to step in? Or how should we think about what will actually trigger a buyback coming through because you've now put it on the table as a priority. And are there any asset sales that are being considered? So I remember in the past you talked about possibly selling PCCP. You've also tied with the bank core or noncore. Is there anything that you can talk to. Alexis George: Yes. Firstly, let me talk about the buyback. I mean we wanted to be explicit about the fact that if there was further capital returns above the announced dividends and the announced dividends both now and through 2026 and '27, that it would need to be in buyback for all the reasons we've discussed in relation to franking credits. So we wanted to be explicit about that. I mean, I think we've demonstrated that we've been pretty regimental about managing our capital over the last few years and giving back to shareholders where it made sense. And clearly, share price is a very important component in thinking about capital management, and I know the Board will be very focused on that. I'm not going to sit here and make any particular promises about that today, but clearly, share price is an important component. When it comes to asset sales, I mean, we've been explicit in the past. And I think in his statements today, Blair was pretty explicit about the fact that PCCP or the U.S. real estate business is not strategic to us. It's certainly not a component that we want in the portfolio long term. But it's a good business, and we want to make sure we get value out of that business. So at the right time, we will look to do something in that space. Lafitani Sotiriou: And the bank? Alexis George: I mean it's not on the table at the moment for all the reasons I've talked about. I'm not saying it will never be on the table. I think the Board and I are very responsible about the fact that entertaining all ideas that come through the door. And if they make sense, we would consider them. Operator: We will now take our next question from Nigel Pittaway from Citi. Nigel Pittaway: Just a couple of questions, if I could, on the S&I business. I mean in the first half, you did talk about seasonal impacts and the likelihood of the margin expanding second half that obviously didn't occur. So can you explain why those seasonal impacts didn't come through as you expected? Alexis George: Not sure we talked about the margin expanding, but... Nigel Pittaway: Well, assuming flat guidance, you effectively implied it. Blair Vernon: Nigel, I think let's drive in. We didn't talk about margin expansion, but we certainly were cautious about optimism in the second half. I think the key thing that has driven that margin position is obviously the AUM growth. As I highlighted, as you get individual balances per client growing, that intersects with the fee caps and mix. And so that continues. While it's great that we get AUM up, and you can see the total profit number, which is great for S&I that does have some impact on margin. I think that -- the reason I called out in S&I, the gross first net is that you could see equally the IMEs came down. So on a net basis, it's actually flat year-on-year. So that's encouraging. I think that for me, holding that margin steady is a really important activity for the whole team, and particularly the management team with S&I. The critical factor beyond that, obviously, for us has continued to drive that improvement volume. As you talked to, we saw some seasonal factors in the first half. We want to continue the broader trajectory year-on-year and track towards that positive cash flow growth. Nigel Pittaway: Okay. I got the impression there were seasonal factors due in the second half because, I mean, although, yes, okay, you didn't say expanding, it was implied because you said flat for the full year, which meant it had to expand in the second half. Yes. So the seasonal factors just seem to have -- they were on the slides in first half, they seem to have dissipated. Alexis George: Yes, Nigel. I think we've learned from using approximate because the top number tends to be taken. So we try to be a bit more specific with our guidance this year. Nigel Pittaway: Okay. Then maybe on flows in S&I. And previously, you've expressed a decent amount of confidence that you can get this business into positive flows. You were hopeful that sort of, in particular, the retention initiatives that you were deploying would facilitate that. I don't seem to see much confidence of that in the presentation today. So just are you still confident of moving that relatively soon into a positive flow position? Alexis George: I don't think we've changed from our ambition. That '26 is a year that we'd like to turn to neutral flow. So it certainly have not walked away through from that ambition. I'm not saying it's easy, but the ambition is still firmly on the table and we're all running towards it. I mean we all know that the June month is a bit of an anomaly. But I think we've got all the elements in place to drive towards that. Nigel Pittaway: Okay. And then can you also maybe just give us a sort of a bit of an update on how MyNorth Lifetime is going and whether you've had any success in sort of being able to streamline the sales process to make that more readily attractive to advisers? Alexis George: Yes, you're right. We have because I think when we launched that product, we launched a product and we needed to spend a bit more time building the interaction and the education of advisers around that. We are starting to see growth in that now. And maybe Blair has the actual numbers. I can't remember them off the top of the head. But I think the fact that many of our competitors are copying whether they're executed on it or planning to deliver on it is an indication that we are starting to see flows in that space. It's not just the flows I'd remind you that we get from retirement. It's also the rest of the flows that come with the adviser community when they bring those products across but just try and get you the exact numbers that we've seen in that space. Blair? Blair Vernon: Yes. The year-end position for Lifetime AUM, I think from memory, $764 million. So that's substantially up on where we ended '24, which I think was roughly $340 million. So we continue to see that scale. We made some changes in just suddenly to the configuration of the product offer, which definitely improved flows in this year. And yes, our expectation is that growth will continue as we go forward. But certainly, a good growth rate on '25 numbers over '24. Operator: We will now take our next question from Andrew Buncombe from Macquarie. Andrew Buncombe: Just two from me. The first one, apologies if I missed it, but have you provided expectations for your loan growth in the bank in FY '26? And if not, how are you thinking about it? Alexis George: Yes. No change in our strategy there. It's margin over volume. So you could expect quite flat in terms of total loans. Andrew Buncombe: Excellent. And then the other one from me was in relation to the outstanding class actions. There are 1 or 2 comments to them in the slide back again today. Maybe if you can just give us a bit of an update how many are outstanding and the updated expected time lines on those, please? Alexis George: Yes. So just to remind you, there are 4 class actions we had as a result of the Royal Commission. We've come to a settlement arrangement on all 4 of those now. They all haven't actually gone through the core process here yet, and we haven't paid all the proceedings, but we've agreed settlement. So I would expect that they would be complete during the '26 year. There was 1 new class action that came to the party in '25. I don't expect any real details or progress on that for some time, and I'm talking years, Andrew. Andrew Buncombe: Yes. So other than that new one, have provisions been made for all of those other ones before the balance date of 31st December '25? Or is that still to come? Alexis George: No. We provided for all of those in the '25 accounts because we actually got to an agreement in relation to settlement. And in fact, we put out ASX releases when we actually did those. As I said, the only thing that's to complete is payment, but we've also allowed for that in our cash balances. Blair Vernon: Yes, if I could just clarify that, Andrew, in the capital position on Slide 35, when you look at the group cash pro forma, we've adjusted that, so that it accounts for the sort of cash we're holding for the pay away once it goes through the core process this year. Operator: Our next question comes from Siddharth Parameswaran from JPMorgan. Siddharth Parameswaran: Just a question just on competition in platforms on pricing and incentivization of advisers or just preferential pricing. Just want to get your perspective of whether competition is increasing on the -- in the platform space. I think we've seen a little bit of revenue margin compression across the board. I take your point that there could be some investment mix shifts and maybe just the growth of the managed account section is having a -- is having an impact. But maybe if you could just provide some color around pricing, in particular, in the market and what you've done. And what's in your guidance for next year? Alexis George: Yes. I don't think the pricing has got any more or less over the last few years than it is today. So I'm not sure it's price that we're actually competing on at the moment. As you said, it's more a mixture issue, but certainly remains a very competitive space, but I'm not seeing too much pressure from a headline price perspective. Siddharth Parameswaran: And in your -- okay, so that's the same in your guidance for revenue margins into '26? Alexis George: That's correct. Siddharth Parameswaran: Yes. Okay. And just a question on variable costs as a percentage of AUM. They seem to be coming down again. Just wanted to get a bit of perspective on what's happening there and what the outlook is? Alexis George: Yes. Blair, do you want to take that one? Blair Vernon: Yes. I mean there's obviously a mix issues in there in terms of IMEs as well as some other components like brokerage expenses and the like. So they largely are a function of actions by clients in terms of mixed choices, which flows through IMEs and the related variable costs associated with that, particularly things like brokerage. Operator: Next is a follow-up question from the line of Andrei Stadnik from Morgan Stanley. Andrei Stadnik: Can I ask just around the NIM guide for the bank. Have you considered the current -- so just the recent interest rate increase in that? And have you allowed any further cash rate increases? Alexis George: I mean no, we probably didn't allow for that, but let me make a comment about our bank. Because to date, we're largely -- we get funding through deposits, and we lend, we kind of sway on both sides, which is the whole reason for creating AMP Bank GO because to date, we don't have a large amount of transaction accounts that have little interest rate on them. So a rate change for us is probably not as important as it might be to some other players. Andrei Stadnik: And look, for my second question... Alexis George: Both sides of the balance sheet. Andrei Stadnik: Right to that, yes. And look, another question, if I can, just in terms of capital management, can I ask like how quickly could you move on buybacks? And also, why would you give guidance for flat dividend for 2 years? I mean does that not imply, likely you're not even expecting to grow earnings? Like why would you give flat guidance all the way to years out, which is incredibly unusual, I think? Alexis George: Yes. Let me just make a comment on that, and then I'll ask Blair to comment on the capital. Why have we given that guidance on dividends? And why we've been so explicit about buyback? It's because we wanted to give consistency around the franking credits. And we don't, at this point, have a large pool of franking credit. So that's why we've given a consistent dividend. That does not mean that we would not give capital back to our shareholders, but the preferred method above that $0.02 would be through a buyback for those reasons, the franking credit. Blair, is there anything else? Blair Vernon: Absolutely, Lex. I think take the point, Andrei, it's a little unusual, but I think the very small franking credit balance we have definitely influences that view. And obviously, I think we've had pretty clear feedback that buyback would be preferred beyond that. If we have surplus capital and there's not a compelling, I would stress compelling, alternative use of that, then absolutely, you want to return that to shareholders. In terms of timing, well, there's just procedural things to go through, but that's all manageable in terms of once -- if the Board concludes that view, then we just set about that process. Operator: I'm showing no further questions. Thank you all very much for your questions. I'll now turn the conference back to Alexis for closing comments. Alexis George: Yes. Thank you very much, and thank you for everybody for listening in today. I don't think any of us are immune to the shareholder reaction today, and we certainly take that into consideration. But I want to reiterate that I think these are a credible set of results, and we've delivered on our promises, and I feel proud of what sits in front of us today. So thank you, everybody. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect your lines.
Annie Bersagel: Good morning, and welcome to the presentation of Orkla's fourth quarter results. My name is Annie Bersagel, and I'm the Head of Investor Relations and Communications. So we're going to begin our presentation with a summary of the quarter from our President and CEO, Nils Selte. After that, our CFO, Arve Regland, will present some more details on the financials for the quarter. Nils will come back with some concluding remarks before we go over to the Q&A. Just to remind you on the Q&A, we're going to first have a video Q&A with our analyst community. And after that, we will turn to questions from the web. So you're welcome during the presentation at any time to submit your questions via the web, and we'll take those afterwards. So with that, I will now leave the floor to you, Nils. Nils Selte: Thank you, Annie and good morning, everyone. I will begin with the Q4 results before reflecting on the full year in my closing remarks. Organic growth for the quarter was 4.5% with contribution from both price and volume mix. Underlying EBIT adjusted for the consolidated portfolio increased by about 17% with all portfolio companies contributing on the positive side. Adjusted earnings per share improved 25% year-over-year, reflecting increased profitability in the consolidated portfolio as well as in Jotun. Organic growth in the fourth quarter of 2025 was the strongest since the fourth quarter of 2023 with an increased contribution from volume mix. Most portfolio companies delivered volume/mix growth during the quarter. This included all of the larger portfolio companies with the exception of Orkla Foods, they still have work to do in certain markets. This was the 12th consecutive quarter with underlying EBIT adjusted growth. The uplift in Q4 came from bottom line growth, cost reduction and some periodization effects and nonrecurring items in comparison to last year. Most portfolio companies delivered double-digit EBIT adjusted growth during the period. We will go into more details, but I would like to highlight a few developments driving our results. Jotun delivered another strong quarter with underlying operating profit growth of 28%. In 2026, Jotun celebrates 100 years since the company's founding, and we are proud to have been part of the journey for the past half century. The Board of Jotun intend to propose an ordinary dividend of NOK [ 7 ] per share. This translates to Orkla receiving approximately NOK 1 billion. Orkla Snacks ended a challenging year for the chocolate market with an impressive fourth quarter of 16% underlying EBIT adjusted growth. Orkla Food Ingredients delivered 14% underlying EBIT adjusted growth with contribution from all 3 clusters, capping a successful turnaround in Sweet Ingredients in 2026. On a rolling 12-month basis, the consolidated portfolio delivered an EBIT adjusted margin of 10.6%. The margin improved across the portfolio compared with 2024 with the exception of Orkla Health and Orkla Snacks. I will close this overview with an update of the 3-year financial target for the consolidated portfolio that we set out at the Capital Markets Day in 2023. Underlying EBIT adjusted continued to compound above the target range, increasing 6.6% for the year, following 17.3% in growth in 2024. The EBIT adjusted margin was 10.6%, placing us in the lower end of the target range. And the return on capital employed improved to 12.4%, driven by higher EBIT across the consolidated portfolio. I will now hand over to Arve for more details on the financials. Arve Regland: Thank you, Nils, and good morning. So operating revenues increased with 2% to NOK 18.8 billion in the quarter while reported EBITDA just came in at NOK 2 billion, up 12%. The group figures are influenced by lower sales in Orkla Real Estate compared to last year. Other income and expenses were minus NOK 151 million, and these include restructuring costs in 3 portfolio companies and IPO-related expenses in connection with the Orkla India listing. These were partially offset by the gain from the sale of Orkla Food Ingredients Icelandic operations. Profit from associates, which is mainly Jotun was NOK 505 million, up 36%. And the NOK 301 million estimated gain reported in discontinued operations relates to a positive outcome in a tax dispute for one of the sold hydropower assets. And as Nils said, adjusted EPS was NOK 1.74 per share, an increase of 24%. We recorded cash flow from operations of NOK 7.8 billion in 2025, a NOK 0.3 billion reduction compared to last year. Increased EBIT growth was more than offset by higher net replacement investments in the portfolio companies. During the quarter, we received an additional dividend from Jotun of NOK 438 million, bringing the total dividend received in 2025 to NOK 1.4 billion. Cash flow before capital allocation ended at NOK 6.9 billion on par with 2024. Turning to the capital allocation bridge, and I will comment on specific developments in the quarter. Expansion CapEx is around NOK 700 million year-to-date, of which NOK 250 million in the fourth quarter. This relates mainly to investments to expand production capacity in Orkla Food Ingredients. Cash flow from sale of companies was NOK 2 billion, primarily from the listing of Orkla India and the sale of the 2 Icelandic companies in Orkla Food Ingredients. And Orkla maintains a robust balance sheet with a net debt of NOK 14.2 billion, equal 1.4x EBITDA and 0.9x if excluding Orkla Food Ingredients. And moving to some more details on the portfolio companies, starting with Jotun, which ended the year with another strong quarter, as Nils mentioned. Operating revenues grew by 8.4% in the quarter adjusted for negative currency translation effects. Top line was driven by volume growth and increased share of premium product sales in the decorative segment. Volumes increased in all segments, except powder. And in terms of geography, Northeast Asia was the largest contributor to sales growth due to high marine new build activity in China and Korea. Operating profit growth was 28%, excluding negative currency translation effects. And the main contributors were higher sales volumes and higher gross margin from lower raw material costs. Orkla's share of net profit increased by 36% to NOK 505 million. And in addition to the EBIT growth, net financial items improved due to lower interest expenses, currency hedging gains and the sale of Jotun's share in an associate. In terms of outlook, Jotun forecast a flat development in raw material prices in the first quarter. For the year as a whole, Jotun expects sales growth to continue to outpace market growth. At the same time, they expect that intensified competitive pressure on selling prices will weigh on margins. Currency translation effects are also expected to continue to negatively impact reported results. Organic growth in Orkla Foods was 0.4%, divided equally between price and volume mix. Volume mix growth in Sweden continued and the ERP challenges in the Czech Republic from Q3 were resolved and volume mix growth was positive. The volume mix development was negative in Norway, and this was due partly to lower campaign activities. At the Capital Markets update, Orkla Foods presented their prioritized growth platforms, which amount to about 60% of the portfolio. Organic growth during the quarter was higher in these platforms. EBIT growth was 3%, positively influenced by periodization effects for SG&A versus last year. And market input costs continued to rise during the quarter and cost improvements only partially offset this impact. Inflation was most pronounced in meat, marine raw materials and berries, and we expect this development to continue into 2026. Organic growth in Orkla Snacks was 7%, primarily from price in the Chocolate segment. And I'm pleased to see that volume mix growth was 1.7%, rounding off what has been a challenging year. Both the Snacks and Confectionery categories drove the growth, while biscuits contributed negatively. The main driver for positive volume/mix growth within Confectionery was the BUBS U.S. rollout. Volumes continued to decline in the Chocolate segment. All 3 categories experienced EBIT growth. The main drivers included volume mix growth in the snacks category and from the BUBS U.S. launch, operational efficiency improvements in the biscuit factory in Latvia and continued cost reductions. Orkla Snacks expects a favorable development in input costs in 2026. Organic growth in Orkla Home & Personal Care was minus 2.8%, reflecting a onetime destocking on a Norwegian customer. This was partly offset by volume growth in Sweden and contract manufacturing. Market shares nevertheless increased across Norwegian, Swedish and Finnish grocery markets. Underlying EBIT grew 4%, driven by lower fixed costs. Organic growth in Orkla Food Ingredients was 8.3%, supported by solid price growth across all 3 clusters as well as positive volume and mix development in Sweet and plant-based. Underlying EBIT increased by 13.6%, reflecting continued volume mix growth, disciplined price management and improved operating leverage. All 3 clusters delivered positive underlying EBIT growth during the period. And the Sweet cluster ended the year with cumulative cost reductions in the high double-digit million range, in line with our previous guidance. Organic growth in Orkla Health was 5.2%, and this was driven primarily by price in response to rising input costs in the food supplements category. Wound Care also contributed positively, while sales declined in the Functional Personal Care unit due to lower contract manufacturing related to a contract that will expire in Q1 2027. A decline in sales to B2B customers in the Oral Care segment also contributed negatively. EBIT adjusted growth reflects a comparison to a challenging quarter last year. And input prices for Orkla Health are expected to continue to be negatively affected by the price development for cod liver Oil, which is a key input for food supplements in the omega-3 category. And please note that in Q1, Orkla Health will meet strong comparables. Orkla India's organic growth was 8.1% for the quarter, led by volume growth of 10%. Price development was negative due to continued reductions in key raw material costs. The Convenience Foods category recorded high sales growth. In the spices category, volume growth continued to outweigh the effect of price reductions following lower raw material costs. Underlying EBIT growth was 14.7%, led by volume growth, cost management and lower advertising expenses due to an earlier festive season. In The European Pizza Company, all businesses delivered positive same-store revenue growth with overall organic growth of 8.1% and consumer sales growth of 9.7%. Marketing activities, menu innovation and increased distribution were the key drivers. Underlying EBIT improved by 37%, supported by higher consumer sales and receivables write-off at New York Pizza last year. Lastly, Orkla House Care reported negative organic sales related to volume mix in the U.K. and Benelux. Underlying profitability was positively impacted by lower costs and increased share of sales from higher-margin products. In the Health and Sports Nutrition Group, organic growth from direct-to-consumer platforms was partly offset by lower B2B sales versus last year. Underlying EBIT growth and cash conversion remained high. And with that, I'll hand it back to you, Nils, for the closing remarks. Nils Selte: Thank you, Arve. Reflecting back on 2025, we delivered organic value creation across the portfolio with 3.5% organic growth and positive volume mix development. This translates into 6.6% growth in underlying EBIT adjusted, and we maintain our focus on cash generation and ended the year with cash conversion of over 100% for the consolidated portfolio companies. During the year, we continue to actively shape the portfolio, completing the sale of the hydropower assets and Pierre Robert Group in Q1 and listing Orkla India in November. The Board intends to propose a total dividend of NOK 6 per share, including NOK 2 in addition to the extra -- in addition to the ordinary dividend, reflecting the high cash generation and a solid balance sheet. In addition, the NOK 4 billion share buyback program announced at the third quarter presentation is ongoing. We have acquired shares for a total of about NOK 1.6 billion so far. 2026 is the final year of our current 3-year strategy period. Our priorities remain unchanged, drive value in the existing portfolio and reduce complexity. We have stepped up our evaluation of value-adding structural opportunities. But as I have said before, we are also committed to walk away from any transaction that is not in the best interest of Orkla's shareholders. Entering into 2026, we are preparing for the next strategy period. And I would like to invite you to save the date for our Capital Markets Day. We will hold the event here in Oslo on December 1 this year. Our objective is to set out Orkla's strategic direction through 2030 as an industrial investment company focused on brands and consumer-oriented businesses. With that, Arve and I are now happy to take your questions. Annie Bersagel: Welcome back. We are now ready to begin the Q&A. [Operator Instructions]. Looks like the first question is from Petter Nystrom in ABG Sundal Collier. Petter Nystrøm: Yes. I jumped somewhat late into the call. So sorry if this has already been addressed. You mentioned some positive phasing effects, some lower SG&A costs across some of your portfolio companies. Is it possible to quantify these numbers? Arve Regland: Yes. So -- we had some specific one-offs in Orkla Health and The European Pizza company in Q4 '24, which was also mentioned in the pre-close information. In addition, we had phasing and periodization effects in some of the portfolio companies between quarters. So -- but still, I would say that the clear majority of the EBIT growth is represented by underlying profitability compared to the same quarter last year. Annie Bersagel: I'm not seeing any more video questions. We have a question from the web from Ole Martin Westgaard in DNB Carnegie. It appears to be the same, asking to quantify the periodization effects and nonrecurring items. Any other questions? It looks like there's a question from Hakon Fuglu in SEB. Hakon Fuglu: Could you please quantify the sales effects from BUBS in the U.S. and how that progresses going forward? Nils Selte: I think, first of all, we are very happy with the launch. We are working very closely and good together with our partner, Mount Franklin Foods in the U.S. And we have got a broad nationwide listing of BUBS through the largest retailers in the U.S. So in Q4, we saw a bit better performance than we guided through Q3, but we will not quantify at this moment. Having said that, we will continue to invest behind BUBS in the U.S. We think we see a great potential for that product in the U.S., and we will kind of invest behind it. So as we said in Q3, we will not -- we do not expect to see major impact on the EBIT performance for Orkla Snacks for the coming quarters. Annie Bersagel: Are there any other questions on video? That appears to be the last video question. And it looks like there are no more questions on the web. So before we conclude, let me just remind you that our Annual General Meeting will be held on April 23, and we report first quarter results on May 20. So with that, thank you for joining, and please enjoy the rest of your day.
Berit-Cathrin Hoyvik: Good morning, everyone, and welcome to Hexagon Composites Q4 and Full Year 2025 Presentation. My name is Berit-Cathrin Hoyvik, and I'll be moderating today's presentation. Joining me in the studio today is our CEO, Philipp Schramm; and CFO, Eirik Lohre. They will take you through our company update, financials and outlook before we wrap up with the Q&A session. With a reminder that, you may submit questions on your screen at any point during the presentation. And with that, I'll hand the word over to Philipp. Philipp Schramm: Thank you so much, Berit-Cathrin. Good morning, everyone, and thank you for joining us for our Q4 and full year 2025 results presentation. Before we begin, I would like to extend a warm welcome to Eirik Lohre, who stepped in as our CFO. Eirik has been a core member of our executive team for the past 4 years, and he has a strong understanding of our organization, and I'm really happy to have him by my side today, and he will walk you through the financials shortly. For now, I will guide you through the key developments of the quarter. Q4 can be summarized as a quarter of improving performance, strategic progress, and early signs of market stabilization from the continued softness in our core North American markets. Let me start with an update on the market environment, because it continues to set the backdrop for our performance. In 2025, our core markets in North America have been characterized by macroeconomic uncertainty, regulatory flux and low investment appetite. Those dynamics alongside low oil prices and high interest rates, delayed investments by customers, especially in our North American Mobile Pipeline business. In the United States, the trucking market and freight rates remain at multiyear lows. Fleets are deferring replacement cycles despite aging fleets, and now the length of this downturn is unprecedented. It is unfortunate, but not unsurprising that in this environment, fleets have limited willingness to adopt new technologies, even when the economics and when environmental benefits are compelling. However, November brought an important shift. The confirmation or better, the reassurance of the existing EPA 2027 NOx emission rule has brought much needed regulatory clarity to the industry. Class 8 truck sales saw a positive reaction in December and January's sales numbers. While this does not yet mark a market rebound for us, it is a meaningful signal that the pieces for recovery are starting to slowly fall into place. This regulation also provides important clarity for fleets and incentivizes the shift towards CNG from 2027 onwards. So overall, while the market conditions remain soft, we are seeing signs of gradual stabilization. These signs of gradual stabilization are evident in our Q4 results, where we delivered sequential revenue growth and improved profitability. Our revenues increased to NOK 831 million in Q4, driven by the strongest quarter of the year for our Fuel Systems business, including strong performances by Refuse and Transit, which again proved their resilience. EBITDA was for the quarter at NOK 156 million, which included NOK 13 million in severance costs and a one-off accounting gain of NOK 119 million from the acquisition of SES Composites. We completed the acquisition in October. And since then, SES added NOK 97 million to our top line and NOK 4 million to our EBITDA. And we are expecting more financial synergies to materialize in 2026 from this acquisition. This acquisition solidifies us as the leading cylinder and fuel system supplier to European transit bus OEMs. For the group, the quarter's underlying profitability trends, stripping out one-offs, reflects the progress of our cost cash optimization program, which is now well underway and on track. Since launching it in Q3 of last year, we have delivered meaningful progress across operating expenses, working capital and our portfolio. The highlights of the actions that we have delivered so far are, a targeted 25% reduction in workforce/headcount, the optimization of our production footprints, shifting patterns and equipment usage, a reduction of around NOK 200 million in personnel and SG&A costs so far, including NOK 100 million in structural reductions. You will see a reduction in our Q4 numbers on working capital and can expect to see further reduction of between NOK 100 million to NOK 150 million in 2026. We are applying strict investment discipline and have limited CapEx in 2026 to NOK 80 million, with no noncore cash investments planned throughout the year. The positive momentum and visible progress of these measures are evident, and we expect further effects to build through 2026. Importantly, I want to make clear that these are not short-term fixes. They are structural improvements that will benefit us in the soft market, but also as the market responds. The structural breakeven point of our business entering 2026 is now significantly lower than it was a year ago. With our cost structure improved, growing and diversifying our top line through this market down cycle has also been a focus of ours since I joined the company a year ago, with a clear goal as a technological leader with unmatched capabilities to apply them where possible. There are many commercial developments over the last year, and especially the last quarter that prove this change and have set us to be a stronger and more resilient business. One clear highlight is the outstanding performance of our Refuse segment in Fuel Systems. In 2025, we delivered record annual revenues of around NOK 800 million from the refuse industry. Refuse is a resilient market. It has stable demand tied to public sector backed critical services, so has been relatively unaffected by the macroeconomic environment in North America. Trash still needs to be picked up. And in many cases now, this trash which is being picked up by refuse company is now turned into renewable natural gas and used to fuel these very trucks that collect it. It is one of the strongest circular economy use cases with major sustainability and economic benefits. It is enabling refuse companies to produce their own fuel and remove the single largest historical OpEx cost, which was diesel. One of the reasons we are so confident in the outlook for natural gas vehicles is because of the conversion that has happened within refuse in North America over the last decade. Our team has spent 2 decades building this market together with the industry's trailblazers. Today, 60% of new Refuse Truck orders in North America are natural gas powered, a clear validation of this long-term conversion story. Our team is working on that same conversion story in heavy-duty long-haul trucking. For the first time, North American heavy-duty long-haul fleets have a real alternative to diesel. Natural gas is cheaper. And with the Cummins N15X engine, this engine delivers diesel-like performance without compromise. In the last month, we received a significant order from a leading truck operator in Mexico valued at approximately NOK 110 million. The fleet tested the performance of the pilot trucks in their real-world operations, and this major order is a testament to how well it performed, driving coast-to-coast across Mexico. More recently, yes, actually, it happened last night. We signed a PO and unlocked new opportunities for our business in securing our first commercial order for space applications, valued at slightly over USD 7 million. While it is a first order, is a strong proof of Hexagon's industry-leading high-tech capabilities. We have unmatched capabilities within our business that truly do set us apart, and I want to personally recognize our engineering and our production teams for their exceptional work over the last weeks to make this happen. Their agility, unparalleled expertise and innovation continue to open the door to new verticals and other opportunities like this one for our business. This is a testimony of how we are walking the talk. Across the group, we are committed to utilizing our capabilities, products capabilities, capacities and assets to create shareholder value, whether in new markets, new geographies like India or new industries like space. With that, I will hand over to Eirik to take you through our financial performance in more detail. Eirik, please. Eirik Lohre: Thank you, Philipp, and good morning, everyone. Starting with the financial results for the group. We delivered revenue of NOK 831 million for the quarter and NOK 2.9 billion for the full year. Q4 is a seasonally strong quarter, and we saw higher activity across most segments, driving a 50% uplift versus Q3 and including a NOK 97 million contribution from SES Composites, which was acquired in October. Organically, our quarterly growth was 37%. Full year revenues for 2025 were significantly down compared to 2024, reflecting weaker demand, in particular within our Mobile Pipeline segment. Reported EBITDA improved from minus NOK 54 million in Q3 to NOK 156 million in Q4. However, this includes a noncash accounting gain of NOK 119 million booked as other income in our accounts, which is related to the SES Composites acquisition, as Philipp mentioned. This is simply due to the fact that the booked value of the company exceeded the purchase price. Adjusting for this and for severance cost of NOK 13 million in the quarter, adjusted EBITDA was NOK 49 million, corresponding to a 6% margin. Profitability-wise, Q4 was the strongest quarter of 2025, supported by cost actions implemented throughout the year. And for the full year, adjusted EBITDA was NOK 65 million, corresponding to a margin of 2%. Turning to Fuel Systems. We delivered revenues of NOK 548 million in a seasonally strong quarter, including a significant contribution from SES Composites. The full year revenue of NOK 1.8 billion was weighed down by lower truck volumes due to a muted freight market through the year, driven by regulatory uncertainty, tariff concerns, and weaker consumer confidence. Towards the year-end, we saw a pickup in activity driven by improved clarity on the factors mentioned earlier by Philipp as well, including the EPA 2027 NOx rules. For the quarter, we delivered some sizable orders, notably 100 sleeper cab systems, our largest configuration to a leading Mexican trucking company, contributing significantly to both top line and margin. The Refuse business is one of our more resilient segments and continues to perform well, closing the year with record annual revenues of NOK 800 million, as Philipp also touched on earlier. EBITDA came in at NOK 61 million for the segment, corresponding to 11% margin, driven by volumes, a favorable mix and improved materials efficiency. Mobile Pipeline had revenues of around NOK 200 million in the quarter, significantly down year-on-year, but more than double Q3 levels. In North America, this segment has, after years of strong growth, experienced a pronounced cyclical downturn in 2025, driven by lower shale activity and slower build-out of RNG projects, which in turn has led to lower asset utilization and delayed CapEx decisions among the Mobile Pipeline operators, which are our customers. We did see a small spike in demand ahead of the winter season in Q4, but this is also offset by some increased price pressure from competition given the market situation. On the positive side, our EMEA business delivered record revenues of around NOK 100 million in Q4, driven by RNG projects in the U.K. and CNG projects in the Middle East, including the Watani business that we have previously announced. And while activity and EBITDA improved quarter-on-quarter for the segment, the Mobile Pipeline segment is still below the point of financial breakeven. Aftermarket, our service and testing and inspection business delivered revenues of NOK 105 million for the quarter and NOK 433 million for the full year. Performance was down year-on-year, reflecting lower truck volumes, which means lower installation revenues for our aftermarket business as well as delayed maintenance and extended service intervals among the CNG fleet operators. As expected, 2025 was a low activity year for MAE trailer requalification. Remember, this follows regulatory requalification requirements from the U.S. Department of Transportation on 5-year intervals with 2015 and 2020 being low years for Mobile Pipeline, we knew going into 2025 that this will be lower activity for the MAE testing technology. And this also further impacted both our revenues and our margin for the year. EBITDA was NOK 12 million in Q4 and NOK 28 million for the year, also weighed down by nonrecurring project work related to an LNG project we have now completed with the Cryoshelter technology. Turning to cash flow. We delivered positive operational cash flow for the quarter, supported by improved EBITDA and the working capital release Philipp mentioned earlier in the presentation, which amounted to NOK 37 million for the quarter. In addition, we had some tax effects and other noncash add-backs to EBITDA, bringing the total up to NOK 102 million. On the financial side, under investments to associated companies, we provided the last major funding to Cryoshelter in December to complete the work related to the major customer order that business has carried out before the ownership has since been restructured from January 2026. This involves Hexagon taking 100% control and significantly reducing the cash burn of that business. We are currently exploring alternative outlets for that technology that does not involve further investment from Hexagon, including deploying the technology in high potential markets such as India. Including NOK 100 million of debt drawdown, we ended the year -- we ended the quarter, sorry, with NOK 104 million higher cash balance. Briefly on the balance sheet, which remains sound following the capital raise in September. Net debt remained slightly above NOK 1 billion in Q4, broadly in line with last quarter, and our net working capital stood at close to NOK 1.2 billion. And as Philipp mentioned earlier, we are working diligently to address that number. Our available liquidity stood at NOK 561 million at year-end, and we had an equity ratio of 50%. And to round out the finance section, I wanted to briefly touch on the covenant situation. As previously disclosed, the September refinancing included a waiver for the leverage covenant until Q3 2026. And from that point on, the covenant will be reinstated at 4.2x EBITDA. In an uncertain market, management remains laser-focused on financial discipline, cost control and working capital management in order to meet the obligation of the loan agreement. And in parallel, we're also maintaining proactive and ongoing dialogue with our lending partners to ensure appropriate financial flexibility in the short-term, but also a sustainable capital structure in the longer-term. And with that, I'm handing it back to you, Philipp, for the outlook section. Philipp Schramm: Thank you, Eirik. Looking ahead to 2026, while Q4 2025 delivered encouraging improvements, we remain a back-ended loaded company. We expect many of the market headwinds that shaped 2025 will continue to influence our core markets in the first half of 2026. The key drivers and risks affecting our business segments entering this year, however, led me to be cautiously optimistic about 2026, where we see both potential upsides, but also potential downsides. For Mobile Pipeline, there's still an unfavorable supply and demand imbalance in the North American market, as Eirik explained. Traditionally, oil and gas customers are focusing on utilization rather than exploration and expansion. This tougher environment is also leading to increased pricing pressure from underutilized competitors. On the flip side, we expect there to be multiple drivers of demand for Mobile Pipeline solutions in 2026. We have new product developments, and we have improvements scheduled to launch in 2026 that make me personally optimistic we will capture relevance in new industries. We also have opportunities in new geographies and for applications in markets like India, Latin America and for applications for data centers that may drive volumes. For Fuel Systems, on the risk side, Class 8 truck volume sales are still projected to match or even be slightly below the very low levels in 2025. Despite a significant improvement of projections from ACT over the last 2 months. In our view, the weak freight rates in North America may keep fleets conservative on CapEx and rolling stock investments. November's confirmation on the very important EPA 2027 NOx emission law will stand. This is good news. It will come in effect on January 1, 2027, and may lead to a potential prebuy effect on diesel trucks before the tailwinds of those same regulations positively support CNG and our business from 2027 onwards. The positive flip side of the EPA 2027 regulation and confirmation is clarity. We have been waiting for this final confirmation that the law would not be reopened. With that certainty, we are already hearing from fleets that they are more comfortable committing to buying new trucks, investing and looking into CNG. Now it's on us. We need to turn interest into orders. Alongside improving market fundamentals, we expect that larger fleets may look to transition to commit, make orders in the second half of 2026 as they grow more comfortable with the new technology. For transit buses, we are seeing positive CNG momentum in Europe and the Americas with governments and municipalities committing to CNG as the best solution for their fleets and cities. Another potential driver of revenues would be a pickup of additional business in adjacent industries, like space, with further progress on our diversification strategy taking effect. For aftermarket, we expect that an extended soft truck market will limit parts and install volumes on the risk side, offsetting that on the driver side, we are expecting strong recovery for Hexagon Digital Wave in 2026. As Eirik mentioned, Mobile Pipeline requalification activity is expected to rebound from the cyclical low 2025. Broader product and geographical expansion in Mobile Pipeline and Fuel Systems could also open new aftermarket opportunities for sales and increased profitability. To summarize, our core markets, especially in North America, look to be relatively soft in the first half of 2026, with a return to normal seasonality and back-end loaded year. Based on current visibility and continued market uncertainty, we expect our 2026 top line to be broadly in line with or moderately above 2025 levels. With improvements in profitability, we see across all segments, the value proposition of our core technology and capabilities remains firmly intact. And with the improved cost structure, we are more competitive. As we enter 2026, our priorities are clear, and they reflect both the current environment and our long-term ambitions. We will have strict financial discipline. We are focused on leveraging the core technology and capabilities that differentiate us and that have made us the market leaders in our industries for decades. And we will drive the adoption of natural gas vehicles as the only alternative to diesel in long-haul, heavy-duty and high energy-intensive mobility applications. Our cost and cash optimization program is delivering structural benefits, and our strategic steps are bearing fruit. We will have a European footprint improved. We are gaining traction in diverse new verticals and geographies, and have greater regulatory clarity that meaningfully benefits natural gas adoption. While we are expecting a modest first half of this year, we are cautiously optimistic for 2026 and remain confident about our long-term growth. With that, I will hand back to Berit-Cathrin for the Q&A session. Thank you so much for listening. Berit-Cathrin Hoyvik: Thank you, Philipp. We already got some questions from the audience, and I'll start with the first question for you, Philipp. On the aerospace order announced this morning, can you provide additional color on the nature of that opportunity, and how we should think about its potential to develop into a meaningful growth avenue for Hexagon? Philipp Schramm: Okay. For us, as I stated, this is a testimony twofolds. One, about our capability and that we walk the talk, and let me come back to that. Walking the talk was important that we are becoming more resilient. That's a testimony looking in adjacent industries. The second is a testimony of our capabilities, of our teams who can drive and bring this home, the capacity we have, and the product we have in place. And that a very challenging environment, very challenging customer is accepting this and that we, with the team are driving this home over a relatively short period in time, as I stated, makes me confident that we can explore other opportunities in adjacent industries. Berit-Cathrin Hoyvik: Continuing with a question for you, Eirik, on profitability. What do you mean by meaningful improvements to profitability? And what material and nonmaterial savings impacts do you expect in 2026? Eirik Lohre: All right. Thank you. I appreciate the question. I'll not give a number, but I think we have some levers that will contribute. Firstly, it's the full year effect of the cost actions we have implemented in 2024. As Philipp mentioned earlier, and as I also mentioned, we expect the effects to linger on into 2026. Second lever would be the acquisition of SES Composites. We already communicated that we expect to see some synergies from that transaction on the administrative side and operational side, but also on the sourcing side. And the third lever would be general operational and material efficiency that we see throughout the course of the year. So I think we're pretty confident in a step-up in margin from 2025, which was a low level, 2%, but not to the extent of 2024, which was at 13%. At the end of the day, we are depending on certain volume to absorb cost. Berit-Cathrin Hoyvik: Moving more over to commercial and you, Philipp. Regarding the synergy with engine partners, your partner, Cummins, has recently highlighted the massive growth in the data center sector as a key driver for backup and standby power demand. Given Hexagon Agility's leadership in high-pressure gas fuel systems, do you see a strategic opportunity to provide the storage and distribution systems required for large-scale gas-powered stationary power generations in this sector? Philipp Schramm: Absolutely. And also, with that question, multiple dimensions are unfolding here. One is our value proposition, lightweight, high density, a lot of payload of natural gas on a vehicle. That is efficient for the gas transportation companies. And now it comes to the need of a lot of energy with data centers. And this works perfectly together, and this is where we work closely together with our partners in the gas distribution industry to see what they need, what their product demands are, what changes potentially need to be made. And we anticipated this already during the course of 2025, as I stated, that we make product improvements. We're looking into new product offerings within Mobile Pipeline to serve these industries in the most efficient way. Berit-Cathrin Hoyvik: Moving back to you, Eirik, and a question on covenants. You mentioned in your report that you see a risk of covenant breach and are in dialogues with banks. How advanced are you on this? Will you be able to get a waiver? Or do you foresee an equity raise will be needed? Eirik Lohre: Yes. No, thanks for the question. And as said during the presentation, we have done and we are doing everything in our power to stay in compliance with the obligation of the loan agreement. We are addressing costs. We are addressing working capital. We're minimizing discretionary spend, CapEx. I think we -- as Philipp mentioned as well, we are cautiously optimistic about 2026. We do see improvement in profitability, but it would also be wrong given the market uncertainty for me to kind of categorically rule out a risk of being in a potential technical breach. But of course, we are on top of this situation, and we're doing what we can. At the end of the day, we are depending on a certain uptake in the market. And I can also say, as mentioned during the presentation, that we have a good and constructive dialogue with our lending partners. And most importantly, we do also have a solid liquidity situation. And we also, as mentioned in the presentation, expect positive cash flow in 2026. So yes, that's what I can say about that. And of course, we will do whatever we think is in the best interest for our shareholders, both in the short-term, but also in the long-term. Berit-Cathrin Hoyvik: Philipp, a question related to our third quarter presentation. In the third quarter presentation, you said that the first quarter would be weaker than the fourth quarter results. Do you reiterate that message or have anything changed? Philipp Schramm: No, I think, I've been very clear that based on the visibility and the uncertainty we see in the current market and the shifting dynamics here that we believe that 2026 will be a more normal year based on seasonalities, meaning that the first half might be softer and the second half might be stronger. And that is in alignment with what we hear from other market players and what they see as well. And this is how we manage our business at the current moment. Berit-Cathrin Hoyvik: Moving back to you, Eirik, a question on SES acquisition and how it relates to covenants. Will the gain on SES acquisition of NOK 119 million in EBITDA contribute to the EBITDA as defined in the loan agreements, and thereby contribute to fulfill the EBITDA covenant in the third quarter of 2026? Eirik Lohre: Yes. Good question. I think as a starting point, the definition of EBITDA under the lending agreement is intended to reflect underlying performance and cash generation. That's the starting point, but we are having discussions along multiple fronts with the banks. So I would, for now, assume that it will not count in the definition of EBITDA. But as I said, there are discussions along different fronts on this. Berit-Cathrin Hoyvik: Question for you, Philipp, on Europe. Do you consider the increased defense build-out in Europe to be an additional upside for the Fuel Systems business? If so, how do you assess the potential? Philipp Schramm: I think it's a similar question then to our aerospace business. We have and we have capabilities which can be used in all different industries, also the one you just mentioned. And it's like one of our endeavors to see and take opportunities as we can deliver them from our sites in the U.S. or in Europe. So we are open to these discussions with the capabilities we have, the product portfolio we are -- we want to utilize and the capacity we want to utilize as much as possible. Berit-Cathrin Hoyvik: Then I think, let's see many questions coming in here. Eirik, a question for you on annualized cost base for 2026. What is your approximate annualized cost base for 2026, G&A and personnel costs? Eirik Lohre: Can you repeat the last part of the question? Berit-Cathrin Hoyvik: It says approximate annualized cost base for 2026, G&A and personnel costs. Eirik Lohre: Yes. I guess we -- I think our fourth quarter is pretty representative for what we will have in 2026. So that's what I can say about that. Again, we expect to have some improvement. So that's a good baseline. But building on that, we should see some improvement. Berit-Cathrin Hoyvik: Philipp, on Mobile Pipeline, do you see the EMEA region driving the sequential mobile pipeline growth going forward? Or is it still dependent on improvements in the North American market? Philipp Schramm: For Mobile Pipeline, we take every opportunity in all the regions. we were focused on the North American market with the downturn, which we are seeing, we are deploying all our resources in every region of the world. So it's not just Europe, Middle East, Asia, it's also South America. It's applications, as I said before, where you need a lot of energy and need to transport it from a point to another point. And this is where our value proposition come to fruition. And we are seeing a lot of positivity. We're seeing due to the geopolitical uncertainties, also changes in how people approach stationary gas -- pipeline gas distribution. And there are some benefits in a lot of these industries, regions, countries where we can serve it. But we also see within our -- some of our core businesses like the RNG businesses, huge developments in countries within Europe, which are focusing on that as well. And so I think it's not a question to say yes or no. It's like multiple answers, and we take every opportunity we get. Berit-Cathrin Hoyvik: Then we have several questions on the need for raising capital. So I'll just ask one. Eirik Lohre: Yes. Berit-Cathrin Hoyvik: So for you, Eirik, are you in the process of raising capital in near future? Eirik Lohre: We cannot comment on that, obviously. And if and when, that will be the case, then we would obviously address that and communicate it. But I cannot comment on anything like that. What I said about the covenant situation earlier is still the reality. So we're working to find a solution. Berit-Cathrin Hoyvik: Philipp, exactly what type of gas cylinders and tanks are needed for data centers? Philipp Schramm: I think our -- every one of our applications is unique and for a certain application. In general, our TITAN cylinders, TITAN trucks, TITAN modules are best in the utilization of space on a truck, in a module and with the application of payload, which can be transported. So our TITAN trailers would be perfect for that kind of application in comparison to some of our competitors' products. Eirik Lohre: I think what we see on data centers is that it's very common to deploy a temporary energy supply in absence of permanent infrastructure, while there is a rapid deployment or rapid build-out of data centers. So it's very, very common to see in the initial phase before permanent infrastructure is established. So just adding to what Philipp said. Berit-Cathrin Hoyvik: Great. Thank you. That seems to be the questions for today. So that concludes our fourth quarter presentation. Thank you for joining.
Operator: Good day, everyone, and welcome to the Bio-Rad Fourth Quarter and Full Year 2025 Results Conference Call. At this time, I would like to hand things over to Mr. Edward Chung. Please go ahead, sir. Yong Chung: Good afternoon, everyone. Thank you for joining us. Today, we will review the fourth quarter and full year 2025 financial results and provide an update on key business trends for Bio-Rad. With me on the call today are Norman Schwartz, our Chief Executive Officer; Jon DiVincenzo, President and Chief Operating Officer; and Roop Lakkaraju, Executive Vice President and Chief Financial Officer. Before we begin our review, I would like to remind everyone that we will be making forward-looking statements about management's goals, plans and expectations, our future financial performance and other matters. These statements are based on assumptions and expectations of future events that are subject to risks and uncertainties. Our actual results may differ materially from these plans, goals and expectations. You should not place undue reliance on these forward-looking statements, and I encourage you to review our filings with the SEC where we discuss in detail the risk factors in our business. The company does not intend to update any forward-looking statements made during the call today. Finally, our remarks today will include references to non-GAAP financials, including net income and diluted earnings per share, which are financial measures that are not defined under generally accepted accounting principles. In addition to excluding certain atypical and nonrecurring items, our non-GAAP financial measures exclude changes in the equity value of our stake in Sartorius AG in order to provide investors with a better understanding of Bio-Rad's underlying operational performance. Investors should review the reconciliation of these non-GAAP measures to the comparable GAAP results contained in our earnings release. We have also posted a supplemental earnings presentation in the Investor Relations section of our website for your reference. With that, I will now turn the call over to our Chief Operating Officer, Jon DiVincenzo. Jonathan DiVincenzo: Thanks, Ed. Good afternoon, everyone, and thank you for joining us. In 2025, we delivered results within our revised guidance for both revenue and operating margin. However, gross margin did not meet our expectations or frankly, what Bio-Rad is capable of delivering. Throughout 2025, we made tangible progress in lowering our cost base through restructuring and tighter expense discipline while navigating global trade uncertainty and tariff headwinds. In the fourth quarter, gross margin was pressured by higher-than-anticipated supply chain costs. These pressures are execution-related rather than structural. We have initiated actions to strengthen operational rigor, improve forecasting and planning and drive greater consistency across manufacturing, procurement and logistics. Turning to our segments. Diagnostics returned to growth in the quarter. Performance was driven by successful fulfillment of large customer orders in our quality control portfolio that were planned for the fourth quarter as well as the annualization of the diabetes testing reimbursement change in China. While we're not currently seeing portfolio-specific reimbursement or VBP headwinds in China, we remain appropriately cautious and continue to closely monitor policy development. In Life Science, we are particularly encouraged by the traction from our execution on the Stilla acquisition and the launch of the QX700 Droplet Digital PCR family of products. Customer response has been strong, and we saw a meaningful acceleration in QX700 instrument sales during the fourth quarter. We're entering 2026 with an expanding order funnel for our ddPCR instruments despite overall softness in our end markets. Importantly, adoption has been driven by both qPCR conversions and competitive wins. These data points reinforce our belief that QX700 is enabling Bio-Rad to expand its served market and gain share in the entry-level digital PCR segment. More broadly, the early success of QX700 strengthens our conviction that digital PCR will remain a core growth pillar for Bio-Rad over the long term. With the broadest digital PCR instrument portfolio, the most comprehensive assay menu and more than 12,000 peer-reviewed publications, we believe Bio-Rad is well positioned to sustain leadership in this market. Turning to our end markets. Cautious spending persisted throughout the fourth quarter continues to weigh on instrument demand in academia and government. While the recent passage of the NIH budget may support improved sentiment over time, we believe academic institutions remain focused on maintaining staffing levels and sustaining ongoing research rather than purchasing capital equipment. Within biopharma, funding conditions improved during the second half of 2025, though funding is skewed towards later-stage biotech companies. We are anticipating a modest recovery of our core Life Science portfolio from the biopharma end market in 2026. Our process chromatography business delivered over 20% growth in 2025. Our current niche position in the polishing step of bioprocessing contributes to revenue concentration from a select number of commercial therapeutics and vaccines. This can show up as lumpiness from quarter-to-quarter. As our portfolio broadens over time, we expect to see less volatility, more comparable to the broader bioprocessing peer group. Bio-Rad remains focused on disciplined innovation, it is core to our long-term growth strategy. In 2026, we plan to advance several product launches, including an IVD version of the QX600, additional high-value ddPCR assays across oncology, and incorporate artificial intelligence in our -- into our future platforms. Our sharpened focus on R&D accelerates the innovation engine for Bio-Rad, prioritizing areas that reinforce our high-value segments and support our portfolio optimization. In closing, we are executing actions to improve operational performance, expand margins and focus investments in our most attractive growth platforms. We are confident these actions will translate into improved financial results over time. And with that, I'll turn the call over to Roop, who will take you through our financial results in more detail. Roop Lakkaraju: Thank you, Jon, and good afternoon. I'd like to start with a review of the fourth quarter and full year 2025 results. Net sales for the fourth quarter of 2025 were approximately $693 million, which represents a 3.9% increase on a reported basis versus $668 million in Q4 of '24. On a currency-neutral basis, this represents a 1.7% year-over-year increase and was driven by our Clinical Diagnostics segment. Sales of the Life Science segment in the fourth quarter of '25 were $268 million compared to $275 million in Q4 of 2024, a 2.6% decrease on a reported basis and a 4% decrease on a currency-neutral basis, driven by the constrained academic research and biotech funding environment. Currency-neutral sales decreased in the Americas, partially offset by increased sales in EMEA and Asia Pacific. Our ddPCR portfolio posted mid-single-digit year-over-year growth in Q4, driven by the success of our QX700 platform, which met our revenue expectations. The Stilla acquisition will be accretive by mid-2026, 6 to 12 months earlier than our initial view. Our process chromatography business, as expected, experienced quarter-over-quarter and year-over-year declines due to the timing of customers' orders. Excluding process chromatography sales, core Life Science segment revenue increased 0.7% year-over-year and decreased 0.7% on a currency-neutral basis. While overall core Life Science consumables revenue grew mid-single digit in Q4, we note that consumables in the Americas were flat year-over-year, reflecting the protracted U.S. government shutdown. Sales of the Clinical Diagnostics segment in the fourth quarter of 2025 were approximately $425 million compared to $393 million in Q4 of '24, an increase of 8.4% on a reported basis and 5.6% on a currency-neutral basis. The increase was primarily driven by higher sales of quality control and blood typing products. On a geographic basis, currency-neutral sales increased in all three regions. Q4 reported GAAP gross margin was 49.8% as compared to 51.2% in the fourth quarter of 2024. On a non-GAAP basis, fourth quarter gross margin was 52.5% versus 53.9% in the year-ago period. Note that the Q4 2025 non-GAAP gross margin excluded $13 million in onetime inventory and other write-offs associated with product portfolio rationalization on top of restructuring and amortization of purchased intangible charges. Specifically, due to the extended U.S. government shutdown, which shifted sales to later in the quarter, we effectively had to do 90 days of work in 30 days to support our customers. As a result, we incurred higher expenses for expedited freight and service costs, including overtime, resulting from compressed time lines for instrument delivery and installation. Moreover, we saw slower-than-expected progress on our procurement initiatives that were back-loaded in our forecast. SG&A expense for the fourth quarter of 2025 was $221 million or 31.9% of sales compared to $204 million or 30.6% in Q4 of 2024. Fourth quarter non-GAAP SG&A spend was $215 million versus $200 million in the year-ago period. The year-over-year increase in SG&A expense was primarily due to higher employee-related costs. Research and development expense in the fourth quarter of 2025 was $70 million or 10.1% of sales compared to $80 million or 11.9% of sales in Q4 of '24. Fourth quarter non-GAAP R&D spend was $66 million versus $68 million in the year-ago period. Q4 operating loss was approximately $119 million compared to operating income of approximately $58 million in Q4 of '24. In Q4 of '25, our GAAP operating loss included in aggregate, $173 million of impairment charges for purchased intangibles and other items. These charges resulted from our decision to discontinue and reprioritize certain R&D programs as part of our ongoing portfolio rationalization. On a non-GAAP basis, fourth quarter operating margin was 12% compared to 13.8% in Q4 of '24, reflecting the impact from the lower gross margin. The change in fair market value of equity security holdings and loan receivable, primarily related to the ownership of Sartorius AG shares, contributed $800 million to our reported net income of $720 million or $26.65 per diluted share. Non-GAAP net income, which excludes the impact of the change in equity value of Sartorius shares, was $68 million or $2.51 diluted earnings per share for the fourth quarter of '25 versus $81 million or $2.90 diluted earnings per share for Q4 2024. Now for the full year results. Net sales for the full year of 2025 were $2.583 billion, which represents a 0.7% increase on a reported basis versus $2.567 billion in 2024. On a currency-neutral basis, sales were essentially flat compared to the same period in 2024. Sales of the Life Science segment for 2025 were approximately $1.021 billion compared to $1.028 billion in 2024, which is a decline of 0.7% on a reported basis and 1.3% on a currency-neutral basis. Currency-neutral sales decreased in the Americas, partially offset by increased sales in EMEA and Asia Pacific. Sales of the Clinical Diagnostics segment for 2025 were $1.562 billion compared to $1.538 billion in 2024, which represents a 1.6% increase on a reported basis and 0.8% growth on a currency-neutral basis. Growth of Clinical Diagnostics was primarily driven by higher quality control and blood typing product sales, partially offset by lower reimbursement rates for diabetes testing in China. On a geographic basis, currency-neutral sales increased in the Americas and EMEA, partially offset by decreased sales in Asia Pacific. Overall, full year non-GAAP gross margin was 53.3% compared to 55% in 2024. The year-over-year margin decline was driven mainly by reduced fixed manufacturing absorption and higher material costs. Full year non-GAAP SG&A expense was $809 million or 31.5% of sales compared to $799 million or 31.1% in 2024. The increase in dollars of SG&A expense was primarily due to higher employee-related costs. Full year non-GAAP R&D was $257 million or 9.9% of sales versus $282 million or 11% in 2024. The lower year-over-year R&D was primarily due to in-process R&D charges associated with an acquisition in 2024, which resulted in a $30 million IP R&D expense in '24 and an $8 million charge in '25. Full year non-GAAP operating margin was 12.1% compared to 12.9% in '24, which primarily reflects the impact of the gross margin headwinds. Non-GAAP net income was $271 million or $9.92 diluted earnings per share for full year '25 versus $291 million or $10.31 diluted earnings per share for 2024. Moving on to the balance sheet. Total cash and short-term investments at the end of Q4 '25 were $1.541 billion compared to $1.665 billion at the end of 2024. Inventory at the end of Q4 was $741 million, down from $760 million at the end of 2024. Moving on to cash flow. For the fourth quarter of 2025, net cash generated from operating activities was $165 million compared to $124 million for Q4 of '24. For the full year of '25, net cash generated from operations improved to $532 million versus $455 million in 2024 and was driven by the focused efforts in improving working capital efficiency. Net capital expenditures for the fourth quarter of '25 were approximately $46 million and full year net capital expenditures were $158 million. Depreciation and amortization for the fourth quarter was $36 million and $141 million for the full year. Free cash flow for the fourth quarter was $119 million, which compares to $81 million in Q4 of '24. For the full year of '25, free cash flow improved to approximately $375 million versus $290 million for '24 and represents a free cash flow to non-GAAP net income conversion ratio of 138% for 2025. During 2025, we retired 1.2 million shares through our buyback program at a total cost of approximately $296 million. We did not repurchase any shares during the fourth quarter. Since Q1 2024, we have spent $494 million to repurchase 1.9 million shares at an average price per share of approximately $261, which represents a 6.6% reduction in our share count. Moving on to our non-GAAP guidance for '26. We are guiding currency-neutral revenue growth for the full year to be between 0.5% and 1.5%. Q1 is expected to be down low single digit on a year-over-year basis and then sequentially improving each quarter. The Life Science segment year-over-year currency-neutral revenue growth is expected to be between 0 and 0.5%. We are anticipating growth of nearly 4% for our core Life Science business, excluding process chromatography, with the ddPCR business expected to grow mid-single digit. Process chromatography is projected to decline approximately mid-teens and reflects recent changes to government regulations on certain therapeutics usage and vaccines as well as our customers' improved production efficiencies. Long term, we expect process chromatography to be a mid-single-digit growth area for us. For the Diagnostics segment, we estimate currency-neutral revenue growth to be between 1% and 2%. We project mid-single-digit growth for our quality controls business, while the remaining Diagnostics portfolio ex quality controls is expected to be in the low single-digit growth range. Full year non-GAAP gross margin is projected to be between 54% and 54.5%. On a quarterly basis, we expect Q1 2026's gross margin to step up a net 100 basis points from Q4 of 2025 as the elevated freight and service costs from Q4 do not recur, partially offset by the impact of lower revenues in the first quarter. Subsequent to Q1, we are targeting sequential improvement that reflects expected productivity and efficiency benefits from our operational initiatives. Full year non-GAAP operating margin is projected to be between 12% and 12.5%. This reflects the improvements to gross margin, partially offset by approximately a 50-basis-point impact from the reduced process chromatography sales. Our 2025 restructuring was effectively completed, and the savings are reflected in our 2026 outlook. We estimate the non-GAAP full year tax rate to be approximately 23%. We anticipate full year free cash flow of approximately $375 million to $395 million for 2026. Regarding share repurchases, we will continue to be opportunistic and have approximately $285 million available for additional buybacks under the current Board authorized program. Finally, we are deferring our Investor Day to a later time. We continue to make progress on our business transformation, including an assessment of our product portfolios to reinvigorate our top line growth rate and to define an improved cost structure, but more remains to be done. With that, I'll turn the call over to Norman. Norman Schwartz: Okay. Thanks, Roop. So I just thought I'd take a few minutes to close today's call with a few thoughts. Maybe to start out, I think as we enter 2026, we are seeing early signs of stabilization across several of our core markets with NIH and the related funding set and steady improvements in biopharma funding. Also on the Diagnostic side, there's a return to growth. And in particular, we are seeing stronger demand for our quality control reagents. So if we take all that together, I think we believe these early trends set an encouraging tone for 2026. We do remain highly focused on driving long-term value and are already seeing the impact of an intentional performance-related approach. Kind of against the dynamic backdrop of last year, Bio-Rad delivered results that reflect both the challenges of the environment, but also, I think the resilience of our business. The team, I think, successfully mitigated much of the impact on our supply chain from what we saw as shifting trade policies and tariffs. And we delivered as a result, really strong free cash flow of $375 million for the year, as Roop mentioned. So kind of building on our strong foundation, we're continuing to invest in innovation across our portfolio, not only ddPCR and quality controls, but other products areas, all in an effort to maximize overall growth opportunities. And I would say, supported by a strong balance sheet. We're also looking for additional assets to help accelerate the top line and certainly margin expansion. Just as one example, I think our recent success with the Stilla acquisition, this concept of measured scale, it's an example of our renewed focus here. Overall, I guess, top of mind is driving continuous revenue growth and margin expansion through improved sustainable operating performance and cost structure management. And I think by committing to these kind of strategic priorities, Bio-Rad can and will achieve enduring success, deliver value to stakeholders and maintain a strong competitive position in the marketplace. I think you should see continued actions from this team around the operational rigor, simplification and prioritization that we've initiated. We are moving quickly. But I would say we're also moving thoughtfully to ensure that these changes at the end of the day are durable. So that concludes our prepared remarks. Operator, we're now open to take questions. Operator: [Operator Instructions] We'll go first to Jack Meehan from Nephron. Jack Meehan: I wanted to start by asking about the ddPCR business. So if my math is right, always got to be careful with that. But looks like this was the strongest quarterly growth in at least a couple of years. So I was wondering if you could unpack the Stilla contribution versus the legacy portfolio? And why is mid-single digits kind of the right rate continue into next year? Jonathan DiVincenzo: Yes. Jack, it's Jon. I appreciate the call. First of all, we have a large installed base, which means the ongoing reagents assay business is the largest part of our portfolio. So we certainly saw a very strong success in the sales of QX700 platform kind of right on target, what we're hoping for in the fourth quarter and planning for. It was also indicative of the fact that we're able to convert some qPCR applications to ddPCR and continue to move along kind of our legacy QX200 to 600. I'd say it was dominated by the QX700. There are three instruments in that platform. We had -- we moved kind of what -- we were, historically, seeing revenues about 80-something percent coming from assays and 20% from instruments during the last kind of soft quarters to last year. It actually moved up to about, I guess, 2/3 assays and then about 1/3 coming from instruments. So it can kind of show you the growth there. And because of that large [ base ] is exactly why we're guiding towards mid-single digit because we think that overall, the consumables will continue to march along at kind of maybe mid-single-digit growth, which dominates the overall growth of that platform with some optimism that maybe we can move up those numbers as the year progresses and as the kind of marketplace stabilizes. Jack Meehan: Got it. That makes sense. And then, Jon, on process chrom, I forgot if it was Jon or -- you mentioned there were some recent changes in terms of guidelines around vaccine and production efficiencies embedded in the process chrom forecast. Can you just elaborate on what that is and the impact? Jonathan DiVincenzo: Yes. I mean we can't share, obviously, the customer that we're supporting, but there's a family of vaccines, which -- the expectation of who is going to be vaccinated by certain geographies has changed and as our customers' demand changed, they obviously demand the manufacturing strategy that they have has changed as well. So we were notified towards very end of last year as we were getting ready for the 2026 plan that they were changing some of their strategies due to that shortfall in demand, and that's what the impact is on our business. Jack Meehan: Okay. And then maybe the last one for Roop. I was trying to do like a bridge from 2025 to 2026 on op margins. So you ended the year at 12.1%. You have the in process [indiscernible] go away. That was -- I think you called out the fourth quarter GM issue, I was thinking that could be like 40 bps for the full year. So it just feels like the EBIT range you provided of 12% to 12.5% seems pretty conservative. Maybe there's some headwinds from process chrom in there, but what else am I missing? Can you just help us with that? Roop Lakkaraju: Yes. Jack, I think you netted it out pretty well. I think we're trying to be very realistic. The process chrom impact is 50 basis points to the op margin. And so as we said that some of the Q4 costs that we incurred, we don't expect to recur. And we are seeing improved operational improvements as we go through. There's some mix improvement, but that process chrom is 50 basis points, which is a headwind that brings it down just a bit in terms of that range. But with that said, as we talked about, and Jon mentioned, as we think about the ddPCR platforms, especially the QX700, opportunities for further growth there. That gives us possible margin enhancement because those are strong margin products. Norman Schwartz: Operator, are you still there? Roop Lakkaraju: Sorry, operator, we couldn't hear you clearly. Operator: Your next question comes from the line of Dan Leonard with UBS. Daniel Leonard: I wanted to circle back on the process chromatography comments. I appreciate that there are near-term issues there. But that long-term forecast of mid-single-digit growth, what would drive that view? Is there a mix issue there? Or why wouldn't you otherwise think that, that product line for you could be faster growing long term? Roop Lakkaraju: Yes, Dan, I appreciate the question. And I think there's a couple of different things here. One, with the changing conditions that we saw occur late in the fourth quarter from government regulations and some of the efficiencies that our customers are driving. I think one, we're trying to be conservative about it. The second part of it is, and we've talked about this before, when we look at the growth in our customers in the clinical phases, we do have strength there, and it's a growing pipeline of potential customers that can move to that commercial range. And so we kind of are looking at it with all of these conditions concurrently operating, if you will, and trying to set it towards a mid-single digit longer term. I think there is the potential, depending upon how some of these customers move through clinical to commercial that it could be a higher growth rate, but at this time, I think as we think about all the different moving pieces, we were trying to be -- set a reasonable growth rate there. Daniel Leonard: Understood. But Roop, is it fair to assume that maybe your portfolio in aggregate is over-indexed to vaccines compared to the average of the bioprocess industry and that's part of the pressure here in the midterm framing? Jonathan DiVincenzo: I think that's fair to say, although the projects, which are still in clinical trials, I think it has a normal balance, but our commercial product, yes, I think that's a fair statement, Dan. Daniel Leonard: Okay. And then just a quick follow-up. Is it possible to frame when thinking about the outlook -- growth outlook here, what's the organic forecast in comparison to what the acquisition contribution would be before Stilla is annualized at mid-year? Roop Lakkaraju: Yes. I mean if you think about -- as we said in the fourth quarter, Stilla would be mid-single-digit millions of revenue in the fourth quarter, and that was achieved. And outside of that, we had some negative growth rate in some of the other platforms. So when you think about ex Stilla overall, you're looking at just slightly under 1% negative on LSG, but that's driven by the process chromatography impacts to that, if you will. Operator: Your next question comes from the line of Tycho Peterson with Jefferies. Tycho Peterson: I wanted to touch on Clinical Diagnostics, guide of 1% to 2%. This was a 2% to 3% growth business pre-COVID. I'm just curious why it's not doing better, especially as China headwinds are abating potentially. So maybe just talk a little bit about why the growth is muted relative to where you were pre-COVID. Jonathan DiVincenzo: Tycho, thanks. This is Jon. Yes, I think it's a mix of the portfolio overall. We see leading the way with our quality controls, largest part of our Diagnostics business doing well. Others, we have some platforms where the markets aren't as strong overall and some of that relies on China. So I think it's a mix of our product mix and geographies. Tycho Peterson: Okay. I'm going to ask the process chrom question a third way because it is a big swing, and I think we're all going to get a lot of questions on this tomorrow. But kind of the guide for this year, obviously assumes no recovery, no recapture of that business. But when you talk about mid-single digit longer term, how do we think about when you could get back there? Is that a '27 story or further out? Roop Lakkaraju: I think it's a possibility to get back to low single-digit growth rate in '27, and then it's maybe a year or 2 out from there, Tycho, to get towards that mid. But with that said, I mean, it could accelerate faster depending upon how folks are moving through the clinical phases and how that might evolve, right? So there's a number of moving pieces there, but '27 is probably low single, if we were to think about it that way, flat to low single. I think what we would seek is beyond that to try and drive back towards that mid-single digits. Tycho Peterson: Okay. And then last one, how should we interpret the lack of a buyback this quarter? I know you did $300 million almost for the year, but you do have $1.5 billion of cash in the balance sheet. Are you signaling anything here? I mean you have talked about potentially doing M&A. So I'm just curious if there's anything to read there. Roop Lakkaraju: No, I don't think there's anything to read. I think we try and look at things opportunistically, Tycho. We are actively looking at assets, as Norman said, and we've said previously. But I wouldn't have that be a leading indicator of any particular thing happening. Operator: And that concludes our question-and-answer session, and that also concludes our call today. Thank you all for joining, and you may now disconnect.
Operator: Good afternoon. Thank you for attending today's Procore Technologies, Inc. FY '25 Q4 Earnings Call. My name is Tamia, and I will be your moderator for today's call. [Operator Instructions] I would now like to pass the conference over to your host, Alexandra Geller, Head of IR. Alexandra Geller: Good afternoon, and welcome to Procore's 2025 Fourth Quarter Earnings Call. I'm Alexandra Geller, Head of Investor Relations. With me today are Ajay Gopal, President and CEO; and Howard Fu, CFO. . Further disclosure of our results can be found in our press release issued today, which is available on the Investor Relations section of our website and our periodic reports filed with the SEC. Today's call is being recorded, and a replay will be available following the conclusion of the call. Comments made on this call include forward-looking statements regarding, among other things, our financial outlook, platform and products, customer demand, operations and macroeconomic and geopolitical conditions. You should not rely on forward-looking statements as predictions of future events. All forward-looking statements are subject to risks, uncertainties and assumptions and are based on management's current expectations and views as of today, February 12, 2026. Procore undertakes no obligation to update any forward-looking statements to reflect new information or unanticipated events, except as required by law. If this call is replayed or viewed after today, the information presented during the call may not contain current or accurate information. Therefore, these statements should not be relied upon as representing our views as of any subsequent date. We'll also refer to certain non-GAAP financial measures to provide additional information to investors. A reconciliation of non-GAAP to GAAP measures is provided in our press release and our periodic reports filed with the SEC. With that, let me turn the call over to Ajay. Ajei Gopal: Thank you, Alex, and welcome, everyone. I'm excited to join you today to discuss our Q4 and fiscal year 2025 results. As this is my first earnings call as CEO, I want to start by expressing my strong conviction in Procore's future. During my first few months, I have been spending time with customers and employees and evaluating the business objectively to ensure our strategy is built for long-term value creation and that our operations of scale for peak efficiency. These initial months have reinforced my belief that Procore assesses the hallmarks of a best-in-class vertical software leader and is building 1 of the most mission-critical vertical software platforms as a crucial system of record for the built world, our ability to drive collaboration across all construction stakeholders creates a powerful network effect. Furthermore, I believe Procore is uniquely positioned to lead in the AI era, driving unprecedented efficiency gains across the entire construction life cycle. I am confident that the scale of our business, the capabilities of our products and platform and the depth of our customer relationships give us a clear path to drive durable growth, meaningfully expand margins and compound free cash flow per share over the long term. I am incredibly energized by the opportunity to scale this company to its full potential. My evaluation is happening in lockstep with disciplined execution across the company. As our Q4 and fiscal year 2025 results demonstrate, our operational pace continues to improve as we strengthen our position in the market. Let me shift to business performance. Building on 4 consecutive quarters of strong business momentum, we ended the year with an exceptional Q4 that exceeded the high end of our guidance. For the full year, we delivered 15% revenue growth and 14% non-GAAP operating margin, which represents year-over-year expansion of 400 basis points. I'm particularly pleased with these results given the ongoing headwinds from a challenging construction environment, with the U.S. Census reporting negative growth for the combined nonresidential and multifamily sectors. Let me take a few minutes to walk you through some of the highlights of our strong quarter. I'd like to start with the largest and most mature part of our business today, U.S. general contractors. I am encouraged by how much opportunity exists within the segment. From new logos to volume expansion and product cross-sell I believe this cohort of our business remains a cornerstone of our growth. In Q4, we added 3 new ENR 400 logos and expanded our run rate with more than 70 ENR 400 customers. One of our new ENR 400 additions joined Procore as our largest new logo win of the quarter and displaced an incumbent vendor. They partnered with Procore because of our unified enterprise-grade platform and their strong internal demand for our products. They also adopted Procore Pay to automate their manage processes and Procore resource management for their growing fleet of capital assets for their self-perform work. With Procore, they expect to achieve a return on their investments in a few key areas the ability to scale labor efficiently, drive schedule and cost predictability at the portfolio level and gain new levels of enterprise governance and visibility. We have a track record of displacing incumbent vendors and we believe this is yet another example of the construction industry realizing that Procore is the gold standard. Of course, our USGC opportunity goes well beyond the ENR. To illustrate this market depth, we signed more than 30 100,000-plus ARR agreements this quarter with contractors outside of the ENR 400. An example of this is with an enterprise general contractor based in Georgia, who returned to Procore as a significant win back. After leading Procore in 2024 for a cheaper solution, they returned to us in Q3. And then in Q4, they deepened their partnership with Procore even further. They adopted our platform enterprise-wide and added Procore Pay and resource management, resulting in a high 6-figure expansion. With Procore, they expect to enhance efficiency, support growth and anticipate savings of more than 27,000 labor hours per year. the equivalent of adding roughly 13 full-time employees. While we never want to see a customer lead, this win back reaffirms the simple truth. The value of Procore creates an advantage that price alone cannot match. These wins illustrate the clear value on GC customers realize from using Procore. Our newer products, including Pay, Resource management, preconstruction and analytics or compelling value drivers. We see these products as notable expansion opportunities for our global GC customers to drive incremental growth. Beyond US GCs, we see substantial opportunity with the other stakeholders we serve, specifically owners and subcontractors. With our demonstrated product market fit, and our continued product innovation. These stakeholders represent extensive white space globally and will serve as significant growth levers for Procore. In the interest of time, let me focus on owners, the most diverse group of customers spanning industries such as technology, energy, utilities, education, health care and real estate. Our business continues to scale with Q4 marking another quarter of consistent growth in this segment. To meet their evolving needs, we are planning to launch a suite of specialized products later this year, including portfolio management, planning, funding and asset management. This empowers owners to more effectively manage their project portfolios, mitigate risks and optimize costs. I'm also proud to report that Procore government achieved FedRAMP Moderate authorization this quarter and is now available in the FedRAMP marketplace. This milestone validates our commitment to some of the more stringent data security standards and software, which will unlock further opportunities with U.S. federal and state government customers. A primary example of the growing demand for these solutions is in data centers, where AI infrastructure is driving unprecedented investments. Procore is the clear leader for data center construction. While data centers currently represent a modest 2% of total U.S. construction activity, the growth trajectory fueled by the global demand for AI is compelling. Procore is ideally positioned to capture these tailwinds as this sector becomes a more substantial component of total construction spend. For example, our largest international Q4 deal as 7 figures annually, was a big up-and-coming hyperscaler in the U.K. data center market. This customer selected Procore in Q4 to establish a full source of truth and ensure consistency across the global projects. And within weeks, they expanded construction volume to meet accelerated data center deadlines. Moving beyond data centers. We also added new owner customers, including the Central Ohio Transit Authority, and 1 of Canada's largest real estate developers. We also expanded with existing owner customers such as a globally recognized online retailer and a leading semiconductor manufacturer. I would now like to move to a discussion of strategy. There are rare moments in history when a technological shift accelerates industry-wide adoption. At Procore, we last saw this with the ubiquity of broadband and the rise of mobile devices. This was a major catalyst for our business, as Procore was initially built to bring efficiency and collaboration to the job site, unlocking value for the people with mounded boots. We believe AI stands to be an even more meaningful catalyst than any that we've seen before. Procore's category leadership position did not arrive overnight. We started as a system of record for the built all and we have evolved into a system of collaboration as we hit scale across the globe. Over time, we earn the right to turn trusted dynamic data interaction. Today, Procore is a digital window into the build world. We are where physical assets and activities are digitized and where actions are taken to change the physical world. This journey is what makes our move into a agenetic AI feel inevitable rather than opportunistic. And our recent tuck-in acquisition of Data Grid leverages its leadership position to accelerate our AI strategy. We believe that the combination of Procore Helix and data grid will generate notable product synergies due to our highly complementary capabilities and road maps bringing premier advanced reasoning and broad third-party integration capabilities into Procore. We call this combined offering Procore AI. To demonstrate the potential of Procore AI, I'd like to share a recent example from the superintendent and a joint Procore and data grade enterprise GC customer that showcases our most recent advanced reasoning capabilities. Like most superintendents, their day consists of walking the job site and taking videos to share with off-site stakeholders. On this particular walk, they noticed a potential issue with a structural column. They took a video and sent the footage to our AI agent with a simple prompt, identify the issues here. Using advanced reasoning, our agents didn't just watch the video. It understood, by simultaneously analyzing the audio and video Qs, the agent identified the exact column and utilized reasoning to know where to go in Procore to pull the growing, specifications and documents related to that column. The agent concluded that the column has been incorrectly coded, determined the required rework automatically created the work order and notified the relevant stakeholders. The agents also triggered related downstream workflows in Procore, halting further work in that area and scheduling the rework. Historically, these tasks would have demanded several hours of manual efforts and individual expertise to navigate across project specifications. This is not just a hypothetic possibility. This is a real-world example of Procore AI, turning a standard job site walk through into an autonomous resolution. This illustrates the true power of Procore AI's construction aware multimodal reason. This scenario occurs thousands of times across the job site. This is true special purpose AI built for construction. It has a domain expertise to understand the context, the access to search records and the authority to trigger actions. And it was built for project teams out of the field delivered through the tool they use every day. This seamless integration of intelligence and utility direct result of 4 foundational points that will enable us to lead in the AI era. First, as construction's mission-critical system of record with nearly 3 million active users, Procore has a massive proprietary dynamic data set. And the value is not only in the volume of data, it's in the depth of its context. We map the complex dynamic interactions between people, workflows and the physical job site, capturing and continuously updating every document allocation and day-to-day change. This dynamic relevance is exactly what's needed to power high-stakes agentic AI. My second point is trust, a fundamental prerequisite for AI adoption. It's crucial that construction stakeholders trust how the technology provider will use their data. And that's why we've built a scalable, enterprise-grade infrastructure to ensure that every AI action is secure, compliant and contextually relevant. It's only through this combination of contextual data and trust that a platform can provide the industry with needed productivity gains. The third point is our network effect. For AI to automate and complete tasks, it must work where the users work. On a typical project, a customer often connects with dozens of different companies, all collaborating on the platform every day to get their jobs done. So for serves as a central hub where everyone in construction comes to connect and collaborate, making the platform not just a system of record, but a true system of collaboration accelerating the flywheel of our network effect. The fourth point is Procore agentic solutions perform critical actions, not just provide insights. As the critical orchestration layer for every stakeholder in construction, we believe our platform is capable of delivering a true digital coworker to help construction workers get more done with less. This is paramount for an industry facing chronic labor shortages of nearly 350,000 workers in the U.S. alone according to associated builders and contractors. Today, Procore delivers agentic AI directly to the crews in the field as well as to the teams in the office, embedding intelligence directly into the natural workflow. By supporting each of our nearly 3 million active users with digital coworkers, we can provide a scalable solution to the industry's labor shortage. Long time Procore customer [ Casco ] is already benefiting from digital coworkers. By deploying Procore AI on a single project, their initial ROI was immediate, saving superintendence hours per day on mundane tasks. Within just 6 months, they went from 0 AI usage to expanding to several projects with the intent to deploy across their portfolio. The productivity gains were so impactful that [indiscernible] is now looking to empower everyone on their construction teams with digital coworkers from Procore. One way to conceptualize the value of these productivity gains can be seen in comparison to the cost of labor, which is significant within construction. For every dollar of construction volume, a contractor spends a material portion of labor. With digital coworkers from Procore, we believe customers will materially increase their output without corresponding labor growth, leading to meaningful savings. Capturing just a small fraction of that ROI represents an incremental market opportunity for Procore expanding beyond our traditional solutions. The economic value of our traditional solutions is supported by our construction volume-based pricing model. Because we price on project scale rather than see count, our traditional revenue remains insulated from head count fluctuations as AI drives industry efficiency. There is a profound sense of magic when software stops being a tool you manage and starts becoming an expert that manages the project for you, anticipating hurdles and clearing them in the background. The benefits of Procore AI extends far beyond efficiency gains. By reclaiming thousands of labor hours, we are freeing up valuable resources for our customers to deploy on more projects. Procore forward is defined by a powerful economic duality of upside opportunity and downside protection. We will monetize the value and ROI of Procore AI agents even as our volume-based model provides a structural economic foundation for our core business. I believe Procore will unlock unprecedented value as a definitive winner in the genic AI era. In summary, Q4 was another excellent quarter and closed on a strong year for Procore. My first quarter as CEO exceeded my expectations. And while there is a lot of work ahead, I am incredibly excited about the future of Procore. Procore is a rare company. We have scale past $1 billion in revenue, defined an entire category, delivered a best-in-class platform and establish a deeply loyal customer base. What Procore built is truly impressive. And this is just the beginning. I joined because I believe our brightest days are ahead of us. We are well positioned for durable growth and margin expansion. As we continue to innovate for our customers and execute towards our goals, I am confident in our ability to deliver substantial shareholder value. Before I turn the call over to Howard, I want to thank all of the Procore employees. None of the opportunities Procore has would be possible without the incredible culture you've built over the years. Thank you for making me being welcomed, and thank you for your commitment to our customers and to our company. Howard. Howard Fu: Thanks, Ajei, and thank you to everyone for joining us. The main topics I would like to cover today include our Q4 and full year financial results, additional color on the business and our outlook for fiscal 2016. Total revenue in Q4 was $349 million, up 15.6% year-over-year. Our Q4 international revenue grew 14% year-over-year and was impacted by currency headwinds. On a constant currency basis, international revenue grew 15% year-over-year. Q4 non-GAAP operating income was $52 million, representing a non-GAAP operating margin of 15%. As for our key backlog metrics, current RPO grew 22% year-over-year and current deferred revenue grew 18% year-over-year. As you heard from Ajei, Q4 was an exceptional quarter to round out a strong year. Let me share some additional color on our performance. Beginning with the top line, our strength in the quarter came from robust execution across multiple areas of the business. We are seeing broad-based momentum upmarket, higher pipeline conversion and improving renewal and churn rates, which we largely attribute to our go-to-market operating model. Our strength up market is reflected in the number of 6- and 7-figure deals which grew 20% year-over-year on top of a very strong performance in last Q4. The total number of $100,000-plus ARR customers now totals more than 2,700. within our strength up market, we ended the year with 115 customers spending more than $1 million in ARR with Procore. This represents 34% year-over-year growth further demonstrating our ability to scale to the largest customers around the world. We also continue to see strong momentum with Procore Pay, ending the year with nearly 450 customers representing more than 70% year-over-year growth. As we've been messaging throughout 2025, we believe the number of 100,000-plus ARR customers is the best representation of our business performance and our revenue growth as it represents the vast majority of our customer base at 66% of total ARR. In contrast, our total customer count growth is heavily impacted by our SMB customers and therefore, is not reflective of our underlying business performance. As such, and in line with our commentary to investors over the past year, this will be the final earnings we will be disclosing total customer count. However, we will continue to disclose the $100,000-plus ARR customer count on a quarterly basis. Our strength in the quarter also contributed to the strength in CRPO. This metric continues to benefit primarily from longer average contract duration when normalizing CRPO for this dynamic, the year-over-year growth is consistent with both Q4 revenue growth and ending ARR growth. Once contract duration stabilizes, reported and normalized CRPO growth will eventually converge with revenue growth. With respect to margins, we delivered 400 basis points of margin improvement for the year, all while investing in our go-to-market operating model and our platform. While our margin improvement may not be linear within the year, we will continue to deliver incremental margin expansion on an annual basis, which is also reflected in our fiscal '26 guide. Now let's turn to our North Star metric, free cash flow per share. We delivered our strongest free cash flow quarter in history, generating $90 million in the quarter, bringing full year free cash flow to $215 million, representing 69% year-over-year growth and a 16% free cash flow margin. This result reflects our strong bookings which translated into higher billings and collections as well as continued margin expansion. We are also focused on limiting our share count dilution rate. Our weighted average diluted share count grew less than 1% in Q4, which reflects our continued discipline on equity compensation we believe our share count growth is a leading indicator of SBC leverage over the long term. SBC, which is a lagging indicator can be impacted by accounting rules that have no impact on dilution. Our Q4 results were an example of this, with SBC increasing to 23% of revenue, driven by a onetime charge of invested equity related to the transition of our former CEO. This charge only impacted the P&L and was not an acceleration of equity compensation payout. Excluding this onetime charge, SBC would have been 16.6% of revenue, which is in line with Q3. Our Q4 and full year results demonstrate that we remain focused on delivering durable growth margin expansion and modest share count growth in order to compound free cash flow per share. And our strong results and momentum were all achieved before any material top line benefits from AI that we expect to realize in the future. Looking back on the year, I am proud that we delivered on the commitments we made for fiscal '25, particularly while facing ongoing headwinds from a challenging construction environment. Our go-to-market motion is yielding tangible and more consistent results, characterized by improved sales productivity and a noticeable shift towards larger enterprise-wide relationships. This motion, combined with the compelling ROI of our platform has not only solidified our category leadership, but has also created a more durable business. And more importantly, we have achieved this while remaining laser-focused on our North Star metric, free cash flow per share. With that, let's move on to our outlook. For the first quarter of fiscal 2026 we expect revenue between $351 million and $353 million, representing year-over-year growth of 13% to 14%. Q1 non-GAAP operating margin is expected to be between 14% and 15%. For the full year of fiscal '26, we expect revenue between $1.489 billion, and $1.494 billion, representing total year-over-year growth of 13%. We expect our non-GAAP operating margin guidance for the year to be between 17.5% and and 18%, which implies year-over-year margin expansion between 340 and 390 basis points. Additionally, to closer align our guided metrics to free cash flow per share, we are now formally guiding free cash flow margin on an annual basis. We expect free cash flow margin for the year to be 19%, which implies year-over-year margin expansion of 270 basis points. To wrap up, we are pleased with how we ended the year and the momentum we have across multiple aspects of the business, and we are confident that we can deliver on our promise of a stronger P&L in fiscal '26. We expect our category leadership, strong execution and AI capabilities to drive shareholder value in the years ahead. With that, let's turn it over to the operator for Q&A. Operator: [Operator Instructions] The first question comes from Saket Kalia with Barclays. Saket Kalia: Okay. Great. a nice finish to the year. Ajei, maybe to start with you. I appreciate your prepared remarks, particularly around AI. But I was wondering if we could just dig a little deeper on what your customer conversations have been like on the topic of AI? And maybe specifically, do you see customers trying to maybe build Procore like tools themselves someday? . Ajei Gopal: So Saket, the example that I gave you in the script. Frankly, that gave me goosebumps, and I hope it gave you guns well because it's so compelling. It shows how different the construction use cases from the general horizontal office application or the commercial use case -- a general consumer use case of AI. And that's why this laser focus that we've had on construction is so important to our customers. And so to your point, I mean, thinking about it from a customer perspective, our customers, they neither have the time nor the inclination to become AI experts. They're in the business of construction, and they just want to build better. And that's their business. . And they want to make sure though that their tech vendor is taking advantage of the best and the latest technologies including, of course, AI, and that's the conversations that I have with my customers. And I'm excited that we have the structural advantages and that we have also taken the operational actions to emerge as an AI winner. Now as far as Procore AI is concerned, we're seeing pure customer adoption. So we have something like 66,000 unique active users who are using Procore AI. We've got something like 700 customers nearly who have created thousands of agents on Procore. And these customers, they skew up market. And obviously, we expect this momentum to continue to increase with the breadth and the depth of the capabilities that we have now that we've concluded the data grid acquisition. And at the risk of sort of repeating some of the comments from the script, I think it's important to recognize that we rode the wave when mobile became mobile and broadband became ubiquitous, we rode that wave to deliver digitization to the construction industry. And we were able to bring technology to the frontline work is in a manner that was appropriate to how they work and where they work. And obviously, we built up a tremendous amount of trust with the industry at that time, and we have the same opportunity for AI today. And if you think about what I discussed, there's sort of structural and operational aspects. And so let me just sort of talk a little bit about the structural. Our solutions are at the interface between the physical and the digital world. I mean we're the ones who are digitizing activities and we're the ones where action is taking place to affect the physical world. And as I mentioned in my script, we are the system of record [Audio Gap] Unknown Analyst: And maybe just as a quick follow-up to Ajei's point about international and great to see the continued go-to-market changes taking hold. So as you think about kind of these go-to-market changes continuing and Ajei, now that you've got a little bit more time in the seat, as you think about the international footprint, what kind of gets you most excited about that opportunity? And any thoughts on how a channel could help kind of build the feet on the street, so to speak, in coming years? Ajei Gopal: Yes. I mean I think, obviously, I've been in seat for about a quarter, but everything that you point to in terms of channel, in terms of international, all of these things are opportunities that we are continuing to look at and evaluate from my perspective there. My experience, obviously, has been with businesses which have had channel with significant channel presence -- and that's obviously an opportunity for us as well as significant international presence. So that's something that I continue to look at as we look at future evolution of our business. Howard Fu: Adam, this is Howard again. I'll just tell you, we would have liked to have been further along on the international side in terms of top line. International is still facing the same types of macroeconomic challenges that is impacting the progress there. But having said that, the model that we put in place, we still believe is the absolute right model. We are seeing the good results internationally as well as domestically in terms of that model being put in place with respect to folks like the technical specialists, and we continue to see progress. We believe in the opportunities we have product market fit, and continue to build towards more product market fit. So longer term, it is still absolutely an opportunity for us. And so we're excited about it. We would like to be further along. It is something that we think over the long term will still continue to contribute to our growth. . Operator: The following comes from DJ Hynes with Canaccord. . David Hynes: I'm going to go reverse order and start with you, Howard. I'm curious what you saw in terms of trends of volume commitments during the Q4 renewal cycle. And maybe you could compare that to kind of how it was a year ago and I don't know if as part of that, what kind of price you're taking on like-for-like renewals? Any color there would be helpful. . Howard Fu: Yes. In general, we're not going to disclose the specific number. But last quarter, we talked about ACV commitments on the platform crossing $1 trillion, and that continues to grow in Q4. So we continue to see strength there. And that also exemplifies and is evidence that we continue to gain share as well. And so it's grown off of that $1 trillion. David Hynes: Okay. And then, Ajei, maybe we could go a little bit deeper on data grade. I'm curious where the data that's not inside of Procore resides where data grid will help you. Is it in other construction point solutions? Is it in other systems of record, like what is that data that needs to come into the system that will help kind of power your AI efforts? Ajei Gopal: Well, I think it's important to understand, Ben, what our architectural construct is as we put together the whole solution. As you -- as we announced at groundbreak, our strategy at the baseline is to have essentially well-thought through APIs, which are appropriate for agnetic workflows to have a platform for agenetic applications and AgenticAI solutions and then to build out AI agents themselves. So it's a 3-layer structure, I platform and the platform includes the ability to do things like advanced reasoning, multimodal reasoning that's construction aware as well as, of course, to be able to monetize activity. So there's sort of that -- those 3 layers. We announced our strategy and obviously, we were building towards that. We saw with Data Grid the opportunity to be able to accelerate that growth because they had focused a lot on areas that we hadn't focused and we had a complementary way of approaching the market. Now they have -- between us, we have connectors in to a large number, I think, of third-party systems, including ERP systems and others, which allow us to collect information and bring it together. What's really important as far as data is concerned, when you think about the volume of our data, we've got something like 3 million active users in our system. We've got all kinds of information in our systems, including what's really important things like annotations and changes, which are sort of unique data elements as well as the dynamic view of how that data has changed. So there's a lot of resources that we have been in a position to bring to bear in terms of the information that's within Procore, the ability to be able to oxtrate activities and have data grade is essentially accelerated the strategy that we had in place, bringing some really interesting reasoning capabilities as well as some interesting connectivity capabilities that they had built into the overall Procore AI story. Operator: Moving forward, the next question comes from Matthew Martino with Goldman Sachs. Matthew Martino: Ajei, maybe sticking with the Procore AI for a moment. Like can you elaborate on the specific monetization strategy for this? Should investors expect a new premium SKU sort of platform-wide price uplift or consumption model tied to the ROA -- ROI that you intend to generate for your customers here? And if I could just slip in a quick 1 for you, Howard. What looks like head count grew about 5% total for the year, even with the go-to-market changes. Looking forward, Procore's guiding to around 400 basis points of margin expansion. Do you feel that the business is sufficiently resourced from a go-to-market perspective, especially if we were to see kind of the construction cycle turn over the next several quarters? Ajei Gopal: So let me just answer your question about monetization of AI and then I'll turn it over to you to Howard. Look, as in any business and new business opportunity, the first thing you've got to do is to establish a compelling ROI and we believe that we're doing that. We know that we're doing that. Our customers are seeing benefit and value from the technology, as I described in the example, where they're saving time and are able to do things that they wouldn't have otherwise been able to do given the shortage of labor and given the limited amount of hours in the day that they have. . And so the first thing you have to do is to make manifest that ROI. And obviously, from our perspective, the labor cost elements that our customers are facing, that is 1 of the significant and most important line items for our customers. And having digital coworkers do the work, we think generates that significant ROI and even if we can monetize a small fraction of that, we have a significant and incremental upside opportunity that we believe will drive upside to our business at the same time that we support our customers. And we are likely to be including some of those AI offerings within upcoming bundles that are part of some new packaging we're also likely to be including component based -- some consumption-based components. Now this is obviously relatively new to the market. So we're likely to experiment, and we're likely to evolve our approach. But look, I'm excited about our path forward. I'm excited about our ability to monetize AI, and we'll be sure to keep you posted as we proceed. Howard Fu: Matt, this is Howard. Let me just answer your question around capacity and leverage and so forth. So the first thing is we -- the short answer is yes. We have enough capacity. We have planned for enough capacity going into fiscal '26 to be able to sufficiently invest in the business. Let me go through a couple of more details here. One is, remember what we talked about from a go-to-market perspective, fiscal '25 was an investment year. We are going into fiscal '26 with largely the capacity that we already need on the go-to-market side and then the focus is really on productivity increases. And so that's the first thing. With respect to the places where we are adding more resources and more headcount, it's largely focused on the R&D side of things, and those are largely going to be added in lower-cost geos for the most part. And in addition to that, we continue to see leverage across all parts of the OpEx lines as we did last year, as we're doing this year as we will do continuing going forward, and also keep in mind, although we are using internally AI, and that is having a benefit, a lot of those improvements that we have done last year and this year is largely just getting better at the foundational ways that we operate. And as we think about leverage going forward and the resources that we need, the AI piece is actually going to be an additional tailwind to our ability to find scale and leverage in the business going forward. Operator: The next question comes from Ken Wong with Abenheimer. Hoi-Fung Wong: Fantastic, Howard, I wanted to ask about the guidance. Previously, you guys had this growth profit dynamic where it was it was somewhat inversely correlated. Should we think about elevated margins coming at a lower growth rate? Or is that no longer the case? And then just any philosophical changes in terms of incremental conservatism as you guys embed some some of the [indiscernible] and some of his learnings over the coming quarters? Howard Fu: Ken. So the first thing is there is no change to our guidance philosophy. You can expect the same type of cadence that we did in fiscal '25 for what we're going to do in fiscal '26. The first question I want to make sure I address, though, we've talked about this before. It's not really a trade-off between top line versus bottom line. What we optimize for is still our North Star metric around free cash flow per share and that's what we're going to optimize for both the numerator and the denominator of that equation so that we provide the best return to our shareholders. Operator: The next question comes from Dylan Becker with William Blair. Dylan Becker: Gentlemen, I appreciate it. Maybe, Ajay, for you kind of stepping back, if we double-click on the owner segment, maybe it ties into kind of the enterprise momentum and some of the larger players being more insulated here. But could you give us a sense on what you're hearing from those owners as it pertains to kind of CapEx deployment in 2026, maybe the network dynamics of their opportunity to kind of mandate proforma taken throughout the platform. And maybe, if anything, where Fed RAMP? And I know you guys have a good data center business as well here, but what that can kind of unlocking for in fully as more dollars are allocated to that trail. . Ajei Gopal: So from an owner's perspective, 1 of the nice things about the owners segment, as I said, is that the owners represent customers from multiple verticals. And obviously, I talked about data center deployments where there is a massive amount of increase in expenses as people start to build out in data centers. So you see incremental spending in certain areas -- but because it's owners -- essentially any enterprise customer as an owner, you see the natural fluctuations of those end markets being reflected in the way owners think about their own real estate investments. So -- but our value proposition to owners goes beyond the value proposition that we have to general contractors. As I said, our value proposition to owners is around portfolio management, it's about being able to manage the complexity of all of the activities that they have going potentially working across multiple GCs and multiple locations. And you're absolutely right. There is -- the network effect that I talked about earlier is a really important aspect of our business. We talked about -- I mentioned that in the context of -- but it's certainly very important in the context in just the broader context of owners mandating a particular solution, resulting in the GCs taking advantage of that solution, resulting in the subtaking advantage of that solution. And that we've been seeing essentially since we began as a company. So that allows us to create this deep well of users who are tied to Procore in a much more intimate way than perhaps with other solutions might have. The other thing, you mentioned FedRAMP. FedRAMP represents -- for us, obviously, the federal government represents an incremental opportunity as we start to look out. The fact that we have FedRAMP certification allows us to support opportunities that we were not able to, before we achieved that certification. Operator: The final question comes from Jason Celino with KeyBanc. Jason Celino: Maybe just for Howard. If I kind of adjust for the duration, it looks like you've had the biggest bookings quarter ever. So big congratulations there. Just wanted to ask if there was any deals that might have been pulled forward, not pulled forward, but closed earlier than you would have anticipated. And then when we think about kind of that normalized CRPO, if it is consistent with revenue growth, would that suggest that it did uptick versus the prior quarter as well. Howard Fu: So first of all, yes, Q4 was a fantastic quarter. And it was the biggest quarter that we had from a bookings perspective. So the answer is yes there. And in terms of where that came from, it actually didn't come from any 1 specific deal or even a couple of deals. The strength was actually more broad-based across both large deals as well as the broader commercial segment. And what we saw was really the engine starting to really gain momentum building again on 4 quarters of really strong and consistent execution. And so that gives us a tremendous amount of confidence and momentum going into fiscal '26. In terms of normalized CRPO, the only thing that we'll continue to disclose and tell you it is still consistent with Q4 revenue growth and ending ARR growth. I think that gives plenty of information about where we expect things to go in the near term .n Operator: Thank you. This concludes today's conference call. Thank you for your participation. You may now disconnect your lines.
Operator: Greetings. Welcome to the Electrovaya Inc. Q1 2026 financial results conference call. A question and answer session will follow the formal presentation. If anyone requires operator assistance during the conference, please press. Please note this conference is being recorded. I will now turn the conference over to your host, John Gibson, CFO. You may begin. John Gibson: Thank you. Good afternoon, everyone and thank you for joining today's call to discuss Electrovaya Inc.'s Q1 2026 financial results. Today's call is being hosted by Dr. Rajshekar DasGupta, CEO of Electrovaya Inc., and myself, John Gibson, CFO. Today, Electrovaya Inc. issued a press release concerning its business highlights, financial results for the quarter ended December 31, 2025. If you would like a copy of the release, you can access it on our website. If you want to view our financial statements and Management Discussion and Analysis, you can access those documents on the SEDAR+ website at www.sedarplus.ca, the SEC's EDGAR website at sec.gov/edgar, or at our updated website at www.electrovaya.com. As with previous calls, comments today are subject to the normal provisions relating to forward-looking information. We will provide information relating to our current views regarding market trends, including their size and potential for growth, and our competitive position within our target markets. Although we believe that the expectations reflected in such forward-looking statements are reasonable, they always involve risks and uncertainties, and actual results may differ materially from those expressed or implied in such statements. Additional information about factors that could cause actual results to differ materially from expectations, and about material factors or assumptions applied in making forward-looking statements, may be found in the company's press release announcing the Q1 fiscal 2026 results and the most recent Annual Information Form and Management Discussion and Analysis under Risks and Uncertainties, as well as in other public disclosure documents filed with Canadian and U.S. securities regulatory authorities. Also, please note that all the numbers discussed on this call are in U.S. dollars unless otherwise noted. And now I would like to turn the call over to Raj. Thank you, John, and good evening, everyone. It is a pleasure to speak with you today as we review our first quarter fiscal 2026 results. Q1 provided a strong start to the year. Historically, this has been our weakest quarter due to seasonality in our core material handling vertical. Despite that, we continue to demonstrate meaningful momentum. Revenue increased nearly 40% year over year, Operator: Margins improved materially John Gibson: and we maintained profitability Operator: delivering approximately $2,000,000 in EBITDA Dr. Rajshekar DasGupta: and over and about $1,000,000 in net income. I will begin by highlighting key operational developments during the quarter and year to date followed by updates on our product and manufacturing initiatives. During the quarter, we further strengthened our balance sheet through a combination of solid operational performance, support from our financial partners, and the equity raise completed in November 2025. We ended Q1 with the financial foundation to execute the next phase of our strategy, including expansion of manufacturing capacity in Jamestown, New York, expansion into new verticals, and continued development of next-generation products and technologies. Within our core material handling vertical, we continue to make strong progress. Our new OEM integrated high-voltage battery systems developed over the past two years are now scheduled to begin commercial deliveries in March 2026. We also made deliveries during the quarter to an existing global defense contractor for our new vehicle platform, expanding our relationship to two distinct applications with that OEM. We expect defense to become a meaningful contributor to revenue this fiscal year and a strategic priority for the company over the long term. In robotics, we initiated commercial deliveries of our latest modular 48-volt battery system to a robotic OEM partner this January. We view robotics as a high-growth vertical aligned with our technological sense, and we expect deployments to accelerate. Testing of our initial airport ground support equipment battery systems continues across multiple locations and climate conditions at a leading U.S. airline. While this process has taken a bit longer than initially anticipated, we remain optimistic and believe this product line represents a meaningful long-term opportunity. We also established a Japanese subsidiary during the quarter to support growing demand across Japan and the broader Asia Pacific region. We are seeing encouraging interest across multiple verticals and believe this presence will support long-term growth in the region. Turning to some product development activities. Demand trends in automation, robotics, advanced mobility, and energy storage for data center infrastructure are increasingly aligned with Electrovaya Inc.'s core strengths which include safety, cycle life, and high power capability. We are making strong progress on several key initiatives including the rapid charging version of our Infinity technology, and new energy storage systems focused on high power, especially 800-volt DC architectures. Our ultrafast charging power cell development is advancing well. This product integrates a next-generation anode technology with our Infinity platform, including our ceramic separator technology, to deliver enhanced safety and long cycle life while targeting five-minute charge and discharge capability. We have seen significant application potential ranging from high-intensity robotic systems to data center infrastructure support, and we are targeting commercialization in 2027. In parallel, we are developing energy storage systems designed for emerging 800-volt DC data center architectures. These systems are intended to provide short-duration ride-through capability and manage rapid power fluctuations associated with workload shifts and generator transfers. We are currently in early-stage discussions with potential partners in this area. To support these initiatives, we recently hired a head of energy storage, a new head of energy storage with extensive industry experience, to help guide our technical and commercial strategy for this key area. We are also advancing our next-generation John Gibson: ceramic Dr. Rajshekar DasGupta: separator technology, which is expected to further improve energy density and thermal stability beyond our current platform. We are already seeing strong results and are moving forward with plans to domestically scale up this strategically important technology. Closer to market, we plan to launch new products for class three material handling vehicles as well as next-generation software and analytics solutions at MODEX 2026 this coming April. Finally, regarding our Jamestown expansion, we have commenced both interior and exterior facility upgrades. Initial dry room equipment required for cell manufacturing has been delivered, and we have begun hiring key personnel to support equipment installation and automation activities. This expansion remains a critical component to our strategy to increase capacity and support domestic production. With that, I will now turn the call back to John for a detailed review of our financial results. John Gibson: Thanks, Raj. Electrovaya Inc. continued its steady growth into 2026. As Raj mentioned at the top of the call, the company has historically had lower revenues in this quarter due to customer seasonality. However, Q1 showed significant growth year over year. We entered Q2 fiscal 2026 with a strong balance sheet and capital to continue our engineering focus on new market verticals and support organic growth. Revenue for the quarter was $15,500,000 compared to $11,100,000 in the prior year, year-over-year growth of 39%. Our gross margins for the quarter were 32.9%, an increase of 240 basis points over the prior year gross margin of 30.5%. As is the case with previous quarters, gross margins are primarily driven by product mix. However, managing suppliers, prices, and tariffs continues to be at the forefront of our activities as we scale. Management believes the company is well positioned to maintain strong margins as we continue through 2026. Operating profit increased significantly year over year. Operating profit for Q1 was $1,400,000 compared to an operating loss of $200,000 in the prior year, and the company generated a net profit of $1,000,000 in the quarter, a significant increase from the net loss of $400,000 in the prior year. Q1 now represents the fourth consecutive quarter of net profit and positive earnings per share, and we believe we can continue this trend of profitability into fiscal 2026 and beyond. Our adjusted EBITDA was $2,000,000 for the quarter compared to $500,000 in the prior year, an increase of $1,500,000 or 300%. EBITDA grew in the current year due to improved margins and managing operating costs. Adjusted EBITDA as a percentage of revenue was 13% for the quarter. The company generated positive cash flow from operations of $1,700,000 after accounting for net changes of working capital, compared to cash used in operating activities of $300,000 in the prior year. The company ended the first quarter with positive net working capital of $51,900,000 compared to $12,600,000 in the prior year. Our current ratio is 6.0 compared to 1.6, a clear indicator of improved financial performance, and management is committed to continuing this positive trend. At December 31, our total debt was $27,300,000 compared to $15,300,000 in the prior year. This debt includes both working capital debt and debt from the Ex-Im facility. The working capital debt was $10,900,000 at the end of the quarter, a decrease of $4,400,000 over the prior year. This improved debt balance was driven primarily from cash flows from operations. At the end of the quarter, we had drawn $16,400,000 from the Ex-Im loan. We are still in a period of no cash payments with Ex-Im, with interest payments starting on 03/30/2026 and principal payments starting 03/31/2027. During the quarter, the company raised gross proceeds of $28,000,000 from an equity issuance. The company has utilized some of this cash for engineering and R&D efforts. At the end of the quarter, the company had cash on hand of $22,700,000 and availability within its banking facility of $9,000,000. We believe we have adequate liquidity to support our expansion into these new verticals and our anticipated growth as we continue through fiscal 2026. Dr. Rajshekar DasGupta: The company made a solid start to fiscal 2026, maintaining disciplined progress across operations. John Gibson: Which we see continuing into Q2. We would expect to build on this momentum as we continue through the remainder of the fiscal year and are reaffirming our revenue guidance of 30% growth for fiscal 2026. Finally, I wanted to elaborate on one of the items detailed in the AGM material relating to the redomiciling of the company. Dr. Rajshekar DasGupta: After our equity financing in November, John Gibson: and based on trading activity being substantially higher on the Nasdaq than the TSX, the company expects to lose its foreign private issuer status and be treated as a U.S. domestic filer under SEC rules. This change will subject the company to the full domestic reporting and governance regime, but absent a change in corporate domicile, the structural and legal advantages typically available to U.S.-incorporated issuers. In addition, the U.S. domestic issuer company will become eligible for inclusion in certain U.S. equity indices. Taken together, these changes position us to broaden our investor base, improve trading liquidity, and ultimately enhance long-term value for our shareholders. That concludes our financial overview. Raj and I would now be pleased to hold the question and answer session. Operator: Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Once again, please press 1 if you have a question or a comment. Our first question comes from Colin Rusch with Oppenheimer. Please proceed. John Gibson: Thanks so much, guys. You know, could you give us a bit of an update in terms of the scope and scale of the customers that are moving into your sales funnel? And then how quickly they are moving through and how quickly they are getting qualified on the product. We are just curious about the velocity of some of that sales activity. Dr. Rajshekar DasGupta: Well, thanks, Colin. How are you afraid to just in general or specific John Gibson: verticals? Dr. Rajshekar DasGupta: Yeah. Specific to material handling, just related to numbers. Yeah. Material handling, we are, so in terms of the end customers, there are, it is, it is dominated by a number of large Fortune 100 and Fortune 500 companies. The largest two buyers have given us very good of their demand over the next for the for the full fiscal year, which is partly how we determined our guidance for the, and they are large retailers. Generally, of course, like to take delivery in in John Gibson: in the quarters outside of this reported quarter. Dr. Rajshekar DasGupta: So there, we have very good visibility. At the same time, we have a pipeline of new customers in various stages. Sometimes they are just testing solutions. More often, they have already done that, and they are ordering small batches of systems to get to pilot and then John Gibson: full full distribution scale. So there are various stages there, and that is a pretty Dr. Rajshekar DasGupta: good place to be in in that segment. So we are seeing good from there. We have, we are also now starting to add some additional sales resources to broaden that pool. But in the other verticals, I will talk about robotics there a bit. So we already have a number of partners we have. And we are already now shipping growing numbers of batteries to a couple of these OEMs. Instance, if you visit our plant today, you will see quite a large number of smaller 48 battery systems under various stages of assembly, and that is for robotic applications. But in addition to that, we are, we are in discussions with approximately three or four additional OEMs in that space. Of course, you know, when you are working on OEM projects, it takes, there is a time quotient, which is a little longer than a standardized product, which is the material handling product. The long answer to your question. No. That that that is super helpful. And then I am just curious about preparation John Gibson: for a pilot on the stationary storage project. Or product. How those are proceeding, if you had any incremental interest since announcing the new product with a little bit different, you know, characteristics and performance specs. It seems like it is, it is really well tuned to what we are seeing on the data center side in terms of what the real needs are. So just curious about the timing on those pilots and growth in potential customers there. Dr. Rajshekar DasGupta: Great question. So essentially, we are coming out with two products for the energy storage space. One is more of a standardized product, which is based on the existing cell that we currently manufacture. And it is a design for high power applications still, 30 minutes to one hour energy storage. And for that product, we have pilots scheduled. One is a government-backed U.S. government-backed project, which we will hopefully announce soon. And then we are planning some internal pilots as well before we put them at customer sites. The second product, which I mentioned in our prepared remarks, is that 800-volt DC system. And that is something that we have been in discussions with, with let us say, some electricity generation companies. So if you look at these data centers, they are often putting diesel gensets and turbines on-site for power generation, but those devices Operator: need Dr. Rajshekar DasGupta: when you are looking at the 800-volt architecture, they need an energy storage component to deal with the seconds, the minutes, of demand response there. And so that is the system we are, we are very excited about that is under development right now. And that system will utilize this ultra high power cell that we are developing. John Gibson: Great. Thanks, guys. I will hop back in queue. Operator: Next question comes from Daniel Magder with Raymond James. Please proceed. John Gibson: Afternoon. Thanks for taking my questions here. Just curious as it relates to these new verticals, Daniel Magder: given the announced deliveries in the defense sector, do you still expect robotics will be the second largest revenue driver in the near term or defense potentially leapfrog it? Dr. Rajshekar DasGupta: We are expecting robotics this year to be larger than defense, but they will be, they will both be present in a material way. John Gibson: Okay. Got it. Daniel Magder: But the robot is delivering that just just started in the current Dr. Rajshekar DasGupta: quarter, so there is zero deliveries in John Gibson: in fiscal Q1. Daniel Magder: And I guess just a follow-up here recognizing you have the Ex-Im loan and the New York State grant John Gibson: incentives. Daniel Magder: Given, obviously, the growth in defense and the current administration's focus on it, are there other potential government programs you think you could potentially be able to tap into? Dr. Rajshekar DasGupta: We, we think so. This is, that we are starting to look at. Currently, we are, our number one focus is, of course, getting the John Gibson: partners, the right partners here. Dr. Rajshekar DasGupta: So we already have two very good, well-established defense contractor customers. We are in discussions with another two. One of them is to finance test our products. So I think that is the route we are going at. It eventually is perhaps look at some of those opportunities you just mentioned. Daniel Magder: Got it. And, I guess, lastly for me, given all the positive progress in other areas, is energy as a service still a key initiative for you? And just wondering if you could provide any color on how it is progressing. Dr. Rajshekar DasGupta: It still is a key initiative. It is, we are, we have, what we have seen is some of the customers we thought were going down that route decided to make purchase orders instead, which is great, of course. However, we are looking at a couple partnership opportunities to support energy as a service. One route is partnering with a group who has a John Gibson: a Dr. Rajshekar DasGupta: large company who has a long history supporting similar type of activities. That is something we are considering pursuing. Got it. Alright. Well, Daniel Magder: that is it for me for now, and I will jump back in the queue. John Gibson: Thanks. Operator: The next question comes from Eric Stine with Craig-Hallum. Please proceed. This Eric Stine: jumping around between calls. I apologize if I am touching on things you already have. But maybe Operator: just Eric Stine: material handling, I know that is the lion's share or the majority of your outlook here in fiscal 2026. But when you think about that growth and when you think about the opportunity going forward, how do you think of that between existing versus adding new customers? And, you know, maybe penetration level with those existing customers that you have currently got? Dr. Rajshekar DasGupta: So today, Eric, we are already supplying at various stages of penetration level the world's largest companies. So you could not have a better pool of end customers than we have. They all are relatively early in adoption rates. Right? So if you look at the addressable market within our existing customers, it is massive. Right? So the need to bring in new end customers is actually not, you know, it is important, but it is, the larger opportunity is selling more to the folks who are already buying the product. In terms of penetration rates, I would say we are still early days. The largest operator of our system has a very large number of distribution centers John Gibson: globally. So Dr. Rajshekar DasGupta: I would say we are, we are early innings with the existing customer base. Eric Stine: Got it. And maybe following up on that, you know, I know that your thought process has been that your solution is really applicable to, you know, all sizes of facilities for those existing customers, and has it, has that come to fruition? You know, are you thinking any differently about the opportunity? And I guess that speaks to the size of the overall opportunity. Dr. Rajshekar DasGupta: Yeah. The number of solution battery systems we deploy at a typical distribution center can vary widely. There does not seem to be limit to how large a site we can support. John Gibson: I mean, there is, so I would say that is not really a Dr. Rajshekar DasGupta: a factor. Yeah. And we would, we would say, Eric, with John Gibson: over 300 batteries deployed. In vehicles. Yep. I was actually getting at it the other way, Eric Stine: there are some solutions out there that are, you know, it is tougher to go to the medium and smaller sizes, which is obviously a big part of the market. Whereas that is an area where, you know, I would think that you do quite well in? Dr. Rajshekar DasGupta: For sure. So, you know, there are plenty of sites operating our solution with probably under 10 systems. So Eric Stine: there seems to be a broad range that we can service. John Gibson: Okay. Eric Stine: See. Maybe last one for me. Just on the side. So just so I am clear. So what you are, what you called out is just, you know, expansion with one of, I think you currently have two defense contractors that you have been working with. So I guess, first, just confirming that, and then secondly, when you talk about the two plus two additional you are talking with, I mean, are these, I know it is hard. You cannot disclose a whole lot, but are these similar applications with those contractors? Or is it using your solution in a wide range of things? Dr. Rajshekar DasGupta: It appears that, you know, we only know so much, but it appears these are different applications. So with the defense contractor we discussed in our prepared remarks, they had initially, and they continue to use our solution for an autonomous land-based application. And the second application, which we just made initial deliveries for, is for a hybridized Eric Stine: vehicle system. Dr. Rajshekar DasGupta: The second defense contractor is submersible. John Gibson: Application. Dr. Rajshekar DasGupta: But in general, you know, we see defense as a good vertical for this technology given the safety and high power of our technology. Yep. Absolutely. John Gibson: Thank you. Operator: The next question comes from Craig Irwin with ROTH Capital Partners. Please proceed, Craig. Dr. Rajshekar DasGupta: So, Raj, I have a bunch of small questions around Jamestown that would be really, you know, important to understand as we shape the future. So the first one is the CapEx outlook for this year. Can you maybe shape that as far as the quarterly tempo and what your expectations are in this fiscal year? And then, associated with that, you know, where do you stand on the hiring and training of the workforce that would be necessary sort of in tandem with the installation and commissioning of that equipment? Yes, Craig. I will let John answer the first part, and I will jump on the second. Daniel Magder: Part. Yeah. Hi, Craig. So John Gibson: essentially, where we were at the end of the quarter was we had drawn $16,000,000, over $16,000,000, of the full $50,000,000 Ex-Im loans. So we expect Eric Stine: to John Gibson: spend that money before the end of the fiscal year, or at least, Dr. Rajshekar DasGupta: you know, 90% of it John Gibson: kind of before the end of the fiscal year. So from a CapEx perspective, you are going to see an increase strongly within Q2 and Q3. The majority of it will be within Q3 and Q4, though. So, yeah, fully spending or at least spending 90% of that loan and including that CapEx within the fiscal year. Dr. Rajshekar DasGupta: Yeah. And on the second question, Craig, we are hiring people right now. So about six months ago, we hired a senior individual from LG Chem who was closely involved with one of their large-scale giga plants. And more recently, we have been hiring other employees, some will be located at the site, who have or have experience with other battery manufacturing sites in the United States. John Gibson: Some of which may have been closed down. Dr. Rajshekar DasGupta: We also hire great talent. Hope that, you know, there is a long list of folks we are in process of giving offers to. And it seems to be an opportune time to bring in these types of individuals. If we were building this plant a year ago, it would have been much harder to find this level of talent that we are seeing in the market today. Understood. That is, that is, that is a good thing. So, next question is, can you maybe give us some color on the revenue contribution out of the Jamestown facility this year. I know your manufacturing is supposed to start at the end of the year. If you could just confirm the timeline for that. But do you expect any cell revenue in 2026 from the Jamestown facility? And, you know, roughly what percentage of revenue would you expect this facility to contribute? Yeah. Craig, all along, we were anticipating Jamestown, especially at the cell level, contribution starting from fiscal 2027. So fiscal 2026 for us ends September 30, and there will be no cell contribution to revenue. Battery systems, on the other hand, that is different. You will likely see some revenue generation out of that plant in our fiscal fourth quarter, both probably on a module and system side of things. Sorry. I meant calendar year. So I am assuming that all of the cell manufacturing equipment will be in place in your fiscal year before September with commissioning work underway. But do you expect cell production in that facility in the first quarter of your fiscal 27, the last three months of this calendar year? Potentially. Correct. Potentially, yes. Of course, it is going to, it does not start out. We will, we will make sure the output of the plant is matching what we need, of course. Right? There is a bit of a start-up period associated with that. But we could most definitely see some contribution in that quarter. Understood. Then last question, if I may. Can you update us on 45X, what you think the benefit will be on equipment purchases, whether or not you are seeing tariffed equipment impacted, and what do you think the potential contribution is once you are manufacturing your own cells in Jamestown in fiscal 27. So there will be, there is two parts of 45X that we, $10 per kilowatt-hour associated with module production, and then there is $35 a kilowatt-hour associated with cell production. And under the new rules, under the Inflation Reduction Act, you can only get one or the other. So what we anticipate is we will start off with the $10 a kilowatt-hour as we manufacture modules, and when the cell production hits a certain speed, we will transfer to the $35 a kilowatt-hour. John Gibson: And for the cells. And sacrifice the modules. Dr. Rajshekar DasGupta: Excellent. Thank you for that. Congrats again on the progress. Thanks, Craig. That is great. Operator: Up next is Amit Dayal with H.C. Wainwright. Please proceed. Thank you. Good afternoon, everyone. Most of my questions have been asked, Amit Dayal: But just with respect to the outlook for the year, you know, the backlog still is at $100 to $125 million. So the, you know, the top line guidance seems a little conservative. You know, can you maybe provide any color on what could drive upside to the 30% growth you are targeting this year? John Gibson: Yeah. So the growth is based on not just the backlog, but the front log as well. So that number you quoted as backlog, plus front log. So essentially, we are taking purchase orders we have received, purchase orders that we know are coming in, confirmation from customers of demand, and then our, you know, our estimates of run rate. And then what we do is we take that number and discount it back based on historic experience with customer delays or purchase order changes, etcetera. So, yeah. And, Amit, Dr. Rajshekar DasGupta: you know, 30% growth is not a bad number. I think there, as you can see in our Q1, right, and some people forget this, there is some seasonality on our core material handling vertical. Sometimes distribution centers open a little later than they plan to if they are new sites. So there is some of that activity you have to take into account. But, of course, there is some upside. You know, we have not taken into account meaningful revenue from the airport ground equipment space, which could most certainly come into the current fiscal year. But overall, we are very focused on maintaining growth, maintaining the profitability, and these new product developments and new technology developments, in addition to the Jamestown setup. Amit Dayal: Understood. Thank you. And then on the solid state side, any, you know, important milestones you are targeting to hit this year? Do these include maybe any pilots that could begin with customers? Dr. Rajshekar DasGupta: Yeah. Good question. I did not discuss the solid state battery much in the prepared remarks, but we had reached a certain level of developments, I think, back in the summer, which was looking good. But we were somewhat hamstrung by equipment in terms of to get it to a pilot scale. We ordered the equipment several months back. It has arrived at our lab site already. It is being installed. So we will start scaling up cells using our solid state battery technology really from April onwards. And at that point, if things look good, we will start looking to sample them as well. So there is definitely activity there. We have added a couple key researchers to our team. Most definitely, we have not forgotten about that technology. On the IP side as well, we are close to being awarded some patents around our solid state technology, but, you know, we are in the back and forth with the examiners at the moment. Amit Dayal: Okay. Thank you, guys. That is all I have. Operator: Next question comes from Jeffrey Campbell with Seaport Research Partners. Please proceed. John Gibson: Good afternoon, gentlemen. Dr. Rajshekar DasGupta: Raj, my first question is, I assume the OEM integrated high-voltage batteries refers John Gibson: to Toyota heavy duty MHE, but you can correct me if I am wrong. But if so, Dr. Rajshekar DasGupta: can you give us some color on how many models are integrated at present and what it might look like the next couple of years? Yeah. You are probably correct. You are correct, Jeff. The model I referred to is the high-voltage system, which is going into, there are a couple models of batteries and is going, we believe, into two distinct vehicle systems. And so there are orders for those vehicles already. The reason production is starting in March is it coincides with certification. Okay. Great. John Gibson: My next question was regarding the solutions. You mentioned I think you are going to have a place where you are going to display your solutions targeting class three MHE. I was wondering, is this going primarily Dr. Rajshekar DasGupta: to robotics applications, or will you also support more traditional class three equipment? Because I believe in the past, you have tended to identify class three as generally unable to support your margins. It is the latter, so it is already expanding in the material handling vertical with a class three product, which we normally had shied away from. We believe we can maintain those margins. The reason we are developing that product is it has been customer driven. And, but we will be able to maintain the margins with that product. It takes advantage of some aspects of the robotic battery systems that we have developed. So there is some overlap in the design of the system. John Gibson: Okay. Yeah. That is very interesting. Dr. Rajshekar DasGupta: And I guess my last question Eric Stine: for today is John Gibson: kind of a more open ended one. Regarding the generate the Dr. Rajshekar DasGupta: next generation ceramic separator John Gibson: development undergoing. I was just wondering what are the specific areas Dr. Rajshekar DasGupta: that you see demanding improvement here. I am not Operator: trying to be coy, but the existing tech is class leading. So I am interested in your insight here. Dr. Rajshekar DasGupta: Yeah. So that is definitely a valid question. So the current technology is working well. Very well validated. Of course, you want to continue to improve that technology, and that is one aspect of what we are doing here. Improvements will be to make it Amit Dayal: thinner. Dr. Rajshekar DasGupta: Make it even higher thermal stability, use new novel materials, which we are working on. And also, the current separator is working very well. It is being manufactured under contract in Japan. This one will be manufactured domestically. So that is another John Gibson: I would say, benefit is just in addition Dr. Rajshekar DasGupta: but it supports some activities, like, for instance, a super high, ultra high power cell. It has a benefit there. Potentially, this new material can also be utilized in other cell formats. That would be a major breakthrough for us. But that is too early to say. John Gibson: We will stay tuned for that. That sounds provocative. Dr. Rajshekar DasGupta: Thanks very much. I appreciate it. Eric Stine: Thank you. Operator: We have a follow-up coming from Colin Rusch with Oppenheimer. Please proceed. John Gibson: Thanks so much, guys. You know, I was missing asking around the ground service equipment opportunity. Dr. Rajshekar DasGupta: And how we should think about the cadence of that moving forward, going from John Gibson: piloting into a more substantial order? Eric Stine: Kind of the order of magnitude of that opportunity set for you guys right now. John Gibson: So the what we are looking at is Dr. Rajshekar DasGupta: to go to that more substantial order. We have already received some pilot orders, which have essentially already been delivered, or some of them are mostly been delivered. But this would be to go to scale right away. And so the opportunity we are looking at with this first airline is for reasonably large-scale deployment. John Gibson: Okay. Great. I will take the rest offline. Thanks, guys. Operator: Once again, if you have a question or a comment, please press 1. The next question comes from Graham Tanaka with Tanaka Capital Management. Please proceed. Hi, guys. Thank you. I am just putting this all together. You have a lot of moving parts. And I just wonder if you could summarize for the next two years what are the main areas that can increase gross margins and operating margins versus decreasing. Graham Tanaka: And on the decreasing side, if you could address your semiconductor content and what kind of cost increases you are getting in semiconductors? Thank you. Dr. Rajshekar DasGupta: So overall, in this current quarter, margins improved, going from about 30% to about 32%. We expect to maintain that level of activity, that level of improvement in the coming quarters. Sort of what we are anticipating. So I would say relatively modest improvement in margins, but John Gibson: comes with Dr. Rajshekar DasGupta: you know, it correlates to improved financial results. The bigger change in margins will occur following Jamestown cell production coming online. That will be due to, a, you know, the vertical integration, but, b, the ability to leverage the 45X production tax credits. And the second part of your question on, I guess you mean semiconductor Eric Stine: materials. Dr. Rajshekar DasGupta: We are, you know, Electrovaya Inc., our batteries are generally more expensive already. So input material price variations have an impact, of course, but probably have a more nuanced impact than it does on our commodity-driven rivals. Graham Tanaka: So I just want to make sure that if there are any issues on supply or cost increases in semiconductors we are seeing across all the Silicon Valley companies, whether you can cover any cost increases and can secure all supply that you think you might need in semiconductors. Thank you. Dr. Rajshekar DasGupta: So in terms of material inputs, the one that has fluctuated is lithium carbonate pricing, but it has not fluctuated enough for us to have any noticeable impact on margins. We, of course, can also update pricing to our customers if we have not needed to, if those prices do go in the wrong direction enough. The only materials which probably are common with the semiconductor space is maybe alumina. But there again, it is not substantial enough in our bill of materials to have a major impact. Graham Tanaka: Right. That is great. I do not know if you have added up, but what percent of your business is going to be coming from military spending? You addressed defense, but it kind of goes into a few different areas. I am just wondering if that is going to rise as a percentage of the mix and that the margin is going to be lower in defense? Thank you. Dr. Rajshekar DasGupta: So I will start on the last part. Margins in defense would be expected to be higher. Now the defense space, at least from our experience, it moves slowly in terms of qualification. And they are very, very careful. A lot of testing goes John Gibson: a lot of testing validation goes into this. There is also a certain Amit Dayal: certifications. Dr. Rajshekar DasGupta: I do not want to get too deep into it, but there is MIL and Navy certification levels that you have to change sometimes. So it moves. It is a sticky space. Once you get designed in, you are designed in. But in terms of how quickly it scales in volume, my anticipation is it scales slowly. Operator: We have no further questions in the queue. I would like to turn the floor back to management for any closing remarks. Dr. Rajshekar DasGupta: That concludes our call. Evening, and thank you for listening. We look forward to speaking with you again after we report our second quarter 2026 results. Have a wonderful evening. Eric Stine: Goodbye. Operator: This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.
Operator: Ladies and gentlemen, thank you for joining us and welcome to the JFrog Ltd. Fourth Quarter and Fiscal Year 2025 Financial Results Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please raise your hand. If you have dialed in to today's call, please press 9 to raise your hand and 6 to unmute. I will now hand the conference over to Jeffrey Schreiner, Head of Investor Relations. Jeffrey, please go ahead. Jeffrey Schreiner: Thank you, Nicole. Good afternoon, and thank you for joining us as we review JFrog Ltd.'s fourth quarter and fiscal year 2025 financial results. They were announced following the market close today via a press release. Leading the call today will be JFrog Ltd.'s CEO and Co-Founder, Shlomi Ben Haim, and Eduard Grabscheid, JFrog Ltd.'s CFO. During this call, we may make statements related to our business that are forward-looking under federal securities laws and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements related to our future financial performance and including our outlook for the first quarter and full year of 2026. The words anticipate, believe, continue, estimate, expect, intend, will, and similar expressions are intended to identify forward-looking statements or similar indications of future expectations. You are cautioned not to place undue reliance on these forward-looking statements. They reflect our views only as of today and not as of any subsequent date. Please keep in mind that we are not obligating ourselves to revise or publicly release the results of any revision to these forward-looking statements in light of new information or future events. These statements are subject to a variety of risks and uncertainty that could cause actual results to differ materially from expectations. For discussion of material risks and other important factors that could affect our actual results, please refer to our Form 10-Q for the quarter ended 09/30/2025 which is available on the Investor Relations section of our website, and the earnings press release issued earlier today. Additional information will be made available in our Form 10-K for the year ended 12/31/2025 to be filed with the SEC on 02/13/2026 and other filings and reports that we may file from time to time with the SEC. Additionally, non-GAAP financial measures will be discussed on this conference call. These non-GAAP financial measures, which are used as a measure of JFrog Ltd.'s performance, should be considered in addition to, not as a substitute for, or in isolation from GAAP measures. Please refer to the table in our earnings release for a reconciliation of those measures to the most directly comparable GAAP financial measures. A replay of this call will be available on the JFrog Ltd. Investor Relations website for a limited time. I will now turn the call over to JFrog Ltd. CEO, Shlomi Ben Haim. Shlomi? Shlomi Ben Haim: Thank you, Jeff. Good afternoon, and thank you for joining our call. 2025 was a remarkable year for the frogs. We did not just fire on all cylinders, we set the pace. JFrog Ltd. paved the way for securing and managing the software supply chain in the era of AI, expanded our product portfolio, innovated at a faster pace than ever before, and built deep partnerships with the world's leading companies to strengthen our value to enterprise customers. We delivered quarter after quarter, exceeding our commitments and pairing solid growth and expansion with strong business and operational efficiency. This is what strategy, focused execution, and shared belief look like, and it is what makes this journey special for us. On today's call, Ed and I will walk through our fiscal year 2025 results in more detail, share our fourth quarter performance, and discuss our outlook and guidance for 2026. In fiscal year 2025, JFrog Ltd.'s total revenue was $531,800,000, up 24% year over year. Cloud revenue for 2025 was $243,300,000, representing 45% year over year growth. In Q4, greater than $1,000,000 customers grew to 74 compared to 52 in the year-ago period, equaling 42% year over year growth. Customers spending more than $100,000 annually grew to 1,168 compared to 1,018 in the year-ago period, equaling 50% year over year growth. These strong, consistent results reflect our alignment with modern enterprise market needs as software continues to transform how the world operates. JFrog Ltd.'s 2025 performance highlights a clear trend: as human developers and AI agents generate software at a massive scale, the resulting surge in binaries demands a trusted platform to manage, secure, and govern them end to end. This reinforces JFrog Ltd.'s leadership as the foundational infrastructure for software delivery in an agent-driven world. Now, I will discuss our success in Q4 in security, cloud, and AI. Security first. In 2023, we set out to support our customers by giving them a complete chain of cyber trust from code creation to production. When we launched JFrog Advanced Security and JFrog Curation, we evolved rapidly from securing artifacts within JFrog Artifactory with JFrog Xray to offering end-to-end trust and governance. JFrog Ltd. has now established itself as a complete system of record for software supply chain security that protects companies' binaries, software packages, and AI models even before software enters the organization. We strategically challenged the security point solution market by unifying security and DevOps on a single platform built on one source of truth. We believe that is the only scalable way to protect our customers' software supply chain. The pain was real, the threat was growing, and our results in 2025 reaffirm that this approach was the right one. In today's AI-driven software environment, that source of truth becomes mission critical. Organizations need a secure center of gravity and a foundational platform that stores, manages, and governs all artifacts, whether created by humans or machines. Against this backdrop, we will continue to build JFrog Ltd. as the system of record, single source of truth all developers and code agents rely on to securely manage and govern every binary and AI artifact in the software supply chain. Just as we reported strong early results for JFrog Ltd. security in 2024, our 2025 annual reporting reflects another year of significant momentum and success of our security solutions. In 2025, JFrog Ltd. security core products, excluding contributions from JFrog Xray, became an even more meaningful growth engine for the company. As of 12/31/2025, JFrog Advanced Security and JFrog Curation comprised over 10% of our total ARR. This past year, we built on strong RPO growth momentum driven by increased cloud usage, DevOps adoption, and our security core products. We are pleased to report that in 2025, security core comprised 16% of our ending RPO compared to 12% in the prior year, and nearly doubled long-term revenue commitments. This growth highlights not only the rapid adoption of JFrog Advanced Security, JFrog Curation, or both by hundreds of our customers, but also the broad opportunity ahead to provide value to the thousands of existing enterprise customers over time. JFrog Ltd. security solutions, tightly coupled with JFrog Artifactory, enable end-to-end software supply chain protection and are now offered as a bundled add-on with our enterprise subscriptions, increasing ASP, expansion in cloud usage, and triggering multiyear commitments. This approach resulted in tangible growth for JFrog Ltd. Cohort data indicates that customers adding JFrog Ltd. security drove strong account expansion with growth extending beyond security and into broad product portfolio usage. We are pleased with our financial performance and the execution of our enterprise go-to-market teams. Our security RPO and pipeline numbers show strong momentum carrying into 2026. Our success in security also reflects the deep alignment with the evolving threat landscape. Attackers are increasingly targeting the software supply chain through software packages. Our customers and community described the recent npm Shaykhulud incident as a mega attack on the software supply chain, exposing millions of JavaScript developers, echoing the impact of Log4j, PyPI, and other recent security events. JFrog Ltd. customers using JFrog Curation as their firewall remained protected. From the world's leading enterprises with tens of thousands of developers to a small development shop, JFrog Curation enforced policies, secured the software supply chain, and prevented business impact. Expanding our security offerings in 2025, we also announced the availability of AI Catalog and agentic remediation capabilities to address emerging challenges created by the introduction of AI models and agent-generated code into the software supply chain. JFrog Ltd. is the mission critical infrastructure of a company's primary software assets, their binaries. As more code is generated by human developers and AI coding agents, a tsunami of binaries is being created. More binaries, artifacts, and models lead to a greater need for trusted infrastructure that manages, secures, and governs the software supply chain at scale. We anticipate these growing needs will drive sustained customer adoption of our holistic security solutions through 2026. Second, cloud. As we noted earlier on the call, 2025 was a year of high-quality, sustained growth in our cloud business. We delivered 45% year over year growth while remaining highly disciplined in usage management and continuing to migrate customers toward annual commitments. In addition, we drove a higher volume of security deals in the cloud, strong new logo wins, and deeper marketplace partnerships. During the year, we strengthened our partnerships with all major cloud providers, improved our commercial terms, and established a stronger long-term gross margin strategy. Our cloud momentum was also supported by focused investments in service performance and availability, the continued build-out of our global SRE organization, enhanced sales incentives, and the consumption-based pricing model aligned with the market standards. Customer purchasing decisions changed in 2025, as CIOs were less focused on mega cloud migration initiatives and instead increasingly emphasized building fit-to-purpose hybrid and multi-cloud architectures as they adopted new AI solutions. Looking ahead, we see trends that we believe will continue to mature. First, clarity. While cloud remains the preferred deployment environment, CIOs are seeking greater clarity, cost predictability, and ROI as they assess the full impact of AI adoption at scale, along with the evolving security and regulatory requirements that come with it. As AI adoption matures and clarity improves, we anticipate CIOs will increase investments in cloud infrastructures. Second, AI-driven software package ecosystems such as PyPI, Hugging Face, npm, Conda, or Docker are driving consumption spikes from both developers and AI agents, in some cases going beyond customers' commitments. This has the potential to be a tailwind for JFrog Ltd., and we expect customers to align commitments once usage patterns stabilize. We will continue to provide guidance based on customers' annual commitment and proactively de-risk exposures to volatile user-driven and sizable deals. Our go-to-market strategy will remain focused on converting usage overages into annual commitments. Looking ahead, we believe that in 2026, we will continue to deliver durable growth in the cloud. Finally, I will address AI and MLOps. In 2025, we strategically built the foundation of JFrog ML as part of our platform to deliver the capabilities enterprises will increasingly require to automate speed, trust, and control across the model life cycle. At the same time, we introduced advanced functionality and integrations that extend beyond traditional B2B workflows into the emerging business-to-agent market. We released JFrog's MCP server as a core integration layer, enabling AI agents and LLMs to securely interact with the JFrog Ltd. platform. We introduced the JFrog AI Catalog for model discovery and governance, extending the platform to manage AI and ML models like other software packages. We also announced agent-based security and remediation, leveraging agentic capabilities to drive detection and automated recovery. To strengthen our position as a system of record for all AI artifacts, we partnered with NVIDIA Enterprise AI Factory to serve as its secure model and artifact registry, while also partnering with Hugging Face to secure the world's leading open-source hub for models, supporting trusted enterprise consumption of AI. Looking into 2026, our roadmap includes capabilities designed to expand our growth and to support JFrog Ltd. users' needs, whether human, machines, or hybrid engineering teams of developers and AI agents. This expanding use case represents a significant opportunity for JFrog Ltd. The market is experiencing a tsunami of binaries accelerated by AI. JFrog Ltd. was built from day one to handle exactly this asset at this scale, and we are fully committed to providing the infrastructure modern software organizations need to confidently embrace the AI-driven revolution. I will now turn the call over to our CFO, Eduard Grabscheid, for an in-depth recap of Q4 and fiscal year 2025 financial results, as well as our updated outlook for Q1 and the fiscal year of 2026. Ed, thank you. Shlomi, and good afternoon, everyone. We are very pleased by the results of the fourth quarter, exceeding the high end of the range Eduard Grabscheid: on every metric we guided for the quarter. It was a strong finish to an outstanding year, highlighting our consistent execution, operational discipline, and durable business model. During 2025, total revenues equaled $145,300,000, up 25% year over year. For fiscal year 2025, total revenues were $531,800,000, up 24% year over year. Fourth quarter cloud revenues grew to $70,200,000, up 42% year over year, and represented 48% of total revenues versus 43% in the prior year. Our growth in the cloud was driven by customers expanding annual commitments and increasing demand for JFrog Ltd. security core as ongoing npm incidents during the quarter accelerated customer adoption. For the full year 2025, cloud revenues equaled $243,300,000, up 45% year over year. Full year cloud revenues equaled 46% of total revenues, versus 39% in the prior year. During the fourth quarter, our self-managed, or on-prem, revenues were $75,100,000, with full year 2025 equaling $288,500,000, up 11% year over year. Aligned with our strategy, we continue to proactively engage our on-prem customers to migrate DevSecOps workloads to our cloud or explore solutions better aligned with their specific use cases, including hybrid and fit-for-purpose deployments. We experienced another year of strong customer adoption of the complete JFrog Ltd. platform, driven by customers looking to consolidate their technology stack and secure their software supply chain. In Q4, 57% of total revenues came from Enterprise+ subscriptions, up from 54% in the prior year, while delivering year-over-year revenue growth of 33%. Driven by the ongoing execution of our enterprise go-to-market strategy and broader customer adoption of the JFrog Ltd. platform, revenue contributions from Enterprise+ subscriptions grew 36% year over year in 2025. Our security core products, which exclude any benefit from JFrog Xray, continue to gain momentum as customers actively consolidate point solutions. For the full year of 2025, security core revenue was 7% of total revenues, with our security core products now comprising more than 10% of our ending total ARR. Driven by an increasing number of large, multiyear commitments to JFrog Ltd., our security core represented 16% of remaining performance obligation, or RPO, as of 12/31/2025, compared to 12% in the prior year. Net dollar retention for the four trailing quarters was 119%, an increase of one percentage point from the prior quarter, highlighting the continued adoption of our security core products and increased cloud data consumption resulting in higher customer commitments. We continue to demonstrate that our customers view JFrog Ltd. solutions as mission critical to their software supply chain, with gross retention that equaled 97% as of 2025. Our customer count in fiscal year 2025 equaled approximately 6,600. During the year, we continue to execute on our strategy focusing on our go-to-market initiatives around the enterprise. We further matured our approach by refining our customer logo methodology to eliminate friction for our customers and sales teams. This resulted in the consolidation of approximately 300 lower ASP subsidiaries into their parent entity. Our team also prioritized new customer acquisition, specifically targeting opportunities that land with higher value and greater expansion durability. Now I will review the income statement in more detail. Gross profit in the quarter was $121,600,000, representing a gross margin of 83.7%, versus 83.2% in the year-ago period. We remain focused on cloud hosting cost optimization as we anticipate a larger share of our revenues being generated from the cloud. Given our expected increase in cloud revenue contribution to total, we estimate annual gross margins to be in the range of 82% to 83% in 2026. Operating expenses in the fourth quarter were $95,800,000, equaling 66% of revenues. This compares to $75,600,000, or 65% of revenues, in the year-ago period. We remain focused on expense discipline while we continue to invest in strategic initiatives. Our operating profit in Q4 was $25,700,000, or an operating margin of 17.7%, compared to $20,900,000 and an 18% operating margin in 2024. For the full year 2025, we delivered non-GAAP earnings per share of $0.82, a 26% increase year over year, assuming approximately 122,000,000 weighted average diluted shares. This compares to $0.65 in the prior year and 115,000,000 weighted average diluted shares. Cash flow from operations equaled $50,700,000 in the fourth quarter. After taking into consideration CapEx requirements, our free cash flow reached $49,900,000, or a 34% margin, compared to $48,400,000 and a 42% margin in the year-ago period. For the full year 2025, we generated $145,700,000 in operating cash flow and $142,200,000 in free cash flow, a 27% margin. Now turning to the balance sheet, we ended 2025 with $704,000,000 in cash and short-term investments compared to $522,000,000 at the end of 2024. As of 12/31/2025, our RPO totaled $566,000,000, a 40% increase year over year. This performance highlights the successful execution of our go-to-market strategy as customers continue to make larger multiyear commitments to our DevSecOps offering. And now let's turn to our outlook and guidance for the first quarter and full year of 2026. As we enter 2026, we are encouraged by the strength in our pipeline and a stabilized purchasing environment. While we are monitoring the increased cloud usage and early AI workload trends that could result in a tailwind for JFrog Ltd., our guidance philosophy will remain unchanged as we continue to de-risk our largest deals due to timing uncertainties and any benefit from cloud usage above contractual commitments. Our outlook reflects growing contributions from our JFrog Ltd. security core products, ongoing adoption of our full platform, and cloud growth driven from higher annual customer commitments. We estimate full year 2026 baseline cloud growth to be in the range of 30% to 32%. Given the anticipated contribution from our security core and baseline cloud growth assumptions, we expect our net dollar retention rate to be 117% for 2026. Turning to operating expenses, we will remain focused on investing in innovation across our platform, reinforcing JFrog Ltd.'s role as a system of record for all binaries and AI models. The weakening U.S. dollar against global currencies has created a year-over-year headwind for our operating expenses and is reflected in our operating profit guidance. We remain committed to a disciplined spending philosophy and are confident in our ability to manage expenses in line with prior execution. For Q1, we anticipate revenues to be in the range of $146,000,000 and $148,000,000, with non-GAAP operating profit anticipated to be between $25,000,000 and $26,000,000 and non-GAAP earnings per diluted share of $0.20 to $0.22, assuming a share count of approximately 127,000,000 shares. For the full year of 2026, we anticipate a revenue range of $623,000,000 to $628,000,000, representing 17.5% year over year growth at the midpoint. Non-GAAP operating income is expected to be between $106,000,000 and $108,000,000, and non-GAAP diluted earnings per share of $0.88 to $0.92, assuming a share count of approximately 128,000,000 shares. I will now turn the call back to Shlomi for some closing remarks before we take your questions. Shlomi Ben Haim: Thank you, Ed. In today's market, nearly every company is looking to capitalize on AI. But in 2025, when the world's leading AI-native companies select JFrog Ltd. as the core infrastructure for the software supply chain, it was clear validation of our strategy. They became JFrog Ltd. customers not only for our industry-leading platform, but because we have become the trusted system of record for binaries, the foundational asset powering modern software delivery. The adoption of our platform indicates that our roadmap is strongly aligned with where the industry is headed. As VIBE engineering and coding agents accelerate software creation, enterprises are facing a massive surge of binaries that must be managed, automated, secured, and governed across the software supply chain. This dynamic clearly differentiates JFrog Ltd. as the trusted enterprise platform in the age of AI. 2025 is now in the rearview, and I am proud to say what we committed to our partners, customers, and shareholders was consistently delivered. Despite significant macroeconomic and geopolitical challenges, the JFrog Ltd. team rose to new heights. This period has also carried personal weight for many in our Israeli team. After years of pain, finally, all hostages are back at home. We move forward with renewed hope for peace, stability, and a better future for the region, and the world. To my frogs, thank you. 2025 was a challenging year of uncertainty, yet a remarkable one for us. You did not just live through it, you won it, and for that, I am proud and grateful. As we step into 2026, we remain committed to quality growth, responsible investments, expanding our solutions to meet emerging needs, and bringing us all one leap closer to realizing our liquid software vision: a world where every software flow is effortless. And with that, thank you for joining our call, and may the frog be with you. Operator, we will now open for questions. Operator: We will now begin the question and answer session. Please limit yourself to one question. If you would like to ask a question, please raise your hand now. If you have dialed into today's call, please press 9 to raise your hand and 6 to unmute. Your first question comes from Sanjit Kumar Singh with Morgan Stanley. Your line is open. Please go ahead. Sanjit, a reminder to please unmute yourself by pressing 6. Sanjit Kumar Singh: Hi. Can you hear me now? Yes. We can, Sanjit. Sorry about that. This is Oscar Savedra on for Sanjit. Thank you for taking my question, and congrats on the great results. Really nice to see the continued growth on the cloud. I wanted to touch maybe on the, you know, the customer count. I understand the intentionality of, you know, you are focusing more on the higher propensity to spend, larger customers, and, you know, we see that on the $100,000 customer adds. But, you know, how should we think about that going forward? And how far along we are in that transition? So should we continue to expect that count to come down while larger customers go up? Any additional color there would be helpful. Thank you. Shlomi Ben Haim: Yes, thank you. This is Rami. I will take this first question. So we are focused on our strategy, building for the enterprise as we said three years ago, and you can see the results on the over $1,000,000, the significant growth there. You can see the results on the customers that are spending over $100,000 and the increasing spending over there. This is our strategy. This is where our go-to-market is focused, and sometimes it means that we will have to let go of low ASP customers and be focused on our enterprise. We also noted that we have made our internal consolidation to avoid friction in our go-to-market team and to focus our team on the big enterprise opportunities. And that, by itself, was approximately 300 logos. And also, I should note that this includes the geographies regulation like churning China, Russia, and other regulatory decisions. So we are very pleased with the stability and the growth. More important than that, the fact that the customers that we brought in, hundreds of new customers that we brought into our portfolio, are spending much more on ASP, growing faster, and adopting not just DevOps, but also DevSecOps and other services in the cloud. So, in the bottom line, it is very much aligned with our strategy and reflects our commitment as we enter 2026. Operator: Your next question comes from the line of Ravi Shankar with UBS. Your line is open. Please go ahead. Eduard Grabscheid: Awesome. Thanks for taking my questions. Ravi Shankar: My question is for Shlomi. It seems like every quarter we are seeing another security incident. You had the npm attacks in Q3 and Q4. You mentioned another one. Are these becoming less like one-time events and more just structural growth drivers? Are we just permanently in a higher threat environment and maybe we should be penciling in a more consistent contribution from these types of incidents going forward? Or how should we think about the long-term contribution from the higher threat environment we are in today? Shlomi Ben Haim: Ravi, this is a great call out of what is happening today. There are more and more attacks over the software supply chain. Attacking the software supply chain by hackers means that they are going after the software packages, the binaries. It started three years ago, this trend, with Log4j, then Python, then MCP, and now npm and Chai Hulud in three different incidents. Every customer, every enterprise, every software organization understands now that the software supply chain is not protected if the software packages, if the binaries, are not protected. Putting aside this threat that is kind of floating over every company now, code agents become far faster in how they create code and therefore create more binaries using more open-source packages. So this threat and this trend is something that we anticipate will only grow, and therefore, we built our JFrog Ltd. security suite to tackle this threat. Operator: Your next question comes from the line of Michael Cikos with Needham. Your line is open. Please go ahead. Jeffrey Schreiner: Hey, team. Thank you for taking the questions here. Michael Cikos: Some very encouraging data points, and I appreciate especially the RPO growth and ARR contribution when thinking about security as far as demonstrating that this truly is a platform and the attach you are seeing. One of the things I wanted to come back to and we have been fielding on our side: with the heightened threat environment and some of these hacks, which unfortunately feel a little bit more commonplace now, is there a general rule of thumb where we would be able to draw parallels between a hack of the npm size and what that would equate to in revenue? Is there any broad parallels we could draw from, or is it really just happenstance depending on what part of the ecosystem is being hacked? Anything there would be beneficial. And thank you so much. Shlomi Ben Haim: Thank you, Michael. I will take this one. The only responsible way to look at the potential revenue growth is to look at the amount of enterprise customers in our portfolio that still did not adopt JFrog Ltd. security. And while we are growing by hundreds every year, and the ASP is growing significantly, there is still a lot of room to grow within our portfolio. JFrog Curation in the last two quarters is exploding, mainly due to the fact that the threat is real, the scale is required, and you have to move fast. Big companies are not taking any risks, especially in today's changing environment. Second thing that I should note, Michael, is that most of our new enterprise landers—what I referred to before when we spoke about new logos—are already adopting the JFrog Ltd. platform with security. So there are three avenues of growth. Number one, customers that are still not using security and will hopefully adopt. Number two is with new logos that are joined enterprise logos. Again, we are not buying logos; we are going after the enterprise logos that are subscribing from the get-go with security. And number three is the number of projects within the companies that already adopted JFrog Ltd. security, and we still have room to grow there. Operator: Your next question comes from the line of William Miller Jump with Truist. Your line is open. Please go ahead. Michael Cikos: Awesome. Alright. Thank you for taking the question, and I will echo my congrats for the acceleration this year. William Miller Jump: So, Shlomi, I wanted to come back to your comment about the tsunami of binaries, accelerated by AI. For the customers that have increased their commitments, are you still seeing them grow and consume beyond these re-up commitment levels? And can you give any more color around the consumption change for customers that have leaned into coding agent deployments versus the broader customer base? Thanks. Shlomi Ben Haim: Great question, Miller. This is going to grow, and we call it a tsunami because this is what we see. When we are reviewing the data on a weekly basis, we see how many more software artifacts are being created, how many binaries are being compiled, and that is mainly because of the fact every developer now became a super developer, and we hear how well the code agents are doing: Anthropic, OpenAI, Gemini. These agents are faster than developers. They are powering developers, and therefore, creating more binaries. You create more binaries, you need a single source of truth to go to, whether you are an agent or developer, and this is where JFrog Ltd. comes into the picture: to secure, to govern, to build a trusted software supply chain for you and for your agents. So think about the number of developers—call it millions of developers in the world today—powered by millions of agents, and therefore, the result would be many more binaries, and then, hopefully, we would see it also in the scale of JFrog Ltd. Operator: Your next question comes from the line of Mark Charles Cash with Raymond James. Your line is open. Please go ahead. Sanjit Kumar Singh: Yes. Thank you. I think, Shlomi, if I could ask, with all the co-gen tools we were just talking about there creating more software and you have new bottlenecks emerging in the software pipeline, I am just curious if you are thinking about AppTrust in 2026 being maybe the next catalyst to alleviate governance and regulatory pressure in adopting AI and specific tools in that organization they are going through right now. Thank you. Shlomi Ben Haim: Most of the very important highlights in our roadmap throughout the years since we established JFrog Ltd. came from a real enterprise need. Our customers told us last year, listen, we are faster now with DevOps and we are more secured with DevSecOps, but there is a new bottleneck, which is governance, and this is going to be even more painful when it is not only humans that are building code and compiling it to binaries, but also agents. So AppTrust is tackling that exactly. We are addressing this pain of automated governance with all the evidence again stored in JFrog Artifactory as a system of record. Whether this code was generated by a developer or by a code agent, the governance and the regulation before the binary goes to production will come out from a single source of truth, and this is what AppTrust is addressing to solve. Operator: Your next question comes from the line of Zachary I Schneider with KeyBanc Capital Markets. Your line is open. Please go ahead. Ravi Shankar: Great. Thanks for taking my question, guys. I am on for Jason Celino today. I wanted to ask about your AI-native customers. In the past, you have talked about having three of the top five AI natives, which is obviously great. But for the other two, or maybe any of the adjacent players that are not using JFrog Ltd., what would they be using? And how confident are you that you can eventually win them as well? Thanks. Eduard Grabscheid: This is— Shlomi Ben Haim: Every company now wants to call itself a native AI company. When I am speaking about the big players, I am speaking about those that are moving the market and calling the trend and setting the standard. And they chose JFrog Ltd. to be their power grid, to be the solution that will run their software supply chain. They build around Artifactory as the system of record, and they are using JFrog Xray to scan that and to collaborate and integrate with the ecosystem. The other two, I do not know if it is two or more, I do not know what they are using. But from what we hear, some of them are evaluating tools, and some of them are building their own tools. Slowly, as we are going over a list that our go-to-market team built together throughout the year, we are bringing them one by one by one. So I hope that every quarter I will report another one that chose JFrog Ltd. not only as a partner or an ecosystem player, also as a customer. Operator: Your next question comes from the line of Kingsley Crane with Canaccord. Your line is open. Please go ahead. Michael Cikos: Hey. Thanks for taking my question. Shlomi, you have had JFrog Fly in beta a bit now, and you have had MCP server integrations out for a bit now. I am just curious what kinds of usage trends you are seeing with either Fly or the MCP server, and just what that tells you about how customers' workflows are changing, and then how you are positioning around that. Thank you. Shlomi Ben Haim: This is, Kingsley, a very important move that we have done during the year. We understand—and I called it out on the script—we understand that the business-to-business is how we built JFrog Ltd. so far. In the future, it would be a business-to-agent market. And if I want agents to become my persona, my customers, then I need to give them access to interact with my platform. This is where the MCP server comes in. But it is even greater than that. MCP itself is also a binary. So we start to see more and more of our customers using JFrog Artifactory as the single source of tools for all MCPs in the market. So it is not only that agents will use JFrog Ltd. as the blessed area to pick up binaries from, but also other players will use JFrog Artifactory to place their MCP servers in. Now, if you do that, if people work with one system of record, then consistency happens, a secured solution, a governed software supply chain before the release to production is important. And with the MCP server, agents can now interact with the JFrog Ltd. platform as well. Operator: Your next question comes from the line of Brian Essex with JPMorgan. Your line is open. Please go ahead. Ravi Shankar: Hi. Good afternoon, and thank you for taking the question. Maybe one for Ed. Bit of an acceleration in both sales and marketing and R&D in the quarter. I would love to get a framework of how you are thinking about investment on both sides of those and how you expect that to materialize through fiscal 2026. And maybe as part of that, if we can get the FX impact both for the quarter as well as what you are thinking about contemplating in your guide. Thank you. Eduard Grabscheid: Sure. Let me first start with Q4 and the sales and marketing. What you are seeing is end-of-the-year bonuses that flow through in our expenses, and that is what is actually happening there in Q4. But as we step forward into 2026, the reason we called out the weakening U.S. dollar is, as you know, more than 50% of our headcount is distributed globally, so we wanted to call that out. We have a very strong hedging program, so most of that risk is already covered, and it is captured in our operating margin guide already. We also have very disciplined operational execution in terms of maintaining expenses. So we continue to invest, but we continue to make sure we are doing it smart. Anything that we see in terms of the potential outperformance on the top line, we would still consider a meaningful portion of that to flow into operating margins. Operator: Your next question comes from the line of Shrenik Kothari with Baird. Your line is open. Please go ahead. Sanjit Kumar Singh: Great. Thanks a lot for taking my question. Shrenik Kothari: Apologies for my bad voice. But just beyond the foundational models that you touched upon, you are now a secure model registry for NVIDIA AI Factory and for Hugging Face, arguably two of the most strategic on-ramps to model consumption. Just curious, Shlomi, how are these top-down partnerships driving new logos for you? Number one. And two, when it comes to monetizing this unique position, where are they on the adoption curve for the additive logos that you have described in terms of AI Catalog adoption and AppTrust and agentic remediation? Thanks a lot. Shlomi Ben Haim: Yes, Shrenik. We managed to expand our platform so successfully with security and with MLOps and with DevOps and distribution that every time that we have another partnership powering the community, it spreads across all of these elements of the platform. Specifically with NVIDIA, beyond the fact that it validates JFrog Ltd. as the single source of truth for all AI tools and for models, it is also aiming to the enterprise, as we mentioned before. This is our strategy. NVIDIA is being used by the enterprise. They are selling GPUs. We are providing them with a secured area for models interaction, and this supports the enterprise. Hugging Face, however, is a different scenario. Hugging Face can be a top of funnel for JFrog Ltd. because it is the open-source hub. It also supports most of our customers that are using Hugging Face as a local repository for the models that they bring from outside, so they will have a secured environment. Now when we are looking forward into 2026, the too integrated to fail philosophy is something that we are not only collecting feedback from the market on what they would like to see, but also how we can serve them better—not just the human developers, but also the agents. How can we serve Anthropic Opus 4.6 better? How can we serve OpenAI agents better? Because these are the new tools that are now using JFrog Ltd. as their system of record. Operator: Your next question comes from the line of Ittai Kidron with Oppenheimer. Your line is open. Please go ahead. Sanjit Kumar Singh: Thanks, and congrats, guys. Ittai Kidron: Real nice solid finish for the year. I have a couple of questions, one for each of you. For you, Ed, nice to see the progress there on the security and appreciate the disclosure there. If one would do a back of the envelope and strip out your security out of your business, what would that imply that the core business excluding security is growing? Is there acceleration there, leveling off, deceleration? Any color there would be great. And then for you, Shlomi, I would love to think about 2026. What from your perspective are the greatest risks to your business right now? And maybe, clearly, with what is going on in the world right now in the context of AI and how it could potentially do everything, including our laundry, my question is to you: in what way could AI be a risk to your business? Thank you. Eduard Grabscheid: Thank you for the questions, Ittai. I will start here, and then Shlomi can finish. We gave you the results at the end of the year for the revenue contribution that is coming from security, and it is still a relatively small piece in terms of that contribution to the top line. We go to the market as a platform, selling together both Artifactory and security. So we do not want to carve that out. The results that we show you on the top line were impressive. That included security. We are very happy with the direction that it is going. The sales team are instructed to sell together the solution and the offering, which we believe, when you go to the market together with Artifactory and security, you secure your software supply chain at scale—what is needed for today's customer. Shlomi Ben Haim: I will answer the risk question, Ittai. We are all standing at the edge of a cliff. Some people will tell you that we are going into a world of productivity—you mentioned laundry; some people gave us other examples. And some people will tell you that we are all going to be replaced by robots. I think that for the business, and this is my job as the CEO, to make sure that we are focused, that JFrog Ltd. is differentiated and brings value to our enterprise customers, and what we see now is that we keep building for the future with them. Just a few days ago, Elon Musk tweeted that code is going to be replaced. The only outcome will be binary. It reinforces again what we keep saying for the last fifteen years. Binary is the primary asset. This is where we should be focused. And my biggest risk is that I will get confused and start to follow trends and not serve my enterprise with what we do best: being the system of record. Operator: Your next question comes from the line of Jason Noah Ader with William Blair. Your line is open. Please go ahead. Sanjit Kumar Singh: Yeah. Hi, guys. I hope I could squeeze in as well. One quick one for Ed, one for Shlomi. For Ed, just trying to understand that $800,000,000 FY 2027 revenue target. Is that just kind of aspirational at this point because it would require pretty massive revenue acceleration in 2027? And then for Shlomi, I know you guys price Artifactory on capacity. So it should, logically, follow that the tsunami of binaries that you called out should accelerate growth in your core solution. Are we seeing that at all yet, or is that still to come? And when do you think that could come? Eduard Grabscheid: I will start with the question regarding the $800,000,000 on the long-term model. At the end of the day, we are focused on delivering and executing in 2026. That is what we are guiding to at this point. When we look at the results over the last three years, we are on track with that number. It does not reflect our conservative or responsible guidance philosophy, but the focus right now is on delivering in 2026. Shlomi Ben Haim: I will take it from here, speaking about conservatism. We see—as we mentioned in the call—a rise in the AI-related binaries being consumed by our customers. We manage PyPI, npm, Docker, Conda, and others. But, you know, Jason, we are not promising magic. We are being very disciplined with our guidance. And we commit when the customers commit, then we guide the market. We guide you by commitments and not by usage. So yes, we see spikes and, yes, it is an uplift to our performance, but we will not guide based on this data transfer until it will follow a customer commitment. And customer commitment usually comes when usage is stabilized and not based on trends. Operator: Your next question comes from the line of Andrew Michael Sherman with TD Cowen. Your line is open. Please go ahead. Mark Charles Cash: Oh, great. Thanks. Hey, guys. Shlomi, is demand for Curation to accelerate post the second npm attack in late November? Did this pull any deals forward into Q4, and how much is the pipeline for that up year over year? Shlomi Ben Haim: Curation—listen, we are not celebrating these attackers coming after our customers, but obviously, we benefit from it because there was very clear value that Curation brought. Curation is a tool that is out in the market for almost two years. It is mature and it was ready, and it was ready not only in terms of the risk but also in terms of the scale. So not only did we perform amazingly in Q4 because of the npm incident, but we also built the pipeline moving forward, as I mentioned in the call. Jason Noah Ader: Great. Thanks. Operator: Your next question comes from the line of Jonathan Blake Ruykhaver with Cantor. Your line is open. Please go ahead. Andrew Michael Sherman: Yeah. Hey. Jonathan Blake Ruykhaver: Congrats on a fantastic 2025, guys. Shlomi Ben Haim: So, Shlomi, I would love to hear more details around what you are seeing in terms of the potential convergence of the DevOps toolchain to address MLOps. And, specifically, are they seeing the benefits of, or do they understand the benefits of, a potential unified pipeline, particularly around security and governance? And I guess lastly, as a part of that, what are you seeing in terms of adoption trends for JFrog ML and your expectations for that in 2026? Shlomi Ben Haim: JFrog ML was included in—I think it was Q2 or Q3 this year—in our platform. Some of our customers are already using JFrog ML to manage their full model life cycle. We treat the model as a package. A model is yet another binary. So by providing them with these capabilities, we are reinforcing the fact that JFrog Ltd. is the central, trusted source of truth, not only for the legacy artifact but also for the new artifacts, which are models. I think that this will evolve as the market evolves. MLOps will not stay as it used to be before the days of LLMs. What we see now is that code agents are also starting to interact with the JFrog Ltd. platform for any push and pull of binaries. So overall, it is growing, it is evolving. This entire landscape is changing, and we are tracking it and we will keep you posted on it. Operator: Your next question comes from the line of Eamon Robert Coughlin with Barclays. Your line is open. Please go ahead. Kingsley Crane: Hey, guys. Thanks for taking the question, and congrats on the continued execution. I just wanted to go back to the MLOps motion and how to think about that opportunity. Can you help us understand that consumption profile—what that would look like for an LLM maybe compared to a traditional binary? And then what makes JFrog Ltd. well positioned to be the default LLM repository for these enterprises? Thanks. Shlomi Ben Haim: The MLOps solution is actually going after providing the CI/CD experience for models. It started with small models, and then the world in the last year evolved, and so did our tools and our platform. The idea around it in terms of consumption is that if you treat a model as a binary—which it is—then we should see more data transfer. We should see more storage. I think that there is a better potential for monetizing on storage because models, by definition, are bigger binaries than the others. Since our pricing model is a consumption-based model, if we drive models to use the MLOps capabilities of JFrog Ltd. together with the security and the storage, you should see our consumption going higher, and therefore, the commitment of the customers will go higher. This is something that we are tracking closely and looking forward to see the results. Operator: Your last question comes from the line of Jeffrey Allan Schreiner with D.A. Davidson. Your line is open. Please go ahead. Eamon Robert Coughlin: Can you hear me now? Eduard Grabscheid: Yes. We can hear you, Jeffrey. Eamon Robert Coughlin: Perfect. Thanks for taking my question, and congrats on the strong results here. Jeffrey Allan Schreiner: If I look at cloud revenues, they seemed a little bit more stable quarter to quarter this year compared to historically. Maybe just on the seasonality side, as cloud revenue becomes a bigger portion of revenue, should we expect a little bit more stable seasonality, or is it still the same as you target large enterprises in these larger deals? No change on that front? Eduard Grabscheid: Hi, Jeffrey. When you think about the cloud, you need to think about three different things. First is our guidance philosophy, which we de-risk for those largest deals, as well as usage over minimum commitments, including emerging AI trends. That is what creates variability on a quarter-over-quarter basis, and that is excluded from there. As you mentioned, it is also now a greater portion of our revenue. But when you think about sequential growth today, it would be linear until we start to layer in any usage if that potential continues or these large deal wins. Operator: There are no further questions at this time. I will now turn the call back to Shlomi for closing remarks. Shlomi Ben Haim: Thank you, everyone. 2025 was a great year. We are looking forward to 2026, and we are very excited about the changes in the market and the new players in the market that we are looking forward to collaborate with. May the frog be with you, and may you have a wonderful Valentine's Day. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Twilio Inc. Fourth Quarter 2025 Earnings Call. At this time, all participants, please be advised that today's conference is being recorded. After the speakers' presentation, there will be a question-and-answer session. To ask a question, please press 11 on your telephone, and wait for your name to be announced. To withdraw your question, please press 11 again. I would now like to hand the conference over to your speaker today, Rodney Nelson, Vice President, Investor Relations. Thank you, operator. Good afternoon, everyone, and thank you for joining us for Twilio Inc.’s Rodney Nelson: Fourth Quarter 2025 Earnings Conference Call. Joining me today are Khozema Shipchandler, Chief Executive Officer, Aidan Viggiano, Chief Financial Officer, and Thomas Wyatt, Chief Revenue Officer. As a reminder, we will disclose non-GAAP financial measures on this call. Definitions and reconciliations between our GAAP and non-GAAP results can be found in our earnings presentation posted on our IR website at investors.twilio.com. We will also make forward-looking statements on this call, including statements about our future outlook and goals. Such statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those described. Many of those risks and uncertainties are described in our SEC filings, including our most recent Form 10-Q and our forthcoming Form 10-Ks. Forward-looking statements represent our beliefs and assumptions only as of the date such statements are made. We disclaim any obligation to update any forward-looking statements except as required by law. With that, I will hand it over to Khozema and Aidan, who will discuss our Q4 results, and we will then open up the call for Q&A. Thank you, Rodney. Good afternoon, everyone, and thank you for joining us today. Twilio Inc. had a great Q4, as we reached record heights with $1,400,000,000 in revenue, $256,000,000 of non-GAAP income from operations, $256,000,000 in free cash flow. For the full year, we generated $5,100,000,000 in revenue, $924,000,000 of non-GAAP income from operations, and $945,000,000 of free cash flow. Our strong fourth quarter capped off what I believe is one of the most balanced and successful years of execution in our company's history. Throughout 2025, we have operated with a level of discipline, rigor, and focus that has fundamentally transformed our financial profile and innovation velocity. Reflecting on 2025, Twilio Inc. stood out with accelerating revenue growth, expanding operating margins, and by delivering significant growth in free cash flow. Khozema Shipchandler: And Khozema Shipchandler: we did this all while continuing to increase our innovation velocity. Even more validating is what we are hearing from our customers, that we are moving beyond being a provider of communications channels and data toward becoming a foundational infrastructure layer in the age of AI. Revenue from our voice channel continues to accelerate, aided in part by Voice AI, which we believe is just the beginning as these use cases will evolve to be more conversational and cross-channel, an area where Twilio Inc. is uniquely differentiated. Our go-to-market motion is firing on all cylinders. In Q4, we saw particular strength in self-serve as revenue grew 28% year over year, led by accelerating voice revenue growth. ISVs were also a bright spot, with revenue growing 26% year over year. In Q4, the number of large deals closed of $500,000 or more increased 36% year over year. With this solid foundation, 2026 is set up to be a great year. We are focused on delivering the essential infrastructure that powers experiences across communications driven by contextual data and evolving automation like Voice AI to help customers build personalized, lifelong relationships with their own customers. During the quarter, our go-to-market team delivered several notable wins, including a nine-figure renewal with a leading marketing automation platform, the largest deal in Twilio Inc.’s history. Other customer wins included Agnes AI, Creditas, Elise AI, GenSpark, Grubhub, Lofty, Nestlé, Pneuma, PolyAI, Ramp, RetailAI, Sierra, and others who are turning to Twilio Inc. as their infrastructure partner to help drive outcomes and scale their businesses. We also signed a strategic partnership with an existing customer, AEG, a leading global sports and live entertainment company. AEG will use the Twilio Inc. platform to better understand fan behavior and power real-time personalized communications before, during, and after live events at select venues and for sports teams owned by the organization. In Q4, we saw healthy signs that reinforced our shift from selling features and products to selling solutions, as our multiproduct customer count grew 26% year over year, and our software add-on revenue grew over 20% year over year. Agent productivity is a great example, as it lets customers take advantage of a bundled offering that spans multiple Twilio Inc. products. One customer, Exelab, an Italian systems integrator, signed a cross-sell agreement for its client, DentalPro, to adopt our agent productivity solution powered by Flex, messaging, and voice. Together, they built a virtual agent for customer care and inbound and outbound booking management. In the first two months, clinics using Conversation Relay for AI agents reported a meaningful uplift in service levels with the virtual agent handling a significant share of booking confirmations. Khozema Shipchandler: And finally, Khozema Shipchandler: during Cyber Week, Twilio Inc. hit record highs. Twilio Inc. sent 6,990,000,000 messages, a 34.5% year-over-year increase, handled 1,070,000,000 calls, up 58% year over year, and processed 75,100,000,000 emails, a 14.6% increase year over year. Importantly, this week was a powerful reminder of the trust our customers place in us. As the foundational infrastructure that handles their critical workloads, we help them strengthen the relationships they have with their own customers and earn their trust. On the innovation front, 2025 was a breakout year for voice. Voice year-over-year revenue growth accelerated throughout the year, with customers adopting products like branded calling, Conversation Relay, and conversational intelligence. For example, Sierra, a leading company in the customer experience AI space, signed a new deal to continue leveraging Twilio Inc.’s voice functionality to power their platform. Additionally, they will use voice software products like conferencing to support additional use cases like multiparty calling or taking payment over the phone. While still early days, during Q4, Twilio Inc.’s branded calling revenue grew roughly 6x year over year. RCS continued to gain traction as volume grew roughly 5x quarter over quarter. Ramp, a leading financial operations company, signed a deal to leverage RCS as a branded messaging experience to power account notifications and two-way capabilities, such as adding a purchase reason or sending a receipt. Our innovation strategy and execution continued to be validated by industry analysts. Throughout the year, we were recognized as a leader in major evaluations by Gartner, IDC, and Omnia, and ended the year by being named the company to beat in CPaaS AI by Gartner. They noted Twilio Inc.’s combination of omnichannel communications, contextual data, AI frameworks, developer base, and technology partnerships makes it the company to beat in CPaaS AI. And we are just getting started. A lot of our innovation roadmap is about capturing what is important in AI today and in the future. We are providing customers with the foundational infrastructure layer that embeds persistence, Khozema Shipchandler: memory, Operator: context, Khozema Shipchandler: and the ability to spin up an agent no matter what its capabilities are, all on the Twilio Inc. platform. Several of these products launched into private beta earlier this month, and we look forward to sharing more at SIGNAL in May. Khozema Shipchandler: In summary, Khozema Shipchandler: 2025 was a terrific year. We made tremendous progress against our goals, exceeded our targets for the year, and are well positioned to sustain this momentum into 2026 with our robust innovation roadmap. We remain focused on our vision of creating amazing experiences for brands, and are furiously building new and exciting capabilities that capitalize on all that AI has to offer. These innovations will allow Twilio Inc. to deliver memory-driven orchestration and agentic interactions that inspire engagement and trust. This is why Twilio Inc. is an essential infrastructure layer for every company's tech stack, and our ongoing investments in our platform capabilities will continue to position us to be the foundational layer customers rely on to win in the AI era. I will now turn the call over to Aidan. Aidan Viggiano: Thank you, Khozema, and good afternoon, everyone. Twilio Inc. finished the year strong with a record-breaking fourth quarter. We generated record revenue of $1,400,000,000, up 14% year over year on a reported basis and 12% year over year on an organic basis. We also generated record non-GAAP income from operations of $256,000,000. Free cash flow was $256,000,000 as well. We came into 2025 with a focus on execution, and we delivered across the board. For the full year, we generated revenue of $5,100,000,000, representing 14% reported growth and 13% organic growth. We also delivered strong profitability with non-GAAP income from operations increasing 29% year over year to $924,000,000. Free cash flow was up 44% year over year to $945,000,000. And finally, we generated $158,000,000 in GAAP income, marking our first full year of GAAP profitability. We are continuing to drive top-line performance through solid execution across our go-to-market initiatives while delivering product innovations that are seeing encouraging uptake. Voice finished the year strong as revenue growth accelerated to the high teens in Q4, its best growth rate since 2022. This was aided by strong growth from Voice AI customers as Voice AI revenue growth accelerated above 60% year over year. Messaging revenue growth was also solid, driven in part by strong volumes during Cyber Week and the holiday season. Software add-on revenue growth exceeded 20% year over year in the quarter, led by Verify, which grew more than 25% for the second consecutive quarter. Finally, from a sales channel perspective, we saw continued strength with both self-service and ISV customers, with revenue from each channel growing 25% plus in the quarter. For the full year, self-serve revenue grew 21%, ISV revenue grew 24%, and software add-on revenue grew 21%, led by Verify and voice add-ons. By product for the year, growth was led by messaging at 18% and voice at 13%. Email grew 7%, Segment 2%, while other revenue grew 8%, led by user identity and authentication offerings such as Verify. Our Q4 dollar-based net expansion rate was 109%, reflecting the improving growth trends we have seen in our business over the last several quarters. We delivered non-GAAP gross profit of $682,000,000 for the quarter, with growth accelerating to 10% year over year. This represented a non-GAAP gross margin of 49.9%, down 200 basis points year over year and 20 basis points quarter over quarter. We incurred carrier pass-through fees of $23,000,000 associated with increased Verizon A2P fees, which primarily drove the sequential decline in gross margin. For the full year, non-GAAP gross profit was $2,600,000,000, up 8% year over year, and non-GAAP gross margin was 50.5%. Q4 non-GAAP income from operations came in ahead of expectations at a record $256,000,000, up 30% year over year, driven by strong revenue growth and continued cost discipline. Non-GAAP operating margin was 18.7%, up 220 basis points year over year and 70 basis points quarter over quarter. The sequential increase was driven by improved gross profit growth and ongoing cost discipline. In addition, we generated $57,000,000 in GAAP income from operations. For the full year, non-GAAP income from operations was $924,000,000, up 29% year over year. Non-GAAP operating margin was 18.2%, up 220 basis points year over year. This margin expansion reflects our sustained financial discipline evidenced by a 1% year-over-year decline in non-GAAP operating expenses. Q4 stock-based compensation as a percentage of revenue was 11.3%, down 180 basis points year over year and down 90 basis points quarter over quarter. For the full year, stock-based compensation as a percentage of revenue was 11.8%, down 200 basis points year over year and down 10 percentage points since 2021 when we initiated our effort to reduce stock-based compensation. In addition, our net burn rate was just 1.5% in 2025, well below the 3% target we set out at our 2025 Investor Day. Our ending share count was 152,000,000, down slightly year over year and down 18% since we initiated our share repurchase efforts in 2023. We generated free cash flow of $256,000,000 in the quarter. Additionally, we completed $198,000,000 in share repurchases in Q4. For the full year, we completed $855,000,000 in share repurchases, representing 90% of 2025 free cash flow, well above the 50% target established at our 2025 Investor Day. Turning to guidance, for Q1, we are initiating a revenue target of $1,335,000,000 to $1,345,000,000, representing 14% to 15% reported growth and 10% to 11% organic growth. This includes an assumed $44,000,000 in incremental pass-through revenue from U.S. carrier fees, a $21,000,000 increase from Q4, driven by increased T-Mobile fees that took effect in January. As a reminder, our organic revenue excludes the contribution from incremental increases to U.S. carrier fees. Moving to the full year, we are encouraged by the broad-based trends we have seen throughout 2025 and into 2026, though we are continuing to plan prudently given our usage-based revenue model. For the full year, we expect reported revenue growth of 11.5% to 12.5% and organic revenue growth of 8% to 9%, above our 2025 Investor Day framework as we continue to orient the business to double-digit organic revenue growth. In addition, we expect full-year non-GAAP gross profit dollar growth to be similar to our organic revenue growth rate. Since 2025, all major U.S. carriers have announced A2P fee increases, including AT&T, whose rate increases will go into effect on April 1. Our full-year revenue guidance assumes approximately $190,000,000 in incremental pass-through revenue from these fees. The year-over-year impact from these fees will be slightly higher in 2026 due to the timing of Verizon's increase in June. While the pass-through fees have no impact on our ability to generate gross profit, income from operations, or free cash flow dollars, they do impact our margin rates. For modeling purposes, we would expect the incremental fees to reduce our full-year 2026 non-GAAP gross margin by roughly 170 basis points, all else equal. Turning to our profit outlook, for Q1, we expect non-GAAP income from operations of $240,000,000 to $250,000,000. We are initiating our full-year 2026 non-GAAP income from operations range of $1,040,000,000 to $1,060,000,000, reflecting our continued focus on cost discipline and operating leverage across the business. Consistent with 2025, free cash flow in Q1 will be impacted by a $140,000,000 payment related to our company-wide cash bonus program that we implemented in 2024 as part of our efforts to reduce stock-based compensation. This will limit free cash flow generation in the first quarter to roughly $100,000,000 as planned. That said, we continue to expect to generate strong quarterly free cash flow over the balance of the year, and for the full year 2026, we expect free cash flow in the range of $1,000,000,000 to $1,040,000,000. We are confident in our outlook for 2026 and have made substantial progress against the financial framework established last January. Our cost savings and efficiency initiatives are tracking ahead of plan, and our 2027 outlook looks strong. While our 2027 non-GAAP operating margin target did not account for the recent fee increases initiated by all major U.S. carriers, we are on track to meet or exceed the financial framework we provided last year. Given these incremental fees are passed through at cost, they are a headwind to our margin rate, but it is important to note that they have no impact on our ability to generate profit dollars. As an alternative, we are providing a 2027 non-GAAP operating income target of at least $1,230,000,000, which is unaffected by carrier fees and aligns with the high end of our Investor Day framework. We will provide complete full-year 2027 guidance during our Q4 2026 earnings call next year. I am proud of the execution we delivered in 2025, resulting in accelerating organic revenue growth and strong profitability. I am excited by our opportunity to be the foundational infrastructure layer that powers seamless, intelligent interactions for our customers. I am confident that our go-to-market execution and product innovation will help us drive durable, profitable organic growth in 2026 and beyond. And with that, we will now open it up for questions. Operator: Thank you. As a reminder, to ask a question, please press 11 on your telephone, and wait for your name to be announced. To withdraw your question, please press 11 again. One moment for questions. Our first question comes from Alex Zukin with Wolfe Research. You may proceed. Hey, everyone. Thanks for taking the question, and really congrats on a solid end to the year. Alex Zukin: Maybe just the first one for me is, can you break out what drove some of the voice strength in Q4? How much were Voice AI-driven use cases versus traditional voice, and maybe the outlook for 2026 on that front. Thomas Wyatt: Hey, Alex. This is Thomas here. We saw a broad adoption of voice across all of our different customer cohorts. There was definitely really good strength in our self-service channel. Some of that is the Voice AI startups, some of that is just the existing self-service customers. We also saw a lot of interest and momentum in the ISV community as well. We talked about the growth we are seeing in the ISV business Thomas Wyatt: in the mid-twenties, and that is a lot of voice adding, accelerating to that as the ISV community builds more Voice AI agents into their core platforms. We are also seeing it in the direct enterprise space as well, where there are a lot of use cases specifically around customer care and sales automation, with voice being a big part of internal AI assistants that are being built there. It has been pretty broad. Whether it is on the infrastructure or on the voice add-ons software, we have seen great penetration there as well. Alex Zukin: Perfect. And then, Aidan, maybe just a follow-up for you. First, really Mark Ronald Murphy: appreciate a lot more detail, a lot of the detail that you put into the guidance, both for the gross profit commentary in the letter, and the operating income dollar amount that you provided for 2027. But maybe frame it for us a little bit. If you look at the Q1 guide organically, it is actually a little bit more aggressive than this time last year. Maybe what gives you the visibility there? And then contrast that to the full year and the level of conservatism that you are providing. And then finally, apologize for the three-parter. The gross profit dollar growth commentary for fiscal 2026 similar to revenue growth? Just maybe a finer point on that. Aidan Viggiano: Yes. I will start with Q1. We feel really good about our guidance coming into Q1. The 10% to 11%, as you noted, is higher than where we have been. It is our highest quarterly guidance in over three years. It really speaks to the broad-based strength that we are talking about here. We look at it by product, with both voice and messaging growing in the high teens in the quarter. You look at it by sales channel: ISVs and self-serve both growing very strongly above 25%. You look at our multiproduct adoption, and it is really accelerating. We feel really good about how the sales team is executing. We feel really good about our product innovation. We have seen these trends consistently over several quarters, so we have the confidence coming into the quarter to guide at 10% to 11%. Now when you think about the year, we are guiding 8% to 9% organically. As you know, Alex, our revenues are primarily usage-based, and with that comes a certain level of prudent planning. But as we said, we feel really good about the guidance for Q1. Our full-year guidance is 100 basis points higher than our initial 2025 organic revenue growth, and again, we are encouraged by the broad-based trends. I would just say we are seeing a lot of opportunity, our teams are executing well, and we feel optimistic about the setup for the year. As it relates to the 2026 gross profit growth, we did say we expect it to be similar to the organic growth. If you look at the trends over 2025, you started to see the gross profit growth accelerate over the year, and importantly, you saw the gap between gross profit growth and organic growth narrow as we moved throughout the year. That is driven by a lot of proactive action that we have taken. Now as we head into 2026, there are a couple of factors at play. First, and most exciting, is the accelerated growth for many of our higher-margin products. I just talked about a lot of them, but voice in particular, and a lot of the software add-ons that Thomas just talked about—Verify, Lookup, SMS pumping protection—we are getting a lot of traction on these products. We are seeing that really take hold. In addition to that, as we have mentioned over the past few quarters, we are taking a more critical eye towards supply chain costs. That has resulted in certain cost optimizations on the carrier side in the form of more direct connections or more optimization across our carrier supply chain. We are also leveraging our balance sheet to secure discounts in some cases, so we are starting to see some of those things materialize. The last thing I will talk about is on the hosting cost side. As we talked about in 2025, we completed a migration for our email business. They went from on-prem to the cloud. We experienced a double bubble of cost in 2025. That does not repeat in 2026, so that is now behind us. It is really all of those things that gave us the confidence to say that we expect gross profits to grow in line with organic revenue. Operator: Thank you. Operator: Our next question comes from Taylor McGinnis with UBS. You may proceed. Aidan Viggiano: Yes. Hi. Thanks so much for taking my questions. Aidan, first one, if you were to adjust for all the incremental A2P fees, can you offer us what the operating income margin guide would have been relative to the 8.5% reported number? And as a second part to this question, when we look at the Q1 operating margin guide, it actually looks pretty solid relative to the full year. So can you comment, are you anticipating any uptick in expenses or investments as you move throughout the year, and anything that might have been different or new relative to when you first gave this at the analyst day? Yes. Great. So I am not sure I connected the dots on the 8.5% that you mentioned, Taylor, but let me just talk about how fees impact our guides for 2026. I called it out in the prepared remarks, but we expect about $190,000,000 in incremental pass-through fees passing through our revenue. That is year over year. Remember, Verizon went into effect in June, and then AT&T and T-Mobile are coming into effect in 2026. That is roughly a 170-basis-point headwind on gross margin. On operating margin, the equivalent is about 60 to 70 basis points. The important thing is we are seeing leverage in the business from our cost savings and our efficiency initiatives. It is just masked by the impact of these carrier fees on a margin basis. Though, again, as we have said many times, they have no impact on our ability to generate gross profit dollars or income from operations or free cash flow. On your next question on the operating expenditures for Q1, we do have a little bit of front-loading of some expenses. First, we have a full quarter of our Stitch acquisition in Q1, and then we are making some product investments. We are making them really around the platform as well as some systems to support our efforts to cross-sell and to move more towards solution selling. We expect the pace to moderate as we move throughout the year, but a little heavier in Q1. Perfect. Thanks. And then, Khozema, one for you. If we look at the messaging growth, excluding A2P fees, I think the growth in the quarter was around 14% despite some of the tougher compares that you are coming against. Maybe talk through what is driving the strength of that business as you then look into 2026. Are you thinking about the durability of double-digit growth potentially? Khozema Shipchandler: Yes, Taylor, I would not point to anything specific as it relates to any one of our products, actually. Most of our products are performing pretty well. I think we are seeing broad-based strength across the business. We parse it by channel. We parse it by industry. We look at it by use case, and across the board, we are seeing a lot of strength across a number of different products, which includes messaging. We gave the guidance in terms of the year, and Aidan commented on the fact that for Q1, which obviously encompasses messaging given that that is our largest product, Q1 is the highest it has been for us in three years in terms of the guide, and we stepped up the full-year guide 100 basis points relative to last year. Hopefully, you can take from some more commentary that we feel pretty good about the outlook for 2026. Aidan Viggiano: Thank you so much. Operator: Thank you. Operator: Our next question comes from Mark Murphy with JPMorgan. You may proceed. Khozema Shipchandler: Thank you so much. I will add my congrats. Khozema Shipchandler: A lot of us are probably starting to feel the presence of RCS more tangibly in the last several months when we look at our own SMS text inboxes. I see them from Verizon and United Airlines and banks and hospitals. I think you mentioned a 5x sequential increase, which is hard to fathom. Could you just explain that? What is driving it, the shape of that adoption curve? And then remind us, any real economics to Twilio Inc.? We are hearing about Operator: 70% plus open rates on the messages, and then presumably some of them are going to be rich messages. I am just wondering what you are seeing there. Khozema Shipchandler: Yes. I will answer a couple of your questions, and I will take a step back and give you our views on it generally. In terms of the 5x, it is important to characterize that as off of a relatively smaller base. Yes, it is growing incredibly quickly. Yes, we are very excited about the prospect of what RCS can do for customers, but it is growing off of a relatively small base. That said, given that kind of momentum, we are very excited about where it goes going forward. In terms of what is driving the shape of the adoption curve, it is sort of embedded in your question in a way. These rich experiences really are great for many of our customers. I think that Khozema Shipchandler: you will start to see more of it shift towards increasingly marketing-oriented use cases where RCS is particularly strong. Khozema Shipchandler: You have not really seen that breakout just yet. The open rates are very high for all the reasons that I just alluded to a second ago. What is really interesting right now is you have two corners of it that can be really interesting. For a small business that probably will not get real estate on someone’s phone, it is an awesome way for you to be able to engage your customer, Khozema Shipchandler: and it is a lot different and differentiated relative to just standard Khozema Shipchandler: messaging. That is an awesome use case. You will start to see that from a lot Khozema Shipchandler: of small businesses, Khozema Shipchandler: which will include a lot of startups. On the flip side, it is also an excellent use case for Khozema Shipchandler: things that perhaps a certain cohort of the population Khozema Shipchandler: will have real estate on their phone but infrequent users will not. Khozema Shipchandler: Things like providing a ticket—you referenced United a moment ago— Khozema Shipchandler: that is a great vehicle to offer the capability to send someone information in a rich way that is better than conventional SMS. We are very excited about where it is today and the growth that we have experienced recently. Given the nature of it, we have said many times we are optimistic about it, and we are gaining optimism as we go. Operator: Thank you. That is a great answer, Khozema. Mark Ronald Murphy: The other question for you and maybe Aidan is we look back at the last year or two, it actually did not feel like a rising tide for the space that you operate in, because several of your competitors just have not grown at all in a while. When you reflect back on that, where do you think the Achilles’ heels have been for your peers who are struggling in this kind of environment, and the ways that you have outflanked them, does that feel like it is going to be structurally durable here this year, then into 2027 where you are giving really strong operating income guidance? I mean, I cannot speak for those guys. They do not, frankly, pay a lot Khozema Shipchandler: of attention to them. With respect to Twilio Inc., it is differentiated technology. We have always had Khozema Shipchandler: a phenomenal developer experience. We work really hard to cultivate that. Many of our customers that start as developers grow into some of the largest enterprise customers in the world. Khozema Shipchandler: Thomas alluded to the growth that we have seen in ISVs. Aidan did too. Khozema Shipchandler: You have two ends of the spectrum that are experiencing really rapid growth, and that is almost entirely a technology story. Khozema Shipchandler: Customers would not buy the higher-priced product, which we are in almost all cases, unless they were getting superior ROI. Credit to our R&D team, they are constantly innovating whether it is in the channels or in terms of some of this add-on technology, Khozema Shipchandler: and in many of the exciting things, which I am not going to get into today, we are going to talk about at SIGNAL in a few months. That level of velocity in terms of innovation and being able to continuously offer new and improved features and products to our customers, Khozema Shipchandler: that is what sets this company apart. Mark Ronald Murphy: And then I think our ability to leverage data on top of that, which adds a level of context I think is missing not just from maybe our classic competitive set, but really from any company Khozema Shipchandler: trying to provide this kind of essential infrastructure and then being able to Mark Ronald Murphy: going forward, build your own AI agents on top of our platform, be able to integrate Mark Ronald Murphy: into anybody agnostic of who the players are, that is pretty differentiated. We feel good about our business. I cannot speak to the others, but I think we are Khozema Shipchandler: doing a pretty good job right now. Thomas Wyatt: One more thing I would like to add to that, Khozema. What we are seeing is a lot of the point product competitors just do not have the multichannel capabilities that we have. What we have seen is our ability to add, whether it is an existing messaging customer, add another channel, whether voice or email or something, and then adding AI add-ons on top of it has been pretty compelling. One of the things in particular in the enterprise we are seeing is our large enterprise customers, the companies that spend at least $500,000 with us, they are up 36% year over year. This is a matter of winning market share based on having a platform play, and I think it is playing out. Operator: Thank you. Operator: Our next question comes from Samad Samana with Jefferies. Mark Ronald Murphy: Hi, good evening, and it is great to see the strong quarter. I wanted to maybe go back to the Voice AI side just as I think about enterprise versus serving as infrastructure inside of Khozema Shipchandler: next-gen companies. Where are you seeing stronger growth Mark Ronald Murphy: today? And as you think about 2026, which of those do you think is the earlier opportunity that will ramp? And I have a follow-up question as well. Thank you so much. Khozema Shipchandler: Samad, can I just parse your question and make sure that we have it? You are asking Khozema Shipchandler: whether we see more growth from pure-play Voice AI companies or whether we see it on the enterprise side. Is that right? Mark Ronald Murphy: Correct. Large enterprises directly leveraging it more or more growth there versus the Sierras and Polys of the world. Mark Ronald Murphy: And how are you thinking about that trend line maybe through 2026? Yes. We are not going to guide it based on specific cohorts of the customer segment at that level of detail, Samad. What I will say is Khozema Shipchandler: we are seeing it on both sides, but ultimately it will be the enterprise that ends up carrying the day here. Yes, we are seeing incredible velocity with the Voice AI side of it. You have literally hundreds of Voice AI companies. We have partnerships with a lot of these guys. We count most of them as our customers. They are definitely helping influence the growth characteristics that we are seeing in the voice channel. But as Thomas said earlier, the voice business is growing great anyway, Mark Ronald Murphy: and that tends to be the icing on top. Khozema Shipchandler: The reality of it is the big spenders are on the enterprise side, and as Thomas again alluded to, in a lot of these sales use cases and support use cases, you are seeing a lot of adoption there. You have a lot of early adopters and a lot of heavy experimenters. The heavy experiments, based on the ROI that we are delivering for customers right now, are going to start to translate into more durable volume, Khozema Shipchandler: and then if you layer on top of that what Thomas said in answer to the last question, our ability to offer this multichannel orchestration, because customers are telling us directly, based on their own consumers' usage patterns, Mark Ronald Murphy: they want the ability to go in and out of session. They want to be able to do it async and sync, and having multichannel capabilities is really important based on the lifestyles of the customers that we deal with, based on connectivity issues, Khozema Shipchandler: based on the complexity of the workloads. My bet would be enterprise is what drives it and carries the day ultimately, but Khozema Shipchandler: not at the expense of what we are seeing in Voice AI. Thomas, anything different? The only thing I would add to that is the other cohort that is Thomas Wyatt: really leaning into voice is the larger, more established ISV community. It is not necessarily AI natives, but the larger players that are software players embedding voice capabilities as part of their core platform, and they are a big consumer of our voice business as well. Operator: Thank you. Operator: Our next question comes from Sitikantha Panigrahi with Mizuho. You may proceed. Mark Ronald Murphy: Great. Thanks for taking my question, and congrats on a great quarter. Operator: I just want to extend Samad's question and also your comment about Mark Ronald Murphy: Twilio Inc. becoming this AI infrastructure layer. It is not just the Voice AI. Is there a way to quantify Aleksandr J. Zukin: in terms of revenue contribution coming from all the AI-related use cases, not just Voice AI? Maybe even the messaging side—are you seeing where agentic AI adoption or a customer trying to use? And what is kind of a jumps on you have backed into, next couple years, like, when you guide in 2027? When do you think this agentic AI tech software—you know, you will see both your messaging and voice adoption? Thomas Wyatt: Yes. Thanks for the question. The way we think about it really is Twilio Inc. is the platform where AI agents can get infrastructure services, whether it is the ability to communicate across any channel, the ability to create customer memory or understanding and personalization from the data substrate that we have largely powered by our CDP and Segment capabilities, and the ability to validate somebody and make sure that the person is who they say they are with our identification and identity and security products. Really think about Twilio Inc. as a platform where you come as a critical ingredient to build the next-generation agents. That being said, each of our channels does have AI capabilities embedded on top of it. We talk a little bit about voice—voice orchestration, Conversation Relay as an example. In the area of account security, we do a lot of AI in the way we do fraud detection and identity verification. I will give you an example of some of that. In the course around personalization, we use a lot of AI to be able to determine anonymous people and make them known people based on synthesizing data and applying AI to it. Really, it is more of a platform play for us than any individual channel. Mark Ronald Murphy: I would just add one thing to what Thomas said. What you are seeing today is Khozema Shipchandler: a tremendous amount of investment and excitement in the Voice AI space. To underscore part of what he said, we view this as ultimately multichannel orchestration. Conversation Relay, the product that we launched a little while ago, is also experiencing really great growth, again off of a relatively small base, but we are very excited about it. The promise of that product is to be able to handle these very complex workloads across multiple channels without ever losing the customer, and, in fact, not just Khozema Shipchandler: not losing them, but engaging them better than one of our customers ever has before. That is the promise going forward. What is going to happen most likely is that a lot of the activity that you are seeing in voice is going to end up transitioning or also start happening in some of the other channels. Again, as Thomas rightly pointed out, it is across the platform. The point is not to focus on any one channel, but rather meet the customer where they are, serve as the control plane across whether it is an agent-to-agent interaction, a human-to-agent interaction, or a human-to-human interaction. We want to make sure that we are the infrastructure that allows for all of it to happen in the most seamless way possible. Operator: Thank you. Operator: Our next question comes from Ryan MacWilliams with Wells Fargo. You may proceed. Khozema Shipchandler: Hey, thanks for the question. Khozema, good to see Twilio Inc. Verify growth, and Thomas Wyatt: look, I am going to try to take a big, deep breath before Khozema Shipchandler: asking this. I know how kind of crazy this sounds, but Operator: let us just say that there is an increase in Khozema Shipchandler: spam communications traffic due to AI agents, and there are a lot of legal reasons why that would be difficult to occur, but in that kind of environment, Operator: how do you think this would help Twilio Inc. Verify and maybe RCS, as Khozema Shipchandler: things would be important and would help Operator: you know, authorize the appropriate messages that people actually want. Khozema Shipchandler: You said spam, right? That was the nut of your question? Yes. Yes. Yes. Mark Ronald Murphy: Yes. I think this is actually a place where Twilio Inc. is ideally positioned, Khozema Shipchandler: and the whole notion of being branded is key here. We have done a lot of work around branded calling, for example, Khozema Shipchandler: to make sure that Mark Ronald Murphy: not only are you getting a number or you are getting called from a number that you recognize that is specifically identified, but it is also Khozema Shipchandler: logoed so that you really understand what is Khozema Shipchandler: happening on the other side of that interaction. Very difficult to replicate otherwise. There is a technology lift that you get there, and the data validates that that is a Mark Ronald Murphy: great solution. Khozema Shipchandler: The pickup rates on those kind of calls are much more significant. You get a twofer. One is that Khozema Shipchandler: you get better authentication and identity. Two is that you get better pickup rates because the other side is not Khozema Shipchandler: just looking at some random number. They are getting a known identified number on the other side. With this large technology that we have, and I think you will start to see it more broadly adopted, you will have the exact same thing end up happening over SMS. That again reinforces what we are trying to accomplish. The products that you referenced like Verify, certainly, RCS already has branding in the nature of the product. You will start to see pickups in those products because the channels only work if you know that everything is authenticated, Mark Ronald Murphy: especially in an agent-to-agent interaction. That is one where we have to make Khozema Shipchandler: sure that we know who the originator is and who the receiver is, so that we are conducting a proper transaction. Khozema Shipchandler: By the way, that is also one of the reasons that we picked up this identity company a quarter or so ago. We think they can be really important to Mark Ronald Murphy: validating and reconciling these different kinds of interactions, especially agent to agent, Khozema Shipchandler: and we think all of that is ultimately an uplift for every one of our products. Operator: Thank you. Our next question comes from Nick Altmann with BTIG. Awesome. Khozema Shipchandler: For taking the question. It is great to hear there is another quarter of acceleration in voice and the continued traction with Voice AI. But, Khozema and Thomas, I know it is early, but what Khozema Shipchandler: can you share with investors, whether it is how use cases are scaling in production, longer-term commitments from customers around voice and Voice AI, or just Khozema Shipchandler: anything else that can help get us Operator: kind of more comfortable with the durability Khozema Shipchandler: over the next couple years in the voice side of the business? Thanks. Thomas Wyatt: Yes. Hey, Nick, it is Thomas. A couple of thoughts. The first thing I would say is the voice growth and strength has been broad-based. It is not just the startups. It is the enterprise. It is the ISVs, and it has been a global phenomenon for us as well. That is part of it. We are also seeing it in the context of not just the self-service channel, which is usually where most customers onboard into Twilio Inc., but also our direct sales team and the way they go after new logos and new business. Voice has been a big driver of that team's success this past quarter. In fact, it was the best new business quarter we have had in years across the globe. Fundamentally, voice is having its renaissance. It is a key part of the next-generation user experience of AI-powered applications and agents. We feel it is pretty durable, and we are doing everything we can to accelerate our product capabilities and our go-to-market partnerships to scale it even faster. Thank you. Operator: Our next question comes from Jamie Reynolds with Morgan Stanley. You may proceed. Khozema Shipchandler: This is Jamie on Thomas Wyatt: for Elizabeth Porter. Just a question from our side. There is a really impressive list William Verity Power: of customer wins that you flagged. Just trying to get a better sense: are you getting better at that upfront portion of the selling motion as opposed to landing and expanding with more functionality later? Thomas Wyatt: Yes. The way to think about it is we have two different ways of acquiring customers. The first way is the self-service channel, which is largely product-led growth. It is marketing, more efficient marketing, using AI to help us make onboarding and activating customers more seamless than ever. There are a lot of product capabilities that we have implemented in the last year that reduce the friction of customers getting started with Twilio Inc. Then there is the direct sales team that is focused primarily on going after named new accounts and logos that we want to take in. Generally, they are larger ISVs or enterprise-type customers. That business has been really strong for us in the last six months. That motion is largely about the AEs hunting these logos. They get customers started on the Twilio Inc. capabilities, and then once the customers are starting to see some value, we shift that logo over to strategic AEs that will help grow that account over time. This motion has been working for us for some time, and we are just continuing to fuel it. Operator: Thank you. Our next question comes from James Fish with Piper Sandler. You may proceed. Hey, everyone. Thanks for the question. Just quickly, are William Verity Power: you planning any change in comp plans for 2026? Is there going to be an idea to drive more cross-sell to drive that multiproduct adoption and incentivizing maybe the ISVs through their customer base to adopt more of your API? Thanks, everyone. Thomas Wyatt: Yes. Great question, Jim. We did make some changes in our comp plan in 2026 to drive more cross-sell and upsell incentives into the sales plan. Again, just to remind people, we did bring the total global sales team together this past year in 2026, and then we created a specialist function as well to support the global sales team with our more advanced technologies. The combination is that the AEs are very incented to land a customer and then show them the value of the platform and get expansions through that. In Q4, we had a 26% growth in new product customer count, and this is the beginning of a journey that we are on, but we are feeling pretty good about the multiproduct customer count acceleration. Operator: Thank you. Our next question comes from Joshua Reilly with Needham. You may proceed. Mark Ronald Murphy: Yes. Thanks for taking my question. As you look at the strength in the international messaging business, can you speak to the margin dynamics you are seeing around these deals? Customers may be adding more higher-margin Khozema Shipchandler: add-on products now than they would have a few years ago. With these deals, does that offset the inherent lower gross margin on international messaging? And can this accelerate further in the next couple of years? Thank you. Aidan Viggiano: Yes. From an international messaging perspective, I will just say we focus on unit economics, and that has always been our approach. We continue to do the same. We have seen a lot of success in international messaging over the course of 2025—very strong growth. In terms of multiproduct adoption, in general, we are seeing it pretty broad-based, with our international messaging customers and others. That tends to mix us up on margins, as you know, but I will let Thomas talk about some of the upsells and other things that he is noting in the market. Thomas Wyatt: Yes. The other thing that we are seeing is that SI partners—system integrators—have been really helpful for us to scale internationally in bringing some of these multiproduct capabilities to the international markets and helping our customers have success with more integrations with other systems that they use. The combination of the platform itself plus the partnerships is helping us accelerate in international markets. Operator: Thank you. Operator: Our next question comes from Will Power with Baird. You may proceed. William Verity Power: Maybe first, just a quick follow-up. Nice to see the improving trends in James Derrick Wood: gross profit growth. I know, Aidan, you laid out some of the visibility drivers that help with the 2026 guidance. Anything else you would call out on the Q4 improvement? Is it all those same factors or anything else to note? Then my other question, just to come back to the voice strength. I know it is still early, and I guess in the software add-on bucket, but anything you could share on the trends with Conversation Relay and conversation intelligence would be great. Thanks. Aidan Viggiano: Yes. I will start with gross margins, Will. It is more of the same, really. When you look at Q4, on a reported basis we were down 200 basis points year over year. That was driven by two things. About 80 basis points was the fees. We had them in Q4 of this year. They did not exist in Q4 of last year. They were increased after Q4 of last year. That was about an 80-basis-point headwind. The remainder was really messaging mix. We provide some information in our presentation, but messaging as a percentage of revenue is up about 200 basis points year over year. As you know, that is our lowest margin product, and as that business grows faster than the average, it mixes us down in gross margin. Again, we really look at it from a unit economic perspective, and we take on business that we think hurdles a certain rate. Those are the two dynamics that we saw in the quarter: messaging mix and the U.S. carrier fee increase. Operator: Thank you. And then Aidan Viggiano: I will hand it to Thomas or Khozema to talk about the voice question. Thomas Wyatt: In terms of voice, there are three components. The voice infrastructure connectivity layer has been very strong across all the key use cases, whether it is marketing, customer care, etc. Then there are the software applications that sit on top, more of the AI or orchestration: conversational insights, conferencing, recording, transfer—all of those features are growing very fast on top of the existing voice infrastructure, including Conversation Relay. This is the beginning. It is early on this voice acceleration, but we feel good about where we are at. Operator: Thank you. Our next question comes from Jack Snider with KeyBanc Capital Markets. You may proceed. William Verity Power: Hey. Thanks for taking the question. This is Jack on for Jackson Ader. I was wondering if you could talk about the biggest levers for the NRR acceleration Khozema Shipchandler: year over year, and then also if these levers are going to continue into 2026? As a follow-up question, on multiproduct customers, are you thinking about the pipeline of single-product customers adopting the incremental one or two throughout 2026 driving that growth higher? Aidan Viggiano: On the DBNR side, we saw it at 109% this quarter, roughly flat quarter over quarter. It was a couple of things. In terms of where we have seen the acceleration over the course of the year, it ties back to what Thomas has been saying about multiproduct adoption. It is really expansion where we are seeing the acceleration, and it is pretty broad-based. We see it across our ISVs as well as our other direct enterprise customers. In particular, I would say voice and messaging tend to be the drivers of where we are seeing it. Given our guide of 10% to 11% for the quarter in Q1 and 8% to 9% for the year, yes, we would expect that level of strength to continue. Thomas Wyatt: I will comment on the multiproduct customers. There are two different ways that we see the scaling. The first is the self-service channel itself, and we have some really awesome new product capabilities that are coming to market shortly that are going to make it even easier for customers to take advantage of more products on the Twilio Inc. platform. The lion's share of the customers that are single product are actually self-service customers. Our goal is to get them using more channels and more software on top of that. When it comes to the direct selling motion, going back to the earlier question around compensation plans and account planning and how we are doing that, the global AEs this year are really focused on helping customers see the value of multiple channels and multiple services across the Twilio Inc. platform, and their compensation is tied to that as well. What we find is that customers see a lot more ROI with Twilio Inc. when they use two, three, and four channels. Their spend goes up, and their ROI goes up significantly. We know if we can get them to that second and third channel, they are going to have a lot of benefits. Our goal is to use the specialist organization combined with the new comp plan to help our AEs be even more effective in doing that this year than ever before. Operator: Thank you. Our last question comes from Koji Akita with Operator: Bank of America. Mark Ronald Murphy: I wanted to go back to an earlier question about the gross profit tracking to organic revenue growth. I totally get that in reference to the guidance, but how should we think about it Khozema Shipchandler: if there is upside to organic revenue? It sounds like it should at least flow directly to gross profit, and then it sounds like there are a few ways that gross profit could grow even faster than organic revenue. Operator: And so Mark Ronald Murphy: is that the right way to think about this? And if that is not the case, then why would it be that way? Aidan Viggiano: I would say for the year, we said it should grow too, and that is the guidance that we have given. A big factor in how to think about it is product mix. We have seen some of our higher-margin products really accelerate, voice being the big one over the back half of the year. We saw voice tick up quite a bit. That is very helpful in terms of expanding gross margins and also getting gross profit to grow more in line with organic revenue growth. But messaging is still a very big part of our business. It is almost 58% of our revenue. That could be a factor in how much higher gross profit could grow relative to revenue for 2026. For now, we are saying we expect it to be similar to, which is better than what we have been tracking. Operator: Thank you. Operator: This concludes the conference. Thank you for your participation. You may now disconnect.
Operator: Good afternoon, and welcome to Corsair Gaming, Inc.'s Fourth Quarter and Full Year 2025 Earnings Conference Call. As a reminder, today's call is being recorded and your participation implies consent to such recordings. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, with that, I would like to turn the call over to David Pasquale with Investor Relations. Please proceed. David Pasquale: Thank you, operator. Good afternoon, everyone, and thank you for joining us for Corsair Gaming, Inc.'s financial results conference call for the fourth quarter and full year ended 12/31/2025. On the call today, we have Corsair Gaming, Inc. CEO, Thi La, and CFO, Michael G. Potter. Thi will review highlights from the quarter and the year. Michael will then review the financials and our outlook. We will then have time for any questions. Before we begin, allow me to provide a disclaimer regarding forward-looking statements. This call, including the Q&A portion, may include forward-looking statements related to the expected future results for our company. Including our 2026 financial outlook and other statements that are not historical in nature, are predictive in nature, or depend upon or refer to future events or conditions such as our expectations, estimates, predictions, strategies, beliefs, or other statements that may be considered forward-looking. These forward-looking statements are based on management's current expectations and assumptions. Our actual results may differ materially from our projections due to a number of risks and uncertainties. The risks and uncertainties that forward-looking statements are subject to are described in our earnings release and other SEC filings. Note that until our 10-K has been filed, these numbers are preliminary, and are subject to change. Today's remarks will also include references to non-GAAP financial measures. Additional information, including reconciliation between non-GAAP financial information, to the GAAP financial information, is provided in the press release we issued after the market closed today prior to this call. With that, I will now turn the call over to Corsair Gaming, Inc.'s CEO, Thi La. Please go ahead, Thi. Thank you, David, and thank you all for joining us today. Thi La: We closed 2025 with strong execution across the business and meaningful progress on the strategy we have been building over the past year. In the fourth quarter, revenue came in as expected, while profitability exceeded the upper range of our forecast. We delivered strong gross margin expansion and meaningful operating leverage despite a very dynamic operating environment. For the full year, revenue grew 12% to approximately $1,470,000,000. Gross profit increased 30%, and adjusted EBITDA grew more than 80%, reaching over $100,000,000. We also delivered our highest full year gross margin as a public company. That combination of growth, margin improvement, and discipline is what we set out to achieve in 2025. In addition, I am excited to welcome Michael G. Potter as Corsair Gaming, Inc.'s new CFO. Michael joined us in December 2025 and he is already making a positive impact with our leadership team. He brings deep experience in scaling global consumer technology businesses, and leading successful transition toward platform and recurring revenue models. Just as importantly, as a public company CFO, Michael shares our focus on building clear, transparent financial reporting and stronger investor communications for Corsair Gaming, Inc. You will hear directly from him in a few moments. Turning to our business performance, in gaming components and systems, we delivered strong growth for the full year, led by memory and core components, supported by solid demand for the segment as enthusiasts continue to upgrade their performance PCs. Corsair Gaming, Inc. strategically invested in memory inventory to protect consumer demand despite broader market concern about semiconductor supply constraints. In gamer and creator peripherals, we delivered full year growth driven by demand from both creators and sim racing enthusiasts. Fanatec and Elgato were important contributors and both brands continue to strengthen their position in their respective markets. In line with the broader market, we did see softer holiday demand in North America in gaming peripherals, offset by stronger international performance. We expect demand to improve as we move through 2026 especially with the highly anticipated GTA VI launch in Q4. Fanatec in particular, is integrating extremely well. During 2025, we strengthened Fanatec's operations, improved quality and support, and advanced our roadmap with technologies that raise the bar for performance and usability. Product availability has improved. Channel engagement is increasing, and consumer adoption continues to accelerate as we drive growth in one of the fastest expanding areas of our business. Looking forward, I want to spend a moment on what we showcased at CES 2026 because it directly reflects where Corsair Gaming, Inc. is going. We had one of the strongest CES product lineups in our history, and the customer and partner response was extremely encouraging. At the center of our showcase was Stream Deck, which is positioned as a must-have control layer across gaming, content creation, productivity, and emerging AI workflows to voice control Stream Deck. We introduced the Galleon 100 SD, our CES Innovation Award-winning keyboard that integrates Stream Deck directly into a high performance mechanical keyboard, to deliver an immersive and customizable experience. This has quickly become one of the most successful launches in our portfolio, and represents certainly validation that our black based strategy can make an impact. We also demonstrated early support for AI-enabled workflows, deeper software integrations, and new local AI computing platforms to our workstation and edge AI systems. What stood out to us most at CES was how much our ecosystem strategy resonates with customers. We are reducing friction for users, and making complex workflows whether for gaming, streaming, production, or local AI easier to access and control. Another very important milestone for us this quarter was the opening of our first Corsair Gaming, Inc. retail store, we opened our first experience-driven retail location at Westfield Valley Fair Mall in Santa Clara. This is not a traditional retail store. We designed a fully immersive and fun experience showcasing the Corsair Gaming, Inc. ecosystem across gaming, sim racing, and creator workflows. The response has been outstanding with strong opening day demand, and consistent healthy traffic and conversion since. Strategically, this store represents an important step in our plan to deepen consumer engagement and grow brand awareness. Now I would like to share our top priorities for 2026. First, improving the quality of growth through mix, integrated platforms, and innovation. We are prioritizing growth in higher margin gaming, sim racing, and creator categories and ecosystem platforms, supported by a steady cadence of innovative product launches. At the same time, we will continue to leverage both our scale and execution strength in the components and system segment to drive revenue and grow market share. Our foundation continued to be strengthening each quarter giving us a diverse platform to scale and capture incremental David Pasquale: opportunities. Thi La: Second, driving margin expansion through operational discipline and creator marketplace. We are focused on driving margin expansion through smart inventory management, to navigate a tight semiconductor landscape, combined with a nimble manufacturing strategy to improve cash flow. We also plan to scale the Elgato marketplace with the goal of growing recurring revenue for both Corsair Gaming, Inc. and our community of makers while tapping into new sources of revenue as we expand into new industry verticals. David Pasquale: Third, Thi La: scaling our direct-to-consumer business to deepen engagement. In 2025, we made strong progress expanding our direct-to-consumer business to nearly 20% of our revenue, with double-digit growth in web traffic, and impactful social engagement, alongside the launch of the immersive retail store. These efforts are strengthening consumer relationships, improving conversion rates, and generating insight that support product development, and go-to-market execution. With that, I will turn it over to Michael to walk through the financials. David Pasquale: Thank you, Thi, and good afternoon, everyone. Michael G. Potter: Before I get into the numbers, I want to briefly say how excited I am to be here. What attracted me to Corsair Gaming, Inc. is the combination of strong global brand, a highly engaged customer base, and a clear opportunity to work with Thi and the leadership team to evolve the business into a high quality, more predictable, and increasingly platform driven company. Since joining, everything I have seen has reinforced my belief in the opportunities that lie ahead of us. I look forward to working closely with our investors and analysts to provide consistent insight into our business. David Pasquale: Our brands, Michael G. Potter: and our long-term growth opportunities. Transparency and regular communication will be an important focus for Thi and me going forward, as we build on the company's history of innovation and product excellence. Now turning to our results. We ended 2025 in a strong financial position. For the full year, revenue increased 12% to approximately $1,470,000,000. Gross profit increased 30% to approximately $426,000,000. Adjusted EBITDA increased more than 80% to approximately $101,000,000, and exceeded the high end of our guidance. These results reflect the strength of our core business, M&A success, and growth in our direct-to-consumer business, which we plan to build on in 2026. In the fourth quarter, revenue increased 6% year over year to approximately $437,000,000. Gross profit increased more than 30% year over year, adjusted EBITDA increased more than 60% year over year. These results reflect strong execution across our supply chain and continued operating discipline. From a segment perspective, gaming components and systems delivered strong double-digit growth in both the fourth quarter and the full year, driven by strength in memory and core components. Gamer and creator peripherals delivered single-digit full year growth, led by continued momentum in sim racing and creator products including Fanatec and Elgato, while lower demand in the North American market was largely responsible for the low single-digit revenue decline in the fourth quarter. Turning to the balance sheet. During the fourth quarter, we increased our cash balance by just under $33,000,000 while strategically investing in inventory, which we believe positions us for profit momentum in 2026. Financially, we will continue to focus on three priorities. First, margin expansion and profitability through product mix, platform-led offerings, and disciplined operating expense management. Second, working capital discipline, which allowed us to make strategic inventory investments in 2025 which we believe will position us well for early 2026, and which we believe will also enable us to capitalize on other opportunities in the future. David Pasquale: Third, Michael G. Potter: disciplined capital allocation. During 2025, we reduced our debt by over $50,000,000 and continue to strengthen our financial flexibility. Today, we also announced Corsair Gaming, Inc.'s first share repurchase authorization of up to $50,000,000. The repurchase program is effective immediately, does not have an expiration date, and is subject to market conditions, applicable laws, and regulatory guidelines. This reflects our view that Corsair Gaming, Inc. shares represent an attractive use of capital alongside continued investment in both organic and acquisition-led growth. David Pasquale: Now turning to our guidance. Michael G. Potter: For full year 2026, we expect net revenue to be in the range of $1,330,000,000 to $1,470,000,000, adjusted EBITDA to be in the range of $100,000,000 to $115,000,000, non-GAAP EPS to be in the range of $0.58 to $0.74 per share. For the 2026, Thi La: we expect Michael G. Potter: net revenues to be in the range of $335,000,000 to $365,000,000, adjusted EBITDA to be in the range of $25,000,000 to $30,000,000, and non-GAAP EPS to be in the range of $0.18 to $0.22 per share. For the assumed midpoint of the ranges that are giving as guidance, for both the first quarter and the full year 2026 this reflects about a 5% decrease in revenue year over year, with expected double-digit growth in our gamer and creative peripheral segment offset by a more cautious outlook for our gaming components and systems segment, driven by the current global semiconductor shortage. Adjusted EBITDA is expected to grow year over year as we focus on margin expansion and operating expense management. To close, I would emphasize that Corsair Gaming, Inc. has proven that its model can generate attractive margins and operating leverage. The opportunity ahead of us is to scale that model more consistently through platforms, recurring revenue, stronger execution, and clearer communication with the investment community. Operator, that concludes our formal remarks. You can now open up the call for Q&A. Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. One moment, please, while we poll for questions. Operator: Thank you. Thi La: Our first question comes from the line of Aaron Lee with Macquarie. Please proceed. Aaron Lee: Hey, guys. Thanks for taking the question and congrats on the strong quarter. Thi La: Thank you, Aaron. Thank I wanted to start with Unknown Analyst: yes, starting with guidance. I appreciate you guys giving the full year guidance range. That is helpful. Last quarter, you talked about embedding some conservatism in guidance. Is that something you have done with the guidance ranges provided today as well? And how much visibility or confidence do you have in the full year 2026 guidance range just given everything that is going on in the market currently? Thank you. Michael G. Potter: Yes. That is a great question. With respect to the guidance, I would say we as we just described, we are looking at double-digit growth in the peripheral segment. We are taking certainly what we consider to be a conservative outlook for the component segment just in light of the semiconductor shortages. I think if you look at the guidance ranges, I think at difference between the high end and the low end is really how that plays out. So Unknown Analyst: yeah. Michael G. Potter: Hopefully, that answers your question. But, yeah, we are applying a forecast methodology and approach to guidance that I adopted at previous companies that was pretty successful. So yeah, Unknown Analyst: Okay. Perfect. That is helpful. Appreciate that. And then you obviously had really strong components margins during the quarter. Is that mainly reflecting the higher margin you are getting on memory products? Or were there any other drivers to call out there? How sustainable do you think those margin levels are going forward? Thi La: I wanted to Operator: yeah. Thi La: Answer this question. So I am just trying to coordinate with Michael a little bit. Thank you. So actually, throughout the year, our components margin as a segment continued to improve year on year. And we do see benefits from a number of fronts. So we see especially with the growth of sim racing, that is really helped contributing positively to the for the quarter. Memory, of course, was the major contributors to the margin lift in in the quarter. Because the price has gone up substantially starting from October to December. And every time you see an acceleration like that, we tend to see favorable inventory margin. But on the other hand, you know, we also do see great traction on the rest of the product lines in terms of NPIs, in terms of mix shift, between components and gaming peripherals Operator: segment. Unknown Analyst: Okay. Got it. Thank you very much. Congrats on the quarter again. Thi La: Thank you. Thank you. Thank you. Our next question comes from the line of Anthony Stoss with Craig-Hallum Group. Please proceed. David Pasquale: Hi Thi. Hi Michael. Just following up on that Unknown Analyst: last question. Maybe can you give us the memory revenue in the quarter? And then I have a couple of follow ups. Michael G. Potter: Yeah. Sure. Happy to. Memory revenue grew 24% year over year to a $156,000,000. And the gross margin was 35% Got it. Unknown Analyst: We have had this conversation, I think, over the last couple months, and clearly, having an inventory memory I have the big steep increase in prices helped you folks. Douglas Creutz: How much inventory do you have left of, let us say, cheaper than current market rate memory? And do you have enough maybe to carry you deep into 2026? Thi La: I think this situation for us right now, the way that we view our business from memory, as we are pretty much, you know, running the memory business for the past thirty years now. We believe we have a stronger position than most others in the consumer space to maneuver through challenges or tough market like what we see today. And our goal is really to continue to acquire inventory to support the demands from our enthusiasts. As we are probably one of the bigger brands now, since the exit of a couple of other brands from consumer memory. And the number is reflected in our forecast, for 2026. So, you know, that is probably does not, you know, include any potential upside that we might be able to work through. For the rest of the year. So you should just look at our 2026 forecast as reflective of where we think we are. Douglas Creutz: Got it. Thanks, Thi. And then last question for Michael. Maybe you can, help fill out some of the for your full year guide. Do you expect total OpEx to be maybe for 2026 like, a range? Same thing. What is the expected gross margin for the full year to kind of get to the midpoint of your EBITDA guide? Michael G. Potter: Yes, sure. On the gross margin side of the quest, I think we are probably looking at relatively flat gross margin within the actual segments. We are going to see some mixed benefit, obviously, because we guided double-digit growth in peripherals, which is obviously the higher margin segment. So we will see some nice benefit to gross margin there. More than offsetting the tariff headwind the full year tariff headwind, which is about another $12,000,000 year over year. So I would see a little bit of upside in gross margin, and then on the OpEx side of things, we are probably looking around 3% to 4% reduction in OpEx year over year. We are getting some pretty good operating leverage with that incremental gross profit year over year. Yeah. And I want to add to that that Thi La: within 2025, as we shared before, one of the key initiatives for us is really to control OpEx and really optimize all of the M&A that we went through in the past few years. And I think we have done a good job in terms of reducing OpEx and really driving revenue with what we already have within our investment. Douglas Creutz: Thank you for that, Thi. Thank you. Operator: Thank you. Thi La: Our next question comes from the line of Andrew Crum with B. Riley. Please proceed. David Pasquale: Okay. Thanks. Hi, good afternoon. And Michael, welcome. You discussed accelerating investment, support your peripherals business in Elgato. Is this all organic? Does it contemplate M&A? And with Rian Bisson: presumably a positive mix shift, is there a longer term or notional gross margin you think this business capable of achieving given this approach? Thi La: I can take this question. So, definitely, the growth for gaming peripherals and creator segment came from organic investment, and that came from just expanding the product categories for sim racing, for example, and growing recurrent revenue through the Elgato marketplace. And the second thing is, we will continue to evaluate opportunity for M&A if it makes sense, and then growing our D2C business and our D2C business is is beneficial from a number of points. First is consumer engagement and getting valuable data to help build better products. The second thing is it is just, you know, generating more margin in general because know, we control the channel. Got it. Rian Bisson: Thanks, Thi. And then maybe just one follow-up. Thi, I think in your your preamble, you you mentioned Grand Theft Auto VI providing a benefit to the peripherals business. Understanding that the majority of your mix is sourced from PC and the fact that Take-Two is yet to announce a PC version of the game. Can you just help us understand, you know, what parts of your business should see a lift from that launch in 2026? Thanks. Yes. Thi La: There are two part of our business. One is the controllers business through the Scuf brand. And that is basically all console related space. We have PC controllers, but, you know, the bulk of the business is console. The other part of the business is video capture through Elgato. For example, with the recent Switch 2 launch in the 2025, we did see a very nice lift for our capture card business because people are streaming more new content. That is an opportunity for us to leverage that engine and drive more 4K capture cards. Operator: Got it. Okay. Thanks, guys. Thanks. Thi La: Thank you. As a reminder, please press 1 to ask a question. Our next question comes from the line of Doug Creutz with TD Cowen. Please proceed. Douglas Creutz: Thank you. Just in terms of the semiconductor situation that is creating pressures across the industry. What kind of forward visibility do you have into that? Is it something where, you know, you see it getting better or worse in real time and that is the amount of visibility you have? Or, you know, presumably, at some point in the future, things start to loosen up, are you going to know a few months ahead of time when that is going to happen? Thanks. Thi La: Thank you for the questions. For us, the visibility in terms of the the bigger pictures, we are getting this very similar information to everyone else in terms of fab capacity and AI data center consumption. And current projection, I think everyone probably already see the same data is that the market will continue to be tight for the next couple year, couple years. But for us, you know, we do not just rely on output of semiconductors alone. We basically have you know, a lot of ways to acquire inventories and produce inventory as we do have a manufacturing center in Taiwan that built Operator: DRAM modules Thi La: and the visibility that we use is basically just you know, market intel out a couple quarters, and we have continued to operate based on the information that we use for the past past thirty years, and that seems to be working so far. Unknown Analyst: Thank you. That is helpful. Operator: Thank you. Thi La: Our next question comes from the line of Matthew McCartney with Wedbush Securities. Please proceed. Douglas Creutz: Hi. This is, Matt on for Alicia Reese. Unknown Analyst: Just want to clarify a couple of things on guidance, specifically on the memory side. Operator: Just Douglas Creutz: am I understanding correctly that you are not embedding a margin lift on the memory side for the 2026 guide? Michael G. Potter: We are looking at relatively flat margins in our component segment year over year. So we have got near-term visibility into 2026. We are assuming only kind of modest gross margin lift compared to steady state in the latter part of the year. So we are forecasting what we have near-term visibility into which nets out to roughly flat gross margin year over year for the segment. That answer your question? Okay. Unknown Analyst: Yeah. Yeah. I just understood I understand that cadence. Right? It is flattish in the back half. Is that correct, or or is it something else? Michael G. Potter: Flat for the year. Unknown Analyst: Flat for the year. Okay. We have Operator: yep. Okay. Douglas Creutz: Then just as far as, like, your inventory position right now and, I guess, going into last quarter, I know you are pretty pretty strong there. It looks like shortages did increase. Can you just talk about where you stand today terms of your memory inventory? Thi La: We are you know, I think we did a Q1 and also full year signal. And we are comfortable with where we are right now with the projection we provided. David Pasquale: Okay. Great. And then just last question. Just Unknown Analyst: on Elgato and and recurring revenue stream that you want to build there. Can you give us a baseline of where that business today in terms of recurring revenue, what sort of percentages? And Douglas Creutz: if possible, targets with where you are looking to get Thi La: Yes. In terms of recurrent revenue, model that we are working on, a lot of the visitors that we have on the Elgato marketplace, downloading content and using contents. We have, you know, over two millions users active actively posting content and downloading content. Now the the task force in the next you know, six months is really to construct with Michael's health a, basically, a recurrent revenue model to to basically drive that, and we will not be able to get into further details, I would say, until probably in a couple quarters from now. The current, revenue is meaningful to the point where it is what the effort for us to actually kick this off as as a a longer strategy. We do solution that is already selling into the B2B channel today as well. And a lot of interest in terms of using our Stream Deck solution. So that is, exciting for us. Operator: Great. Thank you, everyone. I will pass it off. Thi La: Thank you. Thank you. Thank you. As a reminder, it is star 1 to ask a question. There are no further questions at this time. I would like to pass the call back over to Thi for any closing remarks. Operator: Thank you, everyone, for joining us on the call Thi La: today and for your continued support. If you have any follow-up questions, please contact our Investor Relations department. We look forward to updating you next quarter. Thank you, and have a good evening. Operator: This concludes today's teleconference. Thi La: You may disconnect your lines at this time. Thank you for your participation.
Operator: Good afternoon, ladies and gentlemen, and welcome to the Morguard Real Estate Investment Trust 2025 Fourth Quarter Results Conference Call. [ Operator Instructions ] This call is being recorded on Thursday, February 12, 2026. I would now like to turn the conference over to Andrew Tamlin, Chief Financial Officer. Please go ahead. Andrew Tamlin: Thank you, and good afternoon, everyone. As mentioned, my name is Andrew Tamlin, Chief Financial Officer of Morguard REIT. Welcome to the Morguard REIT's Fourth Quarter 2025 Earnings Conference Call. I am joined this afternoon by John Ginis, Vice President of Retail Asset Management; Tom Johnston, Senior VP of Western Office Management; and Todd Febbo, Vice President of Office Asset Management, Eastern Canada. Thank you all for taking the time to join the call. Before we get into the call, I would like to point out that our comments will mostly refer to the fourth quarter 2025 MD&A and financial statements, which have been posted to our website. I refer you specifically to the cautionary language at the front of the MD&A, which would also apply to any comments that we make on this call. Our fourth quarter results were very much in line with expectations. We have continued to see softness in the office numbers with an expected decline in net operating income from Penn West Plaza transitioning to a multi-tenant building. Our retail results were stable with good rental growth on lease renewals for both our malls and retail strips. In the third quarter, we had highlighted that we had a large onetime prior year property tax refund received from one of the Trust's enclosed shopping malls. The final accounting for this represented a positive $3.8 million onetime impact on net operating income for the year. This primarily represents the portion of the refund that has been allocated to either vacant space or space where otherwise the landlord is entitled to keep the refund. We have known for some time that 2025 is going to be a tough year due to the market rent resets at Penn West Plaza in Calgary. The impact of this has continued throughout the year and finally into this quarter. The 11-month impact of this adjustment in 2025 was $16 million. This decline at Penn West Plaza is due to the expiration of the Obsidian head lease on February 1, 2025, which has resulted in a reset of rents for all tenants to current market rates. Effectively, this building has transitioned from a single-tenant building to a multi-tenant building. We are pleased with this transition, and it has resulted in an occupancy of Penn West Plaza at 81%, which is a strong rate for the Calgary marketplace. Significant inducements of opening free rent and free operating costs to secure various tenancies are also impacting the Penn West Plaza. [Technical Difficulty] Sorry about the interruption. Our net operating income for the fourth quarter declined from $33.5 million in 2024 to $29.1 million in 2025. As mentioned, this decline is primarily due to the results from the Penn West Plaza asset. Looking at 2026, we do expect our retail results to remain stable. While we have a partial year of the missing bay income to work through, we are still seeing positive retail fundamentals, and there are some retail developments we are working on, which I will touch on in a few minutes. We are expecting to see some continued softness in the office numbers in 2026 as we work through some vacancies in certain markets. Our leasing teams have noticed increasing interest in tours for office space in major urban areas as companies continue to push their employees to get back in the office. We are cautiously optimistic that this will translate into future office leasing deals into late 2026 and into 2027. Touching on The Bay. On Friday, March 7, 2025, The Bay filed for creditor protection under the Company's Creditors Arrangement Act. The Trust has two Bay locations comprising a total of 290,000 square feet of GLA, one at Cambridge Center in Cambridge and one at St. Laurent in Ottawa. The Trust's annualized gross rent earned from The Bay leases was approximately $1.5 million. In the second quarter, the Trust lease with The Bay at Cambridge was disclaimed. The remaining lease at St. Laurent was subject to a bid by Ruby Liu Commercial Investment Corp. On October 24, the Ontario Supreme Court rejected the proposal by Ruby Lui for the creation of a new Canadian department store chain. Subsequently, the St. Laurent lease was disclaimed on November 27, 2025. Management is now looking at future opportunities for these locations and are organizing short-term tenants to replace some of The Bay income. Notwithstanding the failure of The Bay, there are still lots of positives in the retail sector. We are seeing positive rental growth on lease renewals, and there remains lots of good conversations involving well-known national brands. It still remains quite expensive to construct new retail space and hence, a lot of retailers are looking at options in existing buildings rather than building new space. Further, with the exception of one location, our community strip centers are full at 99% occupancy. Sales and traffic numbers at our enclosed malls also continue to be strong. Turning to financing and liquidity. The Trust has $68 million in liquidity at the end of the year, which is down from $81 million in liquidity at the end of 2024. The Trust has $219 million in unencumbered assets along with some up-financing opportunities in 2026. The Trust believes that it has adequate liquidity to address current development initiatives. The Trust interest expense declined $1 million for the quarter primarily due to a decline in short-term variable interest rates on a year-over-year basis. Total interest expense is down almost $4 million for the full 12 months. During 2025, the Trust renewed 8 mortgages totaling $166 million, lowering the interest rate from an average of 5.4% on these mortgages to an average of 4.95% on renewal. The Trust has approximately 21% of its debt as variable at the end of the quarter, which has increased from 15% at the end of the year. We do expect to see selected opportunities for up financing in 2026 as we are currently in discussions with a number of lenders about these renewals. In general, we have seen this market open up more in the last year with lower spreads, especially on attractive assets, along with lenders being more open to look at lending opportunities for office product. The Trust continues to focus on paying down its debt, which has declined by more than $100 million over the last 4 years. As mentioned in past quarters, the Trust's operating capital reserve increased from $25 million annually to $35 million in 2025 to account for both fire repair costs as well as leasing costs. This represents $8.750 million per quarter. Actual spending for the year was $36.8 million, which was slightly down from last year's operating capital spend. A significant portion of the $15.3 million leasing capital was to secure office tenancies, which included new tenancies at Penn West Plaza, along with other office renewals in Vancouver and Montreal. Looking at our accounting for real estate properties. During the quarter, we had $20 million in fair value losses and $62 million in losses for the year. In both cases, these adjustments are primarily coming from the office asset class. Our overall occupancy level of 85.1% at December 31, 2025, has declined from 86.6% at the end of September due primarily to the extra vacancy from The Bay at St. Laurent. The decline from 91.2% at the end of 2024 is due to the increased vacancy at Penn West Plaza, along with the disclaimed Bay lease at Cambridge and St. Laurent. As mentioned in past quarters, we are now embarking on a strategic merchandising program for St. Laurent, which will see the addition of some new nationally recognized brand names being added to the tenant roster, along with expansion plans for other tenants on the existing tenant role. The current development spend in the amount of $6.4 million includes build-outs for tenants such as Sephora and H&M. These are all now open, and we've received very positive reviews about their impact. We ultimately expect to spend in the range of $25 million to $30 million as we look to add more discriminating tenants and also look to activate the former Sears space at St. Laurent. We are working on this future phasing as we look to ensure a stable, sustainable and traffic-generating mix of tenants to this asset, and we'll advise further details as they are available. The Trust has also had two No Frills grocery deals, which have been undertaken. During the fourth quarter of 2025, a new No Frills grocery store opened at Parkland Mall in Red Deer. This cost was $1.5 million and was activated -- and activated previously vacant space. There is also a new No Frills opening at the center in Saskatoon in early 2027 with a cost of approximately $5 million. The Trust believes that both of these new stores will be strong additions to these malls. Discussions have previously stalled with the provincial government tenant at Petroleum Plaza in Edmonton, which came up for renewal back on December 31, 2020, and is still in overhaul. At this point, there is still nothing to report in regards to discussions or when the space will be officially renewed. In looking at leasing renewals for 2026, the vast majority of the 1.6 million square feet of space coming up for renewal has already been contracted for renewal. Every retail tenant greater than 20,000 square feet is either renewed or expected to renew. This includes a Walmart and a Canadian Tire, which are both greater than 100,000 square feet. Further, there is only one office tenant greater than 10,000 square feet that we don't expect to renew. This includes 164,000 square feet in Montreal and 110,000 square feet in Vancouver. Wrapping up, we continue to believe that there are strong fundamentals in the retail leasing environment and that the office fundamentals have changed for the better. We are looking forward to continued positive leasing conversations for all of our assets. Most of our enclosed malls remain dominant in their geographical area and our strip malls, which are largely grocery-anchored, have performed steady. Beyond our retail assets, we have high-quality office buildings in Canada's largest markets with a high degree of government office tenants. We continue to be positive about our business and the objective of building value for our unitholders. We look forward to continuing to execute our strategy, and thank you for your continued support. We will now open the floor to questions. Operator: [Operator Instructions] Your first question comes from Jonathan Kelcher from TD Cowen, Canada. Jonathan Kelcher: First question, just on, I guess, the HBC backfill and I guess, larger more on the St. Laurent. I guess on the St. Laurent, the $25 million to $30 million that you talked about, like what should we sort of think about in terms of over how long a period that would be? Andrew Tamlin: Yes. John Ginis will expand on that, can you give me some more color? John Ginis: Okay. So as Andrew noted in his introductory remarks, we have exposure to two locations, Cambridge and St. Laurent. Cambridge, we're evaluating longer-term options as we speak, but we probably will look to invoke a short-term solution in the immediate term just to carry us through and we get some footfall through that box into the mall. With respect to St. Laurent, Andrew also noted that a sizable investment program on repurposing one of our anchor boxes, but his reference was to our former Sears location because this shopping center in St. Laurent had both the former Sears and an HBC. So the $25 million to $30 million refers to work that we look to conduct at some point over the next 2 years to repurpose a portion of the former Sears box. As it relates to HBC, again, we are evaluating longer-term objectives with respect to that box. It is 2 levels, almost 160,000 square feet. But in the short term, we're looking to activate both the upper and the lower levels, and we're currently working through some transactions whereby we would do that. Jonathan Kelcher: What sort of tenants would you put in there short term? What type? John Ginis: In the HBC? Jonathan Kelcher: Yes. John Ginis: Yes. So we're targeting fashion-focused retailers at this juncture because that's where the demand has been expressed to us. So -- and branded ones, not like ones that you will see across the country. So -- and again, it is a sizable footprint of both the upper and the lower levels. So -- but we're just following up on that and hoping to execute a short-term solution probably in the next few months for both levels. Jonathan Kelcher: Okay. So you think we can see some NOI from those spaces in 2027? John Ginis: Absolutely. With respect to HBC hoping in 2026. As it relates to the Sears situation, there's a lot of work to be done. And again, going back to the number that Andrew quoted, it's not an insignificant amount, the $25 million to $30 million. But we're currently finalizing hopefully some lease transactions on repurposing one level of that space, but the NOI contribution from those tenants won't occur until 2027. Jonathan Kelcher: Okay. And then secondly, just on the -- good to hear that most of your lease maturities are already spoken for this year. But on the retail side, just given the strength in the market right now, what sort of uplifts are you expecting to get on the renewals? John Ginis: It depends on what we're talking about here, right, Jonathan. We, as you know, our retail portfolio is split between two subsets, one being the enclosed malls and the other one being the open-air community or grocery-anchored strip centers. So as Andrew, again, going back to his comments, we have really solid occupancy in our community in our grocery-anchored strip centers. I think it's 99%, if memory serves me right. So there, where we are fully occupied, it's easier for us to get some good renewal spreads when tenants roll because of limited new supply. On the enclosed mall market, we've been very fortunate, again, because of the cost issues associated with building new retail and tenants looking to expand. We've been fortunate we've been able to cure our vacancy in some of the malls, albeit we took a hit clearly with the HBC situation here. So our data suggests that our occupancy is 86%. But if you strip those out, we're probably close to historical occupancy numbers in the mall. But when you -- to answer your question directly, better on the community anchored -- the community-based strip centers relative to the malls, but still, we're seeing some pretty good spreads on renewal and that's showing up in the results as part of our MD&A disclosure. Andrew Tamlin: I probably highlight, Jonathan, that within 2025, the malls were about a 5% uplift and then the strips were about a 9% uplift. Jonathan Kelcher: Okay. And would that be fair to think about going forward in '26, given like ballpark those numbers? Andrew Tamlin: In the retail space, it's always contingent on factors you can and can't control. All else equal, we feel pretty confident about our retail portfolio and our ability to grow our income. Operator: [Operator Instructions] There are no further questions at this time. I will now turn the call over to Andrew Tamlin, Chief Financial Officer. Please continue. Andrew Tamlin: Thank you, everybody, for joining us for the call this afternoon, and we look forward to seeing everybody next quarter. Thank you. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
Justin McCarthy: Good morning and welcome to Westpac's Q1 FY '26 Update. I'm Justin McCarthy, GM, Investor Relations. Joining me today is Nathan Goonan, our CFO. Before we commence, I acknowledge the traditional custodians of the land on which we meet. For us in Barangaroo, that's the Gadigal people of the Eora Nation. I pay my respects to Elders past and present and extend that respect to all Aboriginal and Torres Strait Islander people. This is an inaugural quarterly call designed to enhance transparency and disclosure. We hope this refinement is helpful and welcome your feedback. Nathan will provide a brief overview of our quarterly performance and then take questions. In the interests of time, we'll take one question per person. With that, Nathan. Nathan Goonan: Thanks, Justin, and good morning everyone. Thank you for joining. As we start the financial year, we're continuing to drive operational momentum across the group and our quarterly performance reflects a disciplined execution of our 5 strategic priorities. Net profit excluding notable items increased 5% compared to the second half '25 average. Revenue was up 1%, comprising a 2% increase in net interest income driven by an increase in average interest-earning assets and a stronger Treasury performance, and a 4% decrease in noninterest income driven by lower markets revenue due to unfavorable DVA. Operating expenses ex the second half '25 restructuring charge were stable. Including the restructuring charge, expenses were 5% lower. These revenue and expense outcomes resulted in an increase in pre-provision profit of 6% or 2% ex-restructuring. Sustainably growing customer deposits underpins our ambition to be our customers' main financial institution. The growth of $12 billion in the quarter highlights the inherent strength of our franchise, with household deposit growth of 3% and business transactional deposits up 4%. We expect deposit growth to remain strong through FY '26. Loans increased $22 billion with growth across all customer segments. Institutional lending grew by 7% and was well diversified. We continue to see good opportunities in this part of the market, although we expect the rate of growth to moderate over the remainder of FY '26. Australian mortgages excluding RAMS grew by 3%. This reflected progress in executing our mortgage strategy with the proportion of proprietary flow rising to 35% in the quarter. This positioned us above system for the quarter. We're targeting consistent performance broadly in line with system from here. Australian business lending maintained momentum, growing at 3%. More bankers on the ground is improving proprietary flow. The stronger lending than deposit growth resulted in a modest widening of our funding gap, with the deposit to loan ratio down 1 percentage point to 84%. We remain on track to settle the RAMS transaction by mid-year and have intentionally positioned the balance sheet to accommodate the expected $16 billion reduction in mortgages. Funding markets have been supported and we have issued $18 billion in long-term wholesale funding since October '25. Net interest margin decreased 1 basis point to 1.94%. Consistent with expectations set out at FY '25 results, core NIM of 1.79% declined by 3 basis points compared to second half '25, with the decline moderating to 1 basis point on a quarterly basis. Lending margins edged lower as competitive pressures persisted. The rate of compression was stable in mortgages, has moderated in business, and was more pronounced in institutional this quarter. The nonrepeat benefit related to interest rate reductions in prior period was a net drag in the quarter, with the lending reduction more than offsetting a deposit benefit. Prior period rate lag impacts have now flowed through our numbers. Overall deposits were stable. Compositionally growth in higher rate savings balance continues to be a drag, while liquid assets provided a slight benefit. The Treasury and Markets contribution of 15 basis points was up from 13 basis points, reflecting favorable interest rate positioning by Treasury in a more volatile market environment. To provide further earnings stability through the cycle, the deposit hedge was increased by $15 billion to $92 billion, $7 billion of which was flagged at the full year results. This had no material impact on NIM in the quarter. In terms of considerations for the first half, we continue to expect the net replicating portfolio benefit to be approximately 1 basis point, and our sensitivity to a 25 basis point rate rise is a benefit of approximately 1 basis point over a 12-month period. However, the recent RBA rate rise will be a slight headwind in the second quarter due to the timing of passing through the rate rise to customers. Operating expenses excluding the second half restructuring charge were stable at $3 billion. We report to the nearest $100 million with expenses rounded up in the quarter. We remain confident our FY '26 expense growth will be largely offset by productivity savings, which include ongoing benefits from the restructuring charge taken in the second half of '25. Considerations provided at the full year results in relation to investment spend and operating expenses more broadly remain current. Credit quality metrics improved over the quarter. Stressed exposures to total committed exposures decreased 11 basis points. This reflects a decline in Australian mortgage arrears and reduced stress rates across most industry sectors. Our portfolio remains well diversified across sectors and geographies. Total credit provisions rose marginally and at $5 billion were $2.1 billion above our base case. Coverage was stable at 125 basis points. While modeled collective assessed provisions were stable, reductions from improvements in underlying credit metrics were offset by model adjustments related to the severity of the downside scenario. Credit impairment charges remained low at 6 basis points of average gross loans. The CET1 capital ratio remains strong at 12.3%. The reduction in CET1 reflects the payment of the full year 2025 dividend, which more than offset earnings for the quarter. There were also several items that moved in both directions and summed to a reduction of 5 basis points. These movements, many of which are one-off in nature, include: a benefit from the removal of the operational risk overlay; higher lending balances which were partly offset by credit quality improvements and data refinements; IRRBB was a modest drag with embedded losses and an increase in hedge deposits more than offsetting the benefit of standard changes; and the capital floor drove a marginal reduction. In second half '26, we expect a 22 basis point benefit from the completion of the sale of our RAMS portfolio. To conclude, the performance for this quarter demonstrates solid progress against our plans. Discipline execution is driving our momentum, we're deepening customer relationships and investing in our business. We're optimistic on the outlook for the economy and expect demand for both business and household credit to remain resilient. With that, I'll hand back to Justin for questions. Justin McCarthy: [Operator Instructions] Our first question comes from Matthew Wilson from Jarden. Matthew? Matthew Wilson: Pretty clear result. Therefore, perhaps can we ask a question -- obviously, you've had 2 senior leaders in the IT area depart in recent weeks, which coincides with an important part of the UNITE project. I understand Peter Herbert is running it, but obviously IT is important. Could you add some color to the outlook for that? Nathan Goonan: Yes. Thanks, Matt. We've obviously got an update on UNITE in the diary for I think the 26th of March where we'll do a fulsome update on that. I think obviously Anthony and Scott has announced his retirement and so he and Anthony have been working through that over a period of time to work out when's the best time for that to happen. Scott's remaining with us until the end of the year as we find a replacement for him. But as you said, Peter Herbert runs the UNITE program. We have a dedicated CIO who works for Scott who's been embedded in that program alongside Peter Herbert running it. So don't read anything into that. It's no material impact on UNITE and you'll get a fulsome update on the 26th of March. And you could almost read it the other way, Matt. This is a retirement for Scott that Anthony and Scott have been working through when's the best time to do that. Matthew Wilson: What about David Walker? He seems more hands-on and obviously has fantastic experience with his time at DBS. Nathan Goonan: I think David Walker again, these are great executives who have done good things for Westpac over a period of time and come to the end of their time here. I think we've also been bringing in talent into the tech team and again there's a dedicated CIO who isn't David Walker or Scott Collary who's been working on the UNITE program. Matthew Wilson: The next question comes from John Storey from UBS. John? John Storey: Happy Friday. Yes. I guess the question that I would have, Nathan, is just around your hedge, right, and obviously the decision to increase the size of the hedge into a rate hiking cycle. I mean obviously in the short-term, maybe not ideal, but maybe you could just give a little bit of context around how tactical you can actually be on the hedge itself and then maybe the 50 basis points let's say of potential interest rate increases during the course of this year. What would be the impact actually on NIM from increasing the size of the hedge? Nathan Goonan: Thanks, John. Happy Friday to you as well. On the hedge, I probably came into the role, John, thinking that one of the things we needed to do was just increase the proportion of our non-rate sensitive deposits that were hedged. And I think really what we're trying to do here is provide medium-term earnings stability through the cycle. And so while yes, you can be tactical and when you put it on, I think the main point here is to try and give that earnings stability so that it's better for us when we're planning to run the bank and we think it's a more predictable earnings profile for the market. The timing of these two was -- and I think now just to say, John, I think we're now proportionally up there with some of our peers in terms of eligible deposits that we could hedge. The timing of the two that we put on, so we did 2 $7 billion broadly. The first was in October, that went on probably slightly below cash. So what you're doing here as you know is effectively taking earnings that might be earning the overnight cash rate and investing across the 5-year curve. So the October one was slightly below, so we took a little bit of near-term earnings hit on that one to give us the earnings stability over time. And then actually the December one was just slightly before Christmas and we actually were able to invest that pretty much at the cash rate. So there's no near-term earnings impact from that one. And as I said, take that all in aggregate, we expect a one basis point benefit from the hedge when we get to the first half. Justin McCarthy: Our next question comes from Andrew Triggs from JPMorgan. Andrew? Andrew Triggs: Nathan, can I just ask on the momentum in the core NIM in the quarter, please? Just the 1 basis point decline. Just a bit more in terms of the drivers of that, what were you seeing with respect to mix shifts especially on deposits? You mentioned perhaps there was a little bit of a headwind from your change to the hedge there. What are the other sort of drivers you can call out for us please? Nathan Goonan: Yes. Thanks, Andrew. And I think, maybe I'll answer this one a bit fulsome and then hopefully it helps others on the call as well. I guess the trends that we're seeing in the quarter, Andrew, are very consistent with what we were talking to you about at the full year. And I think they're obviously going to be the things that we'll be talking about when we get to the half as well. It is a more stable environment for margins and you're right to call that out. And as you said, we've sort of seen moderating trends. While there are consistent trends, they're moderated. We had sort of 3 basis point decline in margins when you compare to the second half and then 1 basis point when you isolate it to the quarter. And I think if you back out the net negative from the rate lag, the prior period rate lag when rates were declining, it is relatively stable. That said, the underlying trends are sort of as I outlined at the full year. On lending, we're seeing that gradual decline in lending margins across the books. So mortgages was relatively stable for the quarter, but remains competitive. Business lending, the compression was much more moderate in this quarter than it's been in prior periods for us. And then maybe Institutional is a little bit more this quarter than it's been, although we've seen a little bit of margin compression coming in there sort of last quarter of '25 and into this quarter. And on the deposit side, while relatively stable overall, the thing that's hurting margins there a little bit, and again it's a gradual decline, has just been the real success of that savings product. So at a macro level, deposits mix has been improving, proportion of TDs is continuing to decline. The bonus saver product, the life product, continues to be a great product for our customers and so that might have been $5 billion of growth in the fourth quarter last year was another $4 billion of growth this year. And one of the factors there is consistent with our peers. We're just seeing a slight tick up in the people who are qualifying for the bonus rate. So I mentioned that at the full year, the fourth quarter was about a percentage higher than what it had been for the average of that year, and that's continued into this quarter. So they're the sort of trends. If I thought about the considerations going forward just to be fulsome in the answer, Andrew, I think you continue to see those underlying trends flow through into the second quarter. The replicating portfolio wasn't much of a benefit in the quarter, we expect it to be one basis point in the half. Liquids I think remain a benefit for us in the second quarter. And then just to call out the rate, the benefit from the 25 basis point hike that we've had, albeit a 1 basis point benefit over a 12-month period, it's likely to be a slight drag in the second quarter just given the timing difference between when we pass on to deposit holders relative to lenders. Justin McCarthy: The next question comes from Jonathan Mott from Barrenjoey. Jonathan? Jonathan Mott: Just a quick question if I could on the deposits. You said there was really good growth and success that you've had in the savings product, and that's, I think, you just mentioned $4 billion. Have you seen any growth in non-interest bearing deposits which was a real tailwind for CBA when they just reported? Nathan Goonan: Yes, we have seen growth in those, Jon. Yes, we have seen growth in those transaction deposits. In particular, I called out in the speaking notes. I think Paul and the team are doing a really neat job in business there, Jon. We had sort of 4% growth in the quarter of transaction accounts in Business Bank. That's sort of $2.8 billion growth there. And then overall we're seeing growth in transaction accounts in consumer as well. So it has been outpaced by growth in offsets and growth in savings, so hence calling out that mix shift with the higher proportion of growth coming in those higher rate products. But we are seeing that underlying quality growth as well. Justin McCarthy: Next question comes from Carlos Cacho from Macquarie. Carlos? Carlos Cacho: I'm just wondering if you can give us any detail about the proprietary broker split in mortgages. It looks like from your portfolio side you've continued to lose a bit of proprietary share, but on the flow side have you seen any stabilization or improvement there given the renewed focus on the proprietary channel? Nathan Goonan: Yes, thanks, Carlos. Yes, we have. In from a flow sense -- and you're right to say it's a big ship and I think Anthony's mentioned at the full year, we're going to measure this in sort of halves and years, not in quarters. But for the quarter, we have had that improve for 2 quarters in a row now and on a flow basis it was 35%, which is up from where it had been. Actually, interestingly, if you're sort of looking for a stat or you want to be a believer in this space, which we certainly are, we've had first party growth of $3 billion in the first quarter. If you compare that to the fourth quarter last year, that was a reduction in that first party or proprietary book and it grew by about $100 million in the prior period. So it's sort of grown by $3 billion, prior period it grew by about $100 million. So we are seeing green shoots there. It's going to be a journey for us as we continue to push on that and the team are doing a good job executing against a multi-year plan that we expect to just continue to improve and improve as we go through that. Justin McCarthy: Our next question comes from Brendan Sproules from Goldman Sachs. Brendan? Brendan Sproules: Just a quick question on the contribution to NIMs from Treasury this quarter. Is that a little bit circumstantial to the conditions that you faced during December? And how do you sort of see the contribution to NIM on a more sustainable basis from this part of the business? Nathan Goonan: Yes, thanks Brendan. It's a good question. I think it's clearly been a bit of an outlier in this quarter. So I would expect it to moderate. And I'd expect it to moderate even into the half, Brendan. So I think long run of that has been more like in the 12. Some people tell me it's sort of almost been in the down around 10. I think we've clearly had a good quarter where the contribution's been significant. I'd expect it moderates. And so don't expect that to be 15 when we get to the half. Justin McCarthy: Our next question comes from Tom Strong from Citi. Tom? Thomas Strong: Nathan, you mentioned the funding gap in the quarter which meant that you haven't got the same portfolio mix that your peers have seen. I mean how should we think about the funding of growth into the next couple of quarters given your loan growth is quite strong? How should we think about how you're going to fund this? Do you have to get potentially a bit more competitive in deposit pricing to pick up that deposit growth? Nathan Goonan: Yes, thanks, Tom. I think we're doing a neat job on deposits. So I think the major thing just to call out as you think about the outlook is just the RAMS sales. So we've got $16 billion of mortgages that we expect to drop off the sheet when we get to completion of that, which we're expecting by mid-year. And so what we've been able to do a little bit if you think about that is just pre-position the balance sheet for that eventuation. We've sort of been doing that a little bit on both sides, I guess. So that has given us the confidence to be lending a little bit more on the asset side. And we've also structured up some of our liability side a little bit for that eventuation. So for the real studies out there, you'll see we've been increasing short-term funding a little bit with for that eventuation. And we've been able to sort of structure up for that. So that's the big thing that we've got going on as we think about the outlook for funding the balance sheet for the rest of the year. I think on deposits, look, it's a competitive market. We're doing well. We feel good about that. And we've been sort of taking a slight amount of share in household deposits or being just slightly above system. We want to continue to do well there. Business transaction growth has been good and the team are executing really well there. So we want to continue to be focused on deposits and make sure we're getting our share or slightly above, but we don't think we have to do anything crazy on price to be able to do that. Justin McCarthy: Our next question comes from Brian Johnson from MST. Brian? Brian Johnson: Nathan, I'd just be intrigued -- I know Carlos kind of answered this, but I'd love if I could get some more detail. We've seen the flow go from like 33% through the prop channel up to 35%. But the flip side is that we've actually seen the percentage of the book decline from 45% to 44.4% on Slide 8. Could you just explain to us the increased flow versus the declining book? Is there something weird that's happened in the life of the book between the two? Nathan Goonan: Yes, thanks, Brian. I think it is just going to be a sort of a what proportion is running off relative to the flow that we're putting on. And so I can take it away and come back to you and just sort of outline how the maths would work on that, Brian. But I think my comments really go to the bit that we're most focused on had been that flow number in terms of improving how we're going to market and making sure that our application front of funnel was most focused on improving that first party mix relative to third party. Clearly there's just maths in the back about how the back book is behaving relative to that flow that causes the dynamic that you're seeing on the page there. Brian Johnson: And that would it be incorrect, so it's hard not to conclude that the prop book is running off faster than the broker book. Is that a fair conclusion? Nathan Goonan: Yes, I think it has to be the maths of it. So the absolute prop flow was sort of up in the year, but up in the quarter as I said we had sort of $3 billion of prop flow. But then to get the dynamic that you've got there in the stock, you have your prop book is running off faster than your broker book. Justin McCarthy: And also consider that the flow is still below 50 from proprietary. So we're still getting more flow from broker. Our next question comes from Ed Henning from CLSA. Ed? Ed Henning: Sorry, there might be a bit of background noise. Can I just ask a question on capital? Obviously capital position looks pretty strong. You got the RAMS sale coming through. Can you just talk about more optimization opportunities coming through in the next half and the next year? And also potential impact of the RBNZ changes as well coming through. Nathan Goonan: Yes, thanks, Ed. We can hear you fine so. Just sort of take those in turn. I think inside the quarter on refinement, we've -- basically, we've had a track record here of about $10 billion of sort of optimization in the risk weights every year. And I think the team have been executing really well against that for a number of years. It's been a pretty consistent number. You'll see in the pack when you get the opportunity, it's been -- that was $2.3 billion of risk weight optimization in the quarter. I do expect, and I think I said at the full year that, that run rate is unlikely to repeat for the full year. So I don't expect we're going to be at $10 billion this year. I expect that will be a much more moderate number. If we got that somewhere near the sort of $7 billion or $8 billion, I think, it would be a good effort based on the pipeline of opportunities we've got ahead of us. So we continue to see opportunities. Maybe they're moderating a little bit from where they've been. The other thing that's, sort of, offsetting some of the strong credit risk weighted asset growth has been credit quality. So when you get the opportunity to go through the pack, you'll see that was a $3 billion RWA benefit from improvements in underlying credit quality. That was about $3 billion in the fourth quarter last year. So that's a pretty consistent trend now. And if we continue to see those asset quality improvements flow through the book, you could expect that that continues to be a benefit for us. And then I think lastly on -- and offsetting that, we've obviously got strong credit growth. So that's the most important thing that's offsetting that there. As it relates to New Zealand, that's still early days in terms of those things haven't been finalized, but they do look positive. So we have -- that would mean that we're pretty much at the capitalization rate of 12.5 set one in New Zealand that we need to be at. So there will be some opportunities there. I don't think it's particularly material for us, but net-net that'll be a positive for us as well. Justin McCarthy: Our next question comes from Richard Wiles from Morgan Stanley. Richard? Richard Wiles: So I just wanted to follow-up on the questions around Treasury. I think you said that Treasury had a good quarter, boosted the margin, but markets was negatively impacted by DVA. If we put it all together, Treasury and Markets, it looks like the margin benefit might have been greater than the drag on other income. Although you haven't split it out. Last year or last half the Treasury and Markets was about $1.1 billion. So the quarterly average is around $550 million. Could you tell us what it was in the quarter and how much it -- so whether that margin boost has been fully offset by a reduction in other income? Nathan Goonan: Yes, thanks Richard. And obviously we'll sort of do that fulsome disclosure when we get to the half. In terms of just to give a high level sense, I think you're reading it right, they've probably offset each other, but I think we can give more fulsome disclosure on that when we get to the half. But proportionally I think you're getting that pretty right. Justin McCarthy: Next question comes from Matt Dunger from Bank of America Merrill Lynch. Matt? Matthew Dunger: Could I just revert to the capital position? Just I know you said the 5 basis point net impact of the one-offs, but just wondering how the embedded losses unwind. You've got the RAMS sales. So just wondering how you thinking about potential for capital returns coming in into the half given strong capital generation expected? Nathan Goonan: Yes, thanks, Matt. Just specifically on the on the embedded losses there, I think IRRBB was a net drag of 4 basis points. There's sort of 3 component parts here. So we had the benefit of the standard changes, I think we flagged that at the full year. It's about 40 basis points or 39 to be precise. And then sort of offsetting that there's 2 points: the deposit hedge, so we obviously have increased that by 15 $billion, there's 27 basis points consumed there for that. And then as you rightly call out, we had embedded gains swing to embedded losses and so there's sort of 16 basis point drag from that in the quarter. In terms of the look forward on that, obviously the embedded loss or gain is really all rate dependent. So that is quite hard to predict. And so it's like the unwind of that is obviously a possibility -- there's obviously a possibility that that goes the other way as well. So that's a little bit of a one to watch in terms of where things go from here. I think our movement there just looking at the other results this week looks very consistent with what other people have seen. On the go forward, as you rightly call out, I think a number of the movements in this quarter are a little bit one-off in nature. So operational risk overlay removal is one-off in nature. The impact of the standard change is one-off in nature. The additional deposit hedge, while we'll continue to have rebalancing while we've got strong growth there, I think we're now proportionally in and amongst our peer and I wouldn't expect material movements in that in the second quarter. And then it just all comes down to sort of earnings, credit, risk weighted asset growth through credit, what happens in asset quality, what happens in the embedded loss. So there's a few moving parts on that and look forward to discussing it more with you at the half. Justin McCarthy: That was our last question. We certainly thought this morning was valuable. Hopefully you did as well. We welcome your feedback and thank you for being succinct with your questions because we're just on 8:30 now. Come through with anything else we can help with throughout the course of the day. Thank you, Nathan. Nathan Goonan: Thanks very much.
Operator: Good morning. My name is Danny, and I will be your conference operator today. At this time, I would like to welcome everyone to Keyera's 2025 Fourth Quarter and Year-End Conference Call. [Operator Instructions] I would now like to turn the call over to Dan Cuthbertson, General Manager of Investor Relations. You may begin. Dan Cuthbertson: Thanks, and good morning. Joining me today will be Dean Setoguchi, President and CEO; Eileen Marikar, Senior Vice President and CFO; Jamie Urquhart, Senior Vice President, Liquids Business Unit; and Brad Slessor, Senior Vice President, G&P and NGL Pipelines Business Unit. We will begin with some prepared remarks from Dean and Eileen, after which we will open the call to questions. I'd like to remind listeners that some of the comments and answers that we will give today relate to future events. These forward-looking statements are given as of today's date and reflect events or outcomes that management currently expects. In addition, we will refer to some non-GAAP financial measures. For more information on non-GAAP measures and forward-looking statements, please refer to Keyera's public filings available on SEDAR and on our website. With that, I'll turn the call over to Dean. C. Setoguchi: Thanks, Dan, and good morning, everyone. 2025 was a transformational year for Keyera. We continue to demonstrate the strength of our fee-for-service business, delivering record results in both Liquids Infrastructure and Gathering and Processing. These results were driven by higher utilization across our integrated system, which supports continued dividend growth. Keyera's marketing business finished the year at the top end of our revised guidance. While results were below our long-term base expectations, we continue to view our marketing segment as a strategic differentiator that provides strong cash flow and in stronger market environments can deliver outsized contributions. This cash can be used to strengthen our balance sheet and accelerate growth by reinvesting in our fee-for-service business. During the year, we continued to advance our strategy of strengthening and extending our integrated value chain. We sanctioned 3 highly strategic and capital-efficient growth projects, including 2 frac expansions at KFS in addition to KAPS Zone 4. These projects are highly contracted and will continue to support growth and high-quality fee-based cash flow. These contracts demonstrate the competitiveness of our services. In June, we announced the transformational acquisition of the Plains' Canadian NGL business. Once this highly strategic transaction closes, it will expand our national platform, strengthen our integrated value chain and enhance our ability to better serve customers and partners across Canada. For Keyera, it will support further growth and long-term shareholder value. We continue to demonstrate disciplined portfolio management, completing 2 additional transactions, the addition of the additional gas plant capacity in the Simonette area and the divestiture of our noncore WildHorse asset. Together, these transactions reflect our continued focus on optimizing our asset base and recycling capital into higher return on-strategy opportunities. I'll now briefly discuss the AEF outage. In mid-January, we announced an unplanned outage following the identification of an issue with a vessel on site. The safety of our employees, contractors and the integrity of the facility remain top priorities while the restart work continues. Repairs are underway, and we expect the facility to be back to full production in May. Lastly, I want to touch on our recent organization changes. In preparation for the closing of the Plains transaction, we have reorganized our leadership reporting structure to better position the business for its next phase of growth and to drive competitiveness. Under the new structure, we'll operate with 2 business units supported by our existing enablement teams, and Brad Slessor now leads the G&P and NGL Pipelines business unit and Jamie Urquhart leads the Liquids business unit, which includes our liquids infrastructure assets and marketing business. These changes do not affect how we'll report our segment and financial results. Overall, 2025 was a year of strong execution. We have continued to build a more efficient and competitive platform that creates meaningful value for our customers and shareholders while positioning Keyera for long-term growth. With that, I'll turn the call over to Eileen to review our financial results and outlook. Eileen Marikar: Thanks, Dean, and good morning, everyone. Keyera's fourth quarter and year-end results reflected stable performance and continued strength in our fee-for-service business. Not including deal and integration costs associated with the Plains acquisition, annual adjusted EBITDA was $1.16 billion. Distributable cash flow was $767 million or $3.35 per share for the year, and annual net earnings were $432 million. As Dean mentioned, we continue to see strong year-over-year growth in our fee-for-service segment, delivering record results driven by higher utilization across the value chain. In Gathering and Processing, we have record annual realized margin, delivering $439 million, up from $413 million last year. The increase reflects higher throughput and growing contributions from our Wapiti and Simonette gas plants as contracted volumes continue to grow. In Liquids Infrastructure, realized margin was a record $593 million for the year, up from $558 million in 2024. This growth was supported by higher storage contracting and utilization of our condensate system as well as the steady ramp-up of KAPS volumes. Now turning to the Marketing segment. Realized margin was $300 million for the year compared to $485 million last year. The lower results mostly reflect lower premiums and volumes for iso-octane sales. Now I'll touch on our 2026 guidance. Growth capital is still expected to range between $400 million and $475 million. Maintenance capital is expected to be $140 million to $160 million. Cash taxes are expected to range between $60 million and $70 million. Consistent with prior years, Marketing segment realized margin guidance will be provided with first quarter results in mid-May, following the conclusion of the NGL contracting season. As previously disclosed, this will reflect the approximate $110 million impact associated with the unplanned AEF outage and turnaround. Following the closing of the Plains acquisition, we'll provide pro forma guidance and a comprehensive business outlook for the combined platform, reflecting our enhanced scale and long-term growth profile. With that, I'll turn it back to Dean for closing remarks. C. Setoguchi: Thanks, Eileen. 2025 was a transformative year for Keyera. We executed on our strategy, strengthened our value chain and continue to build a competitive and efficient platform that creates value for our customers and shareholders. On behalf of our Board and management team, I want to thank our employees, customers, shareholders, indigenous rights holders and other stakeholders for their continued support. With that, we'll open the line for questions. Operator, please go ahead. Operator: [Operator Instructions] Your first question comes from Aaron MacNeil of TD Cowen. Aaron MacNeil: As you can imagine, we're getting a lot of inbounds on the Simonette gas plant acquisition this morning. Just wondering if there's any more details that you could provide in terms of the transaction multiple or potential financial contributions? Whether or not the assets are connected to KAPS? And if not, what the time line might be for connectivity there or any other details? C. Setoguchi: Aaron, it's Dean, and thank you very much for the questions regarding the Simonette area gas plant capacity acquisitions that we made. What I'd say is that we like the area. And as you know, we have our own Simonette gas plant. So this really fortifies and strengthens our G&P footprint in that area. We're working with a private oil and gas company, and we do have confidentiality provisions. And it's important for our customer not to disclose details of that contract. So we are not able to do that. But I'd just say that there are some downstream services that are included as part of this transaction. And as we've always said about our infrastructure investments is that this one included is solidly between our -- meets our 10% to 15% return on capital threshold. Aaron MacNeil: That's helpful. And maybe just a bit of an oddball question, and I can appreciate that you won't speak to specific customers or contracts. But ARC recently removed the second phase of Attachie from its 5-year outlook, which was expected to be a meaningful contributor to overall basin condensate growth. I guess just broadly speaking, would you sort of reiterate your stand-alone Keyera growth outlook despite that removal of the project? C. Setoguchi: Yes, absolutely. I mean, first of all, I'm not going to make specific comments on ARC and their plans other than to say that I think that they're a very good operating company, and they are going to continue to find ways and deliver growth for their stakeholders. When you step back from a macro perspective, the Western Canadian Sedimentary Basin is a very competitive place to drill and grow your production base. And as we see -- confidently see more product egress out of our basin, that just gives us optimism that we're going to see continued growth in the future. And I'm talking about, again, just filling up the original 2 phases or the 2 trains of LNG Canada. We're hearing there's a lot more momentum around the next phase being sanctioned sometime in the next year or so. So that will be positive. Data centers on both sides of the border are, I think, a real thing, and that's going to drive more gas -- nat gas demand. And then obviously, the expansions on Trans Mountain and also in Enbridge's system are very good for condensate demand. So when you take that macro overlay and where we're positioned on the liquids-rich Montney fairway, we're in the sweet spot and which is why we expand our footprint in the Simonette -- the Simonette acquisition. And we see it as an area that we see a lot of demand for more services, and we're going to compete for that. So overall, our business outlook is still very strong. And I do want to reiterate the contracts that we announced last year and we continue to sign the very high take-or-pay. So we have a high level of confidence in the delivery of our cash flow growth, which we again reiterate our 7% to 8% fee-for-service EBITDA growth out to 2027. And as you know, projects like KAPS Zone 4 and specifically our Frac III will continue to drive our growth outlook for our fee-for-service business beyond 2027 as well. So overall, again, we think that the basin is going to be strong, and we're certainly going to capture our fair share of that growth and deliver meaningful results. Operator: Your next question comes from Robert Hope of Scotiabank. Robert Hope: I want to go back to the Simonette acquisition. The MD&A has some commentary that the transaction also unlocks potential follow-on growth opportunities in the area. Can you maybe add a little bit of color to this? And then maybe just would this include a KAPS connection? Or are those assets currently connected to KAPS? C. Setoguchi: Yes. You know what, like I say, I'm not going to speak to the specific services that are attached to this contract because, again, we're just respecting the wishes and the confidentiality provisions in agreement. But what I'd say is that we generally see very good demand in that area. I mean the Simonette area really borders the Montney and the Duvernay developments, and we like it. We do have extra capacity in our Simonette gas plant. We are working on opportunities to potentially expand our Simonette gas plant. So when you look at these two other gas plant working interest that we acquired, it ties in very nicely with that G&P footprint in the Simonette area. So again, when we look at that footprint, we see ways that we can continue to offer a broader service to the customers in that area. Robert Hope: Maybe a more broad question. Looking at 2025, the dividend payout ratio was kind of in the midrange of that 50% to 70% target range. As you add the Plains assets, which will be quite accretive, how are you thinking about allocation of capital? Because that will put you kind of towards the lower end, if not below your targeted payout range. C. Setoguchi: Yes. Maybe I'll just make a general comment and remind everyone that Keyera originated back in 2023 when we became public, it was as a trust. And I know that there are a lot of investors that still love that dividend. And so that's something that's very important to us, but also very important to our shareholders and something that we continue to want to grow just like we have in the past. So if I didn't, my parents probably wouldn't talk to me anymore. But anyway, with that, I'll turn it over to Eileen for further comments. Eileen Marikar: Sure. Rob. Yes, just again, our philosophy overall on the dividend growth really won't change even as we bring Plains on. We want to make sure it's sustainable through all the various business cycles. And so we do that by maintaining, as you noted, a conservative payout ratio and by continuing to grow our fee-based cash flow. And so with Plains and our recent sanctioning of growth projects, that fee-for-service cash flow is going to continue to grow. So beyond the dividend, really, our capital allocation priorities are to fund our sanctioned growth capital program and repay debt so that we bring our balance sheet back to the low end of our target range. Maintaining that low leverage has been a competitive advantage for us and really has allowed us to pursue opportunities when they arise, and we want to always be in that position. Operator: Your next question comes from Ben Pham of BMO. Benjamin Pham: I just want to stay on the topic of acquisitions. I would love to hear your thoughts around just the pace of potential acquisitions that's crossing your desk there? And do you think this could be maybe a repeatable strategy for you in Western Canada? C. Setoguchi: Ben, thank you for the question. Overall, we just think that there's a great opportunity to continue to grow. I really love the -- starting from the macro, I mean, I love the Prime Minister's vision to -- for Canada to be an energy superpower, and we should be. And so as we see more LNG and pipeline expansions to the West Coast and also more capacity built in the United States, there's going to be a lot of growth in this basin. We have a very competitive basin. And with that, there's going to be core infrastructure requirements and capacity that's going to be required to enable that growth. And some of that is going to be greenfield, brownfield and tuck-in acquisitions like what we just announced. So we see opportunities on the horizon for all 3. At the same time, though, our primary focus today is to deliver on the 3 projects that we have sanctioned, the 2 Frac expansions and Zone 4. And also closing our Plains acquisition and getting that fully integrated and capturing synergies. So we just don't want to get ahead of ourselves, and we want to make sure that we don't bite off more than we can chew. Those are our big priorities in the near term. But certainly, medium to long term, we see a lot of great opportunities. Benjamin Pham: Got you. And then on the Plains transaction, you mentioned the end of Q1 '26 and sense on all the conversation you're having. But are you -- is Keyera in a position now where you have a good sense of what you need to do or not do to close the deal? And is there anything in particular that's driving that target on the timing? C. Setoguchi: Yes. You know what, I can't speak to specifics on details of our discussions with the bureau. But like I say, we feel very confident that we'll be able to close this transaction somewhere around the end of the quarter. But again, we're dealing with a federal agency and not all the timing is within our control, but we are where we thought we'd be at this point in time. Operator: Your next question comes from Maurice Choy of RBC Capital Markets. Maurice Choy: Maybe just sticking with the Plains discussion, notwithstanding that the deal hasn't closed. But if I could just look beyond the closing, have you seen your customers already wanting to initiate contract discussions to look at the combined portfolio and service offerings? And do you see these being executed relatively soon after the deal closes? C. Setoguchi: Maurice, thank you for the question. I think the first comment I'd say is that we still have to operate 100% as separate entities until this transaction closes. So there are no discussions going on that involve combined services between the 2 platforms today. And we want to make sure that, that's very clear. But certainly, I want to reiterate that we see a lot of opportunities to provide our customers a more competitive service than they receive today. We think with the combined assets, they're going to have a more reliable service and also a competitive service as well with our logistics capabilities or market capabilities and cross-country reach to access markets. So this is going to be a great benefit for our customers. But again, we -- it will have to wait. Those discussions will have to wait until after we close. Maurice Choy: Makes sense. Maybe I could just switch over to the Simonette transaction. I'm not necessarily looking for color on the assets specifically, but just more philosophically. Are you seeing further opportunities for these sorts of partnerships where you own a partial ownership of a gas plant that can benefit fully downstream? And what would some of the gating items be for you to form these types of partnerships? C. Setoguchi: Yes. That's a great question. I mean we're a midstream infrastructure company, and we're a service company. So we're there to provide solutions that help our customers be successful. And there are opportunities sometimes where it makes more sense for us to own infrastructure and again, provide them other needed services to help enhance their netbacks and their success. And this is just one example of that. And we see more opportunities in the future. But again, we just don't want to get ahead of our skis, and we just want to -- we want to focus on the Plains acquisition. And again, the 3 projects we have underway. But longer term, medium and long term, for sure, we see more opportunities like that. Operator: Your next question comes from Robert Catellier of CIBC Capital. Robert Catellier: I think I might try another Plains question here. Under Keyera's ownership, we'd expect the cash flow from the Plains assets to be reinvested in Canada, whereas the cash flow was largely being repatriated under Plains' ownership. So how big a consideration do you think that is in terms of the various approvals you're seeking? C. Setoguchi: Rob, that's a great question. But I can't comment on, again, the competition process and -- but what I can say is that there's never been a greater time where it's important for Canadian companies to own Canadian assets. And especially one like ours where this transaction helps us provide a more competitive service for our customers that helps them -- enables them to grow and our basin to grow and for us to fulfill that vision of being the energy superpower. And you just look at what's happening with our partners or our neighbors in the United States and what's happening in the world, the Middle East, it's just never been a more important time for us also to have control of our own resources and energy security. And you're right, with that as a Canadian company, we are going to reinvest in Canada. This is where we -- our headquarters are right here in Calgary. And with that, we're going to create a lot of jobs. We do a lot of great work with the communities that we invest in. And so -- and we have great indigenous partnerships in terms of all the services that we award or contracts we award to them as well. So it's a win-win for everybody. And so anyway, yes, I agree with you 100%. Right now, it's got to be -- Canadian ownership is super important. Robert Catellier: I know it's a tough question to answer under the circumstances. My second question has to do with -- I wanted your views -- updated views on the investment conditions required for a potential condensate splitter? C. Setoguchi: Yes. Well, you know what, it would have to meet our investment hurdles just like any other investment. So we generally have a guideline public that we've shared publicly the 10% to 15% return on capital on a stand-alone basis for infrastructure. And generally, we wanted to be -- have integrated benefits as well, which will enhance those returns. We wanted to have contracting behind it, so we mitigate our commodity exposure on an investment like that. And obviously, we want to make sure we can build infrastructure like that at a cost that, again, helps us generate those kind of returns. Anything else you want to add, Jamie? Robert Catellier: Okay. Then maybe my last question in the marketing, you talked about the lower crude prices and the effect on blending margins. I wonder if there's -- understanding your guidance for market will come out later. I'm wondering if there's any way you can quantify what impact you see that having on the lower crude prices having on blending margins? K. Urquhart: Yes. So Robert, it's Jamie. Thanks for the question. Yes, there's no doubt that lower crude prices have an impact on lots of components of our business, including our blending business. I think the thing that I would say is that in order for us to hit our guidance, there's just a few core assumptions that we've shared with the market for many years now with respect to commodity pricing, but also the ability for our assets to operate the way we expect them to operate, AEF and our Frac capacity being the primary drivers of that. So all I can share is that even in today's current commodity environment with those assets operating the way we fully expect them to do in the future, we're confident with respect to meeting and being within the guidance that we've provided to the market. C. Setoguchi: Also say, too, I mean, if you look where crude is trading, I mean, I think everyone thought it was going to trade down to 50s, we're in the mid-60s, and that's a pretty good value. Operator: The next question comes from Theresa Chen of Barclays. Theresa Chen: With diluent flows altering across North America, given the need for the U.S. to send incremental barrels to Venezuela, how does this inform your view of condensate supply and demand balances in Western Canada and Keyera's role within this outlook? C. Setoguchi: Yes, thank you for the question. I mean before I turn it over to Jamie, I'd just say generally that we have an industry-leading condensate system. So irrespective of where it comes from, whether it comes from the field or whether it comes from the pipeline from the U.S. We provide storage services. We aggregate those volumes, and we also deliver it up to the oil sands. The other thing I'd point out is that we have the ability also to rail it in and when needed. So again, we have a very, very strong system for condensate, which is used for deal with. But Jamie, do you want to add some comments? K. Urquhart: Yes. No, I think the only thing I'd add is that -- and it comes back to Dean's earlier comment with respect to our belief in the basin is that we believe that condensate growth within the Western Canadian Sedimentary Basin will be a big part of continuing to be the primary supply of condensate needs for oil sands and the growth that we expect to see in the oil sands industry. So not to say that Venezuela won't perhaps have at some point in the future, but that will be requiring tens of billions of dollars of investment and some significant time in our view, there might be a little bit of a pull for condensate out of North America. We fully expect that, that won't have a significant impact on the condensate supply in Western Canada. Theresa Chen: And in terms of the unplanned outage at AEF, can you provide more details on the nature of the outage and how you're addressing the operational ratability of this asset on a go-forward basis? K. Urquhart: Yes. So that's a great question, and I'm surprised we've taken that long in our call to get to this, but happy to -- all I can share is that we've got an investigation underway and really are looking to determine the root cause of the event. At this time, the repair work is underway, and we fully expect to be back up and running at full rates in the May time frame. But I think really to the last part of your question is while the facility is offline, we're taking the opportunity to look at that unit holistically. We're taking a very proactive approach by inspecting all the major accessible components during that outage to ensure the long-term integrity of the asset. Operator: Next question comes from A.J. O'Donnell of TPH. Andrew John O'Donnell: Just wondering if I could go back to condensate. Just thinking about kind of the robust supply and demand signals that we're going to be seeing over the coming years and in light of the couple of egress expansions that we've had between mainline and also a DRA optimization on TMX. Just curious where you guys sit right now with -- as far as evaluating growth capital projects on your condensate system? Like what innings do you think we're in right now? And at what point do you think we could start to see some projects get across the finish line? C. Setoguchi: A.J., I'm going to turn that question over to Jamie. K. Urquhart: Okay. Well, I mean, you alluded to that, yes, we see obviously some really positive tailwinds with respect to the ability for oil sands growth within our basin. And with that comes condensate growth. And our condensate system, as Dean alluded to earlier, handles approximately 70% of all the condensate that ultimately is used within the oil sands. And so we've identified different opportunities within our system, obviously, to be able to serve that growing need. And there was a reference earlier to the condensate splitter. But it's storage for condensate. It's lots of different components of the business model that we've created for the condensate system. All I can share with you is that, as condensate demand grows within the basin, we expect to be -- continue to get more than our lion's share of the opportunity within that growth of the condensate requirements in our basin. C. Setoguchi: Yes. And just to add to what Jamie said is that we've evaluated our system. And as the basin continues to grow, we have evaluated opportunities to debottleneck it if we need to. So we're being proactive about it. And again, we certainly believe we're going to be able to provide those services as the demand continues to grow. Andrew John O'Donnell: Okay. I appreciate the detail there. Maybe going back to -- on the G&P segment broadly. Just looking at volumes, Q4 versus Q3 down a little bit. But just curious, as we sit here roughly halfway through Q1, can you give us an update on kind of how producer activity is overall trending in your system? C. Setoguchi: Yes, that's a great question. And I'm going to turn that over to our new Senior Vice President, Brad Slessor. Go ahead, Brad. Bradley Slessor: Thanks for the question. Yes, you noted in Q4 volumes were down a little bit. We had a planned curtailment in one of our bigger plants in the north. So that would be the result of some of that. That outage went very well safely. We got all the work done and the team has done a great job getting that facility back up and running back to full rates. We're seeing a lot of great wells being drilled around our facilities. We're seeing both Simonette, Wapiti and a lot of our plants in the South continue to add volumes kind of month-over-month. So we're very optimistic about how that business is trending right now. C. Setoguchi: I think sometimes though you see some blips in our production -- sorry, our throughputs. And sometimes that's just related to well pads and just normal declines and then the next well pad, the timing of that being tied in and things like that. But overall, we feel very, very good about the demand behind our facilities, especially in our North portfolio. Operator: Your next question comes from Patrick Kenny of National Bank Capital Markets. Patrick Kenny: Just on the disposition of the WildHorse terminal, I know the contracting demand wasn't panning out as you had hoped. But just given post Venezuela and all storage assets perhaps gaining some option value at least, curious your thoughts around the decision to sell now at this price. And then also, maybe you can confirm your thoughts around your Canadian crude oil storage assets still being core to the business going forward. C. Setoguchi: Yes. Yes, you know what, listen, we have a very disciplined strategy, and we want to make sure that we're staying focused on what matters most to our business and our customers. And we're not -- as you know, we're not a big crude product handler and service provider and especially down in the U.S. We do not have big competitive advantages down in the U.S. So you know what, we thought it's best to sell this asset. And you know what, Plains is going to be able to take it and make it a much better and more profitable part of their organization because they have a very big footprint in Cushing. So it's a win for them. For us, again, we're able to redirect funds into other core activities like the Simonette acquisition. And I also want to point out, I mean, this is just part of a trend of, again, our disciplined strategy. We sold off 3 gas plants last year, our North Pembina gas plant, Caribou and also Edson. And so we want to always clean up our portfolio of noncore assets because they take a lot of extra time and effort -- a disproportionate amount of time and effort amongst our people and we want to direct that to what is core to our business, which is our integrated NGL value chain in Canada. Patrick Kenny: Got it. Okay. And then I guess just on the leadership changes. So first off, congrats to Brad on the well-deserved promotion there. But it looks like the bench might be shortened here a little bit with Jarrod's departure. So I'm just wondering if you might be looking to refill more of a dedicated operations or COO role going forward, especially with the integration of the Plains assets right around the corner? Or is this the team in place capable of handling the pro forma portfolio? C. Setoguchi: Yes, that's a great question. You know, first of all, I want to acknowledge Jarrod's departure because we've all worked with him for a long time. I mean the guy started as a summer student and worked his way all the way up in the organization. So it tells you what a strong performer he's always been. And he's had a really great career here, and he's had a lot of value. And -- but we also respect his own personal decisions. Having said that, when we look at our organization, we made a significant investment in our leadership. And when I look across at our Vice President Group, both on the operations and engineering side, these are very, very strong leaders. And when I look at the leadership stack below them as well, very, very strong leaders in place. So when we think about the long-term future of Keyera, we want to make sure that any one of us around the table when it's our time to retire or leave, it's very seamless for this organization, and we can continue on and continue to grow and be more successful. So that's always part of our succession plans in our company, and so it brings opportunities for others. And you know what, I have a very strong confidence that they will step up. I think from an organizational perspective, we're always evaluating what the best structure is for Keyera. And if it involves hiring a senior ops engineering leader at some point in the future, we'll absolutely do it. But again, I just want to reiterate that we have very, very strong bench strength in our leadership across the company. Hopefully, you're going to get a chance to watch the game. So go Canada. Operator: There are no further questions at this time. I will now turn the call back over to Dan Cuthbertson, please continue. Dan Cuthbertson: Thanks all, again, for joining us today. Please feel free to reach out to our Investor Relations team with any additional questions. Enjoy the rest of the day, and have a good weekend, everybody. Operator: Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Good day, everyone. Welcome to the TELUS 2025 Q4 Earnings Conference Call. I would like to introduce your speaker, Ian McMillan. Please go ahead. Ian McMillan: Thank you, Carl, and hello, everyone. Thank you for joining us today. Our fourth quarter 2025 news release, annual MD&A and financial statements and detailed supplemental investor information were posted on our website earlier this morning. On our call, we will begin with remarks by Darren and Doug. For the Q&A portion, we'll be joined by Zainul, Navin and Tobias. Briefly, prepared remarks, slides and answers to questions contain forward-looking statements. Actual results could vary from these statements. The assumptions on which they are based and the material risks that could cause them to differ are outlined in our public filings with securities commissions in Canada and the United States, including our 2025 annual MD&A. With that, over to you, Darren. Darren Entwistle: Thanks, Igor, and hello, everyone. As you know, this morning, I announced that I'll be retiring from TELUS on the 30th of June 2026. It has, without a shadow of a doubt, been a tremendous privilege to be part of the TELUS team for the past 26 years and to have an opportunity to work alongside many of the people on this call. The success TELUS has realized belongs to the extraordinary team members who have built so passionately the amazing culture that sets this company apart and has led to our significant accomplishments over the years. This team shows up every single day to serve our customers, support our communities and build a company that Canadians and shareholders can trust. To be part of this extraordinary team and to support them has indeed been the greatest honor of my career. As a result of my retirement, I'm pleased to share that Victor Dodig, an exceedingly accomplished and talented leader, will become CEO effective the 1st of July. I'll remain part of the TELUS family as an adviser to Victor until May of 2027. The CEO progression was enabled through a robust succession planning process. Indeed, our Board of Directors have selected an outstanding successor in Victor, who is, of course, the former CEO of CIBC. Victor embodies TELUS' core values, embraces a commitment to putting customers first, demonstrates exceptional character and excellent business acumen and cares deeply about creating stronger communities. Victor's tremendous skills, CEO expertise, leadership values and his proven track record of value creation will effectively complement TELUS' strong leadership team and position him well and the company well to lead TELUS into this exciting new chapter. We'll have more time to speak about this leadership progression in the coming weeks. However, today, I'd like to focus on TELUS' strong fourth quarter and 2025 full year operating and financial results. In the fourth quarter and for 2025, our team's unwavering commitment to operational excellence continue to differentiate the TELUS organization, delivering strong quality customer growth and robust financial performance. Our leading asset portfolio and focus on profitable customer expansion delivered strong results to close out 2025, including our fourth consecutive year surpassing 1 million combined mobility and fixed customer additions, powered by our world-leading broadband networks and of course, our famous customer-centric culture, this momentum positions us well for continued growth in 2026 and beyond. Once again, TELUS led the industry with 1.1 million mobile and fixed customer net additions in 2025. This included record connected device net additions of 716,000, robust mobile phones of 207,000 and fixed net additions of 158,000, representing our 16th consecutive year delivering positive wireline net additions, which is indeed a highlight, and it does significantly and positively differentiate the TELUS story within Canadian and global telecoms. This performance is a testament to the compelling value of our comprehensive bundled offerings across mobile and home nationally and our team's passion for delivering client service excellence in combination with our fiber moat and our best-in-class 5G wireless network. Indeed, our sustained focus on customer experience leadership continues to drive best-in-class customer loyalty results. This was demonstrated by industry-leading postpaid mobile phone churn of 0.97% for the full year in 2025 and notably marks our 12th consecutive year below the 1% threshold, which is a global hallmark of the TELUS organization and, of course, a best-in-class result. This churn result is up to 25 basis points better than our peer group. Despite a dynamic operating environment, TTech adjusted EBITDA, including Health, increased 3.1% for 2025. This result is within our guidance range and demonstrates our team's disciplined execution and unrelenting focus on cost efficiency and effectiveness. Furthermore, TELUS achieved record free cash flow of $2.2 billion for the full year. This represented an increase of 11% over 2024 and exceeded our annual target. It is notable that this growth of 11% in 2025 is on top of the 12% free cash flow growth we realized in 2024 and the 38% free cash flow growth we realized in 2023. And of course, it is foundational to the double-digit free cash flow we are forecasting to deliver through 2028. Let's turn now and take a look at our fourth quarter results. In the fourth quarter, our team achieved industry-leading total telecom customer net additions of 377,000. In wireless, we drove strong industry-leading total net additions of 337,000. This included mobile phone net additions of 50,000 and industry-leading connected device net additions of 287,000, representing an all-time quarterly record for our organization. This was supported by our commitment, our strong and unrelenting commitment to economic margin-accretive customer growth. This is once again evidenced by our consistent industry-leading customer lifetime revenue, supported by our industry best churn results and an improving ARPU performance that was the best in the industry on a sequential basis. Indeed, as a result of our moderating ARPU decline, network revenue returned to positive growth in the fourth quarter, something that we intend to build upon in 2026. This is an encouraging result that we look forward to executing against in the coming year and thereafter. Moving now to take a look at our wireline portfolio. TELUS delivered another quarter of industry-leading total wireline customer growth of 40,000 in the fourth quarter. This included 35,000 Internet net additions powered by our leading PureFibre offering on a national basis. Our consistent strategy of leveraging our superior and growing portfolio of bundled products and services on a national basis continues to differentiate our company meaningfully from the competition in a way that matters to customers and a way that creates shareholder value. We are delivering far more than connectivity. We are empowering Canadians with transformative digital experiences, including AI-powered smart home energy solutions, cutting-edge tech-enabled health care and well-being services, comprehensive security offerings and, of course, premium entertainment solutions. Furthermore, we drove continued strong momentum in our unique and highly differentiated data-centric B2B growth businesses. Our TELUS Health team delivered another strong quarter of double-digit revenue and adjusted EBITDA growth, fueled by strategic investments, continuous product innovation and disciplined execution across our global platforms. We successfully delivered $431 million in LifeWorks annualized synergies, surpassing our $427 million public target and the commitment that I made to you in this regard. This comprises $334 million in cost efficiencies and $97 million in cross-selling revenue, demonstrating our ability to execute on transformational integrations. Notably, this result is nearly 3x above our original target of $150 million that we set when we first acquired LifeWorks in September of 2022. Moreover, we expanded our global reach to more than 161 million lives covered, solidifying our position as the world leader in workforce, digital health and well-being services. By way of just one example, our commercial initiative with M42's Abu Dhabi Health Data Services marks a significant milestone in our expansion into high-growth markets globally. This collaboration combines TELUS' proven global expertise with M42's regional clinical excellence and AI capabilities to deliver comprehensive workforce health solutions across the Middle East and within the broader region, and it clearly aligns explicitly with Prime Minister Carney's Snow and Fan International Trade initiative. As we continue to expand our operational footprint, our engagement with financial advisers to explore strategic investment opportunities for TELUS Health demonstrates tangible progress on our well-articulated commitments to the investment community. As a leading digital health platform with expanding global reach, AI-driven innovation and strong profit and cash flow growth, TELUS Health is well positioned to attract strategic partners that unlock significant value for our shareholders. In parallel, following the privatization of TELUS Digital, we are accelerating our enterprise-wide AI and data capabilities. enabling strategic cross-promotion of our industry-leading AI product set throughout our entire business portfolio. At the same time, we are enhancing TELUS Digital's capacity to drive growth opportunities across its external client base. This positions TELUS for differentiated growth with our AI enabling capabilities revenue targeted to grow from circa $800 million in 2025 to approximately $2 billion in 2028 across both TELUS Digital and TELUS Business Solutions, including important contributions from our sovereign AI factories. Notably, in the fourth quarter of 2025, AI-enabling capabilities revenue increased by 44% to $229 million, supporting a 35% increase for the full year, underscoring the strong momentum in this high-growth area and what it portends for the future. This performance reinforces our position as a trusted partner to enterprises navigating digital transformation and implementation of AI and validates our strategy of leveraging TELUS as an innovation lab to commercialize cutting-edge AI enabling capabilities for our clients. Alongside this growth, we expect the integration of TELUS Digital to unlock meaningful operational efficiencies that we intend on harvesting. This includes delivering annual cash synergies of approximately $150 million to $200 million with circa $150 million being realized within the 2026 financial year. Driving our performance is a disciplined approach to financial management, supported by strong business fundamentals and significant free cash flow growth generation. Our confidence in delivering free cash flow growth at a minimum of 10% compounded annual growth through 2028 reflects our strong financial momentum in action. Additionally, effective with today's dividend declaration, we are reducing our DDRIP discount to 1.75% from 2% with further reductions planned through 2026 and into 2027 with the full removal taking effect in the 2027 financial year. Importantly, we continue to assess a more accelerated step-down, facilitated by the execution of our monetization program targeting $7 billion of assets under management. And I think it's interesting to note when we look at the $7 billion of dispositions that we are considering the synergistic effect with our overall growth strategy. By way of example, our PureFibre build is what is enabling our real estate monetization and our copper recycling. Our real estate monetization and our copper recycling cumulatively are going to end up paying for about half of the cost of our fiber build. Now that's a strong strategy. Secondly, when you look at the opportunity to bring in a strategic investor in TELUS Health, the investments that we have made historically in this business are going to yield significant multiples over the capital that we've invested. As part of our capital allocation framework, we are maintaining our dividend at the current level until our share price and associated dividend yield better reflects the considerable growth prospects of TELUS. Based on the current quarterly dividend, our cash dividend payout ratio is approximately 70% on a prospective basis, and we anticipate that it will remain in the 70s over the course of our multiyear plan with the net effect of our deleveraging plan in action and the DDRIP removal. Resuming dividend growth will be contingent upon maintaining this payout ratio trajectory with the DDRIP discount fully removed as we execute against our strategic plan, including free cash flow generation and achieving our deleveraging target. Indeed, in 2025, we undertook several targeted activities to further appreciably strengthen our balance sheet. This included the successful issuance of hybrid debt securities as well as our partnership with La Caisse and Terrion, our dedicated wireless tower infrastructure operator, enabling wholesale access and colocation. Notably, our Terrion transaction reduced TELUS' net debt by $1.26 billion or approximately 17 points on TELUS' net debt-to-EBITDA ratio, accelerating deleveraging and advancing TELUS' progress towards robust and long-term sustainable growth. Looking ahead to 2026, our team is advancing additional monetization opportunities, including strategic investors for both TELUS Health and TELUS Agriculture and Consumer Goods and the accelerated monetization of real estate and copper assets. These efforts will be buttressed by operational growth, including robust EBITDA and free cash flow expansion, supported by moderating capital expenditures and an industry-leading CapEx intensity ratio of 12%, trending to circa 10%. Our comprehensive deleveraging strategy is moving ahead of plan with a leverage ratio ending 2025 at 3.4x and expected to reach circa 3.3x or lower by the end of 2026 and achieve 3x or better by the end of 2027. Our strong financial and operational performance are enabled by our world-leading broadband networks, our data-centric growth assets, including what we are building and have built on the AI front and as well our commitment to customer service excellence. This provides a sustainable foundation in delivering on our 2026 targets announced today, including consolidated service revenues and adjusted EBITDA growth of up to 4%, consolidated free cash flow of approximately $2.45 billion and finally, moderating capital expenditures of circa $2.3 billion that support that CapEx intensity ratio ending from 12 to 10. Underpinning our outlook is a growth strategy centered on amplifying profitable revenue expansion, complemented by ongoing and important focus on cost efficiencies being realized, positioning TELUS to deliver sustainable value-accretive growth. In closing, 2025 marked the 25th anniversary of our iconic TELUS brand and the 20th year that our team members have participated in our annual TELUS Day of Giving. Since 2000, TELUS, our team members and retirees have contributed $1.85 billion, including 2.5 million days of giving equivalent to 19 million hours in our global communities. This is more than any other company on the planet. And here's the equation at TELUS, social purpose and leading the way globally drives higher employee engagement. Higher employee engagement drives better business execution. And this has yielded a culture where better business execution from that higher engagement leads us to deliver the type of customer service outcomes and the lowest churn rate within global telecoms for decades now. It's quite the combination. And in closing, I'd like to express my gratitude to our global team for their efforts and expertise in executing on our consistent strategy to meet our commitments to all stakeholders. And on that note, I'll turn the call over to you, Doug. Doug French: Thank you, Darren, and congratulations on your retirement. Our fourth quarter and full year results demonstrated strong operational execution and financial discipline, closing out 2025 with strong momentum across all key metrics and continued significant progress on our deleveraging commitments. During the seasonal competitive fourth quarter, we executed in a highly tactical and disciplined manner that is evident in our financial results. We delivered positive network revenue growth, while ARPU continued to stabilize, declining 1.6% demonstrating an accelerated sequential quarterly improvement. Notably, this is the strongest sequential improvement amongst our peers, reflecting the -- sorry, reinforcing the effectiveness of our go-to-market strategy and the focus on economic loading. Furthermore, TTech adjusted EBITDA, including -- excluding lower mobile equipment margin from lower contracted volumes increased 2.7% and free cash flow increased 7%, supported by our positive free cash flow impact of lower contracted volumes on disciplined device financing in addition to our lower cash restructuring. To summarize, wireless, we had the largest network revenue growth, the largest improvement in ARPU and the lowest contracted volumes in subsidies in handsets. This is a trifecta in value generation. And the numbers, not talk, support the financial market discipline that we have showed. Fixed data services revenue in the fourth quarter increased approximately 2%, driven by continued Internet customer growth and higher Internet ARPU. Declines in business fixed data revenue continued to reflect revenue variability and customer contract changes and was partially offset by continued growth in small business and medium business. Overall, TTech adjusted EBITDA margin expanded 240 basis points to 40.9%, driven by our commitment to strong economic growth and persistent efforts to reduce costs, including our competitive advantage of TELUS Digital's AI enablement. In Health, operating revenues and adjusted EBITDA grew by 13% and 10%, respectively. The growth was attributed to the acquisition of Workplace Options as well as our organic growth in payer and Provider Solutions and with strong performance across all product lines. Moving to TELUS Digital. Operating revenues grew 3% for the quarter, supported by services in our TTech and Health segment as well as expansion with our external customers, notably in banking and financial services. This was partially offset by a reduction in volumes from certain technology and e-commerce clients. While TELUS Digital's adjusted EBITDA declined 5% year-over-year, the margin of 13.7% improved 260 basis points as compared to the third quarter. The team continues to streamline operations through digital transformation and further implementation of AI, particularly in CX delivery as well as looking closely at geographical optimization. On our balance sheet, we continue to benefit from a strong free cash flow generation as we're executing a disciplined capital allocation and deleveraging strategy. In 2025, we made meaningful progress targeting our financial -- strengthening our financial position and our net debt-to-EBITDA leverage ratio declining to 3.4x as compared to 3.9 at the end of 2024, positioning us well as we advance towards our leverage targets highlighted earlier today in '26 and '27. During the year, we completed several proactive initiatives to support this initiative. These include the issuance of our junior subordinated notes as well as successful execution of multiple debt tenders that retired $2.9 billion of outstanding debt securities. Notably, the $400 million of 5.375% fixed to float rate junior subordinated notes represented the lowest hybrid notes issued in Canada Telecom cable hybrid debt history. At the end -- at year-end, our long-term debt carried an average maturity of approximately 14.7 years and a weighted average cost of debt of 4.75%. Moving on to our financial outlook for 2026 guidance, which reinforces our commitment to delivering strong shareholder value, and it includes consolidated service revenue growth of 2% to 4%, consolidated adjusted EBITDA growth of 2% to 4%, consolidated capital expenditures of $2.3 billion, including real estate or approximately 10% decrease and consolidated free cash flow of approximately $2.45 billion, circa 10% growth. Our outlook for free cash flow is driven by higher EBITDA and moderating CapEx, stable impact from contract assets, offset by higher interest and restructuring charges. A detailed list of our assumptions for 2026 are included in our annual MD&A released today. To conclude, our 2026 reinforces our commitment to strong delivery of our strong shareholder value. we are confident that our ability to deliver sustained profitable growth, supported by a robust asset mix, diversified business portfolio and proven operational excellence. With that, back to you, Ian. Ian McMillan: Thank you, Doug. Carl, please proceed with questions from the queue. Operator: The first question is from Stephanie Price from CIBC. Stephanie Price: Darren, congratulations on your retirement. Darren Entwistle: Thanks, Stephanie. Stephanie Price: I was hoping you could maybe talk a little bit about the current wireless environment. It seems like it's a little bit more promotional than we typically see in Q1. How does TELUS think about its strategy on the flanker versus fighter brand side here? Darren Entwistle: Thanks for the question, Stephanie. I'll hand it over to Zai to comment on that. Zainul Mawji: 0 Stephanie, thanks for the question. So you're correct in observing that the industry is engaged in some irrational tactics, unfortunately, following a period of some additional sanguine behavior that you've seen flow through in our results, of course. When this activity is manifested both above and more recently below the line, our response has been pretty unequivocal. We believe maintaining healthy industry economics is contingent on driving the brand differentiation, as you highlighted, between premium flanker and prepaid segments. And when we see behavior of masking promotions to erode value at the premium level, that undermines the perception of premium brands and initiates a pretty detrimental race to the bottom in the mind of the consumer. So in that situation, flanker and prepaid brands serve as a really important function in catering to the value-focused demographic within the market. And we don't want to be criticized or really apologetic for how we respond to that competitive aggression. And our performance substantiates our position. We're the undisputed leader in establishing the optimal balance and quality loading to ensure superior economics. We've led in churn reduction in network revenue growth, in ARPU amelioration and most critically in cash flow growth year-over-year. And that's on the back of significant improvement year-over-year, not on the back of a poor performance in 1 year. So that sustained level of value creation is not as a result of destroying value on our part. We have accomplished it through a series of deliberate strategic moves ranging from redefining the premium segment and optimizing bundling economics to enhancing customer retention, achieving sustained year-over-year unit economics and really judicious device subsidy management, as you've seen in our cash flow improvement. So given the industry scrutiny regarding debt load and uncertainty that we've seen, cash flow is paramount and TELUS is unmatched in our capacity to demonstrate quality loading with a high payback. So if you observe a period of time boxed, high irrational market behavior, our track record should unequivocally indicate that, that's a reaction to aggression. Stephanie Price: That's good color. And maybe just a follow-up on ARPU. I think both Doug and Darren highlighted the rate of decline has improved pretty significantly sequentially. Just curious about the puts and takes there and how you think about TELUS working towards ARPU growth. Doug French: Yes. I think that's great. I would say that the other element of that is that we participated as well more significantly in the value segment through that ARPU growth. And so what you're really seeing is a reestablishment, as I highlighted, of premium and giving customers a reason to step up -- and our value props in terms of true Unlimited, price lock for value step-up and offering some roaming plans in that value proposition for premium have really redefined the premium. And so with that, we've seen a renewal step-up that has -- that we haven't seen in the last several years actually. And that's manifested itself. And then finally, it gives us the ability to differentiate the promotional subsidy and attach a higher level of subsidy to where the higher value for what customers are willing to pay for premium plans is. And that's what's really created that differentiation. Operator: The next question is from Drew McReynolds from RBC. Drew McReynolds: And just would echo congratulations on retirement, Darren, I certainly wish you all the best going forward. Darren Entwistle: Thanks, Drew. Drew McReynolds: Two for me, if I may. I think first, in terms of the guidance range, and I think we could probably just stick to revenue growth, but maybe EBITDA growth. Just the usual question of what gets you closer to 4% versus 2% and some of the moving parts and assumptions there? And then secondly, just with TELUS Digital now in the guidance and underneath the hood, just wondering if you could provide us with an update on kind of growth and outlook expectations there. And then specifically, just what its role is here in 2026 and helping to drive that $150 million in synergies and the broader TELUS strategy? Darren Entwistle: Thanks, Drew. In terms of what gets us closer to the high end of either revenue or EBITDA, I think it's pretty simple at TELUS. We've got 3 significant areas that we need to execute on. One is telecom, where the key growth drivers within that are within consumer and small business. Second is TELUS Digital; and third is TELUS Health. As it relates to both TELUS Digital and TELUS Health, we're looking in 2026 to realize double-digit EBITDA growth from both of those assets and a significant step-up in nominal EBITDA and cash flow generation. And I think that's -- it's a laudable and an exciting story. Within the telecom business, it's pretty clear to us. We want to see growth coming from 4 areas. Number one, and this is common to both consumer and SMB. We want to do well at new product development and new product scaling. We have a number of products within our portfolio that are highly differentiated from our competition and pretty meaningful and exciting to our consumers and getting them into our bundles and scaling that, I think, will be not just a growth opportunity in and of itself, but also a halo effect, protecting our traditional telecom services from areas like price aggression because we are differentiated within our overall product suite. Second area of growth for us is improving churn. We have a significant opportunity to lower our churn rate at TELUS on both wireless and wireline, both consumer and business and get back into a churn ZIP code that is emblematic of the type of churn rates that we posted in 2022 and 2023. So that's a specific goal for this organization. And again, the economics go beyond the obvious on that. So not only do we get a better yield on gross to net by improving churn, but we can be more discretionary when it comes to COA because we don't have to chase net adds because we're doing very well at the churn line, and that's a very positive economic story. Third area of growth is product intensity. We have a material number of clients on the SMB front and on the consumer front that are single product customers. getting those single product customers to 2 product customers, 3 product customers and 4 product customers when we have the quality of the product portfolio that we do is a very doable undertaking for this organization. And again, we get a synergy with that because, of course, as you know, as we drive up product intensity, where the opportunity, as I just said, is plentiful, we are simultaneously going to be driving down churn because the more products that we have with a client, the stickier the relationship is. And then the last growth area for us is national expansion. We have the opportunity on both a build-it basis and a wholesale basis to pursue smart economically accretive quality customer acquisition strategies on both consumer wireline and SMB wireline within Ontario and Quebec, and we intend to do just that. And then the final area of growth is at the margin level. And God forbid that we ever forget this or become so blinded by the pure revenue to EBITDA growth opportunities that we miss our OpEx responsibility on cost efficiency. And it's incumbent upon TELUS to really drive that cost efficiency story for 2 reasons. One is we have TELUS Digital. We own the totality of that asset, and we should be able to get excellent cost efficiency without sacrificing customer service because of how we drive that particular asset. Secondly, TELUS Digital is truly a world leader when it comes to CX AI applications, truly a world leader. And you don't have to ask just TELUS, you could look at some of the blue-chip clients that are buying our CX AI solution set and leveraging AI to drive down our cost and improve our go-to-market outcomes is a big part of our growth story as well. So that's where it's going to be coming from. And I like the fact that from a diversification point of view, we're not a one-trick pony on growth. We've got growth coming from telecoms. We've got double-digit growth coming from TELUS Digital. We've got double-digit growth coming from TELUS Health. I think that provides a robust story. So if there's any shenadigans in one particular area, it can't knock us off of our stride. And of course, we're never going to take our eye off the ball of cost efficiency along the growth path Glide. Doug French: And on the second question on the efficiencies of TELUS Digital, we split them out into 4 categories. We have below the line, which is interest and capital, which is probably 1/3 of the savings. The other 2/3 is split between TELUS Digital and TELUS from efficiency and effectiveness. And those are all being executed in a lot of what Darren highlighted as we speak. Operator: [Operator Instructions] The next question is from Vince Valentini from TD Securities. Vince Valentini: Let me start trying to clarify just a couple of things. Your last comment there, Doug. First off, did I hear Darren correctly that double-digit EBITDA growth is expected for both TELUS Digital and Health in 2026? Darren Entwistle: That is correct. Vince Valentini: Okay. So assuming I got that right, TELUS Digital has double-digit growth even though some of the $150 million of synergies, it sounds like it's allocated to the telecom division as opposed to being allocated to digital? Darren Entwistle: That's correct. Vince Valentini: Okay. And do we know yet if the reporting segments are going to stay the same? Will we still get revenue and EBITDA for TELUS Digital going forward? Doug French: So we will be resegmenting in Q1 and the segmentation at the moment, I'm still doing some refinements is what will be external customers will be the TELUS Digital segment. So the internal TELUS business for customer experience will be put back into telecom. We will restate, so you'll get the year-over-year comparative. And then it will be the digital AI and external CX that will be left in that number. Vince Valentini: Okay. And I also try to clarify what Zainul said earlier on the ARPU. It doesn't sound like there's anything unusual this quarter in terms of the material improvement in the ARPU trend, no like roaming contracts or any other unusual items. So keying off of that, given the good improvement you're seeing in renewal upsell and gradual improvement in pricing discipline in the market. Is there any reason to think that we should take a step backwards from minus 1.6% in Q1 or Q2 or it continues to get better from that level? Zainul Mawji: Certainly not from us. So I would say that you have the readout right. It's organic improvement, and we're continuing to see that progress. Darren Entwistle: Zainul can do better. Vince Valentini: Good point. Zainul Mawji: I appreciate that. Vince Valentini: Last one, apologies, but I mean, we're just -- I'm in dated with this question all day. I assume some of the other analysts on the line are as well. But is the change in CEO meaning that we should be thinking about any sort of change in capital allocation or dividend policy? And if so, do these questions start to get addressed in the next couple of months? Or do we wait until after Darren takes his well-deserved retirement? Darren Entwistle: I think it's important to focus on the facts, Vince. It was only 2 months ago that the Board unanimously approved our 3-year strat plan and all that, that entails. So I would expect strong continuity in terms of what this organization is doing and more specifically, strong continuity in respect of our growth initiatives, strong continuity in respect of our capital allocation initiatives and strong continuity as it relates to our deleveraging program. And we have a portfolio of activities underway to achieve that, that we have well communicated to the Street. And I think this organization is intent on following through and delivering on those, whether it's the current administration or the prospective one. And we are excited by the catalysts that the delivering against these initiatives will entail in terms of value creation at the TELUS organization. Operator: The next question is from Maher Yaghi from Scotiabank. Maher Yaghi: Great. Darren, I recognize you're going to be around for a while still, but I wanted to say it was a privilege to interact with you, and I wish you all the best in the next stage of your life. Darren Entwistle: That's very kind. Maher Yaghi: Of course, you mentioned that more will be shared in the transition process in the coming weeks. But could you provide just for us an understanding of what the Board was making sure to lock in by hiring Victor? Darren Entwistle: I think the Board was looking to lock in a great leader with a proven track record, a leader that's familiar with driving a complex organization, dealing with all sorts of exciting opportunities, but working through some of the challenges that come with that, whether it's technological or regulatory. I think they're looking for a leader that had a set of leadership values that reflected the culture that has served the TELUS organization so well. And so when I look at the excellent business acumen and strong leadership values that Victor exhibits, I think his propensity for customer service excellence our nomenclature is customers first will fit very well with the TELUS organization, supporting the type of world-leading churn rates that we have posted for decades. I think the focus on growth through strength. So growth in combination with a robust balance sheet is going to be something that he'll continue to focus on and delivering against those initiatives. And then you heard in my comments, the link that I made to social purpose and leading the way in that regard, driving higher employee engagement, which leads to better business execution. And I think if we're known for one thing at TELUS, it's execution. We have done it well forever. And I think the grist for the mill there has been our culture. And I think Victor's affinity with social purpose and the importance that he places on people and culture is going to serve him tremendously well within the fold of the TELUS organization going forward. And then I think down to them also to find their own future ideation and genesis. I'm excited to see what the new administration, and it's Victor and Victor's leadership team on their growth thoughts prospectively and new ideas and new opportunities and new things for the company to sink their teeth into. So they make their mark on the organization in a positive way. but make their mark on the organization in a positive way where it always comes back to putting customers first and doing right by the customer because we know if we do that well, we do it better than the competition, then all of our stakeholders, including our investors, are going to benefit from the value creation that, that delivers. And so I think that would have been kind of the hallmark that they would be looking for within a CEO. Maher Yaghi: Okay. Just a follow-up on the discussion about the pricing environment early this year and how it has evolved compared to Q4. I think one of the frustration that TELUS team has had was, as you mentioned, below-the-line discounting, especially on EPPs and stuff like that. You tried to correct the situation with some of your discounts on Public and Koodo. But I did notice that this week, you did some changes on your EPP plans, and we have seen them drop. The $15 below what the TELUS branded price is on BYOD and possibly even more if you go to the store. So I was wondering that change, is that also a reflection of your frustration? And could we see that be removed coming back to traditional pricing or the environment remains frustrating for you up until now? Darren Entwistle: Zainul, why don't you answer that, and maybe I'll make a closing comment. Zainul Mawji: Sounds good. Thank you, Darren. So I think we have seen some better economics in the industry. And I think when you look at plans like EPP or other plans that are a function of the premium segment, but catered towards a specific target market, whether it's EPP or SMB, there's a couple of elements. One is the eligibility. And so you do ensure that if you have very strict and tight eligibility of those plans that they play a meaningful role in the overall portfolio. So what I would say is you will see that we will be more reactionary you will see that we will ensure that where we are losing some ground in value, we will want to participate effectively, whether that's in the value segment or in the premium segment. And you will see that we will drive the discussion around keeping certain promotions tightly managed so that they play their requisite role in the portfolio. Darren Entwistle: I think, Maher, from our point of view, if the mean time to emulate an irrational price move is measured in seconds, it instantly commoditizes any benefit associated with the aggressive pricing on a land grab move. And so if that emulation, speed of emulation drives instantaneous commoditization, then what was the point of it in the first place. And that's the type of discipline that Zainul is looking to instill in the marketplace, which hopefully should then drive a shift to differentiated value propositions that are more sustainable, that create value and at the end of the day, provide more benefits to customers over the long term and more benefits to investors. And I just think that's the hallmark of an organization at TELUS trying to do the right thing. Operator: The next question is from Jerome Dubreuil from Desjardins. Jerome Dubreuil: First of all, congratulations, Darren, on an outstanding career. I wanted to ask about severing AI coming back to that conversation. I think last quarter, you discussed the strategy of chips ownership for your several AI initiatives. Owning the chips can be expensive depending on the model. So the question is whether the chip strategy is still the right one, if this investment is included in the guidance? And if it is, would the assets be on the balance sheet? Darren Entwistle: So yes, it's included in the guidance, and I'll comment a little bit more on that front. Yes, on the balance sheet as well. But why don't I pass it over to Tobias to make some comments. And then if there's any cleanup, I'll do it at that juncture. Tobias, over to you. Tobias Dengel: Yes. Thank you, and thank you for the question. And Darren, congratulations on your retirement, and thank you for all the unwavering support of TELUS Digital and our alignment throughout the TELUS ecosystem. So maybe I'll take a little bit of a step back in answering the question, Jerome. The -- when you think about TELUS Digital, what we accomplished in the fourth quarter and is part and parcel to our growing momentum that you see in the numbers is we've unified all our capabilities across web, app development, Salesforce, Google Cloud, data and AI and specifically our CX AI capabilities. around this positioning of winning the moments that matter. As Darren said, serving the customer is everything. And for us, it's serving our clients across their entire customer journey. And every piece of that is now underpinned by AI. And so when we look at where we are -- where we have permission to be successful and what advantages we have versus other competitors, it falls into a couple of different categories. One is with TELUS, right? TELUS is a fertile testing ground for us. It's a real-life lab. It's where we show real capabilities in motion, in practice, things like reducing meaningfully first call resolution and save rates and where we partner on the full stack of sovereign AI capabilities that include the chips, as you mentioned. The second area that we can differentiate ourselves in is CX AI. AI obviously impacts enterprises across the entire ecosystem. But an area where we are winning, should win is this concept of CX AI, where we have hundreds of existing clients, tens of thousands of seats we provide those clients, and we can partner with those clients to really deploy CX AI at scale and really focus on complex workflows where AI supports the humans doing those workflows. And particularly excited that we just received a Gold Stevie Award, which is their highest level for our B2B sales efforts with a major fintech customer, where we improved conversion rates by nearly 50%, generated over $100 million of incremental value for them. But importantly, outbound B2B sales is an area where AI will support what we do because empathy is so critical. It's not going to be fully replaced by AI. It's going to be complemented by AI. And all of that then translates into what we're seeing. As Darren mentioned or Doug mentioned, we have a 44% increase in year-over-year in Q4, 35% growth for the full year related to our AI-enabling capabilities as we work towards that $2 billion target in 2028. And I would say the final leg of the stool here is how we're using AI to take costs out of the system. As noted, we have a $150 million to $200 million goal, and we're laser-focused on streamlining our cost structure and TELUS' cost structure to effectuate that, including both moving team members to the most appropriate geography globally; and second, through deploying our AI processes to accelerate workflows and reduce costs. I'll just end with one example there, deployed in the fourth quarter fuel training tools, AI training tools to reduce our contact center agent proficiency by 50%. So the time it takes to become proficient is down up to 50%. And those are the kinds of costs that we're going to be addressing throughout TELUS and with our clients. Darren Entwistle: I think, Jerome, the other thing that is key is fortuitously, I think maybe here a bit lucky as well as smart, we had legacy data centers in Rimouski and Kamloops that unlike others, we did not sell. So we're leveraging that sunk cost. And down to the team, the architectural qualities of those data centers were such that we could make them fungible and turn them into sovereign AI factories with a minimum amount of capital investment to accomplish that outcome, which is exactly what we have done and why we can get it done within the CapEx envelope that's seen our CapEx intensity drift from 12 towards 10%. Even at the OpEx level, these sovereign AI factories will be run because of the technology prowess that we have by a skeleton crew. And so we're extremely cost efficient here at both the CapEx level and at the OpEx level. The other thing that Tobias and Hisham have done is that we're balancing growth so that supply equals demand. So the rollout of these data centers, the enablement of the data centers, the investment in the chip construct within it is being bridled according to the pace of demand. And I think that, again, is a very smart way to drive this overall strategy. Fortunately, we cut a great strategic partnership with NVIDIA that gives us an advantageous and strategic position, both as it relates to new chips, but also in terms of cost economics and volumes that really play into our favor at the TELUS organization. And then within our positioning back to what is truly sovereign about it, we are unique because every element of the sovereign AI thesis is controlled by TELUS, which is a real differentiating factor for us. So whether it's inference, whether it's models or whether it's training, this is all in-house at TELUS, which I think enhances the sovereign component to our story, which we know matters tremendously at both the customer level as well as at a government level. And then the other thing that's in our favor economically that Tobias referenced in terms of TELUS being the anchor tenant is we get to enjoy great economies of scope. So when you think about the development of Gen AI applications on the copilot front and our world leadership on the fusion of CX AI, our copilots that have been developed for TELUS, whether it's agent trainer, copilots on retention, copilots on upselling, copilots on customer service, our copilots that are also going to benefit from the tribal knowledge that TELUS Digital is accruing because they're not just doing this for TELUS, they're doing it for 700 external clients. And so the external clients get the benefit from the learning curve at TELUS and TELUS gets the benefit from the learning curve at the external clients. And when it comes to CX AI, we are the 800-pound gorilla, and that 2-way flow of learning is going to be terrific for the performance of the TELUS organization, whether it's go-to-market outcomes or cost efficiency outcomes. Ian McMillan: Thanks, Jerome. Carl, I'm recognizing that we're through the hour, so we'll pause the call there. Thank you, everyone, for joining the call today, and please reach out to the IR team with any follow-ups. Operator: This concludes the TELUS 2025 Q4 Earnings Conference Call. Thank you for your participation, and have a nice day.
Operator: Good day, everyone, and welcome to the Bridgeline Digital First Quarter 2026 Earnings Call. [Operator Instructions] It is now my pleasure to hand the floor over to your host, Thomas Windhausen. Sir, the floor is yours. Thomas Windhausen: Thank you. Thank you, everyone, for joining us this afternoon. My name is Thomas Windhausen. I'm the Chief Financial Officer of Bridgeline Digital, Inc. We're pleased to welcome you to our fiscal 2026 first quarter conference call. On the call with me today is our President and CEO, Ari Kahn, who will begin the call with a discussion of our business highlights. Then I'll update you on our financial results for the quarter, and we'll conclude with some questions. Before I begin, I'd like to remind listeners that during the conference call, comments we make regarding Bridgeline that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Security Act of 1934 and are subject to risks and uncertainties that could cause such statements to differ materially from actual future events or results. The statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, and the internal projections and beliefs upon which we base our expectations today may change over time, and we expressly disclaim and assume no obligation to inform you if they do. The results we report today will not be considered an indication of future performance. Changes in our economic, business, competitive, technological, regulatory and other factors could cause our results to differ materially from those expressed or implied by the projections or forward-looking statements made today. For more information, you can review our filings from time to time on the Securities and Exchange Commission website. On the call today, we'll also discuss some non-GAAP financial measures, and we have a reconciliation of those GAAP -- of our GAAP financials to those non-GAAP measures in our earnings release, which is on our website. I'd now like to turn the call over to Ari Kahn, Bridgeline's President and CEO. Ari? Roger Kahn: Thank you, Tom, and good afternoon, everyone. Bridgeline's core products led by HawkSearch Suite and our AI products continue to lead our growth and our customers are having an outstanding experience as they've proven with their pocketbooks when they repeatedly increase their investment into their HawkSearch subscription and purchase add-on products as well. Enhanced hosting, expanded usage packages and the AI suite are all upsells to our existing customer base. Search is the heart of the online shopping experience for both B2B and B2C sites with HawkSearch acting as our customers' online salesperson who intelligently interacts with their customers to increase traffic conversion and order size. Core products at Bridgeline are now 60% of our total revenue, growing 17% to $2.4 million this quarter from $2.0 million last quarter and was $9.2 million on the trailing 12-month basis versus $8.8 million for the prior 12 months. HawkSearch is an even larger percentage of our subscription revenue, now representing 63% of the subscription revenue at $2 million of revenue versus $1.9 million last quarter. Net revenue retention, which includes renewals and license expansion was 107% for our core product line. This demonstrates best-of-class customer satisfaction and how quickly our customers are adopting our new products. These new products include Smart Search, Visual Search, Smart Response and our latest AI agents such as the Search Assistant, Analytics Assistant and Merchandising Assistant. New customer acquisition continues to grow with an average ARR per customer increasing by 12% this quarter to $28,000 from $25,000 last quarter. After customers make their initial purchase, they tend to subscribe to additional HawkSearch products. We have more than 200 customers in HawkSearch with an average subscription per customer of $33,000, up from an average of $30,000 last quarter and up from $25,000 in Q1 of our fiscal 2025. This quarter, we sold 13 new licenses with $1.2 million in total contract value for over $350,000 in ARR and $700,000 in professional services. More than half of our new license sales include one of our AI products in their initial purchase with many customers adding AI capabilities to their license after they go live with HawkSearch. In our first quarter of fiscal '26, we won several new customers, including many B2B manufacturing and distribution customers, where we're growing so quickly and where HawkSearch was ranked #1 in Gartner's 2025 Critical Capabilities Report. Some recent new customers include a national closeout retailer with more than 170 locations and a rapidly expanding e-commerce presence who selected HawkSearch to power their online store. The retailer replaced their previous search software with HawkSearch to increase online revenue because of HawkSearch's AI-driven relevance and filtering capabilities. A leading U.S. distributor of specialty lighting products is leveraging HawkSearch's Smart Search, so their customers can search with images, concepts and questions that enhance their ability to find items quickly and accurately. A Midwest B2B distributor using to optimize the e-commerce platform launched HawkSearch to elevate its online product discovery and delivery with an exceptional digital experience to its customers in the construction, industrial, plumbing and HVAC industries. And a leading wholesale supplier serving both B2B and B2C selected HawkSearch to power product discovery across 5 e-commerce sites. This supplier chose HawkSearch for its B2B foundation, multisite support and AI-driven recommendations. Also, a national industrial B2B supplier selected HawkSearch to improve search relevancy, engage logged-in customers and enable stronger merchandising capabilities. This industrial B2B supplier used HawkSearch's AI relevance tuning and boost and Barry rules to enhance product discovery by providing precise control over how products are ranked and surfaced to customers. Because we made early investments in AI and have a clean product architecture, we're able to rapidly release new products that drive revenue for our more than 200 customers and to win more new customers against less nimble competitors. In Q1, we released Spark, our next-generation user experience platform for administrators. Spark natively integrates Hawk AI capabilities with advanced analytics, including merchandising and analytics assistance. Spark represents a significant step in modernizing the user experience, while enabling scalable AI innovation across the platforms. We've also introduced contextual fields for HawkSearch. Contextual fields enable franchises and chains to provide customer-specific pricing and availability per store. This quarter, a customer leveraged contextual fields to provide contextual information across 120,000 products and 7,000 stores with more than 1,000 real-time update per minute. HawkSearch advanced analytics API was released this quarter, and it allows AI agents to integrate with HawkSearch analytics for greater visibility into customer behavior for automating, merchandising. And HawkSearch launched AI content extractor to accelerate customer adoption by having an agent examine the customers' product catalog and marketing materials to automatically configure HawkSearch. With our pipeline of new products that drive value to existing customers and increase new customer wins, we expect HawkSearch and our core products to become over 70% of overall revenue this year, and that will drive faster, more profitable growth for Bridgeline as a whole. Because of outstanding customer satisfaction, our growth is expected to continue to be efficient, allowing us to invest more in new products that drive customer and shareholder value. Now with that, I'll turn the call over to our Chief Financial Officer, Tom Windhausen, who will share additional details. Tom? Thomas Windhausen: Great. Thanks, Ari. I'll provide an update on our financial results for the first quarter of fiscal 2026, which ended December 31, 2025. Our total revenue for the quarter ended December 31, 2025 was $3.9 million compared to $3.8 million in the prior year period. As we look at components of revenue, we'll start with subscription revenue, which is comprised of our SaaS licenses, maintenance and hosting. And for the quarter ended December 25 was $3.2 million compared to $3.0 million in the prior year period. As a percentage of revenue, that puts subscription revenue at 81% of total revenue for the quarter ended December '25. Moving to services. The services revenue was $758,000 for the quarter ended December '25 versus $743,000 in the prior year period, and that puts services revenue at 19% of total revenue for the quarter ended December '25. Our cost of revenue was $1.3 million for the quarter December '25 compared to $1.3 million in the prior year period, and that left our gross profit at $2.6 million, an increase from $2.5 million in the prior year comparable period. The overall gross profit percentage was 66% with subscription gross margin at 69% compared to 71% previously, and services gross margin this quarter was 55% versus only 51% in the prior year same period. That resulted in operating expenses of $2.8 million for the year ended quarter, December 31, '25, down from $3 million in the prior year comparable period. And that put our net loss at $100,000 negative loss compared to a loss of $600,000 in the prior year period. And we also ended up with positive EBITDA in the first quarter. Adjusted EBITDA was a positive $122,000 compared to negative adjusted EBITDA of $193,000 in the prior year period. As we move on to our balance sheet, at December 31, '25, we had cash of $1.5 million and accounts receivable of $1.6 million, and our total debt was down to EUR 200,000, which is about USD 236,000, 3.25% average interest rate, and those payments are due throughout 2028. Besides that, we have no other debt or contingent payments or earn-outs remaining from any previous transactions. Our total assets were $15.7 million at December 31, 2025, and liabilities were $6.2 million. Looking at our cap table, at December 31, 2025, we had 12.2 million shares outstanding, 860,000 warrants and just under 2 million stock options. Those 860,000 warrants have 2 primary tranches, 167,000, which expire on May 26 at $2.85 and $592,000 with an exercise price of $2.51, which expire in November 2026. Bridgeline looks forward to continued growth and success in '26 and beyond, and we continue to focus on revenue growth, product innovation, customer success and delivering shareholder value. Thank you for joining us on the call today. And at this time, we'll open up the call to questions and answers. Moderator? Operator: Certainly. [Operator Instructions] Your first question is coming from Casey Ryan from WestPark Capital. Casey Ryan: Well, so I just want to jump into these ARR figures and make sure that we're understanding them correctly because they're impressive, right? So, I think I have -- and you guys can correct me if I'm wrong, but for '24, we talked about $18.5 million as an ARR number. And then on the last call, we talked about this $25,000 figure, and now we're quoting a $33,000 figure. That trend-wise also tracks with the new customer ARR numbers that you're giving out. I think in Q4, September quarter, you talked about 18 customers doing about $1.25 million of ARR and now you're talking about 13 customers doing $1.2 million. So, kind of the point is it's clear that people are spending more money maybe on a per customer basis. But we're not quite seeing as big a jump yet in the revenue figures. And I just want to talk about the mechanics of how ARR blends into your future numbers and impacts future numbers, I guess. Roger Kahn: Yes. So yes, so here, let's -- I'm going to tease out just a couple of details here, starting with the per customer and per new customer sales. We've got -- for winning new customers, an average of $28,000 in ARR this year. It's 12% up -- or this quarter, which is 12% up from the $25,000 for winning a new customer in our Q4. And then after those customers buy things, most of our customers end up investing even more with us. So, if you take a look at our overall revenue divided by our number of customers, we're now at $33,000 per customer compared to $30,000 last quarter and $25,000 a year before. So, those are the numbers, which I think you just pointed out, and I just reiterated. Casey Ryan: Sure. Roger Kahn: So, net revenue retention is one of our core metrics that we evaluate every month, and our customer success team internally is focused on that and that's 107%. That represents customers renewing, customers buying additional products from us. And then also when customers renew, sometimes they have increased the usage of our product and we'll have to renew to a higher set of limits in their license. So, all of those contribute to our growth. And then, of course, churn, where a customer doesn't renew pulls away from the NRR. So, we feel pretty good about the 107%. It was down from last quarter. I think last quarter it was 116%, but 107% is still very good for the industry, but we had less growth this quarter than we did in our Q4 2025. Casey Ryan: I see. And maybe that response sort of leads us into the conversation. And I think the answer is there are lots of targets and customers to go after. But has anything changed? Like has the fact that your average package is going up, has that taken some people out of the market for your services just in that it's a more robust tool? Or do you still feel like there are these hundreds of thousands of people to win still? Roger Kahn: Yes. I think that the total addressable market for us has not changed. What we're seeing is that we've -- on the initial purchase last year, people were still not as inclined to buy the AI add-ons they needed to be proven. And that adoption is more ready now, more readily purchased than before. So, our customers that we won last year are now buying -- adding on to their base license Smart Search and Smart Response and the new customers are buying those more often right out of the gate. Casey Ryan: Okay. Okay. And so that's good. So, certainly, that can sort of be a tailwind for NRR sort of that like net purchase number as we move through '26. And then sort of the other question I was wondering about is, have things changed competitively? Has anybody seen your success and tried to sort of bring product into the sales channels that you are? Or have people fallen away and maybe said this isn't for us, we're not winning here and HawkSearch is gating us? Roger Kahn: Yes, yes. So, in our deals, we're still seeing the same top competitors as we did in 2025. So, that hasn't changed. And we think that one of the ways that we're differentiating now even better than we were last year is through our analytics. So, at the end of the day, you cannot have artificial intelligence without data. There's a saying of you got artificial intelligence and artificial stupidity. And if you don't have sufficient data behind these AI agents, you get dumb agents. So, what we did, which is different than what anyone else has done is we have created a data lake that allows all of our customers to have their data, their analytics, which person clicked on what link and bought what product and so forth, all provided inside of a private lake for them. And then we're creating a library of agents and they can create their own AI agents themselves that are able to monitor that lake and automatically tune HawkSearch for them based on current customer behavior. And this is really driving -- is raising a lot of eyebrows on our prospective customers and existing customers. Everyone is really excited and interested about that, and that is helping to differentiate and win more deals for us. Casey Ryan: Okay. Yes, that's terrific to hear. Sort of just -- sorry if I'm jumping around, I just want to go back to the ARR figure just for a minute. The growth in it has been impressive and very important and obviously paints a good sort of trend line to sort of future growth. Should we expect growth rates like we've seen over the last 18 months? Or has that sort of just been a spike as we've added the AI features and maybe that will start to level off and maybe not be as explosive as it's been or maybe it will continue? Roger Kahn: We're actually expecting it to continue. So, our HawkSearch had 17% growth rate this quarter, and our goal is to get that all the way up to 20% this year. So, we expect to see that continue to increase, and it will increase for 2 reasons. One is we've got a very solid pipeline of new customers that we're selling to. And two, as we continue to release products, our existing customers, which we've got more than 200 have a lot -- there's a lot of room inside of that customer base for add-on growth. So, both of those are going to contribute to that growth and allow us to grow even quicker. And kind of going back a little bit to your previous question, the -- our sweet spot market, so we sell to B2B and B2C, but we've really been very strong in B2B manufacturing and distributors. And that marketplace itself is relative to our size, infinitely big and is maturing very quickly with respect to technology adoption. So, we feel really good about that specific market in addition to selling elsewhere, but we want to be very targeted with our marketing dollars and most of them point towards that market because we have such a high win rate there. Casey Ryan: Right. Okay. And thank you for mentioning the marketing dollars. I know you didn't call that out specifically, but there were some, I think, indication that last quarter, you guys were saying, "Hey, we want to spend more -- a little bit more on sales and marketing and do it smartly. As we've gone through just this sort of October, December period, have you felt like the spend has matched what your plans were? Or have they been above or below? Or how qualitatively? Roger Kahn: Yes, yes. So, we did a pretty good consistency with our cost per lead. So, the marketing dollars are working well. We do want more marketing dollars, but not by injecting capital at bad dollar rates. So, there's a lot of room for growth for us. And the marketing is effective. We're seeing great success at industry conferences. An example of one that we do very well at is B2B online Chicago each spring. We also have our own customer conference that our partners are invited to and they actually do sponsorships. So, about 60% of the cost of that customer conference is actually covered by our partners. Our customers come to that, prospective customers do, and that has a great impact on revenue as well and is very efficient. So, we're feeling pretty good about the marketing dollars, and we need to continue to find ways to invest even more because we know which campaigns work, which conferences work and where to be. Casey Ryan: Right, right. Okay. Terrific. One last question. Just on the gross margin line. It's been pretty stable within a few points, I think, for quite a while. And is that something we should expect? I mean, is there any reason to think that maybe with the new products that we're burdening the GM line a little bit or maybe there's some expansion because of the pricing changes. But what are your thoughts about just kind of that mid-60s range, if that would be expected to change meaningfully? Roger Kahn: Yes. Yes. So, we do expect to -- the combined gross margin of our services and subscriptions to stay in the mid-60s, 65% to 67%. And we look at that on a line item basis in terms of our professional services gross margin and our subscription gross margin because there's different characteristics within those. This quarter, our services gross margin was unusually high. It was 55% plus another -- and then 69% for subscription. On the services line, the low 50s, I think, is where we're going to continue to be. So, maybe say, 53% running there, which is a little bit better than last year, but it's because the value that we're delivering, especially in the context of a lot of the AI initiatives is so much higher that we are able to bill a higher rate. And then on the subscription side, which is dominated by our hosting costs, should hover around 70% going forward. So for the rest of this year, that's what we should be looking for. And then you combine the 2 of those together and you can call that between 65% and 67%. Casey Ryan: Okay. Great. That's a terrific outlook and really very strong trend continuation from last year. So, congratulations on a good quarter and I'll jump back in the queue. Operator: Thank you. [Operator Instructions] Thank you. There are no further questions in the queue. Roger Kahn: Well, thank you, everybody, for joining us today. We appreciate your continued support, the support of all of our customers, partners and our shareholders. We're excited about our business and ongoing growth prospects. This is an exciting time indeed. AI is making huge changes to the industry, especially marketing, and we have made the investments to continue to innovate in this area, very exciting time. We look forward to speaking with you again on our second quarter fiscal 2026 conference call, which will be in May. Until then, be well. Operator: Thank you, everyone. This concludes today's event. You may disconnect at this time, and have a wonderful day. Thank you for your participation.