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Operator: Thank you for standing by, and welcome to the Orora Limited Fiscal Year '26 Half Year Results. [Operator Instructions] I would now like to hand the conference over to your speaker today, Mr. Brian Lowe, Managing Director and CEO. Please go ahead, Brian. Brian Lowe: Thank you. Good morning, everybody. Thanks for joining us today for the Orora Group Half Year 2026 Results Presentation. I'm joined by Shaun Hughes, our Chief Financial Officer. Today, Shaun and I will provide you with an overview of our results for the first half and an update of the operational progress as we reshape the portfolio to be a focused beverage packaging business. At the end of the presentation, I'll conclude with some insights and perspectives for FY '26, including our outlook statement. Once concluded, we'll be happy to take your questions. And before I start, please take note of the important information on Slide 2. Turning to Slide 4. Today, we'll be delivering the following key messages. At a group level, we have delivered a robust set of results for the first half of 2026, focused on disciplined execution and controlling the controllables. We achieved volume growth in Cans and Saverglass. And importantly, EBITDA was up in all businesses, and we continue to generate strong operating cash flow and cash realization, a hallmark of Orora. Our Cans business grew strongly with volumes up 11.2% as we leverage the investment in new capacity, noting our growth investments are nearing completion. For Global Glass, operating conditions remain challenging. However, Saverglass grew volumes by 2.6%, while Gawler volumes declined slightly. The new Global Glass executive team is in place and focused on executing their key business priorities. And finally, we completed our 2025 calendar year buyback, and our balance sheet remains strong, which supports ongoing shareholder distributions through dividends and on-market buybacks. We bought back $227 million or 110 million shares in calendar 2025. And today, we have announced a new $270 million buyback program. Turning to Slide 5 and our first half financial highlights. The results you'll see today are for the continuing operations, excluding significant items, except where noted. Shaun will also provide details of our statutory numbers later in his presentation. We delivered a robust operating result underpinned by disciplined execution across the business as we continue to focus on operational efficiency, cost control and customer partnerships, and that focus is reflected in our numbers for the half. EBITDA was $218 million, an increase of 14%, with the improvement driven by solid contributions from all businesses. EBIT was $131 million, an increase of 8.5%, with growth primarily driven by Gawler and Cans with higher D&A tempering the Saverglass EBIT. Underlying NPAT was $78 million, up strongly on the prior period by just over 32%. Operating cash flow was again very strong, up 51% to $190 million and cash realization of 112% demonstrates our continued focus on managing cash. This cash flow outcome reinforces the strength of our balance sheet with net debt of $387 million and leverage at 0.9x EBITDA. Our strong balance sheet and commitment to returning funds to shareholders has resulted in the Board today declaring an interim dividend of $0.05 per share unfranked. Finally, in line with our disciplined capital allocation framework, we returned $227 million to shareholders through our 2025 calendar year on-market buyback program, which represents approximately 8% of issued shares. Turning to Slide 6. Let me now turn to operational performance across our segments for the first half. As you can see, market dynamics varied across the portfolio. But in every part of the business, our teams executed with focus and discipline. Starting with our Cans business, which again delivered a very strong performance. Revenue grew to $442 million, up 19% or 15%, excluding pass-through impact of aluminum prices, with EBITDA increasing to $61 million, up 8%. EBIT was $52 million, up 4%, noting that this includes $5 million of corporate costs following the sale of OPS. If we exclude this item, EBIT increased 14.5%. The growth continues to be driven by solid consumer demand for Cans, boosted by the rise in new beverage categories and ongoing substrate conversion. We saw volume growth of 11.2%, enabled by recent capacity expansion investments. The new Revesby Line 2 supported elevated multi-size volumes, especially in Queensland. Our Rocklea Queensland investment remains on track with approximately $100 million spent to date. Turning to Saverglass. This business continues to operate in a more challenging global demand environment. Pleasingly, volumes were up just under 3% compared to the prior corresponding period. This is a solid outcome given overall market softness. The growth in volumes reflects a stronger order book that we've seen since late calendar 2024, and I'll also cover orders and inventory levels in more detail shortly. Revenue was $298 million for the half, down 2.6%, reflecting primarily mix impacts. EBITDA was $69 million, up 1% for the half, with the revenue decline offset by ongoing cost discipline. EBIT finished at $ 35 million, which was down $ 3 million or 9%, negatively impacted by a $ 4 million increase in D&A. Saverglass earnings reflect the actions we have taken to shore up the cost base, which will also benefit the business as volume grows over time. The Le Havre F4 furnace closure is nearing completion with the final redundancies taking place during February. The new Global Glass President and new CFO are now in place with focus on executing the Saverglass key business priorities, which I'll cover on our next slide. And finally, for Gawler, revenue was flat at $155 million, with EBITDA increasing 54% to just under $35 million and EBIT up 94% to $17 million. This improvement reflects the impact of the G3 furnace rebuild in the prior corresponding period. Our G3 furnace is outperforming expectations, delivering 31% energy efficiency improvements versus the prior furnace, demonstrating the benefit of disciplined capital execution. and we continue to progress plans to shift surplus volume to the UAE, strengthening the long-term competitiveness of our glass business. Turning to Slide 7 and our Saverglass priorities. With the new executive team now in place, they're focused on 6 key priorities, which are to drive business growth, expand margins and strengthen cash flow generation in a challenging global wine and spirits market. The key priorities are: firstly, to accelerate the new business pipeline by delivering volume and revenue growth in target markets, strengthen global and key account management, enhance the pipeline build and rebalance sales resources towards new business pursuits. Secondly, by improving our time to market for NPD, we shorten the lead time for NPD to deliver benchmark performance with tailored solutions to match the customer opportunity. Work is well underway to streamline processes, lift design capability and create a digital innovation center for our customers. The next priority is pricing transformation. We will review pricing architecture, build global and regional pricing capability and invest in dedicated tools. This will improve speed of responsiveness and ensure we capture full value for our premium products. For inventory management, we aim to materially reduce inventory through tighter customer supply chain integration, expanded vendor-managed inventory and optimized production planning, unlocking cash and improving service. Next, we will be targeting a reduction in SG&A. We'll automate more, simplify processes, remove cost and establish a shared services center. This will reduce central overheads and make Saverglass faster and more efficient. And finally, for operational efficiency, we'll build on the strong quality focus to embed productivity and lean methodologies within the operations. We will continue to deploy Industry 4.0 with the integration of digital technologies into manufacturing to make into manufacturing to make our plants smarter, more efficient and more automated. These 6 priorities give Saverglass a clear path to enable new business growth and the performance expected from the business. As part of this refocus on Saverglass key priorities, we have undertaken a corporate restructure, resulting in $ 7.8 million after-tax costs, which will deliver $ 6 million of annual EBIT savings from late FY '26. In relation to Le Havre F4, now that we've finalized the closure of the F4 furnace, there is an incremental after-tax cost of EUR 2.8 million. Importantly, we are confident in the annualized run rate benefit of EUR 9 million EBIT per annum with the full benefits to flow from February 2026. Turning to Slide 8. As mentioned, our Saverglass order intake has further strengthened. We've seen a solid uplift in demand through the first 7 months of FY '26 with order intake showing strong momentum compared to the prior corresponding period. Average monthly orders for the 7 months to January year-to-date are up 18% from the prior corresponding period, reflecting improved customer sentiment and a return to more normal ordering behavior. Consistent with our previous years, the first half was again skewed to spirits with the mix up approximately 4 percentage points versus the first half of last year. This was more evident in Q2 than Q1. For the second half of FY '26, we expect the seasonal skew to shift back towards premium wine and champagne in line with the Northern Hemisphere harvest. As always, timing of conversion from orders to sales can vary depending on customer lead times, which typically run between 4 and 6 months. On the right-hand side of the slide is an update of our inventory levels. The position remains well managed and aligned with the improvement we're seeing in orders. Sales volumes were up 2.6% for the first half with a total inventory level stable versus the prior period. Saverglass owned inventory increased slightly, which is consistent with a stronger order intake and expected sales into the second half. Importantly, customer-owned inventory has continued to trend down. At December 2025, customer-owned inventory was 18% lower than the prior year or 15% lower at January 2026, another sign that the destocking cycle is behind us. Overall, the combination of stronger orders, stable inventory and declining customer held stock gives us confidence in the momentum we're seeing as we head into the second half of FY '26. Now turning to Slide 9 and an update on Rocklea. Our Rocklea expansion continues to progress as planned and is a key part of building a more flexible and higher capacity Cans network. Construction of the new 375 million can line is well underway and remains on schedule for completion by the end of FY '26. with commissioning during the first half of FY '27. Once operational, it will lift network capacity by approximately 13%. The project remains on schedule and close to the original budget, with approximately $100 million spent to date and approximately $40 million to go in the second half. When complete, Rocklea will be central to our expanded network, supporting major Queensland customers and increasing resilience, flexibility and service. The total expansion program is expected to deliver more than $50 million of incremental EBIT once fully ramped up in addition to the 1% to 2% organic EBIT growth we expect per annum. As shown on the right, our broader Cans investments across Ballarat, Dandenong, Revesby and Rocklea totals approximately $360 million, generating an attractive 15% plus return and more than $50 million of annual EBIT. We have now spent 88% of the capital, but realized only 38% of the EBIT given the expected 3-year ramp-up cycle. This means we are entering a period of significant earnings and cash flow leverage for the Cans business. Once Rocklea is completed and fully commissioned, we'll have capacity to support approximately 5% annual volume growth without further major capital expansion until after 2030. And with that, I'll now cover an update for you on safety and sustainability. So I'll turn to Slide 11 and safety. Our global health and safety strategy continues to deliver strong results. Our recordable case frequency rate has declined again with fewer recordable injuries over the past 12 months, and we recorded no serious injuries or fatalities. Our lost time frequency rate is up for the first half of FY '26, with most injuries concentrated in a few glass sites, and our focus remains on driving these health and safety programs across the business to achieve a sustained improvement in lost time injury frequency rate. We strengthened incident management, governance and root cause analysis, helping us identify and address hazards earlier. The FY '26 to FY '28 safety strategy builds on our previous program and will further embed consistent global standards. Our safety leadership tours continue to demonstrate senior leadership commitment and reinforce our safety culture. The health, safety and well-being of our people remains fundamental, and we will keep driving improvements through our key targeted programs. Now turning to sustainability and our promise to the future on Slide 12. Orora has continued work towards achieving its climate change targets. At a group level, we are targeting a 40% -- sorry, 41% reduction in Scope 1 and Scope 2 greenhouse gas emissions by FY '35 from an FY '19 baseline. And for Scope 3 greenhouse gas emissions, a 31% reduction by FY '35. Scope 3 progress will be reported for the first time at the end of FY '26. Pleasingly, the Global Glass business is progressing towards its 68% recycled content target by FY '35, building on the 44% achieved in FY '25. The focus globally has been on sourcing more recycled color and improving energy efficiency. The new G3 oxygen furnace at Gawler is a positive contributor to energy reduction, and we are exploring areas such as the potential for biomethane to displace some natural gas usage. Similarly, in Cans, there's been a focus on examining ways to better measure and manage energy efficiency on site while focusing on closer management of aluminum flat sheet recycled content as we pursue higher recycled content levels. As a result, the Cans business continues to progress towards its target of a minimum of 80% recycled content by FY '30, building on the 78% already achieved in FY '25. I'll now hand you to Shaun to discuss the group and segment financial results. Shaun Hughes: Thanks, Brian, and good morning, everyone. I'm on Slide 14. I'll start with the group results before I cover the segment financial performance. This slide summarizes the group's underlying and statutory earnings result for the first half of FY '26. The numbers I will initially focus on are for the continuing operations, and they exclude significant items. Our statutory numbers are shown at the bottom of the page and further detail is included on Slide 30. I'm pleased to report that overall, we delivered a solid set of results, underpinned by EBITDA growth across all of our operating segments and strong operating cash flow performance. At a group level, revenue increased 9.7% to $1.13 billion, driven primarily by strong performance in Cans. Group EBITDA increased 14.4% to $218 million, reflecting broad-based growth across all divisions, including a strong contribution from Gawler, which was up $12 million. This also includes a currency benefit in our Saverglass reported numbers. Depreciation and amortization increased as expected, up 24.7% to $87.1 million, following the investment cycle in FY '25, including the G3 rebuild at Gawler and recent Cans growth investments. Net finance costs were lower at $26.7 million, reflecting the repayment of debt from the receipt of the OPS sales proceeds in December 2024, partially offset by the on-market buyback. NPAT before significant items increased 32% to $77.8 million, highlighting the strength of earnings and lower net finance costs. EPS pre-significant items was $0.062 per share, up 40.6%, reflecting the growth in NPAT and the benefit of the on-market share buyback. Statutory NPAT was $58.9 million and reflects the impact of the $18.9 million of after-tax significant items relating to the Saverglass restructuring costs that Brian covered in his presentation. Moving now to Orora Cans business on Slide 15. Cans revenue grew 18.6% to $442 million or 15% growth, excluding aluminum pass-through. This reflects strong customer demand with volume growth in the half of 11.2%, supported by new filling investments in Queensland with demand continuing to be driven by ongoing substrate shift and the growth of new categories. EBITDA increased 8.1% to $60.7 million. As previously flagged, the first half includes the allocation of $5 million of corporate overheads following the sale of OPS. Adjusted for this, EBITDA was up 17%, reflecting underlying earnings strength. EBIT increased 4.4% to $51.6 million with higher interstate freight costs and D&A tempering the growth in EBIT. Adjusting for the $ 5 million in corporate costs, EBIT increased 14.5%. Total CapEx was $ 62.8 million, and this will decrease in further periods as the Rocklea expansion concludes in late FY '26. Turning to Slide 16. Saverglass volumes were up 2.6% for the first half with the spirits mix growing versus the prior period. The growth was driven primarily by the tequila and vodka categories. Saverglass posted revenue of $ 298 million, down 2.6% versus the prior period. Pleasingly, EBITDA was up EUR 0.7 million or 0.9% to EUR 69.1 million, driven by a stronger spirits mix and ongoing cost containment measures. D&A was up year-on-year by $3.9 million as we cycle the one-off benefits in the prior period from the realignment of mold amortization policies. EBIT of EUR 34.9 million reflects this higher D&A compared to the prior period. CapEx was $ 11.8 million, and this includes mold sets and early works for the glum furnace rebuild of approximately EUR 1 million. Turning to Slide 17. Revenue for Gawler grew slightly, up 0.3% as contracted price increases offset softer beer and wine volumes. Volumes for the seasonally higher first half were marginally below internal expectations, reflecting ongoing market softness. Pleasingly, EBITDA and EBIT both grew strongly, up $12 million and $8.4 million, respectively. benefiting from the move to a 2-furnace operation and the completion of the G3 rebuild. Depreciation rose $3.7 million, reflecting completion of the G3 rebuild and oxygen plant. And post these investments, minimal CapEx will be required for Gawler going forward. Turning to Slide 18. The group delivered a strong cash result with a significant uplift in cash flow available to shareholders and strong cash realization, demonstrating disciplined working capital management. Now looking at the components of this cash result in more detail. Orora has delivered operating cash flow for continuing operations of $189.7 million, an increase of 51%, driven by higher cash EBITDA and lower base CapEx. A reduction in total working capital of $26.8 million improved cash flows, and this reflects a reduction in receivables, a modest increase in inventories, largely offset by higher Cans trade creditors as a result of higher aluminum prices and purchases to support increased production and sales. Base CapEx and growth CapEx were both down compared to the prior period, with growth CapEx of $57.8 million, largely relating to the final major Cans CapEx project at Rocklea of approximately $50 million. Net interest payments of $19.8 million were lower than the prior corresponding period, reflecting the receipt of funds in December 2024 following from the completion of the OPS sale, partially offset by 2025 calendar year buyback. The strong operating cash flow performance after CapEx, interest and tax has flowed through to free cash flow available to shareholders of $74.9 million, up $96 million compared to the prior period. This will further increase for FY '26 and beyond with only the Rocklea project remaining in our Cans CapEx program. With cash realization at 112% for the first half, this demonstrates our strong working capital discipline and highlights our commitment to cash management. Turning to Slide 19. Total CapEx was $90 million this half, down from $157 million in the prior period. This reflects the completion of our major projects in Gawler and Revesby. There is no change to our forecast FY '26 total CapEx of approximately $200 million, with base CapEx consistent with our long-term target range. Importantly, only the Rocklea Cans expansion for Queensland remains, and this will complete this financial year. Beyond FY '26, you can see that base CapEx will be $70 million to $95 million per year and the decarbonization CapEx for Saverglass will be $15 million to $25 million per year for a total of $85 million to $120 million per year. For clarity, there will continue to be some modest growth investment each year for productivity or new customer molds, for example, but these will bring new earnings as well. Consistent with our recent messaging, we are not expecting to add any new network capacity until the next decade. And importantly, any new addition in capacity will be clearly flagged and will be subject to our investment hurdles. D&A was $87 million for the half. D&A is expected to be in the range of $180 million to $185 million as newly commissioned projects are now included in base depreciation. Second half D&A will increase, reflecting the timing of commissioning of new projects. Saverglass depreciation is expected to be in the low $ 70 million range in FY '26. Slide 20 highlights Orora's strong balance sheet and net debt position, which is underpinned by strong liquidity of over $1.2 billion. As at the 31st of December, net debt was $386 million, with leverage at 0.9x net debt to EBITDA. The modest increase in net debt since 30 June reflects the impact of the buyback with just over $100 million invested in the buyback in the first half. This will increase in the second half as we continue to execute our new on-market buyback program announced today. Net finance costs in the first half were $26.7 million with no change to our FY '26 guidance of approximately $55 million to $60 million. This assumes that 10% of shares will be bought back on market within calendar 2026. That is we expect to complete a further 5% in the second half of FY '26, with the remainder of the 10% announced today expected to be completed in the first half of FY '27. As a reminder, our finance costs comprise more than just interest and include the following items: interest on our gross drawn debt at approximately 4.5%, ROU interest for leased assets of approximately $9 million and other items such as commitment fees payable for undrawn facilities and working capital financing. Turning to Slide 21. The Board has declared an interim dividend of $0.05 per share, representing a 79% payout ratio, which is within the target range of 60% to 80% of NPAT. The interim dividend is unfranked. As Brian mentioned, we announced a new on-market buyback today of up to 10% of issued shares or approximately $270 million. This will commence after the customary waiting periods of approximately 2 weeks. This follows the successful completion of the 2025 buyback program, where 110 million shares or 8% of shares on issue were purchased. I will now hand back to Brian. Brian Lowe: Thanks, Shaun. Turning to Slide 23. I'll cover our FY '26 perspectives in more detail. For Cans, the demand tailwinds are positive and customers have invested in new can filling capacity, which we have supported by our own capital investments. We expect volume growth to continue and be consistent with our long-term projected growth rates. In the second half of FY '26, we will be cycling a stronger prior period, which included one-off customer inventory builds. Even so, momentum in the underlying business remains strong. Our investments are now largely complete. Revesby Line 2 has added approximately 10% to our network capacity, supporting elevated Queensland multisize demand and the Rocklea expansion remains on track for commissioning during the first half of FY '27. We expect a one-off Cans raw material and finished goods inventory build of approximately $30 million in the second half of FY '26 to support increased growth in customer demand. For Saverglass, global spirits and wine volumes remain under pressure across most geographies, noting that the premium and premium plus segments remain more resilient. Pleasingly, our order intake continues to increase, up 18% for the first 7 months year-to-date for FY '26 compared to the prior corresponding period and customer-owned inventory levels continue to normalize. For the second half of this year, we expect to see the seasonal mix shift to wine and champagne in line with the Northern Hemisphere vintage. The new executive team led by Emmanuel is now in place and are focused on executing their key business priorities. We also expect the restructuring initiatives announced today to generate approximately $ 6 million of EBIT savings from late FY '26. For Gawler, the team continued to work through the volume and efficiency challenges associated with the transition from a 3 furnace to a 2-furnace model. Domestic and export wine demand remains challenging with a continuation of a substrate shift for beer to Cans. Surplus volumes will be serviced by RAK in the UAE. And while the first half was softer than expected with volume down in the seasonally stronger first half, the team remains focused on driving initiatives that will support delivery of the targeted $30 million of EBIT in FY '26. Turning to our outlook on Slide 24. The full year outlook for FY '26 remains largely unchanged. For Cans, we expect EBIT to be higher with volumes consistent with the long-term growth rates, which supports EBITDA growth. This EBITDA growth will be partially offset by the $5 million in corporate costs allocated to Cans in the first half of FY '26 and the additional depreciation following the completion of recent growth projects. For Saverglass, FY '26 EBIT is expected to be broadly in line with FY '25 at a euro level. We anticipate volume growth and the benefits from cost reduction initiatives that we've already implemented. These will support stronger EBITDA in the second half compared to the first. That uplift, however, will be moderated by higher depreciation. And for Gawler, our lower first half volumes means that our focus remains firmly on the initiatives that underpin delivery of the $30 million of EBIT in FY '26. At a group level, this results in EBITDA and cash flow growth for all businesses. This growth will be partially offset by the impact of the additional $7 million of corporate costs that were previously allocated to OPS now being absorbed by the remaining group, and with higher depreciation tempering the FY '26 EBIT growth. As always, this outlook remains subject to global and domestic economic conditions, currency fluctuations and no further changes in U.S. tariffs. But thank you, everybody, for listening. That concludes the presentation part of today's call. Operator, I'll now hand back to you, and you can open the line for questions. Operator: [Operator Instructions] And our first question today comes from Ramoun Lazar with Jefferies. Ramoun Lazar: Just a couple of quick questions from me. One on Saverglass. Maybe if you could just give us a bit more color on the volume performance there through the first half and the improvement in spirits mix as part of that volume growth. Just wondering, is that reflective of just the typical seasonal sort of cadence for spirits? Or is there an underlying sort of customer win rate or anything there that we should also be thinking about? Brian Lowe: There's a couple of pieces at play there. I mean, certainly, the spirits grew compared to the prior corresponding period. So that was positive for us. And we saw that across a range of key customers. So there is strength in our top customer group. And in fact, our top 20 customers that we have in Saverglass so the majority of those spirit customers all grew or that combined group grew a little more than our total growth at 2.6%. So that was primarily across the board. So we are seeing strength in our customer base, particularly in the premium segments that they're in and the brands that they carry. And what skewed the mix a little bit is we're actually slightly down period-on-period in wine, and that was more so in the second quarter where we have a large distributor in the U.S. and with their inventory levels they were holding, their orders were reduced in the second quarter, which was the main reason we saw a little lighter wine sales than we were expecting, and that also then had a mixed skew for us as well. Ramoun Lazar: Okay. Okay. Got you. And then I guess just a quick one on the restructuring within Saverglass. Are you expecting any cost benefits to drop in the '26 year? And is that part of your, I guess, guidance? Does the guidance assume there is some sort of cost benefit there in '26? Shaun Hughes: Yes. What we're -- so there's 2 parts to the restructuring. One is the original Le Havre structure, and we expect that to drop in from probably around February. So we're getting a little bit of that benefit now in January, and we'll expect most of that to drop in as a run rate benefit of $ 9 million from February. The second corporate restructure that we've announced today, that will really start to drop in only towards the very end of the second half. So we don't expect much of a contribution at all in the second half. Ramoun Lazar: Okay. Perfect. And then just on Rocklea very quickly. Are you able to give us a bit more color on once that's commissioned, how to think about the EBIT cadence through '27? Brian Lowe: Well, we're not going to give '27 guidance at this point. But certainly, we are investing in these capacity increases to support that ongoing growth, which has been strong. So again, if we don't add the capacity, we can't get the volume growth. So we would be restricted to quite minimal. And as we've guided, that sort of 1% to 2% underlying growth. So what we will get is the leverage from the capacity being in place in Queensland enabled or enabling continued volume growth. we're still working through what the freight impact will be this year. The team has done a really good job negotiating with customers to cover off a reasonable portion of those costs, but we should get some uplift from that into next year as well. But yes, we're not at this point giving FY '27 guidance. Operator: And our next question today comes from Jakob Cakarnis with Jarden Australia. Jakob Cakarnis: I just wanted to continue on from Ramoun's question, if I could, please, just on Saverglass. The first quarter trading update that you gave us at the AGM suggested that Saverglass volumes were in line with the prior year, and then you've just given us that they're up 6% in the first half. So that implies a second quarter acceleration of around 5.2% for volumes. Just wondering, just with the mix considering there and you're telling us it's going to shift back to wine and champagne, is there any reason why the total volume growth will reduce notwithstanding the mix headwinds, please? Brian Lowe: I mean you are correct. We had stronger growth in the second half -- second quarter than we were predicting, which was good, and a lot of that was driven by resilience in our top-tier part of our customer base. There's comments around mix in the second half, and that is primarily because that is the stronger wine season and vintage season. So we would see a natural skew towards more wine volume in that second half. I mean our full year guidance, just to be clear, does assume that we get volume growth for the year and that we're getting volume growth in the second half. And given that we've guided to a broadly in line EBIT number for the full year and our first half is actually behind the prior year. We need to be in front in the second half. So volume and cost reduction are the items that are going to support us getting full year in line. Jakob Cakarnis: Brian, that's where I was taking the question. Just one for Shaun. Just on those order intakes and the customer discussions, just wondering if you have any visibility at all what is potentially restocking in the supply chain or, I guess, some catch-up from the destocking of the prior 12 months or whether you're seeing a more fundamental stable sort of demand profile from customers, please? Shaun Hughes: I think -- I mean, it's obviously the question we've asked ourselves a lot as well. We don't think it's necessarily a restocking. You can see that in the order intake for -- sorry, in the FAD, the customer-owned inventory as that's sort of bottomed out, that's become the new normal. So we think that order really represents underlying demand. And as we look at the read through AC Nielsen data and some of the other activity, it seems to align with what we're seeing from the conversations we're having with our customers as well. Jakob Cakarnis: Okay. So with that considered, what are some of the pricing dynamics you and the current management team that have just landed in Saverglass thinking about as the go-forward position, please? Is it reducing some of that price mix headwind? Just give us a sense of what that might look like going forward, please? Brian Lowe: Yes. I mean the market dynamics and competitive nature, I would say, remains pretty strong. So there's no doubt that it's still a competitive environment. The amount of price impact on the business thus far has been quite minimal. I think it's probably 1-plus percent of negative price that we've seen in the period. So it's not substantial. So the team are doing a great job of holding price at existing customers. What we've seen in terms of where we're getting some volume growth, a bit of that is at lower price points. A good example would be in cognac, where historically, we would supply majority into XO, cognacs and above. What we've done to shore up some volume is go lower in that range of products down to VSOP and even looking at some VS volume, and they are at lower price points, albeit still good margin products for us, but they come with a lower price. So what Emmanuel and the team are looking at is particularly where we have ongoing business with existing large customers, should we be looking at price as an enabler for us to gain additional share of wallet with those customers. But the mantra is certainly not just dropping price for product's sake. Where we will look at it, it's where we're going to get an incremental gain out of it. Operator: And our next question today comes from Niraj Shah with Goldman Sachs. Niraj-Samip Shah: Just coming back to the Cans business, volumes up 11%, revenue ex pass-through up 15%. I might have expected a bit more operating leverage than 17% EBITDA growth ex corporate costs. What was the impact of freight in the half just gone? And are there any other sort of constraints on the sort of that margin expansion at the EBITDA level in the half? Brian Lowe: You're a hard task master, Niraj, 17% EBITDA growth on 11%, and that's underperforming in your view anyway, we might have a different view. We think that's pretty good leverage. But be that as it may, look, there's a little bit of freight impact in there as well. As we said, we're still working through that with a number of customers to have that push through to them. So we're not quantifying what the impact is/will be and may flow into FY '27 at this point. But we're certainly confident that as we continue to see volume growth with these new investments, we should be able to see EBITDA growth greater than our volume growth. And ultimately, we want to have EBIT growth above that as well. So even with a little bit of freight impost and additional D&A, which is stepping up considerably into that business, when we take out the allocation change, we exceeded the growth rate with EBIT that we did to volume. So we're pretty pleased that we're seeing what we expect to see from the business. Niraj-Samip Shah: Makes sense. And then secondly, just on Saverglass, do you have a sense of where your main customers are within their kind of NPD cycle? I imagine everyone is scrambling pretty hard to find any growth they can, pulling any levers they can. Brian Lowe: Yes. I mean our NPD pipeline remains quite buoyant in terms of number of projects. Emmanuel and the team are really looking deep into that, particularly with our major customers. We've got a key initiative to shorten the cycle time of NPD and prioritizing those where we can gain a much larger share of wallet, particularly with the majors. So there's active programs that we have with a lot of the major customers, which is great. But our results even in the first half show that the product lines that we supply to our major customers are actually quite resilient. I mean in the vast majority of cases, they were up for the half. So yes, they're fighting, let's say, macro across the category, but the specific premium segments in and the brands that they have are standing up really well. Operator: And our next question today comes from Sam Seow with Citi. Samuel Seow: Just quickly on Cans. As you think about the second half, I feel like to hit your profit growth expectations, the numbers you'll need implies a bit of profit growth on effectively flat volumes. So just wondering if you can kind of parse that out and help us understand where that incremental profit growth is coming from. Shaun Hughes: Well, I think at the end of the day, it's our assumption around volume. We are cycling a very strong second half in the prior period. So we're probably not going to say much more than the EBIT guidance that we've given at this point. But you would expect naturally those volumes to come back down towards our normal long-term growth rates of somewhere between 4% and 6% in the full year. Samuel Seow: Okay. Got it. And then maybe just the working capital build, that $30 million. Could you perhaps help us frame that up what percentage of COGS or inventory that looks like exactly or provide any relativity what that $30 million looks like? Shaun Hughes: Yes. There's a couple of things that are really playing out. It's both finished goods and it's also raw materials. So as we bring online these new Cans plants, we need to hold a number of different grades of aluminum. And so as we bring online each of these plants, we need to make sure that we've got the right grades across all of those plants. So we'll make that investment in this period. And then secondly, over quite a number of years now, we've been running down our finished goods inventory below what we would consider acceptable levels of safety stock. And so what we wanted to do in calling this out was to be clear that in the second half, there would be a small investment in Cans to support that. We'll still expect to be well within our normal long-term target cash conversion ratios, but we will be slightly below what we currently generated, which was circa 112% cash conversion in the first half. Brian Lowe: Yes. Yes. And just to add to that, I mean, just a reminder, the aluminum supply is all outside of Australia. So it's fairly long lead times on those products. So having adequate safety stock of, as Shaun said, the right grades now because each can configuration in the majority of cases requires a different grade and therefore, different coil stock of aluminum. So that has certainly increasing complexity. So we need to make sure we've got that balance right and ensuring that we have adequate safety stock, you can look at obviously what the revenue is for Cans on an annualized basis and then look at this investment. It's not massive relative to the additional inventory it's adding. Operator: And our next question comes from John Purtell with Macquarie. John Purtell: Just had a couple of questions on Gawler to start and then one more after that, if I can. So just on Gawler. So obviously, one of your major customers, TWE, has announced a significant inventory adjustment process. What impact do you expect that to have on Gawler going forward? And then the second part, you've obviously mentioned the 31% energy reduction there, which is better than expected. So presumably, that's flowing through to lower costs, which is helping to offset the weaker volumes. Brian Lowe: Correct. So your last statement is very correct, John. Thank you. So yes, the lower cost, the team are really doing a good job of managing that and G3 is humming along really nicely. So we're very happy with that. Look, I mean, we're continuing to work with our key customers on what those forward demands look like. And for us, look, we've got considerable volume, as you know, in the pipeline and in our demand profile relative to what we make at Gawler. So we have that flexibility to keep the furnaces full. And that's the primary thing that will drive the earnings level. So if we do have some customers that do a bit of a reset that's a reset, so it's not a permanent decline, we can flex through that relative to what we import versus what we make. So we're still confident that this new model puts us in a pretty good position. John Purtell: And just the second aspect around your Cans business there. I mean how quickly do you expect Rocklea to ramp up to full capacity? I think it's been around a 12- to 18-month ramp-up for your other plants. Brian Lowe: Probably a bit longer because if you think that Revesby Line 2, which only came on last year, is not -- our network is not completely full at this point. So that's been beneficial. And Rocky adds 13% network capacity. So which is why we've modeled we can pretty much keep growing at 5% per annum through to 2030 at this point, and that's really how we're assessing the capacity. John Purtell: Got you. And just one more quick one, if I may. Just regarding the corporate restructuring costs for Saverglass. Do those costs relate to headcount reduction primarily that you've called out? And in terms of the $ 6 million of benefits, is that all cost out? Is there any revenue benefit in there? Shaun Hughes: It's all cost out, John, and it all relates to headcount. Operator: And our next question today comes from Brook Campbell-Crawford with Barrenjoey. Brook Campbell-Crawford: Just 2 for me. Firstly, on the Saverglass guidance. I guess in euro terms, the guidance seems to suggest the second half EBIT in euros will be pretty flat year-over-year before restructuring benefits from Le Havre. So just keen to understand why that would be the case given you've had orders up 18% in the first half and there's a 4- to 6-month lag and there's an improvement in the mix in those orders as well. So maybe just a bit of commentary around that would be helpful to start with. Shaun Hughes: I might make a couple of comments, and Brian might want to add something as well. Look, in terms of the forecast, what we're forecasting at an EBIT level is that the Saverglass in euros will be flat, as you rightly said. That implies that we need to recover the underperformance, if you will, relative to last year's number in the first half in the second half. And we are confident that the balance of the volumes growth assumptions together with the cost out will flow through to make that real. The other thing to remember is that there's also that depreciation movement as well. When you look at the second half needs to come up slightly off the first half, just given the timing of some of the capital investments. Brian Lowe: Yes. And just to add to that, I mean, we are -- yes, we are expecting volume growth period-on-period. But we also still have seen overall a negative revenue impact relative to that. So part of that's been on a little bit of price. So that does cost us a little bit and a little bit of negative mix still, and that's even negative mix within category. The example I gave before about cognac, where if you look at cognac volume in total, we might be pretty steady. But the mix within that, if we're supplying some of the lower-end products, they are at lower price/lower margin. So there are those negative impacts that we're offsetting with the cost reductions. And obviously, things like the restructuring from Le Havre are helping in the second half. There's no doubt about that. Brook Campbell-Crawford: That's really helpful. And just a second question around listen, a small one, but the other income line looked to increase $5 million year-over-year. It was $6.9 million in the half. Just want to check if that kind of flowed through your underlying earnings that's presented. And if so, kind of what's boosting that? I just want to check there was nothing kind of one-off helping the underlying result. Shaun Hughes: No, it's probably just the timing of some of the cash that we've held as we -- if you recall, we received the OPS cash receipts. We did carry some excess cash through the period. So it's mostly as a result of that. And it is in the underlying number for clarity. Operator: And our next question comes from Keith Chau at MST Marquee. Keith Chau: First question, just on the order intake volumes. I think this has been discussed in prior forums before. But that order intake volume growth, that was pretty strong leading into the end of FY '25. I think order intake volumes were up 1% in the 6 months to June, and that's subsequently increased another 18%, but the volume growth observed in the period was only plus 2.6%. So given the 4- to 6-month lag, can you help me understand what the differential is between your volume performance and your order intake or whether there's a cancellation rate metric that we should be thinking about as well? Because ultimately, as the volume growth is positive and those order intake volumes are represented, we should actually be getting well into the double-digit growth for volumes. So if we can have some color around that, that would be great. Brian Lowe: Yes. Look, I mean, the dropout rate of orders is actually quite low. So there's not that. I mean there is quite a bit of variance in terms of the offtake. So that's both in terms of the timing of when customers -- when they place the order when they tell us they actually want it and then when they actually take it. So even though we make it at a specific time, then what may be negotiated in terms of final offtake and when it goes into either the customer own inventory or they buy it can vary considerably. So we have seen quite a lot of variance in that. So it's not a direct translation. And certainly, our intention with providing the order book is really to provide a directional view of what we see rather than it be a specific calculation for people to draw and say it's up by X percent, which we've shown the percentage, but that, that correlates to exactly what we should be seeing. But if it continues to hold close to double-digit increase levels, then I would agree with you, when those orders do flow through, and that can vary, we should start to see volume sales at those sort of levels. But we -- there's a lot that moves within that. Keith Chau: Okay. So I guess using those order intake volumes for direction, that's one -- could we call it a small component of the variables that goes into your final production numbers or sales numbers? Because it does sound like that you have some orders might be seeded on the other side of that, whether that's contracts ending, not renewed or other contract variations that whether the intake numbers don't tell the full story. Brian Lowe: Well, the orders are orders. So if you're in there, but there's different orders in there, right? There's made to order, there's products that come out of stock, and there's varying time frames from when they get taken. So I think that directionally, the order intake is -- should be representative of what we would expect to see over time. But I guess what we'd caution on is to look at it directionally rather than quantitatively. Keith Chau: Okay. I appreciate that, Brian. And then secondly, with respect to the revenues being down 2.6% for Saverglass volumes up 2.6%. The effective price mix should be down, but there's chatter about disclosure about spirits mix growing versus 1H '25. So the remaining influence is that price impact for wine Champagne and cognac must have been quite significant to the downside. Can you give us a bit more color around that movement, please? Brian Lowe: Well, if you look at the delta from revenue -- sorry, from volume to revenue, there was more than a percentage point is FX translation from areas like the U.S. sales that then translate back to euro in the period. So then you're probably circa 4%, and we probably had 1% and a bit of price that's true price in there. And that leaves us 2 and a bit percent of mix, which we think stacks up and the analysis the team have done stacks up that that's within product line mix rather than across wine to spirits because wine to spirits is one assessment. But certainly, within category, we're comfortable that, yes, there's been volume that the teams have been pursuing and rightly so that some of that is at a lower price point or a lower margin point than what the average had been. Operator: And our next question today comes from Cameron McDonald at E&P. Cameron McDonald: Just wanted to touch on Gawler again. You've said that it was below your internal expectations, but you've maintained that for the first half, but you maintained full year guidance. So what would you normally expect given you've restructured it? We don't have a great view on what the first half, second half SKUs would normally be. But given you've got a greater first half skew in this half relative to the full year guidance, but you've underperformed, that sort of implies you've got to outperform in the second half. So what exactly would that be outperforming by relative to your expectations, please? Brian Lowe: Yes. Look, we're not a long way off the first half. Volume is probably down a couple of percent from where we would have expected it to be. I mean, traditionally, for Gawler, we'd be looking at 55-45 roughly split of volume half-to-half, first half weighted, maybe a touch more. So being under a little bit in the first half means we've got a little bit of ground to make up in the second half. So a lot of what the team are focused on is really around cost as well. Can we drive some more volume in the second half? What do those opportunities look like, but also really going hard after the cost lines because we set targets and we have multiple levers that we can use to try and achieve them. We just wanted to be transparent that from a volume expectation perspective, we were slightly off where we thought we should be landing in the first half. Cameron McDonald: Okay. Great. And then just in terms -- and you've mentioned the currency and the guidance is maintaining currency in euro terms for Saverglass. Obviously, then it has to be reported in Aussie, but you've also highlighted the euro-U.S. Is there any -- are there any levers you've got that you can mitigate some of that currency movement? And what are you -- in terms of what you're thinking at the moment or planning for the business, what sort of currency assumption are you making from a management perspective? Shaun Hughes: So there's a lot in that, Cam. So the first thing we try to do is from a balance sheet perspective, we try to align the underlying earnings with our borrowings. So that gives us a natural hedge. In terms of specific transactions, we hedge individual transactions to make sure that we align our customer contracts with our underlying cost of production. But fundamentally, long-term shifts in any currency, you can't hedge out of. So what we do is we make sure we've got coverage over the short-term volatility and particularly align cost of production with customer contracts and then use the balance sheet effectively to give ourselves a more natural hedge. Cameron McDonald: Okay. And final one from me. You're starting to see some of the larger beverage companies talk about discounting to help drive volume, which we've sort of touched on a little bit. At what point do they come back to you and ask you to contribute as part of that? Or is it just purely that discussion earlier where you sort of said, well, as long as it's increased wallet share? Or is there a point in which they just can't give you more wallet share? Brian Lowe: Again, a few questions in there. Look, from a discounting standpoint for them to drive sales, I mean, generally, that's a marketing tool that B2C companies use. So I mean that's normally part of their own arsenal. Given that our product may only represent 3% to 5% or 6% of their total retail price, it's having virtually no impact on whether or not they're able to give price because they're talking about a lot more percentage points than that. So that's not where the pressure comes in. It's really just when they look at their medium- to long-term profitability, those discussions always happen, right? And they've happened in every part of our business and continue to that they're always looking for ways that we can support them from a lower cost of goods perspective. But we don't have to support them when they're doing discounting work as such because, yes, that's just not normally the way it would work. Cameron McDonald: Okay. Sorry. And just an extension to that, are you seeing any activity around seasonal promotions or anything like that, that potentially change some of the packaging demands? Brian Lowe: No. I mean we're certainly seeing a number of the major brand owners who have been putting a lot of work and money behind promoting their brands globally, and we think that would continue. I don't think it makes much difference in terms of that flow-through impact to us. A number of the items we have in our NPD pipeline are also where customers want to look at either some rebranding or some differentiation. So that's ongoing as well. I wouldn't say we've seen necessarily a major increase in that. Operator: And our next question today comes from Lee Power at JPMorgan. Lee Power: Just your comments around Saver glass volumes in the 2H and the skew to wine and champagne. I think last time at the results, you talked about winning share in particularly the champagne category. Can you just maybe give us an idea of how that's progressing? And I guess how much of the 2H volume kind of story is share versus your assumption around market recovery? Brian Lowe: Well, we're not relying on market recovery, and that's pretty clear. So when we look at the pipeline of business and Emmanuel does this in excruciating detail with his sales teams is where is our core business likely to sit and where is the new business that's coming in adding to that. And certainly, the focus on wine and champagne, which has been there for a little while now. We are seeing the benefit of that in some of our forward-looking orders and forward-looking projection rather than relying on existing customers buying more than they did in the prior period. Lee Power: Okay. That makes sense. And then I mean, USMCA, it's obviously hard, but it feels like the media reports are ramping up. There's a bunch of stuff out this morning around Trump quitting USMCA. Are your customer base trying to do anything to kind of prepare for changes around it? Like how do they kind of try and prevent a one-off shock if something happens? Brian Lowe: Well, we've been for really since the first foray of tariffs was flagged many months ago, been working with our customers on what some contingency plans could look like for them depending on different scenarios. So a lot of that work has been done in terms of where could we supply product from to them, whether it's today out of Mexico, whether it's out of the UAE or elsewhere depending on what those tariffs look like. So yes, there have been ongoing discussions. There's not new discussions because the threat of that was there really from day 1 when Trump talked about tariffs. Lee Power: Okay. That makes sense. And then just a final one, following on from Cam's question. Like obviously, there's kind of a lot of moving parts in your answer around the FX piece. Like do the sensitivities, if we use the sensitivities in your FY '25 results, is that kind of somewhat useful? Or is it just kind of moving around too much that we can't rely on them? Shaun Hughes: Sorry, we didn't quite catch that. There's a lot of sensitivities around and the line broke up. Lee Power: Your answer to Cam's question around FX, there is obviously a lot of moving parts in your answer around FX. So I guess what I was asking is, can we apply the sensitivity that you give us in the FY '25 annual? Does that broadly still hold? Or is it just too many moving parts with around hedging, so it doesn't hold anymore? Shaun Hughes: No, I think you can apply that. I mean I think you can apply that in any sort of reasonable time frame. I think that sort of makes sense. Operator: And our next question comes from Mark Wilson at RBC. Mark Wilson: Look, just on D&A, your full year guidance implies that there is a step-up in the second half. Just wondering what divisions that will impact? And does that effectively provide a new base for fiscal '27 from which we should add depreciation for the Rocklea expansion? Brian Lowe: Yes, it does. So there's 2 bits to that. So firstly, the second half does imply a step up. There's a little bit in Saverglass. Most of it is in Cans and in Gawler just in terms of the timing of the Cans Helio and the Queensland plant, et cetera, flowing through. And then there will be a step-up on a part to full year basis for Rocklea as we then get into having a full 12 months of depreciation for that in FY '27. And so the life of that asset is 30 years on roughly $140 million build. Operator: There are no further questions at this time. I'll now hand back to Mr. Lowe for closing remarks. Brian Lowe: Great. Thank you all for your questions, and look forward to any follow-ups you have. Thanks for your time today. Operator: Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to Hua Hong Semiconductor Fourth Quarter 2025 Earnings Conference Call. Today's call is hosted by Dr. Peng Bai, Chairman and President; and Mr. Daniel Wang, Executive Vice President and Chief Financial Officer. [Operator Instructions] The earnings press release and fourth quarter 2025 summary slides are available to download at our company's website, www.huahonggrace.com. Without further ado, I would like to introduce you to Mr. Daniel Wang, Executive Vice President and Chief Financial Officer. Thank you. Please go ahead. Yu-Cheng Wang: Good afternoon, everyone. Thank you for joining our Q4 2025 earnings conference. Today, we will first have Dr. Peng Bai, our Chairman and President, provide an overview of our fourth quarter and full year performance. I'll then take you through our financial results in detail and offer guidance for the upcoming quarter. We'll then open the floor for a Q&A session. With that, I turn the call over to Dr. Bai. Bai Peng: Thank you, Daniel. Good afternoon, everyone. Thank you for joining our earnings call. Fourth quarter 2025 sale revenue for Hua Hong Semiconductor reached an all-time high of USD 659.9 million with a gross margin of 13% for the quarter, both in line with our guidance. For the full year of 2025, the company reported sales revenue of USD 2.4 billion and a gross margin of 11.8%, both achieving year-on-year growth and meeting management expectations. Against the backdrop of the global semiconductor market being driven by demand for AI and related products, coupled with the recovery in consumer demand led by the domestic market, the company maintained full capacity operations throughout the year at an average capacity utilization rate of 106% which ranked among the leading levels in the foundry industry. By optimizing product mix, reducing costs, and improving operational efficiency, we achieved strong performance across various specialty technology platforms, especially in stand-alone NVM and the power management area, effectively supporting the company's revenue growth and margin expansion. In 2025, the company continued to advance its strategic plan for capacity expansion. The first phase of capacity construction for the second 12-inch production line in Wuxi, we call Fab9, exceeded expectations for completion. And the Shanghai 12-inch manufacturing base, Fab5 acquisition progressed as planned. Looking ahead, the company will maintain a strong focus on developing world-class specialty technology platforms with innovation and through rapid generational iteration while deepening collaborations with strategic customers, both domestically and internationally. We remain confident in our ability to seize growth opportunities amid changes in the global semiconductor industry and are striving to meet shareholders' long-term expectations. Now I would like to hand the call over to our CFO, Mr. Daniel Wang, for his comments. Yu-Cheng Wang: Thank you, Dr. Bai, for your inspiring comments. Now let me walk you through a summary of our financial performance for the fourth quarter, followed by a recap of our full year 2025 results. I then provide our revenue and margin outlook for Q1 2026 before opening the floor for the Q&A session. Now first, let us review our financial results for the fourth quarter. Revenue reached another all-time high of $659.9 million, 22.4% over Q4 2024 and -- Q4 2025 (sic) [ Q4 2024 ] and 3.9% over Q3 2025, primarily driven by increased wafer shipments and improved average selling price. Gross margin was 13%, 1.6 percentage points over Q4 2024, primarily driven by improved average selling price and cost reduction efforts and a 0.5 percentage point dip from Q3 2025, primarily due to increased labor costs. Operating expenses were $130.2 million, 17.7% over Q4 2024, primarily due to increased labor costs and the depreciation expenses and 29.6% over Q3 2025, mainly due to increased labor costs. Other income net was $34.1 million compared to other loss net of USD 40.5 million in Q4 2024, primarily due to foreign exchange gains versus foreign exchange losses in Q4 2024, decreased finance costs and increased government subsidies. It was 92.1% over Q3 2025, mainly due to decreased finance costs. Income tax expense was $8.1 million, 22.3% higher than Q4 2024, primarily due to increased taxable income. Net loss for the period was $18.7 million, narrowed by 80.6% compared to Q4 2024 and the widening of 159.9% (sic) [ 159.5% ] in loss from Q3 2025. Net profit attributable to shareholders of the parent company was $17.5 million compared to a loss of $25.2 million in Q4 2024, and a profit of $25.7 million in Q3 2025. Basic earnings per share was $0.01. Annualized ROE was 1.2%. Now let's take a closer look at our Q4 2025 revenue performance. From geographical perspective, revenue from China was $539.3 million, contributing 81.8% of total revenue, and an increase of 19.6% compared to Q4 2024, mainly driven by increased demand for power management IC, MCU, flash and CIS products. Revenue from North America was $72.8 million, an increase of 51.3% compared to Q2 (sic) [ Q4 ] 2024, mainly driven by increased demand for power management IC and MCU products. Revenue from other -- Asia was $28.4 million, an increase of 9.1% compared to Q4 2024. Revenue from Europe was $19.3 billion (sic) [ $19.3 million ], an increase of 35.6% compared to Q4 2024, mainly driven by increased demand for MCU and IGBT products. With respect to technology platforms, revenue from embedded non-volatile memory was $180.2 million, an increase of 31.3% compared to Q4 2024 mainly driven by increased demand for MCU and the smart card ICs. Revenue from stand-alone non-volatile memory was $56.6 million, an increase of 22.9% compared to Q4 2024 mainly driven by increased demand for flash products. Revenue from power discrete was $168.9 million, an increase of 2.4% compared to Q4 2024, mainly driven by increased demand for general MOSFET products. Revenue from logic and RF was $80.4 million, an increase of 19.2% over Q4 2024, mainly driven by increased demand for CIS products. Revenue from analog and power management IC was $173.8 million, an increase of 40.7% over Q4 2024, mainly driven by increased demand for other power management IC products. Now turning to our cash flow statement. Net cash flows generated from operating activities was $246 million, 29.5% lower than Q4 2024 mainly due to increased payment for suppliers and the increased receipts of government subsidies, partially offset by increased receipts from customers. It was 33.6% over Q3 2025, largely driven by increased receipts of government subsidies. Capital expenditures were $633.5 million in Q4 2025, including $559 million for Hua Hong 12-inch and $74.5 million for Hua Hong 8-inch. Other cash flow generated from investing activities was $61.7 million in Q4 2024, including $36.6 million receipts of government grants of equipment, $13.6 million interest income and $1.2 million receipts of disposal of equipment, partially offset by $3.6 million investment in the equity instrument. Net cash flows generated from financing activities was $1.3611 billion, including $919 million proceeds from bank borrowings, $594.6 million from other financing activities, $12.1 million receipts of government grants for finance costs and $4.7 million proceeds from share option exercises, partially offset by $136.1 million of bank principal repayments, $32.8 million interest payments and $0.4 million lease payments. Now let's move to the balance sheet. Cash and cash equivalents was $4.961 billion on December 31, 2025, compared to $3.9047 billion on September 30, 2025. Other current assets increased from $739.7 million on September 30, 2025, to $787 million on December 31, 2025, mainly due to increased value-added tax credit. Property, plant and equipment was $6.6764 billion on December 31, 2025, compared to $6.162 billion on December 30, 2025, primarily due to capacity expansion in Hua Hong manufacturing. Equipment instruments designated at fair value through other comprehensive income increased from $381.3 million on September 30, 2025 to $478.8 million on December 30, 2025, primarily due to fair value gains recognizing equity instruments. Interest-bearing bank borrowings increased from $2.3975 billion on September 30, 2025, to $3.1908 billion on December 30, 2025, primarily due to increased drawdowns on bank borrowings. Total assets increased from $12.5117 billion on September 30, 2025 to $14.4538 billion on December 31, 2025. Total liabilities increased to $5.2895 billion on December 31, 2025, from $3.5026 billion on September 30, 2025. Debt ratio increased to 36.6% on December 31, 2025, from 28% on September 30, 2025. Here is a recap of 2025. Revenue was $2.4021 billion, a growth of 19.9% over the prior year, primarily driven by increased wafer shipments. Gross margin was 11.8%, 1.6 percentage points over 2024, primarily driven by improved average selling price and cost reduction efforts, partially offset by higher depreciation costs. Operating expenses were $425.6 million, 7.9% (sic) [ 17.9% ] over 2024, largely attributable to increased research and development expenses. Other income net was $54.2 million, 146.4% above 2024, primarily due to decreased finance costs and foreign exchange losses and increased government subsidies, partially offset by decreased interest income. Loss for the year was $110.8 million, narrowed by 21.1% compared to 2024. Net profit attributable to shareholders of the parent company was $54 million, 5.6% dip from 2024. Basic earnings per share was $0.032. ROE was 0.9%. Finally, let's discuss our outlook for the first quarter of 2026. We expect revenue to be in the range of $650 million to $660 million with a projected gross margin of 13% to 15%. This concludes my financial remarks. We'll now begin the Q&A session. Operator, please assist. Thank you. Operator: [Operator Instructions] The first question comes from the line of Leping Huang from Huatai Securities. Leping Huang: Dr. Bai, congratulations for the robust results and the successful acquisition of Huali. So beyond the contribution to Hua Hong's revenue and profit, could you elaborate the strategic resource Hua Hong got through this acquisition? And what's your plan to leverage this resource to accelerate Hua Hong's future growth? Bai Peng: Thank you. First, basically, we acquired Fab5, what we call Fab5 within the Hua Hong system, is a 12-inch fab. It has 55-nanometer, 40-nanometer based specialty technology, quite a bit of the technology platform have overlap with what we already have at HHGrace in Wuxi. I think we look at the acquisition from the following points. We think that that's going to be favorable to our long-term growth. One is that we certainly grow the scale of our company. Through this acquisition, we added about 40,000 capacity, that's already in production with existing customers with -- the scale is one factor. Another one is with Fab5 joining HHGrace, we can do a better job optimizing the distribution of our different specialty technologies across all the capacity, all the manufacturing capacity. This will show up in higher efficiency for our TD activity, should also show up in higher efficiency and lower cost for our entire manufacturing base. So basically, we view this as definitely a strategic acquisition, will accelerate our growth both in terms of revenue and as well as our ability to -- profitability, ability to be more profitable. Thank you. Leping Huang: Okay. My second question is about the -- I want to -- about the supply-demand relation of the 8-inch and 12-inch mature fab business this year. So we noticed some foundry, including the largest one, just recently announced to exit some 8-inch business or sell their -- some 12-inch fab to the memory makers. So what's your view on this supply demand balance of the 8-inch and the 12-inch business globally this year? And what's your impact -- what's the impact on your ASP? So I also noticed that there are some reports that you have some price adjustments in the end of last December. So what's your view of this ASP trend of Hua Hong this year? Bai Peng: Okay. We also noticed some of the reports talking about some of our foundry competitors might be selling some of the capacity to other people. If you look -- if they just change the ownership from one company to another without actually reducing the capacity, then it doesn't really change the supply/demand situation too much. With respect to some of the logic capacity moving to memory because the memory certainly is in high demand nowadays. That certainly will reduce the supply in the logic side. But overall, it's a positive thing for us because we are mostly in the logic foundry business, although we do have some flash memory business as well. But overall, that would be a positive sign. I think overall, because of the AI-driven growth in the overall semiconductor market, we think -- we view that as overall positive. It might show up differently in different market segments. It might show up differently in different technology platform we have our capacity in or our product in. But overall, we view that as a positive development for us. In that context, if the supply gets tighter, it does give us more opportunity to increase prices. We have been doing that over the course of last year. Surgically, it's not across board increase by any means. But surgically for some certain area where we think that we can really meet the supply, so we take the opportunity to move up the prices a little bit, that also show up in -- some of them already show up in 2025 results. And we expect that in 2026, we might still have some room to go (sic) [ grow ], especially on the 12-inch side. 8-inch, the supply/demand is more in balance compared to the 12-inch. So even if we try to -- we would like to increase prices as well in 8-inch, but our room probably is going to be limited. But overall, we do -- we are cautiously optimistic that we might be able to do something in that area as well. Thank you. Operator: Our next question comes from the line of Ziyuan Wang of Citic Securities. Ziyuan Wang: Firstly, I would like to wish you all a Happy Chinese New Year. [Foreign Language] I have 2 questions. And the first one is, as we can see this quarter, the capacity utilization rate declined slightly. And what are the reasons for that? Are there any uneven or unbalance on the different platforms? And can our capacity be reallocated between different platforms quickly? That's my first question. Bai Peng: The change is fairly small. It's probably almost a calculating error. But I think the main reason is Fab9 will rapidly bring the capacity online. There's always a little bit of lag between how fast they get the equipment installed and get the capacity online versus when you have the loadings and the order for that capacity. So there's always -- as you -- that's a typical case in a ramping fab that especially when you ramp very fast, there is a bit of a lag between the capacity. And because the loading is based on what's the capacity brought online, so that's the reason there's like a couple of percent decrease. Ziyuan Wang: Got it. That's very clear. And my second question is about our future performance drivers on the demand side. How much of driver will the AI-related product be for the company's future revenue growth? And also, as we see the localization trend, do you think any -- which kind of product categories will be the most significant boost by the localization? And could you provide a ranking or list -- priority list for these products? Bai Peng: It's actually -- this is a complex question. Let me try to kind of see whether I can answer very clearly. I think if you look at from end market standpoint of view, clearly, AI-related products are increasing fast. What does it mean for us is that AI-related product actually cut across quite a few of our technology platform. For example, the AI-related products in power management area is growing fast, is increasing. MCU, not so much, but there's also a little bit of impact. And power -- discrete power devices also have some impact. But the power management is one area we clearly see strong growth related to AI. So in that regard, if you stay at this end market dimension, is now AI is one growth area. Other areas like autonomous driving, automotive, the car related, all the new robots is also growing, all the green energy-related end market also show growth. All those end markets, the growth area do cut across -- in somewhat a complex manner, cut across different technology platform. So if I look at our technology platform in that different -- in that dimension, if you just look at our 2025 results, you already see that the two biggest growth area is power management and MCUs. So we -- and those 2 areas and plus in addition to the discrete power devices, constitute the 3 largest technology platform that we have from the revenue standpoint of view. So going forward, I expect the power management area, the BCD platform we have, will continue strong growth. MCU, where Hua Hong HHGrace has a great advantage, has a great competitiveness, very competitive in this area, is also going to be an area that it's going to grow fast. And there, I will just take this opportunity to do some marketing. We also have new technology problem in 55-nanometer and 45-nanometer all coming on strong. So that should be also a strong growth there. In the end, I think if you look at our distribution, our revenue distribution, I will still continue to see MCU, probably one of the biggest power management segment, discrete power devices probably going to -- we'll be more stable. Growth is not as fast, but it will remain #3. The other 2 in terms of logic and RF, we like that to grow a little bit faster. And stand-alone, we actually -- stand-alone memory will also I think will grow reasonably fast. Some of the memory shortages mostly in DRAM, it's probably going to have some spill over into -- we probably already spilled over into the NAND memory area, but I think it's going to fill a little bit over to the NOR flash area, so that we should also benefit. So that's how I view the market going forward. Ziyuan Wang: Okay. Can I add a little question on that? How -- Dr. Bai, how do you view the sustainability of this current memory cycle? And is there -- what's the impact on Hua Hong and what kind of measures will we take? Bai Peng: That's a good question. If you look at historical pattern, memory tends to go through boom and bust cycle. Although this time around, a lot of people think because AI is a different beast, that maybe this cyclical nature of the memory market will be a little bit different. I don't have crystal ball. I do believe that eventually, it will be going to a cycle. Maybe this time, the boom cycle will last longer. It probably will heavily depend on how the AI -- is mostly driven by AI, this latest cycle, AI, how long this cycle is going to last. But I think in the near future, certainly for 2026, there's no sign that's going to slow down. Maybe in year 2 or 3 that if you go by historical pattern, it should start to come down somewhat. I should add that right now because of the AI-related area driven up DRAM prices so much, it does have a little bit of a depressing effect on the consumer market because a lot of the consumer product probably can't afford this high DRAM prices. Therefore, they might push out their product refreshment cycle a little bit. So that might -- will come across as a negative for some of our product as well. But overall, I think the growth area still outweigh the area that's going to be somewhat impacted -- negatively impacted by this super memory cycle that we seem to be in the middle. Operator: [Operator Instructions] Our next question comes from [indiscernible] from [ Guosen ] Securities. Unknown Analyst: [Foreign Language] I have 2 questions. The first question is about the price. So considering the rising cost of the raw material, we also can see some products such as power device raise the price, but the demand just now, Dr. Bai mentioned, is structural. So how do you see the sustainability of the price hike? So this is the first question. Bai Peng: Okay. In terms of raw material, by the time they get to us in the fab, we call that direct material or indirect material, we do see a few areas where the raw material prices start to show up in the semiconductor materials that we use. I'm trying to think like a copper is probably one area that will add a little bit of a cost to the copper cable, should we happens to be building a fab, which is where we are. We do see that. And we also see some of the other -- some other raw material increases affecting a little bit of our -- the material we buy. But I would say, by and large, I do not see this as a significant factor for our cost structure. There's going to be some places that -- there's going to be increases, and there's also going to be some decreases. And overall, I do not think it's going to be a significant increase. Another factor is that we -- over time, we use more and more domestically produced materials. And in general, their costs are better. So overall, I don't think we're going to be looking at the situation, the material will be a cost increase for us going forward. Unknown Analyst: Very clear. And my another question is about the utilization. Since we are in good position, but some 12-inch foundries are not yet at full utilization. So how do you see the cycle? So can you give us a little bit of your perspective? So where are we today? And is that possible maybe there is some potential order shift of our customers maybe after we increase the price? Bai Peng: Yes. So the fab utilization are affected by a few factors. There are 2, probably one is how competitive is your technology offering. That includes how -- whether you have a complete offering of the solutions to the customer for what a customer needs. That's one factor. Another one, of course, is pricing. If you price too high your utilization, you will lose customer on one hand. On the other hand, you can -- there's always -- if you use -- if the prices, you are willing to go down the prices, it does tends to increase your loading. So for those 2 factors, for example, on technology front, HHGrace is well positioned. We are a premier foundry in China. And lot of our technology platform, I would say we are probably #1 domestically and very competitive even internationally, not all of them, but some of them so clearly. So especially in this specialty technology area, which Hua Hong has -- HHGrace has been working on for the last 3 decades almost. That's one factor. Another factor is that some of our international customers, especially the European ones, and now we start to see American company as well that have this China for China strategy, that they try to move some of their product that originally were manufacturing overseas to be manufactured inside China. So that's another factor that will help our loading. When those companies looking for a partner in China, they clearly want to have somebody who is technology-wise is in a good position as well as they want a more stable company, the bigger company. So we are usually being viewed as a first choice many times -- many, many -- in many cases, we're the first choice for their Chinese -- as their Chinese partner. So we do benefit from that factor as well. I think this trend will probably going to continue giving the whole, the world, this geopolitical situation and the world semiconductor market is evolving. Thank you. Unknown Analyst: Looking forward to a better performance in the coming year and Happy Chinese New Year. Bai Peng: Thank you. Operator: Next comes from [ Scarlett Ku ] from BNPP. Okay. Otherwise, we will move on to our next questions. One moment, please. We have follow-up questions from Leping Huang from Huatai Securities. Leping Huang: Dr. Bai, I have a follow-up question. What's the current status of Fab9? Is it fully completed? And I noticed the CapEx this year -- last year is $1.8 billion, which is down slightly versus 2024. So how we should model the CapEx for 2026? And when you plan to initiate the next phase of the expansion? And what's your plan on this? What should I say, the Phase 2 of the Fab9 or the new fab? Yu-Cheng Wang: Look, let me address the question. Basically, the total capital expenditures for this project Fab9A is at $6.7 billion, okay? So by end of last year, we spent about slightly over $5 billion. So we spent another $1.3 billion. Basically, these are the POs, I mean we have basically issued not completely spend from cash flow perspective, okay? So I would say, basically, there's another about -- to get to $6.7 billion, there's probably another $1.2 billion to $1.3 billion on cash flow -- from the cash flow perspective, okay? So most of POs have been issued for that project. So I would expect the cash will be spent mostly this year and some probably remaining in 2027. Bai Peng: Mostly this year because this year, we're going to reach the peak capacity for Fab8, the first half of Fab9. Your second part of the question is on Fab9B, which is our next project to fill up the remaining, the other half, the empty half of Fab9. That project, we got all the approval, all the necessary paperwork. We plan to start the actual engineering construction work after the Chinese New Year basically in March. So we should get -- we should be able to start getting the equipment in by end of this year, probably October time frame. The spending obviously is going to be mostly in 2027. So in 2027, we start another capacity ramp on the Fab9B, and we hopefully can complete that ramp even faster, in a velocity that's even faster than Fab9A. Fab9A we ramped very fast. In 2 years, we pretty much get to the peak. And output will take a little bit longer because, as I said, there's always a little bit of lag between the capacity in place -- being in place versus when you get the wafers out and turn that into revenue. But in terms of the capacity -- construction capacity in place, using that as a milestone, Fab9B will start in 2027, and we should get that done in less than 2 years as well. Leping Huang: So this year, 2026, the CapEx will be slightly down and 2027 will be up significantly? Is my understanding correct? Bai Peng: Correct. That's correct. Operator: Our next question comes from Ziyuan Wang of Citic Securities. Ziyuan Wang: Okay. I want to have a follow-up question on that. And in terms of our equipment localization rate, will Fab9B have a higher rate than Fab9A? Bai Peng: The fab, yes, you're talking about the fab utilization rate, they are already a little bit above 100. So it's not going to be significantly higher. Ziyuan Wang: I mean on the equipment localization ratio. Bai Peng: Yes. So the answer is yes. The general direction, as the domestic equipment industry become more and more capable every year, that we -- every new project we have, we tend to have a higher procurement of domestic equipment. We obviously still going to be making our procurement decision based on what is the best, both technically as well as commercially for the company. That's the decision criteria. But the reality is that the domestic produced equipment are becoming more and more capable. And commercially, they tends to be, not across the board, more attractive, a lot of players dependent on individual equipment, they can be more attractive. Then end result we expect is that the Fab9B project, we will end up with a higher domestic equipment content. Operator: Ladies and gentlemen, that's all the time we have for questions. I'll now hand back to Mr. Daniel Wang for closing remarks. Yu-Cheng Wang: Well, once again, thank you all for the -- for joining us today and for your wonderful valuable questions. The year of horse is right around the corner. We would like to take this opportunity to thank you all for all the support and trust you have given to us and wishing you and your family a very joyful holiday season and a healthy and prosperous New Year. [Foreign Language] We look forward to catching up with you very, very soon. Thank you. Bai Peng: [Foreign Language] Happy New Year. Operator: Thank you. Ladies and gentlemen, that does conclude the conference call. Thank you for your attendance. You may now disconnect.
Operator: Welcome to the Gogoro Inc. 2025 Fourth Quarter and Full Year Earnings Call. This conference call is now being recorded and broadcast live over the Internet. A webcast replay will be available within an hour after the conference concludes. I would now like to turn the call over to the Gogoro team. Unknown Executive: Welcome to Gogoro's 2025 Fourth Quarter and Full Year Earnings Conference Call hosted by our CEO, Henry Chiang; and CFO, Bruce Aitken. Hopefully, by now, you have a chance to review our earnings release. If you haven't, it is available on the Investor Relations tab of our website, investor.gogoro.com. We are hosting this call via live webcast, and the presentation materials will be displayed on your screen as we go. Henry will start with an overview of Gogoro's progress in 2025 and outline our plans for 2026, followed by Bruce, who will take you through the financial results in more detail. After that, we will open the line for Q&A as time allows. Before we begin, please note that today's discussion may include forward-looking statements, which are subject to risks and uncertainties that could cause actual results to differ materially. Please refer to our press release and investor presentation for further information. We will also discuss certain non-IFRS financial measures today. Reconciliation to the comparable IFRS measures can be found in our earnings release. With that, let me turn the call over to Henry. Henry Chiang: Thanks, Annie. Thank you for joining us. In 2025, we deliberately stepped back to simplify and sharpen our focus. We made hard choices and actively restructured to meet market challenges. We consolidated our portfolio, optimized our product mix and tightened our operational discipline. We prioritized long-term sustainability over short-term results, and the results prove that our refocus worked. While 2025 was a year of challenges, both internally and externally, it was essential for establishing the foundation for Gogoro's next chapter. Our outstanding operational results are the direct payoff of our focus on efficiency. By reinforcing our core strengths and optimizing our supply chain, we achieved a record high full year adjusted EBITDA of $59.9 million, up from $44.7 million in 2024. Operating cash flow increased more than 3x year-over-year to $31.1 million, while strong execution lifted our gross margin to 8.3%, up from 2.6% in 2024. And our non-IFRS margin to an impressive 19.5%, up from 14.9% in 2024. These are not just numbers. They are the direct result of our teams working with discipline and shared accountability. We realigned resources, reduced inventory and improved production planning, translating tough decisions into real financial improvement. These difficult choices are now clearly reflected in our improved results. We have built a solid foundation. We completed our key milestones in 2025 and are driving our plan forward step by step with clear focus and determination. In 2025, we didn't just update our vehicle business. We reengineered it. We reinforced our technology leadership with the launch of EZZY in June and EZZY 500 in September. They were the right products at the right price points. The EZZY family of products surpassed 8,700 units in cumulative sales from the time of launch to end of year and was the best-selling electric scooter of 2025. This success demonstrates our ability to innovate, execute and capture new target audiences. This isn't just a sales figure. It is proof that when we innovate with precision, we can create and capture new segments. We apply that same discipline to the entire business. We slashed portfolio complexity and realigned our road maps with market demand. We overhauled our retail channels to drive speed and efficiency. We have done the hard work in preparation, and we entered 2026 ready to capture the market. We deepened our presence in the B2B and government fleet segments. In alignment with Taiwan's net zero policies, adoption by local governments and corporations is accelerating. We are proud to enable this public service transition. We have been working with the police department for the past 5 years, and we are seeing this commitment expand across government agencies. Notably, Taiwan's government postal service, Chunghwa Post added over 1,000 units of the Gogoro Crossover S to its fleet for postal delivery services, a powerful validation where durability and reliability matter most, customers choose Gogoro -- are powered by Gogoro network, PBGN, partners continue to select Gogoro technology as their core electrification strategy. Yamaha's CuxiE launched in Q3 generated strong market momentum, while ADATA's heavy-duty 3-wheelers are scaling rapidly with leading delivery platforms. Each deployment validates our technology, increases network utilization, expanding our reach and reinforcing our shared path forward. Our strategy is built directly on the operational success of 2025. Last year was about setting the foundation. This year is about execution. Our theme is established, signifying that we are fully prepared for the next phase of growth. We will not chase volume for volume's sake. We are pursuing value creation in both our energy and vehicle businesses. In our energy business, we are elevating our service commitment by actively expanding our network product road map. We are developing new swapping infrastructure, not just as an upgrade, but as a strategic extension of our portfolio designed for agility and performance. This new modular swapping station represents a significant technical improvement. It addresses key operational challenges with increased heat dissipation efficiency and lower power demand. Its design features a significantly smaller footprint, enabling rapid deployment and drastically reducing installation time. This innovation allows us to add network density with precision, ensuring we meet rider demand exactly where it is needed. We are targeting an initial pilot deployment in Taiwan by late 2026. At the same time, we are optimizing our battery life cycle. As we begin to recycle our Gen 1 batteries, we are transitioning them into innovative second life applications, maximizing their value beyond mobility. Our vehicle business is pivoting to be more customer-centric. The market is evolving. As Taiwan's demographic shift, we are seeing a flight to quality. Customers today demand more than just mobility. They demand exceptional safety, premium design and superior reliability. To lead this shift, we are streamlining our portfolio to focus strictly on high-value segments where demand is resilient and growing. We have identified 2 powerful drivers, female and family riders. We see a clear rapid shift among female consumers toward mid- to high-end vehicles. They are choosing performance and style over basic utility. In an era of lower birth rates, parents are adopting a quality over quantity mindset. They are investing heavily in safety standards and build quality. This aligns perfectly with our DNA. To capture these sophisticated groups, our 2026 road map is aggressive. We are launching 2 new models specifically engineered to set a new benchmark for safety and premium experience. We will gain market share inch by inch by satisfying our customers' needs. The transformation of Asian mobility is accelerating. Electric 2-wheelers and battery swapping remain the most effective and scalable solution for high-density urban environments. We are approaching international expansion with a focused strategy. In Vietnam, we are launching a pilot with a strategic market leader, Castrol. This partnership leverages their strong brand presence, local market and deep distribution network to establish a Gogoro-like mobility ecosystem tailored to specific local needs, this move is time to capitalize on aggressive government mandates. Hanoi will ban fossil fuel motorbikes in key districts starting July 2026 with a full band within the city center by 2030. At the same time, Ho Chi Minh City is mandating that all ride-hailing platform transition to 100% electric fleet by 2030. The transition is not just an option, it is a strict policy. This regulatory pressure creates an immediate urgent demand for a reliable electric replacement. However, winning in Vietnam requires more than just policy support. The riding environment is unique. To win in this condition, we are launching a new scooter model specifically engineered for durability and performance. This pilot will validate our model and set the stage for a broader commercial launch target in B2B customers later in 2026. 2025 was defined by grit and discipline. We delivered real financial progress. Now we are well positioned for 2026. The foundation is set, and I'm confident we will continue to deliver strong financials. With that, I'll turn the call over to Bruce to walk through the 2025 financial results in more detail. Bruce Aitken: Thanks, Henry. As Henry emphasized, our strategy in 2025 was defined by a focused discipline. Let me first provide the overall market performance. The Taiwan scooter market faced significant headwinds, declining for a second consecutive year to 708,392 units, down 5.9% year-over-year, marking the lowest level in 10 years. Despite this drop and our deliberate decision to prioritize financial health over volume, we maintained our leadership in the electric scooter segment. Gogoro and our partners accounted for 33,228 units or 68% of the overall electric 2-wheeler market or 49,228 units. Gogoro alone accounted for 28,176 units, 57% of all electric vehicles and 4% of overall market share, and our partners accounted for 5,052 units. While vehicle volumes reflected our strategic tightening, network adoption continued to grow. Subscribers reached 665,000 units, up 4% year-over-year, supported by new more flexible rate plans. The energy business continued progressing towards profitability, supported by improved operating leverage and the completion of battery upgrades, positioning us for efficiency and financial gains starting in 2026. For the full year 2025, we delivered revenue of $281.5 million, which was within our updated guidance range. Despite a full year 9.4% reduction in revenue from 2024, we achieved a historic high in adjusted EBITDA. This marks a fundamental shift in our business health. Our net loss improved substantially, gross margins expanded and operating cash flow strengthened considerably. These results reflect our focus, discipline and commitment to improved financial results. And as we enter 2026, we expect new products and operational leverage to drive continued cash flow and set the path towards profitability. For the fourth quarter, we generated total revenue of $74.4 million, a 1.7% increase year-over-year. On a constant currency basis, revenue was down 2.4% with favorable exchange rates contributing approximately $3 million to the top line. Our recurring revenue engine remains robust. Battery swapping revenue grew 5.9% to $38 million, driven by high retention and a subscriber base that expanded by 4% to 665,000 riders. As this base grows, we continue to see better network utilization and improved platform economics. Hardware revenue was $36.4 million, down slightly by 2.3%. While vehicle volumes were impacted by broader market softness, we largely offset this pressure through 2 key drivers: a higher average selling price resulting from a shift towards premium models and increased component sales to our partners. For the full year 2025, total revenue was $281.5 million, a 9.4% decline year-over-year. On a constant currency basis, the decline was 12.2% with favorable exchange rates preventing an additional $8.9 million impact. Our recurring business remains a highlight. Battery swapping revenue grew 8.1% to $149 million, demonstrating the strength of our subscription model through steady subscriber expansion and high retention. Hardware revenue was $132.5 million, down 23.3%. This was primarily due to a substantial drop in vehicle sales, reflecting a broader contraction in the Taiwan vehicle market, which hit its lowest volume level since 2016 and the delayed launch of our key volume driver, the EZZY. However, this volume decline was partially mitigated by higher average selling prices from a premium mix shift and increased component sales to our PBGN partners. Our focused strategy drove significant improvements in profitability. We saw a dramatic improvement in gross margin. Q4 gross margin reached 14.3%, up from 7.4% versus Q4 of 2024, while full year margin rose to 8.3%, up from 2.6% in the previous year. Q4 non-IFRS margin hit 20.1%, up from 14.7% in the previous period, while full year non-IFRS gross margin hit 19.5%, up from 14.9% for the full year 2024. Improvements were driven by the completion of battery upgrades, reduced inventory write-downs, lower share-based compensation and efficiency gains from our restructuring and optimized network depreciation. For the fourth quarter, net loss narrowed substantially to $20.8 million, an improvement of $50.5 million year-over-year. This progress was driven by stronger gross profit and a $31 million reduction in operating expenses, primarily due to the absence of last year's onetime impairment charges and improved organizational efficiency. For the full year, we narrowed our net loss by $42 million year-over-year to $80.8 million, down from the previous year's $122.8 million. This reduction was fueled by significant OpEx reductions, including lower general and administrative expenses, marketing expenses, R&D expenses and share-based compensation expenses as well as increased gross profits and lower onetime asset impairments. Adjusted EBITDA reached $59.5 million, an all-time high and an increase of $15.2 million over 2024. Q4 adjusted EBITDA rose to $12.9 million. These gains reflect higher gross profit combined with disciplined cost-saving initiatives and organizational restructuring. Our improved efficiency translated directly into cash. We generated $31.1 million in operating cash inflow, more than triple the amount from 2024. We ended the year with $70.6 million in cash. To strengthen our liquidity position, we have secured an $80 million equity investment commitment for 2026 from our largest shareholder, so we are fully funded to execute to our near-term objectives. In 2026, we anticipate a modest revenue recovery, forecasting a range of $285 million to $305 million. We estimate that approximately 95% of full year revenue will be generated from the Taiwan market. Our strategic priority remains profitability. We expect our battery swapping business to achieve non-IFRS profitability in 2026 with our hardware business following suit in 2028. With new products launching and continued operating leverage, we are well positioned to drive strong cash generation in the year ahead. Thanks. Unknown Executive: Thank you, Henry and Bruce, for the updates. As attendees are formulating their questions, I will ask 2 questions that we have collected. Question number one, you've been executing well on the first phase of your strategy, stabilizing the business, stopping the cash burn and positioning Gogoro Network to reach profitability in 2026. Assuming the energy business achieves profitability as planned this year, how should we think about your strategy for the scooter business, which from an external perspective, appears to be underperforming and absorbing a disproportionate share of group losses? Henry Chiang: The first thing to remember is our focus over the past period, stabilize the business, get execution back on track and put GN on a path to profitability in 2026. That's the foundation we needed before tackling any broader challenge. On the scooter business, we know it hasn't yet delivered our desired results. Our approach isn't about growth at any cost. This means being more selective about models, geographies and channels, reducing complexity and aligning investment levels with demonstrated returns. Importantly, we are managing the scooter business with clear financial guardrails so that it does not jeopardize the profitability trajectory of GN and Gogoro as a group. With this approach, the scooter business will regain traction by rolling out superior new products and expanding margins by leveraging the economics of scale, producing more units, lowering per unit costs, optimizing our supply chain and further streamlining operations. By focusing on high potential markets and the most attractive customer segments, we can improve utilization of our infrastructure and distribution network. Combined with disciplined pricing, a refined product mix and stronger after-sales services, the scooter business will become a major growth engine over time, generating sustainable profitability and contributing meaningfully to Gogoro's long-term financial targets. Unknown Executive: Question number two, you put in lots of hard work in reducing OpEx in 2025. Can you sustain that level of OpEx savings? And can we expect ongoing improvements in gross margin? Bruce Aitken: Thanks for the question. You're right that the team worked super hard on cost savings in 2025. Our total OpEx reduction on an IFRS basis was $51.9 million, which does include some onetime impairments. Without including the impairments, we still saved nearly $24 million. So thanks to everyone on our team for contributing, whether through lower variable marketing and promotional expenses, which resulted from lower vehicle sales, savings in research and development expenses by focusing the vehicle business on a streamlined product portfolio, lower payroll driven by operation efficiency or savings in share-based compensation. This is a huge achievement. It's a clear indication that we're tightening things up and that we're focusing. And again, we really appreciate the hard work of all Gogoro employees to contribute to this. In 2026, it will be hard to replicate that same level of OpEx savings. So we need to look to reduce BOM costs, increase our manufacturing efficiencies and execute to some value engineering projects to continue to drive margin improvement, which is critical to our ongoing success. We're committed to those cost savings across the board. We're committed to associated margin improvement, but it's unlikely that we'll be able to replicate the size of the savings from 2025. These were substantial and necessary cuts that we made to rightsize the organization and refocus our efforts on value-adding investments. Thanks. Unknown Executive: Thank you, Henry and Bruce. Now we open the line for more questions. Operator: [Operator Instructions] No questions. I'll turn the call over to Henry for closing remarks. Henry Chiang: Before we close, I want to reinforce one message. Financial discipline remains our top priority. We will not buy revenue or chase empty volume. Growth must be organic, gross margin positive and aligned with our efforts to establish long-term profitability. Operating cash flow is the true measure of our success. We are laser-focused on long-term sustainability. Our 2025 performance serves as solid evidence in our critical target, Gogoro Network pursuing profitability in 2026. I have confidence that the energy business will demonstrate profitability by the end of the year as promised to reestablish Gogoro's foundation for the future. Thank you for joining us today. We look forward to updating you on our progress throughout the year. Operator: That does conclude today's conference call. Thank you for your participation. You may now disconnect.
Operator: Hello, and thank you for standing by. Welcome to Roku Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Conrad Grodd, Vice President of Investor Relations. Sir, you may begin. Conrad Grodd: Good afternoon. Welcome to Roku's Fourth Quarter and Year-End 2025 Earnings Call. Joining us on today's call are Anthony Wood, Roku's Founder and CEO; Dan Jedda, our CFO and COO; Charlie Collier, President Roku Media; and Mustafa Ozgen, President Devices. On this call, we'll make forward-looking statements, which are subject to risks and uncertainties. Please refer to our shareholder letter and periodic SEC filings for risk factors that could cause our actual results to differ materially from these forward-looking statements. We'll also present GAAP and non-GAAP financial measures. Reconciliations of non-GAAP measures to the most comparable GAAP financial measures are provided in our shareholder letter. Unless otherwise stated, all comparisons will be against our results for the comparable 2024 period. With that, operator, our first question, please. Operator: [Operator Instructions] Our first question comes from the line of Shyam Patil with Susquehanna. Shyam Patil: Congrats on the strong 2025 and 2026 outlook. I have a couple of questions. The first one, can you help us bridge the 1Q revenue outlook of over 21% growth to the full year outlook of about 18% growth? And then I have a follow-up question. Anthony Wood: Shyam, this is Anthony. I'll kick this off and then turn it over to Dan, who can talk more about the outlook. So let me just start by taking a minute to reflect on our execution over the past several years. In 2023, our priority was to rightsize our cost structure and reach adjusted EBITDA breakeven in 2024, and we achieved that goal a full year ahead of schedule. And this early progress positions us to invest further in our platform monetization initiatives. As a result, in advertising, we deepened integration with leading demand-side platforms and scaled our measurement and performance capabilities. In subscriptions, Q4 was our biggest quarter ever for premium subscription net adds. We expect to add more Tier 1 partners and roll out bundles this year, and we plan to expand how to beyond Roku and take it to additional platforms. So these initiatives are paying off for us. We grew platform revenue 18% in 2025, and we accomplished all of this while growing our streaming households, both in the U.S. and globally. Looking ahead to 2026 and beyond, we're confident in our ability to sustain double-digit platform revenue growth while continuing to grow profitability. So with that introduction, let me turn it over to Dan. Dan Jedda: Thanks, Anthony, and thanks for the question. Let me just add a little bit to what Anthony said. Exactly 2 years ago, when we were entering 2024, we said that now that we rightsized our cost structure, we would relentlessly focus on growing our platform revenue, improving our monetization and driving profitability, including free cash flow. In Q4, we grew platform revenue over 18%, surpassing $1.2 billion. We achieved adjusted EBITDA of $169 million and net income of $80 million, all were records for us. For full year, we also grew our platform revenue 18%, achieved adjusted EBITDA of $421 million, which represents a margin expansion of 255 basis points, and we generated free cash flow of $484 million. also a record for us and over 100% year-over-year growth. With our strong free cash flow, we purchased $150 million of Roku stock through our share buyback program and achieved near 0% dilution for Q4. The lowest dilution we have ever reported. This year, our outlook for platform revenue growth is more than 21% in Q1 and 18% for full year as we continue to execute on our monetization initiatives. Our full year adjusted EBITDA guidance of $635 million represents over 50% year-over-year growth and margin expansion of 267 basis points to 11.6%. I expect that free cash flow will again be above adjusted EBITDA as we remain CapEx light. And it's also worth noting that we have over $1 billion of a deferred tax asset which will keep our cash taxes low for many years. I see our free cash flow continuing to be strong and outpacing EBITDA beyond this year. In fact, I see a path to over $1 billion in free cash flow by the end of 2028, if not sooner, which will be a significant milestone for us. We have incredibly strong momentum going into 2026, and our focus is on sustaining growth. So to get to your question specifically on Q1 versus full year. A few factors are shaping our Q1 outlook. First, Q1 last year was our easiest comp at just under 17% year-over-year. Second, Q1 of this year includes the full benefit of Frndly. As you recall, we closed that acquisition in Q2 of last year. And I guess, finally, we have stronger visibility into Q1 versus the second half of the year. So as we gain better visibility into political and into H2, we'll provide updated guidance. Shyam Patil: It was really helpful. I did have a quick follow-up. Can you comment on your retail distribution strategy for 2026 given that Walmart is switching its House TV to VIZIO's operating system. Anthony Wood: Shyam, this is Anthony again. Yes, let me take that. So as Walmart focuses more on VIZIO OS for their House brand, we're focused on broadening and diversifying our retail distribution. We remain extremely well positioned in the market with hundreds of millions of dollars a year of investment in distribution, we have flexibility in how we invest this budget and we'll continue to optimize this investment across both our retail and our OEM partners. We're already widely distributed, obviously, including at Walmart, and I'll share a few examples of how we're expanding our distribution. At Best Buy, we expanded with the addition of Pioneer Roku-made TVs, which we recently launched. At Target, we expanded with Hiro Roku TVs, and they're going -- they're doing extremely well. At regional and national retailers like Amazon, we have expanded our presence. And in addition to retailers, TV OEMs are key strategic partners for us. And we have expanded our licensing and distribution agreements with 2 of our largest and longest term Roku TV partners, TCL and Hisense, as well as several others. We also have first-party TVs. And for our first-party TVs, we expect sales to increase after shifting our TV production to Mexico, which will help us lower our cost. And then, of course, we expect streaming players to continue to be a meaningful contributor to overall Roku OS distribution. So those are some of the things we're doing in 2026. This work has started but we expect to see the impact predominantly in the second half of the year as these cycles take time to scale. So in addition to this work that I just outlined, I want to take a second and just talk about some of the strategic assets that we have to create a strong foundational competitive advantage for Roku that are really important. One is, of course, the Roku brand. It's a brand that consumers love and ask for by name and has resulted in Roku being used in over half of U.S. broadband households. Nearly half of all TV streaming in the U.S. happens on the Roku platform. And importantly, we're best-in-class at monetization, which gives us a lot of flexibility to invest in building scale and distribution. We're also globally scaled, and we have a success -- we have successful Roku TV partnerships with dozens of TV partners, factories and retailers. And then one of the main ways we've achieved our success is with the Roku OS, which is a purpose-built operating system designed specifically for TV. It's the only purpose-built OS for TV. It has a lot of intrinsic advantages. One of those is the lowest BOM cost in the industry. And one of the reasons for that is we have the lowest memory footprint in the industry. And as everyone knows, memory prices are going up right now. And so as memory prices continue to go up, that's a cost advantage that accrues to us and keeps growing as memory prices increase. So the number of Roku TV units sold, it may go up or down from quarter-to-quarter, but overall, we expect to continue to grow our scale of streaming households in the U.S. and globally, and we're on track to surpass 100 million streaming households this year. Operator: Our next question comes from the line of Cory Carpenter with JPMorgan. Cory Carpenter: So generative video, the advancements have really caught investors' attention of late. We saw Cadence yesterday, Google Genie, both recent examples. I think one interpretation from this we're rehearing is that it's likely to significantly increase the amount of content available, perhaps shift time spent more to short-form videos. So Anthony, the question for you really is I thought it would be helpful to hear how do you think AI could impact the streaming landscape? And what do you think it means for Roku? Anthony Wood: Sure. Yes. I mean, personally, I'm super excited about AI and how it's going to impact content specifically. I think to answer your -- let me -- I'll answer your question directly and then let me talk about some of the kind of bigger picture ways that we think about AI generally. So just in terms of content, it's very clear to me that AI is going to reduce the cost of content significantly over time. And as content -- and including long-form content. And as long-form content costs come down, that's going to grow engagement on our platform, and we monetize engagement. That's basically our business model is monetizing engagement. So I view it as all very positive for our business. But if I just take it at a level up and think about how do we think about AI generally and its impacts on our business, let me start by saying that I think AI is a significant opportunity for Roku. We view it as a powerful tailwind to our business. It's not a disruptor for us, and we're integrating it across our entire technology stack. We're applying AI across our platform to improve discovery, increase engagement and unlock major new monetization opportunities. So let me just talk about a few of those. On the viewer experience, AI helps personalize and simplify how people find what to watch, which increases engagement. For example, on our content row, we're improving recommendations and introducing new features that surface trending content. On our content details page, we're using AI to generate why to-watch summaries that go beyond just plot overviews. We've updated Roku Voice recently. Now viewers can ask more conversational entertainment-based questions and get contextual answers directly on their TV screen. So that's just some examples in the viewer experience. But I would say also equally important for us is on the advertising side, if not more important. AI is a major driver of opportunity in the advertising side of our business. AI helps us build the most performant connected TV ad platform. AI is opening the entire new market of small- and medium-sized businesses, which we're addressing with Ads Manager. I mean that's an entire new segment in the ad business that was not accessible to TV platforms before, but is now because of AI. AI allows products like Ads Manager to exist. And AI tools make it easier for advertisers to create high-quality video ads. And the easier it is to create video ads, the more -- the larger the number of advertisers that can advertise on a TV platform. And then AI is automating workflows that were previously manual, such as reviewing and adapting ad formats. And then finally, we're using AI internally across the company to drive operational efficiency and productivity. So overall, AI strengthens our platform. It improves monetization and it enhances the performance of our business overall. Operator: Our next question comes from the line of Michael Morris with Guggenheim Securities. Michael Morris: I wanted to ask about how the third-party ad demand partnership that you have with Amazon is impacting the business so far and how you expect it to progress throughout the year? Is it additive to growth yet? Or has it cannibalized revenue in any way as it has come online? And then if I could just briefly on the platform gross margin, you provided the 51% to 52% range for '26, which is very helpful. What are you expecting for the first quarter? And how much variability do you expect in this quarter-to-quarter throughout the year? Anthony Wood: Michael, Charlie will take your first question on third-party ad demand partnerships. Charlie Collier: Great. Thanks, Anthony. Michael, look, just stepping back for a second. Our strategy has been to be open and interoperable and be deeply integrated with all the DSPs so really that we can meet clients anywhere they want to transact. So the Amazon partnership was natural in that context. And really, overall, we strive to be the most performant CTV ad platform in the industry. So I'd say to your question of impact this year, it's early innings. Amazon is working hard to bring new clients over to its DSP. And the combination of our TV OS footprints make for an impressive offering. To put it in context, over the last year, we've added dozens of ad tech partners, Michael, from the Yahoo! DSP to AppLovin and Wurl to Magnite. And then once they're onboarded, just like with Amazon, we begin deepening our relationships with each of them, and they start to ramp, and that will continue, and that's the case for all of them. So our goal with all these partnerships is to drive greater outcomes and greater performance for our marketing partners. And we're bullish about our position, not just as the open interoperable partner in a marketplace with so many walled gardens, but the ability of this to grow as we deepen the integrations. Dan, do you want to? Dan Jedda: Yes. Let me just add that in terms of how it will affect the business this year. I'll add to that, and then I'll answer your gross margin question. As Charlie said, like the ramp of Amazon DSP will take time. Obviously, we're fully integrated. We are ramping. We are on. It's going as expected. And I think like across all the DSPs, we feel very good about how we're performing on that specific to Amazon. As the Amazon DSP grows and becomes -- and is successful, which we think it will be, we'll be successful along with it. It does take time for these to ramp though. And we don't obviously break it out. But again, it's tracking as we'd expect, and we expect it to be more of a contribution over time. With respect to platform gross margins, the guide was 51% to 52%. For the full year of 2025, we did end at 52%. I'll say that I don't expect a lot of variability from quarter-to-quarter. It does depend to some extent on the mix of our different activities in the platform business. We saw some stabilization in M&E in Q4, which was great, which helped margins. We're tracking -- that stability is happening in Q1 as well. We'll see how M&E goes forward, we're liking what we see there. But specifically, I don't expect a lot of variability. I will say, again, we have a lot of mix -- different activities growing at different rates, and it's not lost on me and us that we don't give -- we don't break out a lot of detail. One thing we are working on is some more detail on our different activities and giving you a bit more color into the margin profile and the different activities in platform. And I hope to share some more data on that next quarter. It's something we're working on. Operator: Our next question comes from the line of Jason Helfstein with Oppenheimer. Jason Helfstein: So in the prepared remarks, you kind of alluded to the success you're seeing with the international viewership and how it's early days of monetization. I guess is there a way to -- as we think about like what the opportunity is relative to like the platform business today back in the early days of Netflix, we would be like, oh, international, x times potentially bigger than the U.S. opportunity. And then I guess just if you want to take a step back, I guess, like where does that fit in with where you think the kind of biggest opportunity is in the business? So comparing, let's say, the international revenue opportunity, advertising to other opportunities that you're looking at right now. Anthony Wood: Jason, Dan will take that question. Dan Jedda: Yes. So we've talked about international in our focus countries, and we're at different stages depending on the country. So let me just give you some examples of this. So for example, in Canada and in Mexico, we actually have scale and we're starting to monetize that more. In Mexico, we have incredible scale, and we're really starting to focus on the monetization side of that -- of our strategy. In Brazil, where the ad market isn't quite there yet, we're still building scale. That's a little bit further off in terms of focus on the monetization. So we're very focused on building scale and making great progress into Brazil and the rest of Latin America. We're making progress on the U.K. But the monetization is really starting to take hold in Mexico and in Canada for slightly different reasons. In Canada, the market is very good from a digital perspective. Our ARPU is actually quite strong in Canada. We're growing our streaming households and our ARPU along with it. And so we like what we see there. In Mexico, the ad market hasn't shifted to digital like it has in the U.S., although we expect that to happen over time. So we have incredible scale in Mexico. It actually rivals the U.S. in terms of scale in Mexico, which is great. We're really starting to focus on monetization of subscriptions and advertising across all our international locations. So for example, we launched premium subscriptions in Mexico recently, and we'll likely launch more countries over time. So we're very focused not just on advertising, but on leveraging our amazing subscription business in our international countries, and we like what we see there. That is also an opportunity. And over time, I do believe that international will become a larger percent of our overall platform revenue, but it's still pretty early on. So there's a lot of room to grow in these international locations. Jason Helfstein: And how would you rank that relative to like the opportunities you're looking at now that -- for growth? Like is there single one... Dan Jedda: You mean relative to the U.S.? Jason Helfstein: Relative to U.S. or just other things you're looking at from here? Dan Jedda: The international is an incredible opportunity for us to grow. I mean, like I said, subscriptions alone is a big opportunity. The Roku Channel is doing very well in our international locations. We're doing more -- we're having -- engagement is growing very well. In Brazil, where we have scale, we recently launched a FAST, which is doing very well. So I think it's a big opportunity. The question is how do the digital ad markets migrate over and that is a country-by-country specific situation, but subscriptions, including, for example, Howdy can grow really well in these locations, and that's a really big opportunity for us. Operator: Our next question comes from the line of Steven Cahall with Wells Fargo. Steven Cahall: Dan, just following up on the platform guide in the first quarter. I don't know how much kind of political or Frndly is in both the current Q1 and the prior Q1, but it seems like there is a little bit of a deceleration in kind of same-store sales in platform from Q4 to Q1 and the comp is slightly easier. Just wanted to know if that's conservatism. Is there some natural deceleration because you've gotten to such big scale or am I doing the math wrong there? And then also, if we just think about your revenue and platform outlook for 2026, just curious how you're thinking about the contribution of political dollars in there? I think you did about $90 million in '24. That kind of came out of nowhere. So wondering what you're thinking for '26. Dan Jedda: Yes. Yes. Thanks for the question, Steven. To the point -- first of all, Q1 doesn't have a lot of political in it in general. So I wouldn't say that's an impact for Q1, although it will be impactful in H2. Yes, Frndly is impactful for Q1, and that does add a couple of points. With respect to Q1 versus H2 or Q1 versus the full year, to the answer I gave in my first question, we just have a lot more visibility into Q1. And so we're waiting to see how political shapes up, how the spending shapes up. I do believe that if the market is similar in the midterms versus the general, like we will do well in that market. Charlie and team have built out a very good, strong political sales funnel. We're very good at targeting. We're a great platform of which to advertise on. So again, like it's just a question of having more visibility right now in Q1 versus H2 and how political will transpire. And we'll update you as we go forward. So yes, I would agree with the comment that the back half is a little bit more conservative, just given how much visibility we have into Q1. Operator: Our next question comes from the line of Laura Martin with Needham. Laura Martin: Congratulations on really great numbers. I want to follow up on one of the GenAI questions asked earlier. So Netflix is telling us that they are going to put short-form video and user-generated content on their platform because they think engagement is what they are solving for. Anthony, you just said something similar in an earlier question, that engagement is your like North Star. However, I think one of the reasons you get so many really high-quality brand advertisers is that your top of funnel premium-only video. So how do you think from a judgment point of view of balancing and driving engagement, which would mean vertical video and adding user-generated content even short form compared with protecting your ad environment so that you continue to get high-quality advertisers. That's my first question. Anthony Wood: Yes, let me -- I'll give you my opinion, and then I'll turn to see if Charlie has anything to add. We do have short-form content on our platform. We're always experimenting with different kinds of short form and how to place in our UI. There's lots of ways we drive engagement on our platform, mostly around our user interface and the personalization of the experience, but also around the content that's on the platform. I think that -- I mean as a platform, we're a big screen TV platform primarily, and that does mean generally long-form content. That's generally what gets consumed. So although we do have some shorter form video, and I'm sure that will grow. Our focus really is on long-form video. That's what people generally look for when they turn on their TV. And I mean, I strongly believe that as content costs come down, that's going to -- anything -- when you lower the cost of something, people consume more of it. And so we'll see more engagement of long-form video, and that's a big opportunity for us as a platform. In terms of advertisers, let me -- I'll ask Charlie to take that question. Charlie Collier: Sure. Laura, it's a good question. One thing I think we have a few real advantages. One is our FAST channel environment has been really powerful. And so for example, Mr. Beast launched his own FAST channel and it premiered on Roku. And because of our scale, of course, that did really well, and we got to see the type of viewers who consume that content. And that last point is really one of our advantages. We really do understand the cohorts of viewers and one of the things we've been able to do is curate content around different interests. And I think as we get more into short term, when we do, as Anthony said, we do it against specific cohorts and really try to super serve audiences that we understand. We are known for premium content. And in the foreseeable future, it's going to be the majority of what we do and do well. But I very much like the ability of our platform to sort of figure out what the viewer wants to watch and how. Some of the examples of that beyond just the content creators you might be thinking about or even in places like our sports zone, where we'll do shoulder content. They'll go into watch the game. They'll get short-form clips, they'll get short-form commentary and other information. And we do that with the league. So there's all sorts of ways you can do it, and Roku is really good at putting it in context. Laura Martin: Super helpful. My second question is on upfront versus SMB. Just a similar judgment question, which is a lot of the letter is talking about your investments in Ads Manager and your focus on SMBs because it is a large market. But what we hear from MOUNTAIN, which is 100% performance CTV, is that those types of advertisers are really 100% focused on performance like within 3 days, like super short-term performance. And my recollection is you guys do more than $1 billion in upfront guarantees, which is like 1/4 of your total revenue. So as you think about investing in this bottom of funnel, making yourself a full-funnel CTV option for advertising, over time, do you think you're going to pivot from like towards the more performance-oriented, which I would think would have lower margins than top of funnel? But correct me if you think I'm wrong on that thinking. Charlie Collier: Sure. Laura, this is Charlie again. I think it's sort of different horses for different courses. So let me tell you what I mean by that. Yes, we do a lot of guaranteed business at the top of the funnel with enterprise clients. And they -- by the way, and I believe they're performant, too. They measure perhaps different things and, as you said, conversion in a few days. But the shift to performance marketing and the opening of our platform to small- and medium-sized businesses is absolutely a tailwind, but we can manage it in a very different way. We've talked a lot in past calls about how unique our situation is as a platform, which is that we can price up and down the pricing curve and the demand curve. And I think in that context, you'll see us manage very well the opportunity to both perform and to serve the high-end clients. One way to break this out for you is the way we price our inventory. You'll have specific units and opportunities at the high end of the pricing curve, our sponsorships, our Roku Originals, our sports, our home screen units or any time we do a deep digital integration, that comes with a price tag because of exactly what those are. And then on the other end of the business, and this might be some of the business that you're picturing when you asked the question, you've got some advertisers who have different needs who are priced at a much lower price point but they certainly don't get inventory with the same quality signal. They don't get certainly any of the unique units or sponsorships that I was talking about on the other end. So look, we are the largest CTV footprint, and we have really ways to expand our inventory thoughtfully as we grow. And so I think our ability to price up and down the demand curve allows us to not just do well in the current CTV landscape, but as we push to be the most performant CTV platform and welcome in small- and medium-sized businesses. They will spend $600 billion on advertising this year in small- and medium-sized businesses. And if the enterprise trend is any indication, you combine the visual impact of television with the performance of digital and Roku Ads Manager, I think, is uniquely positioned to lead in that transition, and we'll price it properly at both ends of the curve. Anthony Wood: This is Anthony. Let me just add. Yes, I'll just add a few comments. I think just generally, we're hearing from all of our advertisers, both traditional high top-of-the-funnel brand advertisers all the way to lower-funnel advertisers, which we have a whole range that they're all focused on performance. And it's a key strategy for us to be the most performant connected TV platform in the industry. And we're putting a lot of effort into that, and we're integrating a lot of generative AI technology to help us achieve that and it's going well. And you can see -- I mean, in early days, but Roku Ads Manager is doing extremely well, and we're seeing strong growth. And so that strategy is working for us. So there the whole advertising business is moving to performance. Different advertisers have different definitions of how they're measuring performance and what they're looking for. It's not all the same. It's like a traditional social media advertiser type performance, but it is moving more and more into performance. Results are being measured. And we're seeing it, it's working. Like we're seeing those advertisers start to move over. Dan Jedda: Yes. I think I'll just add on one more thing, Laura, to your point. I do think it's important to understand that -- I agree with everything Charlie and Anthony said, but your comment on the pivot towards lower margin and more performant ads they're not lower margin for us. We are very -- so it's not where like a performance-based ad that is focused on a site visit that's focused on a ROAS that's focused on a click they're not lower margin for us in this area. So you should not think that as we focus on the SMBs that it drags down margins, it does not. Operator: Our next question comes from the line of Rob Sanderson with Loop Capital. Robert Sanderson: I wanted to ask a little bit about just expanding your advertising opportunity on the home screen outside of M&E and into the much larger advertising landscape. I'm sure there's lots of interesting things you can do here. But any color on the types of ad formats you might be thinking about? Is it something that we're likely to learn more about through 2026? And then just thoughts on go-to-market. These would be completely unique and probably require some education of advertisers, maybe not something your third-party demand partners could help you with. Is that something that you think you'd have to take on a direct basis? Or anything you can sort of share on go-to-market? Anthony Wood: Rob, Charlie will take that question. Charlie Collier: Yes, sure. Well, it's happening already, Rob. It's a great question, and we've expanded well beyond M&E over the last couple of years. Actually, I think if you saw the home screen or you're looking at the home screen right now, Roku City, which is our beloved interactive world that is living inside your television. Right now, if you look at it, it's got the Olympics on it and some of our sponsors -- actually, I think, most of which are not M&E at all. We also added video to the home screen inside of our marquee unit, which is a big unit on the right-hand side of the screen. And that is really performing well for all sorts of categories beyond M&E. So we are testing several variations of home screen design and we're obviously proving that it drives more engagement and viewer satisfaction, which is -- but you're going to see us do a lot of it. And as to your question about whether it's programmatic, to date, it is not. There are lots of reasons we got a question earlier about upfront versus SMB. Obviously, with our enterprise clients and our -- or advertising agencies, they are very focused on these unique units and these performant units and you'll see more of it moving forward. Anthony Wood: And Rob, this is Anthony again. I'll just -- in terms of new ad units, we've mentioned before that we have a new home screen design that we're working on. It's one of our major initiatives. It's in testing right now, and we're testing several different variations of the home screen, it's going well. We're driving more engagement and viewer satisfaction. We believe it will increase monetization over time, whether that's getting viewers to sign up for subscriptions or watch more ad supported content and we hope to roll it out sometime this year. But the new -- I'll just say that the new home screen, one, it's got a lot of improvements. One of the changes is we're testing new types of ad units. And we're also looking hard at how we can and we're testing different ways to increase impressions of current ad units and also increase click-through of the current ad units as well. Operator: Our next question comes from the line of Vikram with Baird. Vikram Kesavabhotla: I wanted to ask about the Howdy launch as well as the Frndly acquisition. Could you talk more about how each of those integrations is going so far? And what are your plans for those businesses in 2026? Anthony Wood: Vikram, this is Anthony. Both of those are going well. We haven't broken out numbers, but the -- like I'm extremely happy with how the Howdy launch is going, subscribers are continuing to grow nicely. And I'll just say that for those who don't know, Howdy and Frndly, they're part of Roku's portfolio of owned and operated services, which started with the Roku Channel and adding Howdy and Frndly is a strategic expansion into subscription that's going to add incremental revenue. We're using the power of our platform, the -- our user experience to drive engagement in both of those. We're seeing increased engagement on both of them. I mean, we're definitely increasing engagement and the sign-ups for Frndly since we took over that service. And of course, that platform is how we're launching and growing the Howdy business. We have plans -- Frndly is already available on platforms outside of Roku and we have plans to launch Howdy on platforms off of Roku as well. So I mean, I'm very excited about both of them. And this Howdy in particular, I think, has the opportunity -- the potential over time to become a very large service for us. Operator: Our next question comes from the line of Matt Condon with Citizens Bank. Matthew Condon: I just wanted to ask, as Netflix is pending the acquisition of Warner Bros., and this is changing potentially the broader streaming landscape can you just talk about if they become more guarded about how to distribute their content, how this could potentially impact Roku both on the advertising side and the subscription side? And then maybe just a quick follow-up, Dan, just mid-single-digit OpEx growth going forward. Is that the right way to continue to think about this? And if revenue growth comes in above expectations, how do you just think about reinvesting some of that growth back into the business. Anthony Wood: Matt, this is Anthony. I'll just say in the U.S., as we've said before, we're in more than half of broadband households and half of all TV streaming happens on the Roku platform. I mean that's a lot of scale. This makes us an essential partner to every content owner and streaming service, and we don't anticipate that changing regardless of how the industry consolidates or how that consolidation plays out. In any scenario, the streaming sector remains extremely robust, it's continuing to grow quite nicely, and we remain well positioned to help our streaming and content partners drive engagement, find viewers and sign up customers. And I'll let Dan take the question on... Dan Jedda: Yes. Thanks for the question, Matt. With respect to OpEx, we remain focused on execution and operational discipline ensuring we invest where we see the highest returns. We grew our OpEx 3% in 2025, a little bit lower than I expected, which is fine because we're investing well in these -- all these initiatives that we've laid out here, both in the shareholder letter and what we've talked about on this Q&A. I do expect our OpEx to grow in that mid-single digits. As we've said many times, we expect our platform revenue to grow double digits I think I gave some pretty concise guidance on gross margin, where we don't expect any major decel in gross margin. In fact, we expect it to stay in this 51% to 52%, and that will translate into improved EBITDA margins over time. It's also one of the reasons why I feel like we're on a good path to achieving $1 billion in free cash flow by 2028. So -- and all of this is to say we are absolutely investing. We're adding headcount, mostly on the engineering side to invest in these incredible initiatives that we have in front of us. So a lot of good things happening. I think it's also -- one thing I will say that that's helping our OpEx growth is our SBC continues to come down. We've done a lot of work in SBC and that is actually trending -- going backwards. From 2025 into 2026, our guide contemplates that. And that's one of the things that's helping our OpEx stay in that mid-single-digit range. Operator: Our next question comes from the line of Tom Champion with Piper Sandler. Thomas Champion: We can see from your discussion around '26 expectations, a pretty solid top line revenue guidance. But I think you've been sort of indicating that you see a path for a very solid multiyear CAGR in revenue growth and you've talked about some of the near-term drivers. But I'm just wondering if you could talk a little bit about maybe more intermediate or longer-term dynamics in the business that would give you confidence in sort of a solid growth trajectory beyond this year in '26? Any thoughts would be welcome. And then maybe for Dan, just a clarification, is it $250 million that remains on the buyback? Anthony Wood: This is Anthony, I'll start and then turn it over to Dan. In terms of what's driving our growth, our 2 big businesses are advertising and subscriptions, and they're both doing nicely. So on the advertising side, we've talked about deepening our relationship with third-party DSPs and partners. There's still room to continue to do that. There's still a lot of ad dollars that is in the traditional linear ecosystem that's still moving the streaming. We're taking, I would say, more than our fair share of those dollars so we're continuing to see growth there. We have initiatives in place like our new home screen that we're launching, which I think will grow -- which I believe will grow monetization over time based on the testing results I'm seeing. So -- and then on subscriptions, one of the big trends in the industry that we're seeing is aggregation of streaming services. I think increasingly over time, it's only going to be a small number of services that can maintain a profitable app and that a much more profitable way to distribute their streaming service will be through something like Roku's premium subscriptions, and that's one of the reasons we're seeing every major streaming service other than the top few sign up to be a participant in premium subscriptions because it's just good economics. It drives more subscribers on a more economical basis. And I think that -- so I think premium subscriptions are going to be a big growth driver and a big secular trend in the industry for quite some time. Things like Ads Manager are opening up huge new ad markets for us that just were not available to TVs before. And those new markets are now accessible because of AI, essentially AI that can create video very quickly or instantaneously at very low cost and then provide the targeting and then provide the granular self-serve capabilities that open up to a large number of advertisers. So those are some of the areas we're working on. And there's other activities and research projects that we have in place that we haven't disclosed yet. So there's just a lot of opportunity in the streaming space. And there's a lot of ways to continue to grow monetization on our platform as well as, obviously, we're going to continue to grow the scale of our platform, both outside the U.S. and inside the U.S. I don't know, Dan, did you have anything? Dan Jedda: Yes. I'll answer the second part of your question. We purchased $50 million in Q3 and $100 million in Q4. So yes, there's $250 million remaining on the buyback. I will say like as we noted in the shareholder letter, we see a clear path to offsetting dilution for FY '26, and we have very strong free cash flow as our guide contemplates of the $635 million of adjusted EBITDA. And my comments with respect to, we believe free cash flow will be above adjusted EBITDA for the year. Operator: Our next question comes from the line of Robert Coolbrith with Evercore ISI. Robert Coolbrith: Just wanted to go back to Ads Manager maybe for another follow-up. Can you talk about maybe the performance orientation or some of the ways that the product is different from OneView? Or do you use OneView as a base and try to sort of make more performance into the platform? Just anything you could tell us about the starting point for Ads Manager and how you're attempting to serve the needs of performance-based advertisers? And then secondly there, if you could talk a little bit more about maybe the go-to-market for how you identify maybe your high-value SMB prospects, how you reach out to them, how you onboard them or get them into the funnel and then onboard them into the platform? Anything more you could tell us about that would be really helpful. Anthony Wood: Robert, this is Anthony. I'll take the first part and then turn it over to Charlie for the second part. I'll just say -- well, first of all, OneView was a technology platform, but it was also a business strategy. And I would say the business strategy is what's changed. So the OneView technology is still integrated throughout our platform and pieces of it are in Roku Ads Manager for example, as well as a lot of homegrown technology as well. Our ad stack wasn't just OneView, but that was a piece of it. But OneView was really a strategy around us making that essentially our exclusive DSP on our platform. And that changed a few years ago to like we're not going to have OneView DSP on our platform. We're going to work with all the large DSPs that are out there that customers are using and want to continue using. So that's when we completely switched our strategy to working with third-party partners. That's when we started deeper integration with Trade Desk with Amazon with all the other partners that are out there that we work at third-party platforms. So that was really a strategy change, I would say. And that strategy change has been extremely effective, like that's working well for us. And I don't know, Charlie, do you want to take the second part or add to that? Charlie Collier: Yes. Well, it's a very different sales funnel, obviously, than going to the agencies and clients the way we do with enterprise. I'll say for my career, it is such a joy to be able to serve top of the funnel, middle of the funnel and bottom of the funnel. And it is really the bottom of the funnel that we're working on with the Ads Manager product. Driving it all -- to your point about outcomes, driving it all is really just trying to improve performance. And Anthony said earlier in the call that's spot on, really people define performance in very different ways. And so we've announced a bunch of partnerships, for example, iSpot AppsFlyer, Incremental and each of them in one way or another is about measurement performance. And so I won't go deep into how we identify the high-value SMB prospects except to say we've created a very different sales force and sales approach. We do a lot of lead gen, we market into this group. And then the best advertising for this is actually the performance itself because unlike our enterprise clients who come in with budgets, when this works, people will leave it on and continue to come back to Ads Manager for more. So in the letter and actually in the recording right before the call, you heard about a client with specific objectives who came in, saw the return on ad spend. And then not only do they continue to come back, but we see a lot of performance lead to other advertisers in the category doing the same. So really, in many ways, it's the purest form of advertising because you invest, you -- we tweak and optimize results and outcomes and then we improve performance and then we become new partners. And so I'm very excited about the ramp of this, and I think we can move from going hundreds to thousands to tens of thousands of advertisers. Anthony Wood: This is Anthony again. I'll just say one other point, which is that although Ads Manager is doing well for us, it's not exclusive. Like we are working with other third-party partners that are targeting the same target customers, the same SMBs. tvScientific, for example, is just one. But I do think that there are some significant competitive advantages to building our own self-serve platform in terms of integrating it more deeply into our platform that will result in better performance. And so I think that -- one of the reasons we're doing it ourselves is we think we can build a better product by integrating it ourselves into our platform. Operator: Ladies and gentlemen, due to the interest of time, I would now like to turn the call back to CEO, Anthony Wood for closing remarks. Anthony Wood: I'd just like to thank our employees, customers and advertisers and content partners, and thank you for listening. Operator: Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Thank you for your continued patience. Your meeting will begin shortly. If you need assistance at any time, please star zero and a member of our team will be happy to help you. Thank you for your continued time; please press 0, and a member of our team will be happy to help you. Please standby. Your meeting is about to begin. Angela: Good afternoon. My name is Angela, and I will be Operator: your conference operator today. At this time, I would like to welcome everyone to the Hercules Capital, Inc. Fourth Quarter and Full Year 2025 Financial Results Conference Call. All participant lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Please be advised that today's conference may be recorded. Lastly, if you should require operator assistance, please press 0. I will now turn the call over to Michael W. Hara, Managing Director of Investor Relations. Please go ahead. Michael W. Hara: Thank you, Angela. Good afternoon, everyone, and welcome to Hercules Capital, Inc.’s conference call for the fourth quarter and full year 2025. With us on the call today from Hercules are Scott Bluestein, CEO and Chief Investment Officer, and Seth Hardy Meyer, CFO. Hercules’ financial results were released just after today's market close and can be accessed from Hercules’ Investor Relations section at investors.htgc.com. An archived webcast replay will be available on the Investor Relations webpage following the conference call. During this call, we may make forward-looking statements based on our own assumptions and current expectations. These forward-looking statements are not guarantees of future performance and should not be relied upon in making any investment decision. Actual financial results may differ from the forward-looking statements made during this call for a number of reasons, including but not limited to the risks identified in our annual report on Form 10 and other filings that are publicly available on the SEC's website. Any forward-looking statements made during this call are made only as of today's date. Hercules assumes no obligation to update any such statements in the future. And with that, I will turn the call over to Scott. Thank you, Michael. And thank you all for joining the Hercules Capital, Inc. Q4 and Full Year 2025 Earnings Call. 2025 was another year of record operating performance, record originations, platform expansion, and strong and stable credit for Hercules Capital, Inc. We were once again able to set several new financial and performance records and deliver strong platform growth, demonstrating the stability and consistency of the Hercules platform. Hercules crossed the finish line in record fashion by delivering another strong quarter of record commitments, which led to annual records for new debt and equity commitments, gross fundings, net debt portfolio growth, and both total and net investment income. Our momentum continued in Q4, with record originations of $1,060,000,000.00 which drove record annual originations of nearly $4,000,000,000 and record annual gross fundings of $2,280,000,000. Our record fundings led to a new record net debt portfolio growth in 2025. The strong new business activity throughout the year Scott Bluestein: helped to deliver new annual records for both total investment income and net investment income. Our performance in 2025 and our continued confidence in the trajectory of the business put us in position to once again declare a new supplemental distribution program for our shareholders. Despite operating in a declining rate environment, we were able to achieve 120% coverage of our quarterly base distribution of $0.40 per share in the fourth quarter and maintain $0.82 per share of spillover income. In addition to not making any changes to our quarterly base distribution, we are maintaining the same quarterly supplemental distribution as last year. Driven by the growth of both the BDC and our private credit funds business, Hercules Capital, Inc. is now managing more than $5,700,000,000.0 of assets, an increase of more than 20% from where we were at year-end 2024. Let me recap some of the highlights and achievements for 2025. Record new debt and equity commitments of $3,920,000,000.00, an increase of 45.7% year over year. Record gross fundings of $2,280,000,000.00, an increase of 25.9% year over year. Record total investment income of $532,500,000.0, an increase of 7.9% year over year. Record net investment income of $341,700,000.0, an increase of 4.9% year over year. Record net debt portfolio growth of approximately $748,500,000.0. Consistent and growing quarterly dividends from our wholly owned RIA, which generated $23,400,000 in dividend and other contributions for the company in 2025. Six consecutive years of delivering supplemental distributions to our shareholders. And record platform-level year-end assets under management of more than $5,700,000,000.0, an increase of 20.5% year over year. As we enter 2026, we continue to expect higher-than-normal market and macro volatility. We are already seeing this play out with the recent valuation reset that is taking place in certain parts of the tech ecosystem. With our disciplined, credit-first approach to underwriting, and our unwavering commitment to always making decisions that we believe are in the best interest of our shareholders and stakeholders, we remain confident in the strength and stability of the Hercules platform and our ability to continue to generate strong operating results irrespective of the market backdrop. With the expansion of our platform capabilities over the last several years, and our expectation for continued market volatility, we expect a very robust new business environment for Hercules in 2026. Our expectation is that we will see more strategic M&A, more capital markets activity, and more support for the innovation economy in 2026. We are already seeing this come to fruition in Q1. As we have done over the last several years, we intend to continue to manage our business and balance sheet defensively, while maintaining the flexibility to take advantage of market opportunities that we expect to arise. This includes continuing to enhance our liquidity position as needed, further tightening our credit screens for new underwritings, staying focused on asset diversification, and maintaining our higher-than-normal first lien exposure, which was approximately 90% again in Q4. We believe that we are incredibly well positioned to benefit from a more favorable originations market in 2026, which we expect will be a key differentiator of our business this year. Let me now recap some of the key highlights of our performance for Q4. In Q4, we originated record total gross debt and equity commitments of $1,060,000,000 and gross fundings of over $522,000,000. We generated total investment income of $137,400,000.0 and net investment income of $87,000,000, or $0.48 per share. With record growth in our debt investment portfolio in 2025, given that nearly 75% of our prime-based loans are now at their floors, we are generating a level of core income that amply covers our base distribution of $0.40. We generated a return on equity in Q4 of 16.4%, and our portfolio generated a GAAP effective yield of 12.9%, which was impacted by lower early payoffs, and a core yield of 12.5%, which was consistent with Q3. We expect core yield to decline slightly in Q1, Operator: Cut. Michael W. Hara: Our balance sheet with moderate leverage and low cost of leverage remains very well positioned to support our continued growth objectives and provides us with the ability to continue to focus on high-quality originations versus chasing higher-yielding assets which we believe have more risk. While delivering record new originations in Q4, we still maintained a conservative and defensive balance sheet. As we guided, GAAP leverage increased to 104.4% in Q4, up from 99.5% in Q3. Our Q4 GAAP leverage remained at the very low end of our typical historical range of 100% to 115% and below the average of our BDC peers. We ended Q4 with over $1,000,000,000 of liquidity across the platform, and we further strengthened our liquidity position with our recent $300,000,000 investment-grade bond offering. The current market volatility is creating a very favorable capital deployment environment for Hercules, and we want to ensure that we are positioned to opportunistically take advantage of that for the long-term benefit of our shareholders and stakeholders. The focus of our origination efforts in Q4 was on maintaining a disciplined approach to capital deployment while emphasizing diversification across the asset base. Our Q4 fundings activity was well balanced between life sciences and tech companies, although our new commitment activity was more heavily weighted towards life sciences companies, which reflects a slightly more defensive posture. This is consistent with our public guidance during our Q3 call where we noted certain pockets of frothiness in the market that we were avoiding. In Q4, approximately 69% of our commitments and about half of our fundings were to life sciences companies, while approximately 31% of our new commitments were to tech companies. We funded debt capital to 33 different companies. Were new borrower relationships. For the year, we added 39 new borrowers to the Hercules portfolio. We also increased our capital commitments to several portfolio companies during quarter, and supporting our existing portfolio companies will continue to be a key priority for us in 2026. Our available unfunded commitments declined to approximately $385,600,000.0 from $437,500,000 in Q3, again reflecting a slightly more defensive positioning of the portfolio. The momentum that we saw in Q4 for new originations has further accelerated in Q1. Since the close of Q4, and as of 02/09/2026, our investment team has closed $894,800,000 of new commitments and funded $253,900,000. We have pending commitments of an additional $587,500,000.0 in signed nonbinding term sheets, and we expect this number to continue to grow as we progress in Q1. Our active pipeline remains very robust both in terms of quantity and most importantly, and our quarter-to-date commitment activity has remained more heavily weighted towards life sciences companies. We are focused on maintaining our high bar for new originations, given some of our recent market observations. The volume of deals that our teams are screening and passing on remains elevated, and yet we are continuing to see deals get done in the market without strong structure and well outside of what we believe are prudent underwriting metrics for the asset class. As we have always done, we intend to remain disciplined, patient, and focused on the long term while being aggressive where we believe it makes sense. We continue to be pleased with the exit activity that we saw in our portfolio during the quarter. In Q4, we had four new M&A events in our portfolio, which included one life sciences portfolio company and three technology portfolio companies announcing acquisitions. That brings us to 15 M&A events plus one IPO in our portfolio through year-end. We had one additional technology portfolio company announce an M&A event in Q1 quarter to date. Based on current market conditions and the volatility with respect to valuations, we expect exit activity to accelerate in 2026. Early loan repayments of $149,700,000.0 came in at the lower end of our range of $150,000,000 to $200,000,000 for Q4. The lower level of early loan prepayments had a small negative impact on Q4 NII, but it helped drive strong net debt portfolio growth and continues to position us well for strong core earnings growth into 2026. For Q1, we expect prepayments to be in the range of $150,000,000 to $200,000,000, although this could change as we progress in the quarter. Our net asset value per share in Q4 was $12.13, an increase of 0.7% from Q3 2025. We ended Q4 with solid liquidity of $525,500,000 in the BDC and over $1,000,000,000 of liquidity across the platform. Our liquidity position was further boosted by the $300,000,000 capital raise that we completed post quarter end. With healthy liquidity, a low cost of debt relative to our peers, and four investment-grade corporate credit ratings, we remain well positioned to compete aggressively on quality transactions, which we believe is prudent in the current environment. Credit quality of the debt investment portfolio remains strong and improved quarter over quarter. Our weighted average internal credit rating of 2.2 improved from the 2.27 rating in Q3 and remains well within our normal historical range. Our grade one and two credits increased to 66.6% compared to 64.5% in Q3. Grade three credits decreased slightly to 31.7% in Q4 versus 32.7% in Q3. Our rated four credits decreased to 1.7% from 2.8% in Q3, and we did not have any rated five credits for the third consecutive quarter. The 1.7% of loans rated at four and five as of year-end is the lowest that we have reported since 2022. Operator: In Q4, Michael W. Hara: the number of companies with loans on non-accrual decreased by one to a single loan on non-accrual with an investment cost and fair value of approximately $10,700,000 and $6,300,000, respectively. Operator: Or Michael W. Hara: 0.20.1% as a percentage of our total investment portfolio at cost and fair value, respectively. In Q4, we generated $20,300,000 of net realized gains, and as of the most recent reporting that we have, 100% of our debt investments that are on accrual are current with respect to the payment of scheduled principal and interest. With respect to our broader credit book and outlook, we generally remain pleased by what we are seeing on a portfolio level, and our portfolio monitoring remains enhanced Operator: given the volatility Michael W. Hara: in the market. We believe that our conservative underwriting and ensuring appropriate structural alignment on the deals that we do will continue to serve us well. As of the end of Q4, the weighted average loan-to-value across our debt portfolio was approximately 14%. Our asset base is intentionally diversified, with approximately 50% of our assets in our life sciences vertical and approximately 50% of our assets in our technology vertical. No single subsector makes up more than 25% of our total investment portfolio, and our debt investments are spread across 127 different companies. With the continued enhanced focus on PIK across the private credit markets, as well as the recent market surrounding software investments broadly, we wanted to provide some additional commentary on both topics for Hercules. Operator: For Q4, Michael W. Hara: PIK was approximately 10.4% of total revenue and during the 2025, which decreased from where it was in Q3. Approximately 86% of our PIK income in Q4 was attributable to PIK that was part of the original underwriting and not a result of any credit- or performance-related amendment. Nearly 91% of our PIK income in Q4 came from loans that we rated one, two, or three. With respect to the increased focus on software and AI-related investments, we note the following: Over the coming years, we believe that AI will be a net positive for our business and investment portfolio, which is largely comprised of innovative, tech-oriented businesses that embrace technology with an entrepreneurial mindset. Many of our portfolio companies are differentiating themselves from legacy software competitors by integrating general and, more importantly, agentic AI into their core product offerings. Many are also led by technical founders, which we believe provides a distinct advantage as companies look to integrate AI into their software products. AI will continue to become a key component of software offerings, and many software companies will benefit from that. The software companies that are most susceptible to AI disruption are the legacy providers that are not providing a core mission-critical business function utilizing proprietary data from their customers, and who are not analyzing the data that they do have with AI to then offer solutions to customers. Hercules factors this into our technology underwritings, and our focus over the last twelve to eighteen months has largely been centered on software companies with a hardware moat with customer bases that are highly regulated. Hercules does not lend into pure-play AI or data center GPU financing structures. This deliberate positioning allows us to avoid the highest-volatility, highest-risk segments of the market while still constructing a portfolio of companies that we believe will benefit from the operating efficiencies and productivity gains emerging across the broader AI ecosystem. Many of the software companies in our portfolio serve as the gatekeepers to their customers' structured data, and they provide the tools to these customers that serve mission-critical functions. Our software portfolio is largely comprised of businesses who have very specific domain expertise and competencies, with very high switching costs for customers. We continue to underwrite the software sector very conservatively, with ARR attachment points less than 1x on average and historical duration of our software loans less than twenty-four months, which materially de-risks the debt portfolio. On the life sciences side of our business, we are continuing to see many of our healthcare services companies and drug discovery companies benefit from the efficiencies that can be derived from utilizing some of the new AI tech that is now available to them. Operator: Lastly, Michael W. Hara: underwriting growth-stage and venture-backed software credits is fundamentally different than more traditional and customary middle market software credits. In the latter, deals are generally underwritten with LTVs in the 40% to 60% range, debt to invested equity ratios in the 50% to 70% range, and at ARR attachment points between 1x and 2.5x. For us, with our software credits, we are targeting LTVs that are less than 20%, debt to invested equity ratios less than 30%, and ARR attachment points that are sub 1x, which we believe reflects a more conservative approach to underwriting these credits. Operator: Venture capital investment activity in Q4. Michael W. Hara: Again, paralleled what we experienced in our deal flow and originations. Full year 2025 investment activity was the second highest in history at $339,400,000,000.0, second only to the $358,200,000,000.0 invested in 2021, according to data gathered by PitchBook, NDCA. While the aggregate data remains strong, it remains highly concentrated, with over 65% of the full-year VC equity investments going into AI and cybersecurity companies. M&A exit activity for 2025 for U.S. venture capital-backed companies was $140,700,000,000.0. Operator: Again, Michael W. Hara: the second highest amount since 2021. The number of IPOs for the year remained flat compared to 2024, but the dollars raised increased by nearly three times over 2024. Fundraising per VC firms slowed for the third straight year to $66,100,000,000.0 in 2025, and this is something that we will watch closely in 2026. Consistent with the aggregate data for the ecosystem, during Q4, capital raising across our portfolio remained strong, with 20 companies raising $2,900,000,000 in new capital. For 2025, we had 57 companies raise over $7,900,000,000.0 in new capital, which is the highest amount since we began tracking the data across our portfolio. Given our strong, sustained operating performance, we exited Q4 with undistributed earnings spillover of $149,900,000.0, or $0.82 per ending shares outstanding. For Q4, we are maintaining our quarterly base distribution of $0.40, and we declared a new supplemental distribution of $0.28 for 2026, which will be distributed equally over four quarters, or $0.07 per share per quarter, a total of $0.47 of shareholder distributions each quarter. Our Q4 net investment income covered our base distribution by 120% and our full distribution, including our $0.07 supplemental distribution, by 102%. Based on our recent and anticipated near-term operating performance, we continue to be very comfortable with our quarterly base distribution and our ability to continue to provide our shareholders with supplemental distributions this year. This is our twenty-second consecutive quarter being able to provide our shareholders with a supplemental distribution in addition to our regular quarterly base distribution. Similar to what we did at year-end 2024, we want to provide a brief update on our growing private fund business, which continues to provide meaningful benefits to Hercules Capital, Inc. As a reminder, Hercules Advisor LLC is a wholly owned subsidiary of Hercules Capital, Inc., our internally managed BDC, and as a result, 100% of the earnings and value of that business benefit our public shareholders and stakeholders. We are very excited about the momentum in this business and the value that we are delivering for our institutional partners, and we view it as a strong tailwind for Hercules and our shareholders moving forward. Since inception in 2021, HTGC has received approximately $65,000,000 in cumulative benefits from its wholly owned private credit funds business. Hercules Advisor LLC now manages nearly $2,000,000,000 in committed equity and debt capital, and these private funds continue to provide a differentiated avenue for institutional investors to access the scale and proven performance of Hercules. During 2025, between new capital commitments and the extension of existing capital commitments, we raised over $1,000,000,000 across our private fund business. Operator: In closing, Michael W. Hara: our scale, institutionalized lending platform and our ability to capitalize on a rapidly changing competitive and macro environment continues to drive our business forward and our operating performance to record levels. In Q4, Hercules delivered its eleventh consecutive quarter of over $100,000,000 of quarterly core income, which excludes the benefit of prepayment fees or fee accelerations from early repayments. Despite the declining rate environment that we are now operating in, we were able to achieve 120% coverage of our quarterly base distribution in Q4. Our continued success attributable to the tremendous dedication, efforts, and capabilities of our 115-plus employees and the trust that our venture capital and private equity partners place with us every day. We are thankful to the many companies, management teams, and investors that continue to make Hercules their partner of choice. I will now turn the call over to Seth. Thank you, Scott, and good afternoon and evening, ladies and gentlemen. 2025 was another very strong year for Hercules Capital, Inc. with record operating performance and an acceleration of the growth of the Hercules platform. Our strong business momentum and performance results Seth Hardy Meyer: throughout the year continued into the fourth quarter delivered strong growth across both the BDC and our wholly owned private credit fund business, which continues to provide us with significant capital flexibility and the capacity to take advantage of market opportunities as they arise. We continue to maintain strong available liquidity of approximately $526,000,000 as of quarter end in the BDC, and more than $1,000,000,000 across the platform, including the advisor funds managed by our wholly owned subsidiary Hercules Capital, Inc. Hercules Advisor LLC. As mentioned by Scott, after quarter end, we strengthened our liquidity position by issuing $300,000,000 of institutional 5.35% unsecured notes. Finally, based on the performance of the quarter, Hercules Advisor delivered a quarterly dividend of $2,100,000.0, which when combined with the expense reimbursement of approximately $4,400,000, resulted in approximately $6,500,000.0 in NII contribution to the BDC for the quarter. For 2025, Hercules Advisor delivered $23,000,000 in NII contribution to the BDC, an increase of approximately 33% year over year. With those points in mind, I will review the income statement performance and highlights, NAV unrealized and realized activity, leverage and liquidity, and finally, the financial outlook. Turning first to the income statement performance and highlights. Total investment income in Q4 was $137,400,000.0 supported by our year-to-date debt portfolio growth. Core investment income, a non-GAAP measure, increased as well to a record $133,300,000.0. Core investment income excludes the benefit of income recognized because of early loan prepayments. Net investment income was $87,000,000, or $0.48 per share in Q4, and this number was partially impacted by prepayments being lower than anticipated in the fourth quarter. Our effective and core yields were 12.9% and 12.5%, respectively, compared to 13.5 12.5% in the prior Operator: quarter. Seth Hardy Meyer: The effective yield was down on lower prepayments as previously noted, however, I would highlight that this is the third quarter in a row our core yield has remained at 12.5%. 12.5% despite the base rate decreases throughout the latter half of 2025. As of quarter end, approximately 75% of our prime-based loans were at the contractual floor and thus the impact of any future rate reductions will continue to be muted. Fourth quarter operating expenses were $54,900,000 compared to $53,600,000 in the prior quarter. Net of costs recharged to the RIA, our net operating expenses were $50,500,000.0. Interest expense and fees increased to $28,200,000.0 due to the growth of the business and corresponding increase of leverage. SG&A remained stable at $26,700,000.0, just above my guidance on the growth of the business. Net of cost recharged to the RIA, SG&A expenses decreased slightly to $22,200,000.0. Our weighted average cost of debt remains stable at 5.1%. Our ROAE, or NII over average equity, decreased to 16.4% for the fourth quarter, and our ROAA, or NII over average total assets, decreased to 8.2%. In the NAV unrealized and realized activity, during the quarter, our NAV per share increased by $0.8 per share to $12.13 per share. The main driver was the net realized gains and accretion due to the use of the ATM during the quarter. During 2025, our NAV per share increased by 4%, and this is the highest year-end NAV we have delivered since 2007. During Q4, Hercules had net realized gains of $20,300,000.0 comprised of gross realized gains of $28,800,000, primarily due to the gain on equity investments, offset by $8,500,000 of losses. The losses were due to $5,300,000 of losses on equity investments, $3,100,000.0 from the write-off of one legacy debt investment, and $100,000 from a realized loss on debt extinguishment. Our $16,400,000 of net realized depreciation was primarily attributable to $18,300,000 of net unrealized depreciation due to reversals of previous quarter appreciation upon a realization event, and $8,900,000 of net unrealized depreciation attributable to debt investments. This was partially offset by $8,100,000 of net unrealized appreciation attributable to valuation movements in publicly held equity and warrants, $2,400,000.0 of net unrealized appreciation attributable to valuation movements in privately held equity, warrants, and investment funds, and $300,000 of net unrealized appreciation attributable to net foreign exchange and escrow movements. Next on leverage and liquidity, consistent with our previous guidance, our GAAP and regulatory leverage increased to 104.4% 88.6%, respectively, compared to the prior quarter due to the growth in the balance sheet mostly being financed by leverage. Netting out leverage with cash on the balance sheet our GAAP and regulatory leverage was 101.8% 86%, respectively. We ended the quarter with $526,000,000 of available liquidity. As a reminder, this excludes the capital raised by the funds managed by our wholly owned RIA subsidiary. Inclusive of these amounts, Hercules’ platform had more than a billion of available liquidity as of year-end. The strong liquidity positions us well to support our existing portfolio companies and source new opportunities. As mentioned, subsequent to quarter end close, Hercules Capital, Inc. raised $300,000,000 of institutional 5.35% unsecured notes due in 2029. Finally, the outlook points: for the first quarter, we expect our core yield to be in the middle of our previous disclosed range of 12% to 12.5%. As a reminder, 98% of our debt portfolio is floating with a floor, and as of today, approximately 75% of our prime-based portfolio is at the contractual floor. Although very difficult to predict, as Scott mentioned, we expect $150,000,000 to $200,000,000 in prepayment activity in the first quarter. We expect our first quarter interest expense to increase compared to the prior quarter based on the debt portfolio growth. For the first quarter, we expect SG&A expenses of $26,000,000 to $27,000,000 and an RIA expense allocation of approximately $4,500,000. Finally, we expect a quarterly dividend from the RIA of approximately $2,000,000 to $2,500,000 per quarter. In closing, as we report out another record year, we have started 2026 with the same momentum of growth and strength of our balance sheet. These two dimensions, along with our superior credit standards and selection, will help Hercules to continue scaling our platform. I will now turn the call over to the operator to begin the Q&A portion of our call. Angela, over to you. Thank you. We will now open for questions. Operator: We will take our first question from Brian McKenna with Citizens. Your line is open. Please go ahead. Great. Thanks. So I appreciate all the detail on the current backdrop for software and AI and that you think AI will actually be a net positive for your business and portfolio over time. With all that said, given the dislocation we have seen across the public markets, is there incremental opportunity here on the deployment front to take advantage of some of this volatility? And if so, where would you be looking to lean into? Scott Bluestein: Sure. Thanks for the question, Brian. So I hope that we emphasized that in the prepared remarks. We absolutely think that there is an interesting opportunity here for us to play offense. Our teams right now, across both the tech vertical and the life sciences vertical, are looking to do that. Hercules has typically performed its best in periods of volatility, and we have tried to position our balance sheet to be able to do the same this time. Our liquidity position is incredibly robust. Our balance sheet is conservative with low leverage, long liquidity, and robust liquidity, and so we do plan to be aggressive with respect to taking advantages of what we see are some pockets of real deployment opportunities. Our Q1 quarter-to-date numbers are as strong as we have ever announced on a Q4 call. If you look at the not just the pending but what is already closed quarter to date, we are well north of a billion 2, a billion $3,000,000,000 in commitments for Q1, and a large part of that is us being aggressive and taking advantage of some of the market dislocation that we think is creating some of these unique opportunities that we can be aggressive on. Seth Hardy Meyer: Okay. Great. That is helpful. And then just switching gears a little bit on the RIA. You know, it is great to hear all the momentum there, and it really feels like that business has inflected. But how should we think about fundraising and growth for that platform in 2026? I know you mentioned the $1,000,000,000 of fundraising, if you will, in 2025. And then just where does fundraising stand for Fund IV? Will that get wrapped up this year? You actually commence fundraising for the next fund? And then are there any other opportunities from a new product perspective? Scott Bluestein: Sure. So we continue to be very pleased by the growth of our private funds business. We are not going to disclose additional details outside of what we disclosed on the call, but I can tell you that we absolutely expect to continue to raise additional capital throughout 2026. We expect Fund IV to have a final close in 2026. And discussions are already well underway for what will be the vehicle as part of our private funds business. I think the key thing that I would continue to emphasize, given our unique ownership structure, the larger that business becomes, the more we are able to raise, the more we are able to deploy, the better it is for HTGC shareholders and stakeholders. And that has been and will continue to be our primary focus with that business. Seth Hardy Meyer: That is helpful. Appreciate all the color, and congrats on all the momentum at the twenty six. Thanks, Brian. Thank you. We will take our next question from Crispin Elliot Love with Piper Sandler. Please go ahead. Scott Bluestein: Thank you and good afternoon, everyone. First, just looking at your investment portfolio composition, about 35% is made up of software companies across application software and system software. Can you Seth Hardy Meyer: drill a little deeper within those cohorts? What areas in your portfolio are you Scott Bluestein: most confident in? And then, on the other side, any areas in your portfolio where you are more cautious just given the AI disruption theme out there? Yes. So look, appreciate the question, Crispin. So system software is very different than application software, which is why we break it out. Think of sort of system software as companies that are providing software to more sort of general IT companies, so cybersecurity, for example, whereas application software would be software that are providing solutions for more general users. I would tell you that across the board, we generally feel pretty good about what we are seeing in our software portfolio. Our view, as I discussed in the prepared remarks, is that there should be no ambiguity that AI is a disruptive technology. That does not mean that it has to be a destructive technology for all software businesses. Software companies that are focused on providing core, mission-critical solutions, software companies that are embracing artificial intelligence, software companies that are utilizing and building AI agentic solutions into their software offerings we think are actually going to do pretty well. They will become more value-add for some of their customers. There are software companies that are not doing that. We think that those companies will be negatively impacted. That will take place over several years. The way we structure our investments, the way we underwrite with low LTVs, low attachment points, and shorter duration than you typically see in software private credit, we think will position us relatively well. Great. Great, Scott. Thank you. Appreciate the color there. And then just on share a little bit on your views on M&A and the IPO activity into '26. You did call out an expectation more strategic M&A. Just what is your view on tech M&A as well as the IPO pipeline for tech companies? And has that been impacted at all just from recent volatility? Yeah. So it is interesting. If you look at the M&A data that we track, in sort of each of the last four years, so '22, '23, '24, and '25, we have had roughly a thousand venture-backed M&A exits per year. The dollar volumes are up pretty considerably. So last year, 934 M&A exits, about $84,000,000,000 of M&A exits. In '25, roughly the same number, so about a 29 M&A exits. But that number ballooned to about a $141,000,000,000 of transactions Operator: value. Scott Bluestein: Our current expectation is that M&A will continue to be robust in 2026. We think that there will be a lot of strategic activity with acquisitions from larger competitors that are picking up some smaller competitors that are distressed from a valuation perspective, and we think that is a net positive for our business. We generally expect the IPO market to remain muted. The number of IPOs that have been done have declined in each of the last four years. Although the dollar volume has increased considerably, and that is just a function of the number the IPOs that are getting done tend to be the larger, much larger ones, which is moving that dollar value up despite the number of IPOs remaining flat. And we do not expect that to change in 2026. Operator: Great. Thank you, Scott. Appreciate taking my questions. Thanks, Crispin. Seth Hardy Meyer: Thank you. We will take our next from John Hecht with Jefferies. Your line is open. Please go ahead. Operator: Afternoon, guys, and congrats on just continued momentum. Christopher Nolan: And I guess my question, my first question is kinda tied to that. Scott, maybe I know the venture capital companies like to use debt for portion of dilution. I the last time I tried business through never missed it. It is still a relatively small component of the overall pie for them in terms of capital raising for their portfolio companies? This structure of the industry chain, I guess, Operator: Hey, John. I think we are losing you. Okay. It looks like John did disconnect. Seth Hardy Meyer: We will move on to our next questioner. Finian Patrick O'Shea: We will go next to Finian O'Shea with Wells Fargo. Scott Bluestein: Hey, everyone. Good afternoon. So a couple of things tied together on one, and you have had a lot of records this quarter, perhaps even more than usual. Christopher Nolan: But looking at a few other items, Scott Bluestein: ATM has been light for a while. Advisor dividend sounds like a stable guide. The Hercules dividend holds up, but sort of same base dividend, so you keep a lot of supplemental, which tells us less long-term stability on that part. Sort of tying this all together, is Hercules like is the expectation to sort of run in place this year as repayments are high, perhaps impressive growth you have achieved in the past few years will take a bit of a breather Casey Jay Alexander: I'll leave it there. Thanks. Scott Bluestein: Yeah, sure. Thanks for the question, Fin. And the answer is unequivocally no. I think if you take our prepared comments and you look at just the quarter-to-date data for Q1, we have tremendous conviction in the growth opportunity for the platform this year, and we are positioning the business to be able to take advantage of that. Couple of things specifically that you referenced on the ATM, I think we have been very clear on this. We have no interest in using the ATM for the purpose of diluting our shareholders until and unless we actually need that capital. And so in periods where we do not need to use the ATM, we are not going to use the ATM facility just to raise additional capital. We ended the year with $1,000,000,000 of liquidity across the platform, over $525,000,000 of that in the BDC, the rest in the private fund business. We have already funded close to $250,000,000,000 of deals in Q1. And we have well north of $1,400,000,000 in closed and pending commitments quarter to date, which would be the strongest quarter in the history of Hercules Capital, Inc. And our pipeline is not showing any signs of slowing down. Also just gave prepayment guidance that was flat from last quarter, so $150,000,000 to $200,000,000. So our full expectation, assuming we can deliver on those numbers, is that you will see continued strong growth from Hercules Capital, Inc. over the course of 2026. Operator: Okay. That is Casey Jay Alexander: cool. That much is clear. Appreciate that. Just a follow-up on sort of another one on the RIA, and I know you tend to hold your cards close here, but I will give it a shot. Some of your peers are starting to offer or plan to offer venture debt in the non-traded wealth channel. Do you think that is the right do you think the sort of product venture debt is right for that market? And then you know, if sort of different question, if these are successful, do you think that is a sort of significant headwind to terms, spreads, and so forth in the market. Scott Bluestein: Yes. So again, appreciate the question. Respectfully, I cannot speak to what our competitors are doing, and so I am not going to take a position whether I think good or bad. I can just tell you what our focus has been. We think that the best path for capital raising for this asset class in the private fund side of the business is the institutional market. Have four active private credit funds right now that are investing. They are 100% institutional with very large institutional, well-capitalized investors. And that has and that will continue to be our focus with respect to raising capital in that channel for this asset class. Christopher Nolan: Thank you. Scott Bluestein: Sure. Thanks, Ben. Finian Patrick O'Shea: Thank you. And we will take our next question from John Hecht with Jefferies. Thanks for letting me back in the queue. Sorry about Christopher Nolan: that. It is the Murphy's Law: phone died right when I was asking the question. So the question, to go back to it, was Scott, you know, I mean, there has been tremendous growth in the venture industry overall. Your momentum, obviously, is correlated to that, but I am wondering kind of structurally, are the venture capitalists using debt more as a, you know, a component of funding their group, their businesses? Or are you just is the momentum of growth just tied to the total industry growth? Scott Bluestein: So I think it is a function of both, John, and appreciate you jumping back in the queue to ask the question. So there is no question that the overall growth in the ecosystem, the growth in terms of the dollars being invested from the VC partners that we work with, has created more of a market opportunity, more of a TAM for us. So that is part of what is contributing to the growth in our business. I would also say that there is a component of the first part of what you said, which is that certain companies are utilizing more debt than they typically would have used. And that could be for a variety of reasons. Number one, because there is a valuation disconnect, and they do not want to raise a round at a lower valuation. It could be because they cannot raise equity capital, so they are trying to raise as much debt and as much leverage as they can. I would tell you, and we sort of said this in each of our last few calls, Operator: with Scott Bluestein: venture or growth-stage lending, you have to be disciplined. You have to be patient. You cannot chase the market. And I think our teams, while not perfect, I think have done a pretty good job on that. So if you look at our metrics in terms of debt to invested equity, debt to paid-in capital, all of our metrics and all of our ratios are largely flat over the last several years, which at least gives me comfort that we are not chasing some of that aggressiveness in the market as leverage has gone up for many of these companies. Operator: Okay. That is helpful. Christopher Nolan: Yeah. A second question maybe for Seth. Just in terms of deal structures, kind of the minutiae there, anything going on or worth calling out with respect to, you know, the call it, the fees that are part of the deals and the structures around that. Or kind of warrant coverage, and are those factors changing given some of the recent Operator: dislocation? Scott Bluestein: Yeah. John, I am happy to take that one. So no real change. We are generally pretty consistent in terms of how we structure these deals. I would tell you, and we have always said this, it is not a one-size-fits-all model. So I think our teams work very closely with our management team partners and our VC partners to try to put together custom-tailored solutions that work well for the companies. But generally speaking, the deals are going to have an upfront facility fee. They are going to have a cash coupon with floor protection. The vast majority of our venture and growth-stage loans will be based off of prime. The vast majority of our loans are going to have some form of end-of-term economics. Then in about 80% of the deals that we do, we will get some form of equity upside, whether it is from warrants or from an RTI, which gives us the right to invest in a subsequent equity round. So depending on the profile, depending on the stage, those metrics, those sort of tools that we have may change. But generally speaking, the deals are going to look pretty similar in terms of those different levers. Operator: Great. Thanks. Thanks, John. Finian Patrick O'Shea: Thank you. Our next question comes from Douglas Michael Harter with UBS. Your line is open. Please go ahead. Christopher Nolan: Thanks. Casey Jay Alexander: Can you just talk about how you look to balance taking advantage of kind of the opportunity from dislocations today versus kind of continuing to be patient in case that things get worse before they get better? Scott Bluestein: Sure. Thanks, Doug. So it is a balance. Right? I think our team right now is being pretty targeted. So we have identified a handful of what we think are very attractive, strong opportunities, and we are going after those opportunities as aggressively as we think is prudent. At the same time, we are making sure that we are maintaining a significant amount of dry powder. I think the $300,000,000 raise that we closed last week, I think, is sort of evidence of that, that we are trying to position ourselves to be aggressive now, but not overly aggressive where we utilize all of our available liquidity. We do think that over the course of the next several quarters more and more opportunities will come to fruition, and we want to make sure that we are positioned to take advantage of that. So we are being aggressive, we are picking our spots, but I would describe it as we are targeted, and we expect that to continue certainly over the remainder of Q1 and well into Q2 as well. Casey Jay Alexander: That. And as I guess as you think about the ability to be targeted here, can you get wider spreads in these deals in this environment? Or is it you are able to kind of finance and pick, you know, kind of cleaner companies or, you know, better credits and get the same returns. So just how to think about the Christopher Nolan: the Casey Jay Alexander: the risk-return trade-off where you are able to kind of pick something up in this environment? Scott Bluestein: I think it is the latter, Doug. We are focused right now on credit. We are not focused on chasing yield. So I think we are getting, relatively speaking, the same overall economics. We are deploying capital into what we think are better overall, more stable, scaled credits. That has been our focus for the last several years. I think we have tried to emphasize we are not chasing yield. We think that the deals that are getting done outside of sort of the typical yield spot are just a much more challenging, difficult stories. I think we are doing a pretty good job staying away from that. So I would think about it as we are maintaining our underwriting yields, but we are targeting better quality, more mature, more scaled, more sophisticated businesses that we think have more staying power. Casey Jay Alexander: Appreciate the answers. Thank you. Finian Patrick O'Shea: Thank you. We will take our next question from Ethan Kaye with Lucid Capital Markets. Your line is open. Please go ahead. Christopher Nolan: Hey, guys. Good evening. Seth Hardy Meyer: Most of mine have been asked and answered. I just have one, hopefully quicker one on software. So you talked a bit about kind of a more, you know, enhanced or sharper, you know, portfolio monitoring approach, you know, given AI disruption risk, I guess. Know, what are the red flags or, like, warning signs that you are looking out for that Paul Conrad Johnson: you know, can maybe indicate whether, you know, AI disruption is materializing? It sounds like maybe you have not seen them yet in the portfolio, but any color you can provide on, you know, what specifically you are looking for, think, would be helpful. Helpful. Seth Hardy Meyer: Sure. You know, I think it is just it is aggressive Scott Bluestein: active, consistent discussion, conversation, and monitoring. One of the benefits that we have of operating at scale, right? And for us that scale is $5,700,000,000 of AUM. It is a debt portfolio north of $5,000,000,000. It is 127 different companies. It is $4,000,000,000 of committed capital last year. We have access to a lot of different companies, a lot of venture capital partners. And so we are constantly having conversations with our portfolio ecosystem, which I think gives us a pretty good insight as to what our customers, what the investors are hearing and seeing on the ground. We also have very robust documentation. We require monthly financials. We monthly compliance certificates and bring down of reps and warranties. Our investment teams are having conversations with the vast majority of our companies on a biweekly basis where we are touching base, hearing what they are hearing from their customers, and I think that puts us in a position to sort of avoid the red-flag scenario where we can work with our companies to identify the yellow flags where if we start to see deterioration in KPIs, if we start to hear from a good portion of our companies in a particular software vertical that there is some pushback, we can react pretty aggressively and pretty quickly. Paul Conrad Johnson: Great. I appreciate that color. Thanks, guys. Operator: Thanks, Ethan. Finian Patrick O'Shea: Thank you. We will take our next question from Christopher Nolan with Ladenburg Thalmann. Your line is open. Please go ahead. Casey Jay Alexander: Scott, your comments, it sounds like the venture debt is a little bit more active than the venture equity market. Is that more of a function of just these portfolio companies are now focusing more on cash flow generation rather than growth? Operator: Yeah. Scott Bluestein: Chris, I think the venture equity market, certainly in 2025, was incredibly robust. Second strongest year on record. The only year where more equity dollars were invested was 2021, which was sort of peak of COVID. In 2025, $339,400,000,000.0 invested in about 15,000 different venture capital companies. So from the data that we have that we track, the aggregate data is pretty robust. The one data point that is not as robust is VC fundraising that has declined in each of the last four years. But it is really declined and reverted back to what it was pre-COVID, where historically the venture capital firms would raise somewhere between $30 and $60,000,000,000 per year. There was obviously the large spike '21 through '24. Then last year, that number reverted back down to about $60,000,000,000. So that is the one data point that was down. But in terms of the equity dollars being invested, those numbers are very robust. They have increased in each of the last three years, and as I mentioned, 2025 was the second strongest year on record since we have been tracking it. Casey Jay Alexander: Great. As a follow-up question, in the news, there has been reported that a new tax law in California could tax unrealized gains. I think it applies only to billionaires. But how does that apply to the conversations you are having with your portfolio companies? Operator: It actually does not. Seth Hardy Meyer: So, you know, we are not interested in the equity exit. I mean, we want it to be successful and such, and we certainly want these founders to be successful. But our main goal is getting our debt repaid, making sure that they are operating to the plan in between granting them the money and getting it back. We are not focused on that at this time. Operator: Okay. Thank you. Finian Patrick O'Shea: Thank you. I am showing no further questions. I would now like to turn the call back to Scott Bluestein for any closing remarks. Scott Bluestein: Thank you, Angela. And thanks to everyone for joining our call today. We look forward to reporting our progress on our Q1 2026 earnings call. Thanks, and have a great rest of the day. Finian Patrick O'Shea: This does conclude today's Hercules Capital, Inc. Fourth Quarter and Full Year 2025 Financial Results Conference Call. You may now disconnect your line. Have a wonderful day.
Operator: Good afternoon, and welcome to the Artivion, Inc. Fourth Quarter and Year End 2025 Earnings Call. At this time, all participants are in a listen-only mode. If anyone should require operator assistance during the conference, please press. As a reminder, this conference is being recorded. I will now turn the conference over to Lane Morgan from the Gilmartin Group. Thank you. You may begin. Thanks, Operator. Good afternoon, and thank you for joining the call today. Joining me today from Artivion, Inc. management team are Pat Mackin, CEO, and Lance A. Berry, COO and CFO. Before we begin, I would like to make the following statements to comply with the safe harbor requirements of the Private Securities Litigation Reform Act of 1995. Comments made on this call that look forward in time involve risks and uncertainties and are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements made as to the company's or management's intentions, hopes, beliefs, expectations, or predictions of the future. These forward-looking statements are subject to a number of risks, uncertainties, estimates, and assumptions that may cause actual results to differ materially from these forward-looking statements. Additional information concerning certain risks and uncertainties that may impact these forward-looking statements is contained from time to time in the company's SEC filings and in the press release that was issued earlier today. You can also find a brief presentation with details highlighted on today's call on the investor relations section of the Artivion, Inc. website. Lastly, I would like to remind you to please refer to our press release published earlier today for information regarding our non-GAAP results, including a reconciliation of these results to our GAAP results. Unless otherwise stated, all of our comments today will be using our non-GAAP results. Additionally, all percentage changes discussed will be on a year-over-year basis. Revenue growth rates will be the adjusted constant currency rates, and expenses as percent of sales will be based on adjusted revenue. I will now turn the call over to Pat Mackin. Pat Mackin: Thanks, Lane, and good afternoon, everybody. 2025 was a highly successful year for Artivion, Inc., during which our team made meaningful progress against our strategy designed to drive long-term profitable growth through our expanding and clinically differentiated product portfolio. I am pleased to report that for the full year of 2025, total adjusted constant currency revenue growth was 13%, and adjusted EBITDA growth was 26% year over year. This enabled us to deliver positive free cash flow for the year while also investing significantly in future growth and operational excellence. Our progress through the year culminated in a strong fourth quarter, performance driven by continued growth across our entire product portfolio led by stent grafts and On-X. As a reminder, during 2024, stent graft and preservation services businesses were negatively impacted by the cybersecurity incident. With that in mind, from a product category perspective, stent grafts grew 36% on a constant currency basis in the fourth quarter compared to the same period last year. Year-over-year growth was again driven in large part by AMDS in the U.S., continued strong growth in stent grafts internationally, as well as an easier year-over-year comp due to last year's cyber incident. We see our stent graft portfolio as a foundational component of our growth, and we are encouraged by the continued strong results across the portfolio. Looking ahead, we intend to replicate our proven strategy by bringing additional stent graft products already generating revenue in Europe to the U.S. and Japan, which we believe will unlock further meaningful expansion of our stent graft total addressable market. Also in Q4, our On-X revenues grew 24% year over year on a constant currency basis. Growth was driven by our continued global market share gains and early traction in our new $100 million U.S. market opportunity unlocked by recently published data. As previously discussed, the clinical evidence supported by two leading journals demonstrated improved outcomes with mechanical versus bioprosthetic valves for younger patients. As a result, we maintain a strong conviction that On-X is the best aortic valve on the market for patients 65 that will continue to take market share worldwide in that product line. In Q4, tissue processing revenue, which was the category most heavily impacted by last year's cybersecurity event, increased 6% year over year on a constant currency basis. Lastly, BioGlue was relatively flat on a constant currency basis compared to the same period last year. As we have discussed previously, we expect to see some variability in the growth rates of BioGlue quarter over quarter driven by the significant amount of stocking distributor business in that product line. In addition to our strong financial performance, we continue to advance our clinical programs and pipeline. Recently, in January, we saw positive new clinical data from the AMDS PERSEVERE and NEXUS TRIUMPH trials presented at the STS annual meeting in New Orleans. First, the two-year data for AMDS PERSEVERE trial demonstrates continued clinical benefit of AMDS after one year, including minimal additional mortality and morbidity, no additional unanticipated aortic reoperations, and the continued absence of DANE tears. These data build on the positive findings from the 30-day and one-year readouts, further supporting the life-saving nature of the AMDS technology, which represents our nearest-term PMA opportunity. While the HDE enables us to sell AMDS in the U.S. ahead of the PMA approval, we remain focused on securing the PMA for AMDS. We are pleased to report that we recently filed the fourth and final module with the FDA, keeping us on track for FDA approval in mid-2026. Second, our partner EndoSpan presented one-year data from the U.S. IDE trial for its NEXUS aortic arch stent graft system. This trial is the first FDA IDE trial for the endovascular treatment of chronic dissections in the aortic arch and is focused on patients at high risk for open surgery. The data highlighted 94% of patient survival from lesion-related death, and 91% of patients were free from stroke at one year post treatment in this high-risk patient group. The data also showed 97% of patients were free from renal reinterventions due to endoleaks. In our discussions with physicians at STS, surgeons generally expressed that they believed the one-year results were extremely promising. Based on these positive outcomes, we believe NEXUS remains on track for approval in 2026. Lastly, on our pipeline, we continue to make progress on the ARTISAN trial for our Arecibo LSA product. We now have eight patients enrolled in our trial, which is a nonrandomized clinical trial consisting of 132 patients in the U.S. and at up to 30 centers for treatment of aortic dissection and aneurysm. The combined primary safety and efficacy endpoints assess the reduction in all-cause mortality, new permanent disabling stroke, new permanent paraplegia or paraparesis, unanticipated aortic reoperation in the treated segment, and left subclavian artery occlusion. We anticipate completing the full enrollment in mid-2027. We are optimistic that the trial will be successful, supported by the positive clinical results from our current generation frozen elephant trunk, E-vita Open Neo, outside the U.S. Following our one-year follow-up period, we are assuming that the trial meets its endpoint. We anticipate FDA approval for our Arecibo LSA in 2029, unlocking an incremental $80 million in annual U.S. market opportunity. In conclusion, 2025 was a standout year for Artivion, Inc., and our strong financial, clinical, and regulatory execution positions us well for continued growth in 2026 and beyond. We remain confident in our ability to deliver sustainable double-digit revenue growth, drive EBITDA margin expansion, and grow adjusted EBITDA at twice the rate of constant currency revenue growth over the long term. I will now turn the call over to Lance A. Berry. Lance A. Berry: Thanks, Pat, and good afternoon, everyone. Before I begin, I would like to remind you to please refer to our press release published earlier today for information regarding our non-GAAP results, including a reconciliation of these results to our GAAP results. Additionally, all percentage changes discussed will be on a year-over-year basis and revenue growth rates will be in adjusted constant currency unless otherwise noted. Total adjusted revenues were $118.3 million for Q4 2025, excluding the Italian payback adjustment, up 18.5% compared to 2024. Meanwhile, adjusted EBITDA increased approximately 29% from $17.6 million to $22.7 million in Q4 2025. Adjusted EBITDA margin was 19.2% in Q4 2025, approximately 110 basis point improvement over the prior year driven by leverage in SG&A. For the full year, total adjusted revenues were $443.6 million, up 13% compared to full year 2024. Adjusted EBITDA grew 26% for the full year, twice the rate of adjusted revenue growth. This resulted in adjusted EBITDA margin of 20.2%, a 190 basis point improvement from 2024. Before I do a detailed review of our results, I would like to comment on the impact of the Italian government's payback legislation to our 2025 financials. You may be familiar with this as it impacts a number of medical device companies. In 2015, the Italian government passed legislation requiring medical device companies that supply goods and services to public Italian hospitals to pay back a portion of their revenue when regional health care spend exceeds budgets. The applicability of this law was subject to extended legal proceedings, and after years of litigation, the Italian government proposed a settlement for fiscal years 2015 through 2018 which became effective in 2025. The impact on us for those fiscal years was minimal. Subsequently, to address the ongoing impact of the law in years after 2018, during the fourth quarter, we recorded a $2.3 million adjustment to revenue for the estimated payback obligations for fiscal years 2019 through 2025, which has been excluded from our fourth quarter and full year adjusted revenue. I want to highlight that while we are subject to this law after 2025, the quarterly impact is expected to be immaterial compared to this cumulative adjustment for 2019 through 2025. We do not expect to adjust for this payback moving forward, unless there are significant changes to prior period estimates. To further contextualize our underlying fourth quarter performance, I will provide additional details on our results excluding the impact of the 2024 cybersecurity incident. As previously disclosed, the incident had a negative impact of approximately $4.5 million on Q4 2024 revenue, approximately $2.0 million in stent grafts, and approximately $2.5 million in tissue processing. As a result, we estimate that our underlying business grew 13% for Q4 2025, adjusted for impacts associated with the cyber incident and Italian payback. With that, I will now move on to our Q4 results. From a product line perspective, stent graft revenues increased 36%, On-X grew 24%, tissue processing revenues grew 6% in Q4 2025. As previously discussed, the cyber incident primarily impacted our stent graft and tissue processing revenues. Excluding the previously discussed impact of the cyber incident from our prior year results, our fourth quarter stent graft revenues increased 28%, and our tissue processing revenues declined 4%. I would like to note that tissue processing growth for the full year declined 3% compared to 2024. This came in below our expectations, driven primarily by the lingering impact of the cybersecurity incident in Q1. Moving now to our regional performance. Revenues in Asia Pacific increased 32%, North America increased 18%, EMEA increased 17%, and Latin America increased 9%, all compared to Q4 2024. Q4 gross margins were 63% in both 2025 and 2024. As a reminder, the 2024 gross margin was negatively impacted by approximately two percentage points by an idle plant charge due to the cyber incident. The 2025 gross margin was negatively impacted by roughly one percentage point from the Italian payback adjustment and was also impacted by certain manufacturing inefficiencies that we do not anticipate to repeat in 2026. General, administrative, and marketing expenses in the fourth quarter were $56.8 million compared to $51.4 million in 2024. Non-GAAP general, administrative, and marketing expenses were $53.5 million or 45.2% of sales in the fourth quarter compared to $47.5 million or 48.8% of sales in 2024, reflecting a 360 basis point improvement. Approximately 200 basis points were driven through leveraging existing infrastructure; approximately 160 basis points were from stock-based compensation. Our as-reported expenses included a gain of approximately $2.9 million in Q4 associated with the cybersecurity incident, which are excluded from adjusted EBITDA, reflecting a $3.2 million insurance reimbursement for costs we incurred in previous periods. R&D expenses for the fourth quarter were $9.1 million or 7.7% of sales compared to $7.4 million or 7.6% of sales in 2024, and as expected, an uptick in spending from previous quarters this year due to the start of the ARTISAN clinical trial. Interest expense, net of interest income, was $5.2 million as compared to $9.4 million in the prior year. Other income and expense this quarter included a nominal amount of foreign currency translation losses. Free cash flow for the full year was above expectations, coming in at approximately $1 million despite continued investments in our business, including one-time cash payments of approximately $20 million related to the previously disclosed purchase of two Austin facilities in the fourth quarter. We previously anticipated one of the buildings closing in Q1 2026, but we were able to accelerate that close to Q4. As of 12/31/2025, we had approximately $64.9 million in cash and $215.1 million in debt, net of $4.9 million of unamortized loan origination cost. At the end of the fourth quarter, our net leverage ratio was 1.8, down from 3.8 in the prior year. And now for our outlook for 2026. Please note that this outlook excludes any impact from the potential acquisition of EndoSpan. We expect constant currency growth between 10% to 14% for the full year 2026, representing a reported revenue range of $486 million to $504 million. This guidance contemplates FX to have an insignificant impact on our as-reported revenue for the full year. On a segment basis, we expect similar business dynamics to be in place in 2026 as there were in 2025 with a few items to note. First, we will be in year two of the AMDS launch, resulting in more difficult comps as the year progresses. Second, our tissue business fluctuated a fair amount quarter to quarter due to the impacts of the cyber event. Overall, the business was relatively flat for the full year, and at this point, we feel it is prudent from a planning perspective to assume that this business will remain flat in 2026. Given these factors, we expect full year 2026 tissue revenue to be relatively flat compared to the full year 2025, BioGlue growth to be in the mid-single digits, On-X growth rates to be in the mid-teens, and stent graft growth rates to be in the low twenties. As it relates to quarterly cadence, we expect growth in Q1 2026 to outweigh growth in the rest of the year. This is driven by an easier Q1 comparison due to lingering revenue impact in Q1 2025 from the cybersecurity incident, tougher comps in the second and third quarters due to the recovery of the tissue backlog, and tougher On-X and AMDS comps starting in Q2. Altogether, this results in Q1 constant currency growth rate towards the high end of our full year range with lower constant currency growth rates for the remaining quarters, and we expect the second through fourth quarters to have fairly similar constant currency revenue growth rates. With our continued top line revenue growth and general expense management, we expect full year 2026 adjusted EBITDA to be in the range of $105 million to $110 million, representing a range of 18% to 22% growth over 2025 and approximately 150 basis points of adjusted EBITDA margin expansion at the midpoint of our ranges. Additionally, we expect gross margins to improve by approximately 50 basis points driven by mix benefit from U.S. AMDS and U.S. On-X sales growth. We also expect approximately 200 basis points of leverage from SG&A, partially offset by an expected 100 basis point increase in R&D as a percentage of sales. Altogether, this results in EBITDA growth at the midpoint of our range that is slightly below our target of 2x our revenue growth rate. The primary driver of this is an increase in R&D spend from 7% of sales in 2025, which is at the low end of our targeted range, to approximately 8% in 2026, which is at the high end of our targeted range. This is driven primarily due to timing; we had minimal clinical trial expenses in 2025 and expect a full year of ARTISAN trial-related expenses in 2026. Although there will be some variation in R&D as a percentage of sales from year to year, we do not expect it to be this significant going forward. On interest expense, we expect 2026 to be more consistent with our fourth quarter exit rate following the midyear 2025 refinancing. We also expect free cash flow to be slightly positive for the full year 2026. Lastly, we expect CapEx to be approximately $50 million in 2026, up from $39 million in 2025. We see a long run rate for On-X growth globally, based on the growing body of clinical evidence supporting the use of mechanical valves in younger patients and On-X's differentiated low INR indication. Accordingly, we are investing in facilities, equipment, and systems to ensure we can efficiently support that growth over the long term, resulting in elevated CapEx in 2025 and 2026. In general, our business is not capital intensive, and we expect CapEx to moderate in subsequent years. In summary, we are pleased about our 2025 performance and are excited about the prospects of the business in 2026 and beyond. With that, I will turn the call back to Pat for his closing comments. Pat Mackin: Thanks, Lance. We are very pleased with our 2025 performance and our position entering 2026, which reinforces our confidence our growth strategy is working and delivering the results we envision. More specifically, we expect future growth to be driven by the following key growth drivers. First, AMDS HDE. We are commercializing AMDS in the U.S. and continue to penetrate the $150 million annual U.S. market opportunity with new clinical data and reimbursement dynamics likely adding as a further tailwind. Number two, On-X heart valve data. We are educating health care providers on the new clinical data showing a mortality and reoperation benefit in patients 65 years of age compared to bioprosthetic valves. This is a new $100 million annual U.S. market that we will be pursuing with the only mechanical aortic valve that can be maintained at a low INR of 1.5 to 2.0. Number three, the NEXUS PMA. We are pleased with the positive new one-year clinical data from the NEXUS TRIUMPH trial which we believe, assuming we exercise our option to acquire EndoSpan, will bring us one step closer to being able to access the annual market opportunity for this device of $150 million. And fourth, the ARTISAN IDE trial. We continue to make progress on our third-generation frozen elephant trunk called Arecibo LSA in the clinical trial, which represents an incremental $80 million annual U.S. market opportunity. Finally, I want to thank all our employees around the globe for their continued dedication to our mission of being a leading partner to surgeons focused on aortic disease. With that, Operator, please open the lines for questions. 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 that 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. One moment please while we poll for questions. Our first question comes from William John Plovanic with Canaccord Genuity. Please proceed with your question. Lance A. Berry: Yeah. Great. Thanks for taking my question. You know, I think what I am trying to get my head around is just the Italian clawback, obviously, kind of skews the numbers a little. So, my questions are going to roll around that as you know, first is I assume that is in OUS, not U.S. Like, because your U.S. growth was in the high teens. I assume that was hit by the preservation service growth. But I am trying to figure out, you know, did it flow through any specific products. Kind of how did it, it sounds like it also impacted the P&L. And then I think what I am really trying to get at, you know, given the growth rate year over year, I think the U.S. was a little lower than what we would have expected, you know, given how strong the stent graft business was. And I am trying to know, it goes into the AMDS question on sell-in versus sell-through there. I know there is a lot in that, but I am, it kind of the Italian stuff kind of might be throwing some of the numbers off. So, yeah, Bill, let me maybe try and clear up some of the details around the Italian payback. So first of all, yes, it was in OUS, specifically in the EMEA line. Second, it was reported in other line item of revenue, so it did not impact any of the big four line items. So it is not skewing that growth rate that we discussed in any way, shape, or form. So hopefully, that is helpful. And then if you look at the U.S., you know, really, honestly, if you just step back and look at the growth rates, you know, for the business from Q3 to Q4, we almost, whatever you are looking at, the main difference is just the tissue business. And that business, if you take out the impact of the easy comp of the cybersecurity event, the growth rate was quite a bit lower in Q4 versus Q3. Okay. And then just really kind of the final thing is just any commentary you can provide on the sell-in versus sell-through on the AMDS and, you know, I mean, you lifted expect continued guidance, I think, well above our expectations on the AMDS and On-X. So, you know, that is a good trend, but I am just, you know, a lot of people are focused on this. Yeah. So Pat Mackin: We typically do not break out the details on AMDS even in total for revenue. And so, you know, we also do not break out the details on the new account start-ups as opposed to the actual implantations. Other than, I think, we will say the implantations are continuing to grow, and they are continuing to go really well. I think, again, I have said this a lot of times that, you know, it is just important that that first experience for a surgeon is a good one. And so far, that has been going really, really well. Lance A. Berry: Great. Thanks for taking my questions. Operator: Our next question comes from John Glenn McAulay with Stifel. Please proceed with your question. Lance A. Berry: Hi, Pat and Lance. Pat Mackin: Wanted to start off back where Bill was on AMDS. Very helpful color on just how the year plays out. Just was hoping for a little more color in the sense of how much is left to go here. Earlier last year, I think you mentioned target accounts and accounts that you were in at that point. How much progress have you made on that front? And what should we be expecting as 2026 plays out? And you gain the full FDA approval? Lance A. Berry: Yeah, Lance. I will take that. You know, so I think it is important. It is a good question. Right? If you want to make the analogy to, like, baseball, you know, like, we are in the first inning. I mean, we launched the product not, you know, like, right about a year ago, had to go through all these value analysis committees that take six to nine months. So really, 2025 was the year of opening accounts, and we had implants. But we are already starting to see those accounts implanting. But we were probably only in 10% of the accounts. So, you know, in 2026, we have got the opportunity to continue to open new accounts, get implants in the accounts you already opened. Right? So I think it is very early for AMDS and, you know, that is why we are bullish on, you know, 2026 and driving the growth there. Yeah. That is very helpful, Pat. And Pat Mackin: Just broadly on NEXUS, there is some impressive data coming out of STS. Just wanted to get your general reaction there and maybe help frame this market opportunity for us. Again, I believe there is an approved somewhat similar competitive device in this market. Can you talk about how big the market is today and what NEXUS can do to, one, help you gain share in that space and, two, help expand the market beyond its current size? Yeah. So you are correct. There is one product approved in the market. They got approval last, like, May or June. So this is kind of a nascent market. From my conversations with clinicians, I mean, this is a, you know, particularly the trial kind of showed that these are patients that were at very, very high risk of open surgery. There is a category called ASA which kind of characterizes the risk of a patient with all the different comorbidities. And, you know, two-thirds of these patients, actually, like, 70% of these patients were ASA 3 and 4, which would tell you that most surgeons are not going to operate on these patients. I mean, a good analogy is, like, the early TAVR was started in patients who could not withstand surgery, and then all of a sudden, it started going other places. So we see this as a platform technology. We say that the U.S. market is $150 million. You know, it will take us some time to penetrate that. But it is a very unique technology, and we think we are extremely well positioned. I had a chance, saw the presentation. I think that this device will be very competitive in the U.S. market to the other player. We think they are on track for a PMA approval in the second half. And, you know, this further goes to our focus in the aortic arch, whether it is AMDS or NEXUS or our ARTISAN trial with Arecibo LSA. So it is, you know, I think it just shows the company's commitment to bringing aortic technologies to these surgeons so they can treat their patients. So I do think this is a first step in a very exciting new space. That is great. Thanks for taking my questions. Operator: Our next question comes from Suraj Kalia with Oppenheimer. Please proceed with your question. Lance A. Berry: I am not hearing anything. Are you there? Operator: Okay. We will go to the next person then. Our next question will be from Joseph Conway with Oppenheimer. Please proceed with your question. Lance A. Berry: Hey, Lance. Hey, Pat. This is Jacob on for Suraj here, actually. I guess, first off, could you talk to us about how you are thinking about pricing for AMDS? And by extension NEXUS? Have you seen relative price insensitivity of demand that your assumptions of $25,000 for AMDS and $50,000 for NEXUS are still seen as the right levels. Yeah. I think it is an important point. You know, these are cutting-edge life-saving therapies, first of their kind, that happen to come with a very favorable reimbursement background. So that is not something we see at all in this space. Got it. And then just on your guide, what are the assumptions of the 10% to 14% CAGR. How can we stress test the conditions for either end of that spectrum? Well, I think it is, you know, if you look at kind of our history, I will let Lance chime in here in a second. But, you know, we have got, you know, he gave you pretty clear direction. You know, we think tissue is going to be, we are going to forecast tissue flat this year because we saw it last year, you know, a while to recover on the cyber. We are going to be prudent. We think BioGlue is going to grow by, you know, in the mid-single digit, and we think On-X is going to grow mid-teens, and we think stents are going to grow in low twenties. So those are the things that, particularly the On-X, I think half the portfolio, feel very comfortable with. We understand the tissue and the BioGlue. I think on the upside, how successful are we driving the On-X message into the marketplace? And can we grow faster than that? And same with AMDS. You know, opening more accounts and getting more implants. Those are the two that can move you up very quickly, you know, above those ranges, which are going to drive the growth rate to the higher end of the range. Lance, do you want to comment Pat Mackin: Yeah. No. I was going to say the same thing. You know, those are the two things that are our newest and are big opportunities and have a wider range of possible outcomes. And, you know, we are obviously going to be doing what we can to maximize both of them. Lance A. Berry: Thank you. Operator: Our next question comes from Frank Takkinen with Lake Street Capital Markets. Please proceed with your question. Lance A. Berry: Hey, Lance. It is Pat Nelson on for Frank. Congrats on all the progress. Maybe just to start on, I wanted to ask about the DRG code that went live October 1. Any measurable acceleration in VAC approvals or shortening of the timeframe from IRB to first case. Just any color there would be helpful. Yeah. We were not seeing prior to the October 1 implementation of DRG 209, we were not seeing the economics as a barrier. Like, we were not, again, whether it, you know, helped accelerate things, I certainly think it makes it a much easier conversation. Although it was, I think hospitals were doing fine with the new DRG. So I think I would just say it is a tailwind for us. I do not know, Lance, do you have any thoughts? Pat Mackin: Yeah. So I have yet to run into anything that significantly accelerates hospital bureaucracy. So I cannot wait for the day when it happens, but, you know, they have a lot of DRGs that they sift through and a lot of products, and their value analysis committee kind of, it moves at the pace that it moves. So, but, obviously, the new reimbursement is a great fact when we do get in front of the value committee, and I think it will be helpful when we get on the agenda. Lance A. Berry: Got it. That is helpful. And then apologies if I missed it, but you mentioned last quarter that you have not launched a formal marketing program to cardiologists for On-X. Any sense of timing on that if you have not started that already, or how should we think about that as a potential lever on top of everything else you have going for you with On-X? Yeah. I think that gets back to the question that was asked by the previous person, right, which is your range of 10 to 14. The two things that stand to outperform are On-X and stents because it is really the biggest opportunity. You know, we see both of these as kind of five-year opportunities, and how fast we drive the adoption, you know, we will see. We are obviously going to do as aggressive as we can. But, you know, there is a lot of cardiologists out there we have to educate. And we have got several programs in place to deliver the message to the cardiologist, the referring cardiologist. It will take time. And we will have a lot better sense this year as we start doing these programs and understand how many cardiology groups we get to and how the message resonates and how the growth rate moves forward. So, yeah, I am very optimistic because the market research, particularly on the On-X, when we talk to the referring cardiologists, these are the cardiologists that refer to the implanting surgeon. When we review the two papers that show a mortality and re-op benefit in patients under 65 for mechanical versus bioprosthetic, and we show them the On-X low INR data that nobody else has got, they were wildly positive, to the point where they are going to refer On-X valves by name, branded, which you do not see very often. So, again, we are very excited. We just have to execute. And, you know, I think it is a multiyear program. But, you know, we will have a better grip as we kind of move through 2026. Helpful. Congrats, guys. Thank you. Operator: Our next question comes from Mike Matson with Needham & Company. Please proceed with your question. Pat Mackin: Yes. Lance A. Berry: So I guess, starting with AMDS, you know, when you do get the PMA, do you expect that to have any impact on the growth at all? Like, would it maybe help a little? Or not make a difference? I mean, I think the real meaningful change is just the, you know, the main requirement of an HDE is you have got to get a local IRB at the hospital, which out of the blocks was a little confusing, but we figured it out. So it is just the administrative stuff. So that will go away. But we do not feel like it is going to meaningfully change. I mean, the opportunity is here with the HDE, it just gets rid of some of the red tape and bureaucracy of the IRB. Pat Mackin: Okay. Got it. And then where do things stand with getting AMDS into Japan? I mean, looking at your slides, I think you were saying it is probably by the end of this year. So Japan typically pegs off the PMA. So, you know, that clock is going to start once we get the PMA in the U.S. You know? So we should have an update probably midyear on AMDS Japan once we get the PMA in the U.S. Okay. Alright. And then just for the CapEx, I think Lance said $50 million for this year? And that is a pretty big step up from what was already a pretty big step up last year. So is that all just really to support the capacity expansion for On-X? Lance A. Berry: Yeah. I am going to say primarily the higher levels both years are primarily related to that. I would say also just, you know, we have upticked our own internal investment in IT systems to help drive better efficiency going forward than what we had done in the past. And I have told investors before that, you know, at the moment, if there is an opportunity where we can invest capital to either improve revenue or SG&A leverage, then I am really interested in doing that. And so a lot of it is Austin, but not all of it. And so I do think, you know, if you look into 2027, 2028, I would expect the CapEx to come down from where it is. I would not expect it to go back to where the historical levels were 2024 and previous, but I would expect it to come down meaningfully. Lance A. Berry: Okay. Thank you. Operator: As a reminder, if you would like to ask a question, please press. Our next question comes from Daniel Walker Stauder with JMP Securities. Please proceed with your question. Lance A. Berry: Yes. Great. Thanks for the questions. So first one, just on On-X. Another really strong quarter. Wanted to ask if you are still seeing the same level of cross selling benefits with AMDS that you have mentioned in the past? And are there any trends you are seeing in terms of these newer surgeons and their On-X utilization? Just really trying to get at what you were seeing with some of these physicians that you added earlier in the year. Thanks. Yeah, no, I think we are expecting that to be an ongoing kind of benefit. Right? So if you think about it, you know, there is 1,000 centers in the U.S. that do a Type A dissection. They also do aortic valves. So, you know, we are not selling On-X valves to all 1,000 centers. And for whatever reason, up to now, we had not had relationships with some of these surgeons. And they become interested in AMDS. They come to a training. The rep gets to know them, and then we show them the data. And I have had dinners with a number of these surgeons, and, you know, after the dinner conversation with the new data and the low INR and, you know, they go back and switch. So I think they kind of go hand in glove. Right? As we continue to open new AMDS accounts and continue to build relationships with these aortic surgeons, we are going to get the message out on On-X both to the surgeon as well as to the cardiologist. So I think that cross selling is going to be an ongoing thing for the next couple years as we continue to open up AMDS accounts. Okay. Makes sense. That is helpful. Just one more from me. Focusing on NEXUS, you know, could you tell us a little bit more about the eventual commercial process here? Is it really just, you know, the same playbook as AMDS? Do you expect the training and learning curve could be more or less intensive? Any more color on specific nuances to the eventual NEXUS commercial rollout would be great. Thanks. Yeah. They are very, you know, they are very kind of opposite devices. If you look at on a continuum, AMDS is extremely easy. The training requirement is really, we can do it at a benchtop with a pig valve or, you know, pig heart. Every aortic surgeon can do it. The learning curve is like one case. It adds five minutes to the procedure. So that really is kind of like nirvana from a product launch because it is just so easy. I would go to the other end of the spectrum in, you know, NEXUS is easy in that category. But these are highly trained vascular surgeons that are only in the biggest centers. So, you know, 1,000 centers, NEXUS is probably a couple hundred centers. There is going to be extensive training because it is all endovascular in the arch. It is, you know, the first device that has been trialed in chronic dissections. So I think there will definitely be more intensive training. We will have to cover every case with a rep. And so, you know, they are very different, I would say. And, you know, again, I think we are well prepared for it. In some ways, it makes it a lot easier because it is not as many centers. And those centers are going to do a lot of volume. So, and they are all, like I said, highly trained, highly skilled vascular surgeons who are already kind of skilled in the art of doing this. So we just have to train them on how to use this technology. Okay. Great. That is great insight. Thanks a lot. Appreciate it. Operator: Mr. Mackin, we have reached the end of our question and answer session. I would now like to turn the call back over to management for closing comments. Lance A. Berry: Yes. Well, thanks for joining our Q4 call, and I hope you can hear in our voices. We are super excited about 2026. We think we have got a great opportunity to drive both our commercial business with the On-X on the new clinical data and AMDS with the new data. We think we are going to get the PMA for AMDS halfway through the year, and we think NEXUS is going to get their PMA in the second half. And we have got our trial enrolling on Arecibo, and we expect that to be our next PMA in 2029. So that is kind of our business model, which is a new PMA every two years to keep the double-digit growth and EBITDA twice as fast over the long term. So we appreciate your attention and support of the company. We look forward to the next call. Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Good day, and welcome to the Trupanion, Inc. Fourth Quarter 2025 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touch-tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Gil Melchior, Director of Investor Relations. Please go ahead. Good afternoon. Gil Melchior: And welcome to Trupanion, Inc.'s fourth quarter and full year 2025 Financial Results Conference Call. Participating on today's call are Margaret Tooth, Chief Executive Officer and President, and Fawwad Qureshi, Chief Financial Officer. For ease of reference, we have included a slide presentation to accompany today's discussion, which will be made available on our Investor Relations website under our quarterly earnings tab. Before we begin, please be advised that remarks today will contain forward-looking statements. All statements other than statements of historical facts are forward-looking statements. These include, but are not limited to, statements regarding our future operations, key operating metrics, opportunities and financial performance, pricing, and veterinary industry inflation. These statements involve a high degree of known and unknown risks and uncertainties that could cause actual results to differ materially from those discussed. A detailed discussion of these and other risks and uncertainties are included in today's earnings release as well as the company's most recent reports, including Forms 10-Ks, 10-Q, and 8-K filed with the Securities and Exchange Commission. Today's presentation contains references to non-GAAP financial measures that management uses to evaluate the company's performance, including, without limitation, cost of paying veterinary invoices, variable expenses, fixed expenses, adjusted operating income, acquisition costs, internal rate of return, adjusted EBITDA, and free cash flow. When we use the term adjusted operating income or margin, it is intended to refer to a non-GAAP operating income or margin before new pet acquisition and development expenses. Unless otherwise noted, all margins and expenses will be presented on a non-GAAP basis and excluding stock-based compensation expense and depreciation expense. These non-GAAP measures are in addition to, and not a substitute for, measures of financial performance prepared in accordance with U.S. GAAP. Investors are encouraged to review the reconciliations of these non-GAAP financial measures to the most directly comparable GAAP results, which can be found in today's press release. Lastly, I would like to remind everyone that today's conference call is also available via webcast on Trupanion, Inc.'s Investor Relations website. A replay will also be available on the site. I will now hand over the call to Margaret Tooth. Margaret Tooth: Thanks, Gil, and thank you everyone for joining us this afternoon. 2025 was a record year for the company. Over the past 60 months, we added over $900,000,000 in revenue, and generated $518,000,000 in adjusted operating income. We ended the year with nearly 1,000,000 pets protected under the Trupanion brand, and have now paid over $3,500,000,000 in veterinary invoices on behalf of our members over our history, a testament to our mission and the need we serve in today's market. I would like to take a moment to thank our entire team for their efforts. The strength of our mission and our commitment to each other reinforce our confidence as we move on to our next strategic plan. Turning to our 2025 highlights, we ended the year with nearly $1,000,000,000 in subscription revenue and delivered approximately 15% annual subscription adjusted operating margin, reflecting the strength and consistency of our model. Our performance translated into $152,000,000 of operating income, which funded $83,000,000 of pet acquisition and investments and development spend during the course of the year to support long-term growth. The increase of 33% year on year in adjusted operating income reflects meaningful progress in aligning pricing with the value we deliver. These actions directly translated into a substantial improvement in per-pet margins and lifetime value while continuing to honor our commitment to our member value proposition, which we believe remains sustainably the highest in the industry for the life of the pet. Our ongoing commitment to our pricing promise and to a strong member experience has been reflected in steadily improving retention. Retention is a key driver of long-term growth in adjusted operating income, and that commitment paid off in 2025 with trailing twelve-month retention improving in every single quarter. We saw a similar strengthening in new pet acquisition, with gross pet ads also accelerating throughout 2025 and ending Q4 up 8% year on year. Stronger retention and stepped-up acquisition together drove subscription net pet growth of 50% in Q4 and 10% for the full year. As operating margins improved, we intentionally leaned further into new pet acquisition, reflecting our confidence that today's higher per-pet margin and lifetime value profile support a more aggressive posture. This resulted in a blended Q4 2025 IRR of 23%, while a full-year blended IRR was 30%. From our strong financial footing, we expect another year of consistent revenue growth with margins on our annual operating target. Combined, this translates into meaningful growth in AOI that we can reinvest with consistency and intention while continuing to generate substantial free cash flow. We expect to continue investing in our market reach by educating pet parents, redefining our message, and rolling out targeted product enhancements all aimed at strengthening Trupanion, Inc.'s position in the animal health ecosystem. Our veterinary channel, which remains our hotline for distribution, continues to play a critical role in educating pet parents about the value of medical insurance. This is most notably supported by a long-standing Territory Partner model, with nearly 200 TPs in the field every day, whose close partnerships with veterinary teams help bring the Trupanion value proposition to life. More broadly, awareness of pet medical insurance continues to rise as pet parents increasingly seek coverage earlier, reflecting a clearer understanding of the true cost of care and a stronger desire to be financially prepared. This growing demand reinforces our focus on reaching pet parents earlier in the decision-making journey, and often even before they first visit the veterinarian. Doing so will require sustained investment in brand awareness and education with returns that build over time. Though still early, we are encouraged by the role brand spend can play in helping facilitate the movement of parents through the sales funnel, and we will continue to test and refine our approach to drive maturing leads, conversion, and retention over time. Against this backdrop, Trupanion, Inc.'s model directly addresses a growing need for reliable, sustainable coverage for unexpected veterinary care. Our commitment to our mission remains unchanged: helping ensure pets receive the care they need so veterinarians can practice the medicine they are trained to deliver. With that, I will turn it over to Fawwad. Thanks, Margaret, and good afternoon, everyone. Today, I will share additional details around our fourth quarter performance, as well as provide our outlook for the first quarter and full year 2026. Fawwad Qureshi: Total revenue for the quarter was $376,900,000, up 12% year over year. Within our subscription business, revenue was $261,400,000, up 15% year over year. Total subscription pets increased 5% year over year to over 1,096,000 pets as of December 31. This includes approximately 63,000 pets in Europe. Average monthly retention for the trailing twelve months was 98.34%, up versus the fourth quarter last year, which was 98.25%. The subscription business cost of paying veterinary invoices was $180,800,000, resulting in a value proposition of 69.1%. This compared to 70% in the prior year period. This improvement more than offset adverse development from prior periods of $900,000, or approximately 30 basis points of revenue. As a percentage of subscription revenue, variable expenses were 8.7%, down from 9.2% a year ago. Fixed expenses as a percentage of revenue were 5.6%, up from 5.5% in the prior year period. Combined, we saw fixed and variable spending at 14.4% of revenue in Q4, an improvement from 14.6% in the prior year period. We have continued to drive efficiencies in fixed and variable spending consistent with our expectation. Our subscription business delivered adjusted operating income of $43,100,000, an increase of 23% from last year and contributed 96% of our total AOI for the quarter. Subscription adjusted operating margin was 16.5%, up from 15.3% in the prior year and represents approximately 120 basis points of margin expansion. Similar to last quarter, this marks a new company record for both subscription AOI and subscription AOM. Now I will turn to our other business segment, which is comprised of revenue from other products and services that have a lower margin profile than our subscription business. Our other business revenue was $115,400,000 for the quarter, an increase of 5% year over year. We expect growth for this segment to continue to decelerate as we are no longer enrolling new in the majority of U.S. states for our largest partner in this segment. Adjusted operating income for this segment was $1,900,000, or 1.6% of revenue. In total, adjusted operating income was $45,000,000 in Q4, ahead of our expectations and up 20% from Q4 of last year. We deployed $21,600,000 of this AOI to acquire approximately 65,200 new subscription pets. Excluding the pets that are underwritten through an MGA structure, this translated into an average pet acquisition cost of $320 per pet in the quarter, up from $261 in the prior year period. We invested $1,800,000 in the quarter in development costs. Non-cash expenses in the quarter included $9,400,000 in stock-based compensation, as well as a $1,100,000 goodwill impairment charge related to our European businesses. As a result, net income for the quarter improved to $5,600,000, or $0.13 per basic and diluted share, as compared to a net income of $1,700,000, or $0.04 per basic and diluted share in the prior year period. In terms of cash flow, operating cash flow was $29,300,000 in the quarter compared to $23,700,000 in the prior year period. Capital expenditures totaled $3,900,000, up from $1,900,000 in Q4 of last year. As a result, free cash flow was $25,300,000, up from $21,800,000 last year. For the full year of 2025, we continued to strengthen our balance as free cash flow increased to $75,400,000, 5.2% of total revenue and an increase of 95% year over year. We ended the year with $370,700,000 in cash and short-term investments and a total debt balance of $111,800,000, a reduction of $17,100,000 versus last year. Our financial position continues to strengthen. Last quarter, we announced a new debt facility with PNC Bank. We are happy to share that in February, and subsequent to year end, our largest insurance entity, APIC, paid an extraordinary dividend of $15,000,000 to our operating company. This follows the $26,000,000 extraordinary dividend we announced in May and is a continued illustration of the strong capitalization of APIC and our ability to fund our growth. Now I will turn to our outlook. For the full year of 2026, we expect total revenue in the range of $1,550,000,000 to $1,582,000,000. We expect subscription revenue to be between $1,117,000,000 and $1,137,000,000, representing approximately 14% year over year growth at the midpoint. We expect total adjusted operating income to be in the range of $173,000,000 to $187,000,000, or 19% year over year growth at the midpoint. This assumes veterinary inflation in line with current trends. For the first quarter of 2026, total revenue is expected to be in the range of $376,000,000 to $382,000,000. Subscription revenue is expected to be between $265,000,000 to $268,000,000, representing approximately 14% year over year growth at the midpoint. Total adjusted operating income is expected to be in the range of $38,000,000 to $41,000,000. This represents approximately 27% growth year over year at the midpoint. As a reminder, our revenue projections are subject to conversion movements predominantly between the U.S. and Canadian currencies. For our first quarter and full year guidance, we used a 73% conversion rate in our projections. Before handing it over to Margaret, I want to take a moment to talk about AOI and underscore its importance to our business model. Historically, the majority of AOI was reinvested in PAC and we anticipate this will continue. When we think about where to place the next marginal investment dollar, in addition to PAC, we have a range of choices, including new strategic initiatives such as Landspath, our food initiative, opportunities to accelerate growth such as international, investments in technology to strengthen our competitive advantage in areas like claims automation and improve member experience, and financial investments such as paying down debt. We look at AOI as a measure of profitability. It provides a versatile base of reinvestable dollars that we can align to drive the greatest overall return for the company. Let me now pass it back to Margaret. Margaret Tooth: Thanks, Fawwad. Before we open the call up for questions, I want to briefly reflect on the foundation we are carrying into our next strategic plan. Since 2021, the business generated over $500,000,000 in adjusted operating income, and grew at a compound annual growth rate of 22%. As we enter our next 36-month plan, we are doing so with strong momentum. We intend to invest aggressively against the opportunity to strengthen pet acquisition and retention strategies to place the Trupanion brand in more households than ever before. We expect to deploy capital with discipline, balancing growth, cash flow and the strength of our balance sheet as we work to build on our adjusted operating income over time. You can expect to learn more about our plan in my forthcoming shareholder letter. From an outcomes perspective, the objective of our plan is very clear: to deliver sustainable growth in adjusted operating income and intrinsic value creation that continues to compound over time. We enter this next phase with confidence in a business model that has proven resilient time and again. To realize our full potential, we will continue to raise the bar and thoughtfully scale both our business and our team to match the opportunity ahead. Stepping back, in an underpenetrated market where just 4% of pet parents have insurance, Trupanion has grown to support over 1,000,000 pets and generate over $1,000,000,000 in revenue. The strength of our financial foundation is what allows us to invest more confidently, funding our growth in pets to drive high internal rates of return, creating a profitable, well-capitalized, and increasingly cash-generative business. In an underpenetrated global market, we are well positioned for the opportunities ahead. And with that, we are happy to answer your questions. We will now open for questions. To ask a question, you may press star and one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed, and you would like to withdraw your question, please press star then two. We ask that you limit yourself to one question and one follow-up. At this time, we will pause momentarily to assemble our roster. The first question today comes from John Barnidge with Piper Sandler. Please go ahead. John Barnidge: Thank you, and good afternoon. Appreciate the opportunity. My first question would be focused, you talked about brand spend. Can you talk about some successes that you have had in reaching pet parents in different ways and how maybe that will be accelerated going forward? Thank you. Margaret Tooth: Yeah. Thanks, John. So for us, spend is really about how do we put the Trupanion brand in front of all pet parents. We are kind of really in a position now to step up given our current run rate. So it is really in areas where we are seeing existing pet parents in the veterinary profession and also outside of that. So we have concentrated our brand spend in the vet space. What we are seeing is people moving through the funnel to conversion quicker over time, and we are seeing some encouraging results from that process. We are also expanding in areas where pet parents go prior to getting to the vet, so when they are looking for pets, when they are starting to research what pets are right for them. So doing some more general direct-to-consumer information gathering, which is then also helping to bring them into our funnel from a general awareness perspective. As a category continues to expand because more pet parents are facing, you know, a challenge with the cost of veterinary care today, we want to be in position to go to them where they are, and we are starting to see that move through the funnel and some areas that the awareness of Trupanion and bringing them further and further down, which is reflected in the numbers you see in terms of pet count in the quarter with our gross pet ads up 8% and net pet growth for the quarter of 50%. Appreciate that. And then for a while, was there any favorable reserve development in that really impressive loss ratio or that service cost ratio you reported? Thank you. Fawwad Qureshi: Yeah. We had a little bit of adverse development when you look at just Q4 standalone. So about 30 basis points and if you dollarize it, it is about $900,000. So, yeah, very happy about loss ratio. Obviously, it has been a journey to get to the full-year number of 70.5. And then within the quarter, lower because we have the first half, second half seasonality. So yeah, if not for that, it would have been a little bit lower. Operator: The next question comes from Brandon Vazquez with William Blair. Please go ahead. Russell (for Brandon Vazquez): Hey, everyone. This is Russell on for Brandon. Thanks for taking the questions. Maybe I will start by asking you to kind of level set us on your 2026 guidance. What does the high end, the low end kind of bake in in terms of things like gross ads, commercial strategy, and what exactly are the puts and takes and maybe any color you can kind of give on price versus volume that you are contemplating into the guide? Fawwad Qureshi: Yeah. There are a couple of things underpinning the guidance. So as you mentioned, pricing. So as we exited the year, pricing was still the more dominant contributor to overall revenue growth. Expect that will continue as we go into 2026, but the gross adds increasing and we saw them come up nicely in the quarter, we are starting to see that shift. When you look at full year 2026, we still expect pricing to play the role of the larger role. But if you compare pricing 2026 versus 2025, we expect it to be lower. Similarly, if you compare pet count contribution to revenue, 2026 to 2025, we expect it to be higher. From a loss ratio perspective, obviously, that is the biggest driver from a financial performance standpoint. Carrying forward the assumptions from what we exited the year, so largely in line. We have not seen a significant abatement of inflation. Obviously, it is something we look at pretty carefully. And then from a spend perspective, very happy to see the leverage we had committed to, expense coming down in second half, and we saw that happen, coming from 6.2% down to 5.6% year-end both Q3 and Q4. So just diligent expense management overall. Variable, again, happy. In the quarter it came down from 14.6% to 14.4%. So we are seeing those efficiencies and the productivity investments we have made. So we expect those to continue, and then that will lead to margin expansion. Those are primarily the largest drivers of guidance. That is very helpful. Thank you. And then maybe on leads, previously, excuse me. You have mentioned the focus on the conversion towards breeders specifically and maybe some other exploratory methods. Can you talk a little bit about what you are seeing in terms of conversion and where you are seeing the most success and have you seen any change in demographic or economic quality of inbound leads given macro pressures? Margaret Tooth: Yeah. So in terms of the channels we operate in, we primarily, the vet channel continues to be our hotline. So that is always the channel that we kind of lead off of when we think about our acquisition strategy. Breeder and shelter members referring their friends, they all combine to support the overall funnel. When you have more exposure to the brand, that helps pull somebody through a little bit more. I would say that across the board, we are seeing encouraging results. Some move quicker than others, and the team leans into that. The more that we are able to invest, the more we can learn, which is great because we are in a position now where we can be really bullish. I think in terms of the demographic, we are absolutely starting to speak to different pet parents. We think in the market right now, given where the macro conditions are, given where vet costs are, we have an opportunity not only with the existing Trupanion product that we have today. We are also looking at optimizing that broadly for new pet parents coming through that we are starting to talk to. And that also will show up in the new product that we plan to launch over the course of the next 36 months, which will echo the Trupanion brand but give us that extra reach within the market that we are seeing with our lead volume today. The next question comes from Josh Shanker with Bank of America. Please go ahead. Josh Shanker: Yeah. Thank you very much. Good afternoon, everybody. I was just curious, you know, look, retention is improving. Maybe on the margin, might hope it would be improving a little quicker. Usually, at year end, you are going to give disclosure in the annual letter by cohort. Can you talk about, you might say that all three are improving, where the improvement really is coming and where it is lagging, I guess? Margaret Tooth: Yeah. Thank you for the question, Josh. Retention across the board is looking really healthy. You know, we were pleased to see every single quarter in the year that that improved and increased across the cohorts. So specifically to hit on that question, the middle bucket, referred to as the middle bucket, is those receiving rate increases of under 20%. A lot more of our members have moved into that cohort over the course of the last year. We know that that is a stronger cohort. That has been improving. The over 20% bucket, though, which still has a good portion of our members in, has been improving consistently for the last couple of years because there has been so much activity in that space. So the team has done a very good job of understanding the pain points, the confusion, or challenges that members have. And they are able to articulate the value proposition, which is a cost-plus model and the rationale for those increases. So that has been great. The area that we still have opportunity is the area we have always had opportunity, which is in our first year. And as we grow quicker, and you can see those pet ads coming through, we will have plenty of opportunities once again to lean into the different tactics that the teams have got lined up to be able to drive that number higher as well. Josh Shanker: Thank you. And you said that you have lots of uses for cash flow other than PAC, and you mentioned Landspath. We do not really have a granularity in it. Can you talk about Landspath a little bit on why we should be confident that that is a good use of your funds? Fawwad Qureshi: Yeah. I can take that question. I think it is exactly the point. AOI is a pool of capital, and now we have, I think the company has always had different places to put it. Now we have more channels. I think Landspath is still in the early stages. A lot of it is, you know, building the infrastructure to be able to test and then ultimately deliver the product. So the returns there, we have not disclosed specifics on our expectations for that. But longer term, we think that will be a very meaningful contributor to margin. Unit economics of that business are quite favorable. So that is a potential use of cash. I think the others that I talked about, technology has been hugely important to us. So when we think about claims automation going north of 60%, we expect that to rise over the course of the three years. That drives efficiency straight to the bottom line. It is a big part of why we are seeing the margin expansion we are. So continued investments in technology have pretty good ROIs for us. And then there are financial investments as well. So we have the opportunity to pay off some of our debt using the proceeds from the first extraordinary dividend that we got in the middle of last year. So that can be an effective use of cash. It lowers our cost of capital. The overall debt structure lowered our cost of capital. So we look at AOI as a pool of money that we generate organically from the business. Then we look across that portfolio and try to find the best mix of channels and where we want to make those investments, and we will continue to do that. I think it is a good position for us to be in, especially coming off a record year for margin, but also a record year for total dollars. Margaret Tooth: If I can just add as well from a Landspath perspective, specifically thinking about how does it blend in with what we are doing. The whole premise of Landspath is that this is a portion-control food that we believe will help improve the health and well-being of a pet. So when we dovetail that with the insurance component of what we offer, we believe that we can help pet parents not only have a bundle of pet care with their food on a monthly subscription basis and their insurance, but also if we see benefits coming through from having fed that food to your pet, we will be able to pass that saving back to a pet parent, which in turn increases our lifetime value of that member, but also retention, refer-a-friend, in that flywheel. The other component about Landspath is it is sold through the veterinarian. And that is very different from other foods out there, which allows the veterinarian to benefit from that additional income that we know that they have lost through revenue. And we know that there is a lot of discussion in the industry right now about revenue. This is a time where we think we can add even more support to an industry that needs it. The next question comes from Jonathan Block with Stifel. Please go ahead. Jordan Bernstein (for Jonathan Block): Great. Jordan Bernstein here on for Jonathan. You know, some of our checks would indicate the need for a lower-priced insurance plan out there for pet owners, you know, even hearing this morning from some industry peers, the tighter pet owner budget out there. To that end, are there any details you can provide on the go-to-market strategy for a lower-priced plan? I think the latest thought would be one Trupanion-branded lower-priced offering. Or is the company thinking of a two-pronged approach with the PHI and Furkin offerings kind of remodeled? Yeah. Thanks for the question, Jordan. There are a couple of things here. Margaret Tooth: I think as we look at where we are today as a product, as a brand, first and foremost, we are really pleased with the results coming out of the quarter that show that the efforts we have been making from a brand perspective holistically are really starting to move the needle, both in terms of overall gross ads, which were up 8% in the quarter, and the net pet growth, which is up to 50%. So that brand spend is starting to really resonate both at leads, convert, and keep level, which we have seen in those numbers. And we are seeing that, as I mentioned, we are pulling through a new consumer as well. And what we are looking to do is both broaden the existing Trupanion offering, which will change the price point for some people, still honoring our value proposition over the life of the pet, but just helping to broaden it, as well as looking at this newer product offering. It will not be released over the next few quarters, but it is absolutely part of a 36-month plan. And our expectation is that we will be able to leverage the brand, as you mentioned, through direct payment, through the value proposition, the trust that we have created in the veterinary industry, to offer a product we believe there is a really big gap in the market for. And we will share more details when ready about that. We are excited about it. We are making good progress in our thinking around that, and, yeah, there is an opportunity to be had, and we will absolutely be aggressive when that time comes. Jordan Bernstein (for Jonathan Block): Great. Thanks for all that color. You know, just one quick question. I hear you on all the great acceleration on gross adds on the year-over-year growth, especially the exit in 4Q. But just on the internal rate of return, the guardrail there was set at 30%. It has been breached to the downside for the second straight quarter. 28% in 3Q, now 23% in 4Q. I believe the metric has been down for seven straight quarters sequentially. When should investors expect to return to greater than 30% and some of that spend beginning to pay off on that line item? Margaret Tooth: Yeah. So a couple things. I guess that we are pleased. We believe that that investment is absolutely starting to pay off. And kind of a couple of things, we are assuming a margin for the IRR is at 12.5%. We have just exited the year at 15%. So there is already a difference in the margin there, and it is a blended metric too. So the quarterly planning product is higher from an IRR point of view. If we take a step back, you know, the reason we are investing so much more is we feel really good about the position we are in. We have increased our lifetime value of a pet 35% year over year. So we are able to lean into pet acquisition far more aggressively because not only do we have the adjusted operating income there, we are seeing that retention start to improve, which drives that tenure, which increases that lifetime value. So the newer cohort of pets have a higher margin per pet, so it gives us that confidence. We will continue to be confident because we have this really strong financial background behind us now, which we can push forward with. And in a market that absolutely is crying out for solutions of how to help pet parents budget and expect it. Over time, we are still committed to very, you know, high lifetime returns. And we are really pleased where we ended the quarter, and we are happy with that momentum. As a reminder, if you would like to ask a question, please press star. The next question comes from Wilma Jackson Burdis with Raymond James. Please go ahead. Wilma Jackson Burdis: Hey. Good evening. Looking at the 2026 guide, it looks like the subscription revenue was in line with my model, but the other revenue seemed like the runoff might be accelerating a little bit there. Just want to see if that is the case. And then also the adjusted operating income looks pretty strong, so maybe you can kind of walk us through all of those different impacts going to 2026. Thanks. Fawwad Qureshi: Yeah. Hi, Wilma. Thanks for the question. Yeah. On the other business, you know, it has been trending pretty consistently down. And I think we mentioned in the past from a pet count perspective, that decline started quite a while ago, really in the back half of 2023. And it has been pretty steady, and obviously, we expect revenue ultimately to turn negative from a year-over-year standpoint. It is still up because of pricing. So not a significant change. The margin profile for that business is loss sensitive, so it does not affect us significantly. Do not expect that to be a significant change in the trend line, but, obviously, we expect that business to ultimately go away. And then in terms of the AOI, yeah, it really comes down to a couple of things. I think pricing will still lead the way as we look at 2026. Gross ads starting to accelerate. We saw that in the second half of the year. We think there is an upside from expense management and just overall productivity and efficiency. That is really the combination of those things. What could go against us, obviously, would be inflation. So it is something that we pay close attention to. But right now, we feel good about AOI growing faster than revenue. Wilma Jackson Burdis: Thank you. And then I think that leads into my next question, actually. I know you normally see veterinarians raising their prices early in the year in January. Just curious if you are seeing anything there that, you know, changes your mind on the 15% type inflation you have been expecting every year? Thanks. Fawwad Qureshi: Yeah. Hi, Wilma. From our perspective, there is nothing that we have seen year to date that would anticipate us changing our current assumptions, and we do watch it, obviously, like hawks. And I think we have seen slight softening, and I would say it is softening off a high level. We do know the industry is under a lot of pressure right now, so we are going to continue to monitor it, and we will adjust when we see a need to. Operator: This concludes our question and answer session. I would like to turn the conference back over for any closing remarks. Margaret Tooth: Yeah. Thank you. I would just like to say that, before we sign off, I want to recognize the team for the really strong execution and results we have delivered this year. Pricing is aligned. We have achieved our target margin with strong free cash flow generation. Retention is improving, and growth in ads are accelerating. We are in great financial position with so much opportunity ahead, and we really look forward to updating everyone in the coming months on our progress. Thank you for your time today. Gil Melchior: The conference has now concluded. Operator: Thank you for attending today's presentation. You may now disconnect.
Operator: Thank you for standing by. This is the conference operator. Welcome to the Mullen Group Limited Year-End and Fourth Quarter Earnings Conference Call and Webcast. [Operator Instructions] the conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Murray K. Mullen, Chair, Senior Executive Officer and President. Please go ahead. Murray Mullen: Thank you. Welcome, everyone, to the year-end 2025 conference call. Now this morning, we released our results for 2025, along with the annual financial review and audited financial statements, which is a nice 120-page condensed document that's full of detailed numbers and analysis prepared by our team headed up by Carson Urlacher and Nik Woodworth. So we also uploaded the annual information form. It's a 60-page detailed document relating to Mullen Group. Now these documents contain updated information and are available on SEDAR+ and on our website, www.mullen-group.com. So this morning, I'm going to remind everyone that today's presentation and commentary contain forward-looking statements that are based upon current expectations and are subject to a number of risks and uncertainties. And as such, actual results may differ materially. Further information identifying the risks, uncertainties and assumptions can be found in the disclosure documents. This morning, I'm joined here in Okotoks with the entire senior executive team. I've got Richard Maloney, who is the Senior Operating Officer; Carson Urlacher, Senior Financial Officer; and Joanna Scott, who's our Senior Corporate Officer; and my name is Murray Mullen, I'm the senior Executive Officer. On today's call, I'm going to change things up in an effort to make this call as relevant to you as possible. We are going to head straight to the Q&A session because there's nothing new that we can add about 2025 that you haven't already heard, we haven't discussed or we haven't disclosed. So why repeat what we pre-released on January 19, 2026. Nothing has changed. 2025 was challenging across all four segments, no growth, basically -- which basically meant pricing came under pressure. So what did we do? Well, our business units had no choice but to tighten up. A measure that mitigated the downward pressures that we felt in the market. And at corporate, we completed two acquisitions. The net result was record revenues. And when the economy rebounds, when Canada and the U.S. come together again as friends and business partners and when Canada finally lives up to the nation building commitments, we will achieve record earnings. Okay, enough about '25. Some of you have joined the queue, and I don't want to keep anybody waiting. And besides, I do not like to waste people's time, especially this morning. So operator, let's open the Q&A session, please. Operator: [Operator Instructions] The first question comes from Cameron Doerksen with National Bank Financial. Cameron Doerksen: I guess I wanted to ask about the industry dynamics. One of the things you've kind of highlighted both in your 2026 outlook a few weeks ago, but also today is some industry capacity tightening. I wonder if you could talk a little bit more about what you're actually seeing out there in the market? Are you seeing some actual tangible evidence of this happening with the increased enforcement and maybe some financial difficulties with other players? Just any color you can provide on what you're seeing in the marketplace? Murray Mullen: Yes. Cameron, when we were preparing for this meeting, we thought that might be the question. One of the questions that would come from the analyst community is what is really happening out on the ground today -- and we highlighted that these things have to happen for supply and demand fundamentals to change. So January is really difficult to provide a full measure on, Cameron. First of all, you're coming out of the starting the year and everybody is on a diet of spending diet after spending everything in December. And so January is always a difficult month to judge. Secondly, you had some nasty weather back east that really impacted a lot of business. And so not a good judge. But I don't think we've seen anything up north that would tell us that capacity has tightened in a meaningful way. And we're waiting to see what will happen later. I think March is more of a telling quarter, Cameron, to be honest with you. January is a difficult, difficult month. February is a short month. We would need to see some meaningful recovery in demand in March. I think everybody is saying the same thing. Now let me just pivot for a second because we were down with our holistic folks down in the U.S. and it's a different story down there, Cameron, than up in Canada. There's no doubt capacity is tightening in the U.S. And there's no doubt that they have a stronger demand fundamentals. So we've heard evidence already that there's been some quite a significant change in the spot market pricing, not on contract pricing yet, but on spot market pricing down in the U.S. I haven't seen that in Canada yet. Hopefully, that helps. Cameron Doerksen: No, that does. I'm just wondering about maybe on the pricing front in Canada. I mean, obviously, still under pressure in fourth quarter, and it sounds like you're not seeing any major change yet. But I mean, I guess, any conversations you're having with some of your customers about what their expectation is for pricing in 2026? I mean, does it feel like it's potentially going to get better? Or are we at this point, sort of thinking that's going to be more flattish? Murray Mullen: Cameron, I honestly think that everybody is still kind of like the gear and the headlight scenario. We just don't know what to do because there's no clarity. So I'm concerned about that. We can't get anything from our customers. Yes, everybody is just sitting and waiting. We're waiting for something to happen rather than making things happen in this country, and I can understand why. I think everybody knows the -- all the dynamics that are going on. We don't have to beat that one to death. But I can say to you in discussions with our peers and with our customers and whatever, there's more optimism that's going to change. And maybe that's hope by midyear that, that changes. But for right now, it hasn't changed yet. Everybody is still sitting on their hands. So that's in Canada. It is significantly different down in the U.S. market. And of course, most of the data that you -- that we all look at, all of this comes from the U.S. market, all the and everything. But up here, it's still pretty loose up in Canada, Cameron. Operator: [Operator Instructions] The next question comes from Konark Gupta with Scotiabank. Konark Gupta: You mentioned, Murray, about the capacity situation in Canada and U.S. I mean, I understand, obviously, U.S. had moved a little bit faster maybe because they also saw the big surgence in capacity over the last few years. So it's a bigger peak and a deeper trough in that sense. But for Canada, like the driving situation seems like the government is trying to address that. I don't know how far they got there. But what's really the stick point in Canada on the capacity side? I mean, like did we not increase capacity so much that we don't have to decrease a lot? Or is it something else? Murray Mullen: I would think that the U.S. system is it's more geared toward animalistic instincts. I mean they -- if you're not surviving, there's been a lot more bankruptcies down in the U.S. than there has been in Canada. Now I mean, it's a bigger market. So you would expect that there would be more bankruptcies and more consolidation. But it's happening quite regularly and quite frequently in the U.S. that tightening the capacity just because it has been very, very competitive. And there have been a lot of failures down in the U.S. that tightens capacity. At the same time, they're addressing the English proficiency test and some other things that we're not doing -- we're not going to do that in Canada. That's not the way we do it. So I suspect the capacity won't tighten quite as fast in Canada as it will in the U.S. That's my expectation. But you need capacity to tighten to get rates up, Konark. That's just the reality. So is capacity going to tighten because we have a really strong economic growth in Canada? I don't think your firm or any firm that I've seen is predicting huge economic and growth in Canada in 2026. So is it going to tighten on the supply side? We've seen some failure. Not many, but a few, but not like you got in the state. -- they come in and see us and they talk to us when they get into trouble. But we haven't seen enough. I think that capacity -- we need to see a lot of tightening. And if we're waiting for the federal government and the governments to tighten the capacity, I'm not holding my breath on that. from that. But it's going to tighten this year. There's no doubt about it. I can't predict exactly when, but it is going to tighten because it is tough as nails out there on a lot of our competitors. Konark Gupta: Makes sense. And then on your 2026 outlook that you guys put out last month, I just want to understand how you're parsing out the top line growth drivers there. So I mean, I think you're assuming about, call it, 10% top line growth, give or take, in '26, and I think a good chunk of that, maybe 400 basis points or so is coming from the acquisitions that you have done last year, right? So the remainder, about 6 points of growth this year. Is it more dependent on new M&A or it's a market recovery that you're betting on? Murray Mullen: Well, Carson, I think, yes. It's -- we've got to do some M&A and on that note, we've already started with that. There's no -- Cameron or Konark, we've said for the last little bit, the only viable way to grow when the economy is not growing until capacity tightens as you got to do acquisitions, which we did last year, I suspect we'll have to do some more in 2026. And guess what, we put the balance sheet in a really good position, Carson, to make sure that we could grow at the corporate level, even though the economy is not giving us anything. And we did a couple already this year. Carson? Carson Urlacher: Yes, we did. And both of those being in the S&I segment, whereas we were not aggressive with doing acquisitions in the S&I segment in 2025. I think with respect to the guide that we came out with, Konark, that was really based on same-store sales. And if you kind of go division by division or segment by segment, LTLs, we're projecting relatively flat year 2026 versus 2025. Logistics and warehousing is going to be up, and that's really due to the timing of when we acquired Cole and the Cole Group. Specialized, we're showing a little bit of growth going into 2026 versus 2025 for a couple of reasons. You'll see there's a lot of CapEx that we put into that segment in the latter part of 2025 with our Envolve Energy Group to increase the capacity of our disposal facility. In 2026, we're projecting that there's going to be some additional turnaround work that was nonexistent in 2025 that producers basically pushed off our Canadian Dewatering group within the S&I segment, we're also positive with them on mining projects and the like that going into 2026. So those are types of the differences that we're seeing our U.S. 3PL segment, obviously, some growth in there as well, too. And that, again, is due to the timing of the acquisition of Coles. So most of it is growth that we're not seeing from new acquisitions. We've done a couple. We've done some tuck-ins that we -- in verticals that we like with fluid management with our Thrive group and a nice tuck-in in an area that we see is conducive to greater drilling activity going forward. Murray Mullen: On Thrive, I think investors and shareholders will recall that we we're an investor in thrive. And we completed the rest of that transaction with Brian, Eric and rest of the team and the shareholder group, and they joined our group. So we're now 100% owner of that business. And then in the water management business, primarily tied to some industrial but to the oil and gas sector. Carson Urlacher: More upstream related. Murray Mullen: Yes. So we really like -- these folks did a fantastic job of growing that business. That was one of our better private investments that we've ever done. just a great team. In fact, on that note, Brian is going to join our corporate team, and he's going to head up all of our water and fluid initiatives that we've got going on because that is a vertical that we think is investable and has good fundamentals to it. So we want to accelerate our investments in that sector. So we welcome the Thrive team, and we welcome Brian head up those initiatives on behalf of our organization. He's a pure -- he's an entrepreneur because he built it from nothing. So we like -- he joined us, so we're really happy with that. And if you look back at last year, we said, okay, you got to -- the segments that we have, we held our own in LTL. I think we'll hold our own again this year in LTL. L&W acquisitions drove that growth. U.S. 3PL acquisitions drove that growth. In the S&I segment, we didn't do any acquisitions. And guess what? It was tough as nails and it was down. Well, this year, we've already done two acquisitions in S&I. So we know that acquisitions is the way to position for the future. The key to acquisitions is it backfills revenue, as I said. It gives us revenue growth, but you're positioning for the future when it does tighten, when it does turn, when capital nation building projects go to working capital. That's when our shareholders will really benefit and they'll see the wisdom of why we did the acquisitions that we did. So that's coming, but you've got to get ahead of the curve, and we have. And thankfully, we have the balance sheet to do it. So we'll continue to do really thoughtful acquisitions this year, and that will drive our growth. And our business units that we've got our existing 42 up to 44 now. They will be out there, and they're going to grind it out. The -- we're in contact with them all the time. They know what the game plan is for this year until the market gives us a little bit of a better lift. Until then, you just got to grind it out, Konark. Operator: This concludes the question-and-answer session. I would like to turn the conference back over to Mr. Mullen for any closing remarks. Please go ahead. Murray Mullen: Okay. Thanks, folks for joining us. It was a quick meeting today. But as I said, everybody is -- we've debated the issues for too long. Everybody knows what's going on. We're 100% focused on what we have to do this year, and we look forward to chatting with everybody and giving an update in April as to how the first quarter worked out and how the rest of the year does. Until then, thank you very much for joining us. Operator: This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.
Operator: Good afternoon, everyone, and welcome to the Arteris, Inc. fourth quarter and full year 2025 earnings call. Please note this call is being recorded and simultaneously webcast. All material contained in the webcast is the sole property and copyright of Arteris, Inc., with all rights reserved. For your opening remarks and introductions, I will now turn the call over to Erica Mannion of Sapphire Investor Relations. Please go ahead. Thank you, and good afternoon. With me today from Arteris, Inc. are Karel Charles Janac, Chief Executive Officer, and Nicholas Bryan Hawkins, Chief Financial Officer. Karel Janac will begin with a brief review of the business results for the fourth quarter ended 12/31/2025. Nicholas Hawkins will review the financial results for the fourth quarter and full year of 2025, followed by the company's outlook for the first quarter and full year of 2026. We will then open the call for questions. Before we begin, I would like to remind you that management will make statements during this call that are forward-looking statements within the meaning of the federal securities laws. These statements are based on management's current expectations and assumptions and involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated, and you should not place undue reliance on forward-looking statements. Additional information regarding these risks, uncertainties, and factors that could cause results to differ appear in the press release or materials issued today and in the documents and reports filed by Arteris, Inc. from time to time with the Securities and Exchange Commission. Please note, during this call, we will cite certain non-GAAP measures, including, among others, non-GAAP net loss, non-GAAP net loss per share, and free cash flow, which are not measures prepared in accordance with U.S. GAAP. The non-GAAP measures are presented as we believe that they provide investors with the means of evaluating and understanding how the company's management evaluates the company's operating performance. These non-GAAP measures should not be considered in isolation from, as substitutes for, or superior to financial measures prepared in accordance with U.S. GAAP. A reconciliation of these non-GAAP measures to the nearest GAAP measure can be found in the press release for the quarter ended 12/31/2025. In addition, for a definition of certain of the key performance indicators used in this presentation, such as annual contract value, confirmed design starts, and remaining performance obligations, please see the press release for the quarter ended 12/31/2025. These key performance indicators are presented for supplemental information purposes only and should not be considered a substitute for financial information presented in accordance with GAAP, and may differ from similarly titled metrics or measures used by other companies, securities analysts, or investors. Listeners who do not have a copy of the press release for the quarter ended 12/31/2025 may obtain a copy by visiting the Investor Relations section of the company's website. In addition, management will be referring to the fourth quarter 2025 earnings presentation which can be found in the Investor Relations section of the company's website under the Events and Presentations tab. Now I will turn the call over to CEO, Karel Charles Janac. Thank you, Erica. And thanks Karel Charles Janac: to everyone for joining us on our call today. In 2025, we achieved many company records and milestones, including yet another record annual contract value plus royalty of $83,600,000, which represents a 28% year-on-year increase. This success was driven across our major vertical markets with the largest impacts in enterprise computing, automotive, and consumer electronics markets, but also across other applications, including communications, industrial, and aerospace and defense. Overall, we are seeing expanding proliferation of AI-driven semiconductor designs from data center to the edge as well as physical AI, which in turn drives increased deployment of Arteris, Inc. technology. Given the combination of the rising demand for efficient data movement in semiconductors in the AI era and our expanding set of innovative products that successfully meet the growing needs of our customers, I am proud to announce that our customers have now shipped over 4,000,000,000 chips and chiplets incorporating Arteris, Inc. network-on-chip IP as the underlying interconnect. This continues to positively impact our royalty revenue stream. Operator: On January 14, we closed the acquisition of Cycuity, Karel Charles Janac: a leading provider of semiconductor cybersecurity assurance products. Cycuity brings a rich history of strong collaborations with major commercial semiconductor companies as well as companies in the national security sector such as Booz Allen Hamilton and National Laboratories. The addition of Cycuity’s technology and expertise strengthens the Arteris, Inc. product portfolio, enabling chip designers to analyze and improve security in IP blocks, chiplets, and SoCs. Cycuity products enable the early detection of cybersecurity risks in the semiconductor hardware and firmware that serve as the foundation for all application software. The Cycuity products enable customers to uncover hardware security weaknesses and potential vulnerabilities and help to reduce associated security risks during the design phase prior to silicon manufacturing and end device production deployment. According to the National Institute of Standards and Technology, or NIST, newly reported cybersecurity silicon vulnerabilities grew by over 15 times in the last five years, with the unreported number likely much higher. The Cycuity acquisition will help us to address market concerns about the rapidly increasing volume of sophisticated cyberattacks targeting the vast amounts of data moving through semiconductors, from AI data centers to networks and a broad range of devices across the digital ecosystem. There is a growing need for cybersecurity domain expertise and proven technology which the Cycuity acquisition brings to Arteris, Inc., enabling us to proactively help customers address cybersecurity in processors and other silicon devices. We believe this product line can be used by all of our existing customers as well as others in a broader semiconductor and systems ecosystem that are not current customers. Our vision is to bring improved hardware security and advanced vulnerability testing to all SoCs, thereby extending our Arteris, Inc. reach meaningfully in terms of new customers and new entry points for every design regardless of complexity. Moving on to our organically developed products, all of which experienced strong customer adoption in 2025. FlexNoC, our AI-driven smart NoC IP product announced a year ago, saw a strong uptick in customer adoption and has now been licensed for over 30 production device deployments across each of our vertical end markets with customers including AMD for AI chiplet designs, DreamChip for automotive, and NanoXplore for aerospace applications. FlexNoC’s initial success reflects the growing need for optimized chip designs for lower power usage and latency combined with accelerated development cycles. This is particularly true for complex SoCs and chiplet designs in today's AI era, which have high performance and low power goals, and tight market windows in which to deliver silicon. Accordingly, we expect FlexNoC momentum to continue in 2026. In 2025, we also saw strength in the licensing of our cache-coherent interconnect IP product, Ncore, across various edge and server applications. For example, in early fourth quarter 2025, Altera selected Ncore and FlexNoC products from Arteris, Inc. to advance intelligent computing from cloud to edge applications. This significant order underscores Arteris, Inc.’s ability to support large customers across multiple of their product generations, an ability that drives our 90%+ customer retention rate. We continue to see growing adoption of our product portfolio by top technology companies and large enterprises. An example of this is NXP, which delivers purpose-built, rigorously tested technologies that enable devices to sense, think, and act intelligently. We recently announced that NXP has expanded its use of Arteris, Inc. products to accelerate edge AI efforts. NXP is deploying Arteris, Inc. more broadly across its AI-enabled silicon solutions including for intelligent vehicles, advanced industrial systems, and secure, seamless customer experiences on the edge. This includes our Ncore and FlexNoC network-on-chip IPs, CodaCache last-level cache IP, and Magillem SoC integration software. NXP is using these products to develop the latest AI-driven silicon designs including SoCs, neural processing units, or NPUs, and microcontrollers, or MCUs, with safe and secure high-performance data movement. Another example of a recent win is Black Sesame, which also licenses both cache-coherent and non-coherent interconnect IPs for their devices' dual needs with Ncore and FlexNoC being used to address the automotive industry's demand for automated driving silicon. Black Sesame develops a broad range of automotive semiconductors that spans from high-performance SoCs for AI autonomous driving to cross-domain SoCs used in a broad range of vehicles. Our Arteris, Inc. technology provides the high-performance network-on-chip connectivity with safety that is critical for designing tomorrow's complex automotive SoCs and achieving time-to-market requirements. Power consumption is a key factor in new SoC designs, particularly those supporting AI workloads. In the fourth quarter, Blaize deployed Arteris, Inc. system IP for their scalable, energy-efficient AI silicon. The Blaize AI platform delivers a programmable, energy-efficient foundation for hybrid AI deployment models spanning edge and cloud infrastructure, which enables users to build multimodal AI inference for smart vision, sensing, acoustic monitoring, and real-time language understanding at the edge for industrial, transportation, and smart surveillance applications. By using our Arteris, Inc. interconnect IP, they can ensure efficient data movement along with reduction in power consumption. AI is also increasingly driving chiplet projects. The number of chiplet projects incorporating Arteris, Inc. technology more than tripled over the past two years. All of these projects require state-of-the-art Arteris, Inc. technology and close collaboration with multiple ecosystem partners, which has been a major focus for us over the years. In the fourth quarter, we announced that Arteris, Inc. is a founding member of the CHASSIS program which aims to create an open automotive chiplet platform. Led by Bosch, this initiative includes automotive OEMs such as BMW, Renault, and Stellantis as well as automotive suppliers, semiconductor companies, EDA and software providers, and research entities Operator: with Arteris, Inc. providing Karel Charles Janac: network-on-chip expertise and chiplet and multi-die SoC interconnect technology. Arteris, Inc. is also part of Cadence’s recently announced strategic collaboration with Arm, Samsung Foundry, and other IP partners to deliver pre-validated chiplet solutions. The goal of this initiative is to reduce engineering complexity and accelerate time to market for mutual customers developing chiplets targeting physical AI, data centers, and high-performance computing, or HPC, applications with Arteris, Inc. interconnect IP enabling the underlying data movement. Our customers continue to innovate in exciting growth areas such as AI-enabled chips and chiplets from data centers to edge devices. The same is true for physical AI, which is based on foundational silicon combining computing, sensing, and data movement to interact with the real world. Physical AI requires a combination of quality, high performance, energy efficiency, functional safety, and cybersecurity, among others, which is supported by our products. Overall, Arteris, Inc. is in a strong position to support semiconductor applications in the AI era across enterprise computing infrastructure, autonomous vehicle decision making, advanced communications, smarter consumer electronics, industrial automation, and aerospace and defense use cases. With the addition of Cycuity to our product offering, we have the opportunity to become a leader in SoC security solutions for our existing customer base, as well as a door opener to other companies who design SoCs, thereby helping us to realize our mission of enabling every design with leading-edge Arteris, Inc. technology. With that, I will turn it over to Nicholas Hawkins to discuss our financial results in more detail. Thank you, Karel. Nicholas Bryan Hawkins: And good afternoon, everyone. As I review our fourth quarter and full year results for 2025 today, please note I will be referring to GAAP as well as non-GAAP metrics. Please note that our reconciliation of GAAP to non-GAAP financials is included in today's earnings release, which is available on our website. Also, as a reminder, I will be referring to the 4Q 2025 earnings presentation which can be found in the Investor Relations section of the company's website under the Events and Presentations tab. We had a strong fourth quarter, beating our guidance on all financial measures. The Cycuity acquisition closed in January 2026. Therefore, the Cycuity financial performance is not included in any of our reported results for 2025. However, our guidance for the first quarter and the full year 2026 incorporates the expected financial results of the Cycuity business from 01/14/2026 onwards. Turning to slide five of the presentation. Total revenue for the fourth quarter was $20,100,000, up 16% sequentially and 30% year over year, and above the top end of our guidance range. For the full year 2025, total revenue was $70,600,000, 22% higher year over year. Notably, variable royalties were 50% higher year over year with the fourth quarter setting a new record. Our royalty stream today is fueled by a balanced mix of customers across all our vertical markets, with the number of large royalty reporters tripling in the last two years. At the end of the fourth quarter, annual contract value plus royalties was $83,600,000, up 28% year over year, above the top end of our guidance range, and at a new record high. Remaining performance obligations, or RPO, which is our contracted future revenue, at the end of the fourth quarter totaled $117,000,000, representing a 32% year-over-year increase, another record high for the company. As disclosed in the notes to our financial statements, we expect approximately half of our RPO will be recognized as revenue in 2026. This projection excludes cancelable and non-cancelable FSA. Non-GAAP gross profit in the quarter was $18,500,000, representing a gross margin of 92%. GAAP gross profit in the quarter was $18,300,000, representing a gross margin of 91%. For the full fiscal year, non-GAAP gross profit was $64,800,000, representing a gross margin of 92%. GAAP gross profit was $63,700,000, representing gross margin of 90%. Now turning to slide six. Non-GAAP operating expense in the quarter was $20,800,000. We continue to reinvest a portion of our top-line growth into technology innovations, customer solution support, and our global sales team. Total GAAP operating expense for the fourth quarter was $26,700,000, which included acquisition-related expenses of $1,400,000 in the fourth quarter. For the full fiscal year, non-GAAP operating expense, which excludes the Cycuity acquisition expenses, was $77,200,000, representing an increase of 14% from the prior year. This was broadly in line with our long-term goal to manage the rate of increase in non-GAAP operating expense to around half that of the rate of increase in revenue. GAAP operating expense for the year was $96,800,000. We believe that our ongoing investments will help accelerate our top-line growth in the coming years. At the same time, we are delivering operating leverage by controlling G&A spending, which has now remained broadly flat on a non-GAAP basis for over three years. This has resulted in eight percentage point year-over-year improvement on non-GAAP operating margin. Non-GAAP operating loss in the quarter was $2,200,000, also above the top end of our guidance range. For the full 2025 fiscal year, non-GAAP operating loss was $12,500,000, representing a $2,400,000 improvement over the result for the prior year, and at the top end of our guidance range. GAAP operating loss for the fourth quarter was $8,500,000 compared to a loss of $7,100,000 in the prior-year period. For the full year, GAAP operating loss was $33,100,000. Non-GAAP net loss in the quarter was $2,300,000, or diluted net loss per share of $0.05 based on approximately 43,700,000 weighted average diluted shares outstanding. GAAP net loss in the quarter was $8,500,000, or diluted net loss per share of $0.19. For the full fiscal year, non-GAAP net loss was $14,100,000, or diluted net loss per share of $0.33 based on approximately 42,300,000 weighted average diluted shares outstanding. GAAP net loss for 2025 was $34,700,000, or diluted net loss per share of $0.82. Moving to slide seven and turning to the balance sheet and cash flow. We ended the year with $59,500,000 in cash, cash equivalents, and investments, and we have no financial debt. Free cash flow, which includes capital expenditure, was positive $3,000,000 for the fourth quarter and positive $5,300,000 for the full year, close to the top end of our guidance range. I would now like to turn to our outlook for the first quarter and full year 2026, and refer now to slide eight. For the first quarter 2026, we expect ACV plus royalties of $85,000,000 to $89,000,000, revenue of $20,500,000 to $21,500,000, with non-GAAP operating loss of $3,500,000 to $2,500,000, and non-GAAP free cash flow of negative $1,500,000 to positive $1,500,000. For the full year 2026, our guidance is as follows: ACV plus royalties to exit 2026 at $100,000,000 to $104,000,000; revenue of $89,000,000 to $93,000,000, including approximately $7,000,000 from the Cycuity business, noting that the majority of revenue derived from the Cycuity business we expect to be ratable; non-GAAP operating loss of between $9,000,000 to $5,000,000, approximately $1,000,000 of which we expect to be related to the Cycuity acquisition; and non-GAAP free cash flow of positive $5,000,000 to positive $9,000,000. Building on the strong deal execution in 2025, illustrated by the 32% year-over-year growth in RPO exiting the fourth quarter, and incorporating the anticipated growth in Cycuity’s semiconductor cybersecurity assurance software business, we continue to believe that Arteris, Inc. is on a path to profitability. We expect to report a non-GAAP operating profit for a period as early as 2026. With that, I will turn the call back to the operator for the Q&A portion of our call. Operator? Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then 2. We will pause for a moment as callers join the queue. We have a question from Kevin Garrigan from Jefferies. Your line is open. We have a question from Madison DePaula from Rosenblatt Securities. Your line is open. Can you help us size the cross-sell opportunity by outlining which customer segments you expect to engage first and expand on how Cycuity changes your ability to increase content per customer over time? Karel Charles Janac: Yes. So, hardware security assurance is becoming a major issue. As we said on the earnings call, there is about 15x growth in hardware security attacks on semiconductors. So hardware security is becoming a major issue. And because of that, we are very excited about the Cycuity hardware assurance software because it not only can be used by our substantially larger customer base, but it can be used by essentially any semiconductor company, and those chips have to be protected regardless of the complexity. So we think that it opens up a significant opportunity to enhance the system IP value that we provide, but also to address basically any semiconductor out there. So we are very excited about what we have been able to accomplish, and we look forward to keeping you updated on our progress. Operator: Okay, great. Thank you. Again, if you would like to ask a question, please press star then 1. Our next question is from Kevin Garrigan from Jefferies. Your line is open. Kevin Garrigan: Yes. Hey, guys. Sorry about that. Congrats on the great results and outlook, and thanks for taking my questions. Your NXP announcement—so NXP is now using four of your solutions, which I think is probably up from one or maybe two. Are you seeing more interest from customers to deploy an entire suite of solutions? And I would imagine that if you do get customers that are deploying the entire suite, that puts your licensing ASPs well above the $1,000,000 that you were targeting a couple years ago? Karel Charles Janac: Yes, absolutely. And if you use everything from us prior to the Cycuity acquisition, you are going to be well north of $1,000,000. And with Cycuity, it is going to be higher than that. So we basically have more to sell to our customers. And cybersecurity is a big issue now. A lot of markets such as automotive and aerospace, and even data center, are requiring ISO 21434 certification for cybersecurity protection. And so we think that this certainly helps drive the ASP significantly above the $1,000,000 average project size. And also, the other thing that is helping to go above the $1,000,000 is that the chiplet projects—you are dealing with multiple pieces of silicon where essentially every chiplet is a license and every chiplet is a royalty—also helps that trend. So we are very positive about the dynamics of our business. Yes. Kevin Garrigan: Got it. That makes a ton of sense. And then, Nicholas, just a question for you. Can you talk a little bit more about the strength in royalties that you saw? Was there a specific end market that saw surprising strength, or was it more just about your customer diversification strategy? Nicholas Bryan Hawkins: It is a little bit of both. And hi, Kevin. Thanks for joining the call. You may have seen that the number of major reporters has grown from one five years ago to three about two years ago to nine today. So there are big reporters of the six-figure-plus per quarter royalty reporters. That is a really important metric to us. And one of the issues that we look at there is the spread across geos and also across market verticals. Of those nine large reporters today, they are spread across several segments. There are several in the automotive segment, and that remains our largest single vertical. But we do have now very rapidly emerging consumer, enterprise, and even now aerospace large reporters. So I am very happy that it is a broad spectrum of strength and look forward to some further growth in the future. Kevin Garrigan: Yes. Got it. Okay. Perfect. Thanks, guys, and congrats on the results. Karel Charles Janac: Thank you. Thanks, Kevin. Operator: Once again, if you would like to ask a question, please press star then 1. Our next question is from Gus Richard from Northland. Your line is Gus Richard: Yes. Thanks for taking the question and congratulations on the results. In Q4, the royalties had a significant quarter-on-quarter step up. Is there any catch-up royalty in that number, or should we expect that to be the run rate going forward, with a seasonal bias? Nicholas Bryan Hawkins: Yes. No. That is an excellent question, Gus, and welcome to the call. There was a single royalty pickup which was reasonably sized. It was less than half $1,000,000, but that is a decent pickup, which we saw in the fourth quarter. So it did get a bit of a boost from that. So the 50% variable increase includes that. If you exclude that, the growth rate year over year was still in the low 40s percent, which is above our trajectory and our longer-term guidance CAGR for the next five years. So we are very happy that it is already growing at that rate. Audits—you can never guarantee when they are going to produce a positive result for the company. When they happen, they are great, but you cannot bank on them. Gus Richard: Got it. And then, just a little bit about Cycuity and its impact on the P&L. My top line went up at the midpoint of guidance about $7,000,000. How much of that was Cycuity for the full year? And can you talk a little bit about the impact on the P&L in terms of step up in OpEx going forward? Nicholas Bryan Hawkins: Yes. That is another excellent question, Gus. So of the $91,000,000 midpoint guide—it is $89,000,000 to $93,000,000 is the range for revenue in 2026—of that $91,000,000, approximately $7,000,000 is Cycuity. So $84,000,000 is the Arteris, Inc. original business. And that represents about a 19% year-over-year growth. As far as the rest of the financial impact from Cycuity, we do expect them to be a slight contributor to the loss for the year, so about $1,000,000 worth of loss. By the fourth quarter, we expect them to be roughly at breakeven, which is in line with the pre-Cycuity Arteris, Inc. business. As far as free cash flow is concerned, we are also expecting them to be something like $1,000,000 to the negative over the full year and about $1,500,000 negative in the first quarter. This often happens in acquisitions, as I am sure you have seen before. There is a little nuance around gross margins. Some of the government work that they do actually involves subcontractors. The GAAP accounting for subcontractors is that those expenses are not OpEx; they are treated as cost of revenue. So there is something like a one to two percentage point drop in gross margin intensity, but that is literally a flip between OpEx and gross margin. Gus Richard: Okay. Got it. That was helpful. And then my last one is, when you did the Cycuity acquisition, you guys announced an ATM and you were going to use that to replace the cash that you used for the acquisition. Where are you in that equity-raising effort and when can we expect that to conclude? Nicholas Bryan Hawkins: We are in the process of going through the activation, Gus. We cannot activate during a quiet period, as you probably know, because we have MNPI during that period before we announce our results. We will be going through the activation process shortly. We then are going through a process of setting up the traditional guardrails. We have a pricing committee on the board, and they will agree guardrails in terms of pricing and quantum. You can expect maybe some small amounts to dribble through in the first quarter. It really depends on how the market moves and so on. We have no intent at the moment to utilize anything close to the full amount that is available there. Gus Richard: Got it. Well, that was a buzz kill. Thanks for the help. Operator: There are no questions at this time. I would now like to turn the conference back to Karel Janac for the closing remarks. Please go ahead. Karel Charles Janac: Okay. Thank you for your interest in Arteris, Inc. We look forward to meeting with you at the upcoming non-deal roadshow and investor conferences in the quarters ahead and updating you on our business progress. Thank you very much. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect. Good afternoon, everyone, and welcome to the Arteris, Inc. fourth quarter and full year 2025 earnings call. Please note this call is being recorded and simultaneously webcast. All material contained in the webcast is the sole property and copyright of Arteris, Inc., with all rights reserved. For your opening remarks and introductions, I will now turn the call over to Erica Mannion of Sapphire Investor Relations. Please go ahead. Thank you, and good afternoon. With me today from Arteris, Inc. are Karel Charles Janac, Chief Executive Officer, and Nicholas Bryan Hawkins, Chief Financial Officer. Karel Janac will begin with a brief review of the business results for the fourth quarter ended 12/31/2025. Nicholas Hawkins will review the financial results for the fourth quarter and full year of 2025, followed by the company's outlook for the first quarter and full year of 2026. We will then open the call for questions. Before we begin, I would like to remind you management will make statements during this call that are forward-looking statements within the meaning of the federal securities laws. These statements are based on management's current expectations and assumptions and involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated, and you should not place undue reliance on forward-looking statements. Additional information regarding these risks, uncertainties, and factors that could cause results to differ appear in the press release or materials issued today and in the documents and reports filed by Arteris, Inc. from time to time with the Securities and Exchange Commission. Please note, during this call, we will cite certain non-GAAP measures, including, among others, non-GAAP net loss, non-GAAP net loss per share, and free cash flow, which are not measures prepared in accordance with U.S. GAAP. The non-GAAP measures are presented as we believe that they provide investors with the means of evaluating and understanding how the company's management evaluates the company's operating performance. These non-GAAP measures should not be considered in isolation from, as substitutes for, or superior to financial measures prepared in accordance with U.S. GAAP. A reconciliation of these non-GAAP measures to the nearest GAAP measure can be found in the press release for the quarter ended 12/31/2025. In addition, for a definition of certain of the key performance indicators used in this presentation, such as annual contract value, confirmed design starts, and remaining performance obligations, please see the press release for the quarter ended 12/31/2025. These key performance indicators are presented for supplemental information purposes only and should not be considered a substitute for financial information presented in accordance with GAAP, and may differ from similarly titled metrics or measures used by other companies, securities analysts, or investors. Listeners who do not have a copy of the press release for the quarter ended 12/31/2025 may obtain a copy by visiting the Investor Relations section of the company's website. In addition, management will be referring to the fourth quarter 2025 earnings presentation which can be found in the Investor Relations section of the company's website under the Events and Presentations tab. Now I will turn the call over to CEO, Karel Janac. Karel Charles Janac: Thank you, Erica, and thanks to everyone for joining us on our call today. In 2025, we achieved many company records and milestones, including yet another record annual contract value plus royalties of $83,600,000, which represents a 28% year-on-year increase. This success was driven across our major vertical markets with the largest impacts in enterprise computing, automotive, and consumer electronics markets, but also across other applications, including communications, industrial, and aerospace and defense. Overall, we are seeing expanding proliferation of AI-driven semiconductor designs from data center to the edge as well as physical AI, which in turn drives increased deployment of Arteris, Inc. technology. Given the combination of the rising demand for efficient data movement in semiconductors in the AI era and our expanding set of innovative products that successfully meet the growing needs of our customers, I am proud to announce that our customers have now shipped over 4,000,000,000 chips and chiplets incorporating Arteris, Inc. network-on-chip IP as the underlying interconnect. This continues to positively impact our royalty revenue stream. On January 14, we closed the acquisition of Cycuity, a leading provider of semiconductor cybersecurity assurance products. Cycuity brings a rich history of strong collaborations with major semiconductor companies, as well as companies in the national security sector such as Booz Allen Hamilton and National Laboratories. The addition of Cycuity’s technology and expertise strengthens the Arteris, Inc. product portfolio, enabling chip designers to analyze and improve security in IP blocks, chiplets, and SoCs. Cycuity products enable the early detection of cybersecurity risks in the semiconductor hardware and firmware that serve as the foundation for all application software. The Cycuity products enable customers to uncover hardware security weaknesses and potential vulnerabilities and help to reduce associated security risks during the design phase prior to silicon manufacturing and end device production deployment. According to the National Institute of Standards and Technology, or NIST, newly reported cybersecurity silicon vulnerabilities grew by over 15 times in the last five years, with the unreported number likely much higher. The Cycuity acquisition will help us to address market concerns about the rapidly increasing volume of sophisticated cyberattacks targeting the vast amounts of data moving through semiconductors, from AI data centers to networks and a broad range of devices across the digital ecosystem. There is a growing need for cybersecurity domain expertise and proven technology which the Cycuity acquisition brings to Arteris, Inc., enabling us to proactively help customers address cybersecurity in processors and other silicon devices. We believe this product line can be used by all of our existing customers as well as others in a broader semiconductor and systems ecosystem that are not current customers. Our vision is to bring improved hardware security and advanced vulnerability testing to all SoCs, thereby extending our Arteris, Inc. reach meaningfully in terms of new customers and new entry points for every design regardless of complexity. Moving on to our organically developed products, all of which experienced strong customer adoption in 2025. FlexNoC, our AI-driven smart NoC IP product announced a year ago, saw a strong uptick in customer adoption and has now been licensed for over 30 production device deployments across each of our vertical end markets with customers including AMD for AI chiplet designs, DreamChip for automotive, and NanoXplore for aerospace applications. FlexNoC’s initial success reflects the growing need for optimized chip designs for lower power usage, and latency combined with accelerated development cycles. This is particularly true for complex SoCs and chiplet designs in today's AI era, which have high performance and low power goals, and tight market windows in which to deliver silicon. Accordingly, we expect FlexNoC momentum to continue in 2026. In 2025, we also saw strength in the licensing of our cache-coherent interconnect IP product, Ncore, across various edge and server applications. For example, in early fourth quarter 2025, Altera selected Ncore and FlexNoC products from Arteris, Inc. to advance intelligent computing from cloud to edge applications. This significant order underscores Arteris, Inc.’s ability to support large customers across multiple of their product generations, an ability that drives our 90%+ customer retention rate. We continue to see growing adoption of our product portfolio by top technology companies and large enterprises. An example of this is NXP, which delivers purpose-built, rigorously tested technologies that enable devices to sense, think, and act intelligently. We recently announced that NXP has expanded its use of Arteris, Inc. products to accelerate edge AI efforts. NXP is deploying Arteris, Inc. more broadly across its AI-enabled silicon solutions including for intelligent vehicles, advanced industrial systems, and secure, seamless customer experiences on the edge. This includes our Ncore and FlexNoC network-on-chip IPs, CodaCache last-level cache IP, and Magillem SoC integration software. NXP is using these products to develop the latest AI-driven silicon designs including SoCs, neural processing units, or NPUs, and microcontrollers, or MCUs, with safe and secure high-performance data movement. Another example of a recent win is Black Sesame, which also licenses both cache-coherent and non-coherent interconnect IPs for their devices' dual needs with Ncore and FlexNoC being used to address the automotive industry's demand for automated driving silicon. Black Sesame develops a broad range of automotive semiconductors that spans from high-performance SoCs for AI autonomous driving to cross-domain SoCs used in a broad range of vehicles. Our Arteris, Inc. technology provides the high-performance network-on-chip connectivity with safety that is critical for designing tomorrow's complex automotive SoCs and achieving time-to-market requirements. Power consumption is a key factor in new SoC designs, particularly those supporting AI workloads. In the fourth quarter, Blaize deployed Arteris, Inc. system IP for their scalable, energy-efficient AI silicon. The Blaize AI platform delivers a programmable, energy-efficient foundation for hybrid AI deployment models spanning edge and cloud infrastructure, which enables users to build multimodal AI inference for smart vision, sensing, acoustic monitoring, and real-time language understanding at the edge for industrial, transportation, and smart surveillance applications. By using our Arteris, Inc. interconnect IP, they can ensure efficient data movement along with reduction in power consumption. AI is also increasingly driving chiplet projects. The number of chiplet projects incorporating Arteris, Inc. technology more than tripled over the past two years. All of these projects require state-of-the-art Arteris, Inc. technology and close collaboration with multiple ecosystem partners, which has been a major focus for us over the years. In the fourth quarter, we announced that Arteris, Inc. is a founding member of the CHASSIS program which aims to create an open automotive chiplet platform. Led by Bosch, this initiative includes automotive OEMs such as BMW, Renault, and Stellantis as well as automotive suppliers, semiconductor companies, EDA and software providers, and research entities with Arteris, Inc. providing network-on-chip expertise and chiplet and multi-die SoC interconnect technology. Arteris, Inc. is also part of Cadence’s recently announced strategic collaboration with Arm, Samsung Foundry, and other IP partners to deliver pre-validated chiplet solutions. The goal of this initiative is to reduce engineering complexity and accelerate time to market for mutual customers developing chiplets targeting physical AI, data centers, and high-performance computing, or HPC, applications with Arteris, Inc. interconnect IP enabling the underlying data movement. Our customers continue to innovate in exciting growth areas, such as AI-enabled chips and chiplets from data centers to edge devices. The same is true for physical AI, which is based on foundational silicon combining computing, sensing, and data movement to interact with the real world. Physical AI requires a combination of quality, high performance, energy efficiency, functional safety, and cybersecurity, among others, which is supported by our products. Overall, Arteris, Inc. is in a strong position to support semiconductor applications in the AI era across enterprise computing infrastructure, autonomous vehicle decision making, advanced communications, smarter consumer electronics, industrial automation, and aerospace and defense use cases. With the addition of Cycuity to our product offering, we have the opportunity to become a leader in SoC security solutions for our existing customer base, as well as a door opener to other companies who design SoCs, thereby helping us to realize our mission of enabling every design with leading-edge Arteris, Inc. technology. With that, I will turn it over to Nicholas Hawkins to discuss our financial results in more detail. Nicholas Bryan Hawkins: Thank you, Karel. And good afternoon, everyone. As I review our fourth quarter and full year results for 2025 today, please note I will be referring to GAAP as well as non-GAAP metrics. Please note that our reconciliation of GAAP to non-GAAP financials is included in today's earnings release, which is available on our website. Also, as a reminder, I will be referring to the 4Q 2025 earnings presentation which can be found in the Investor Relations section of the company's website under the Events and Presentations tab. We had a strong fourth quarter beating our guidance on all financial measures. The Cycuity acquisition closed in January 2026. Therefore, the Cycuity financial performance is not included in any of our reported results for 2025. However, our guidance for the first quarter and the full year 2026 incorporates the expected financial results of the Cycuity business from 01/14/2026 onwards. Turning to slide five of the presentation. Total revenue for the fourth quarter was $20,100,000, up 16% sequentially and 30% year over year and above the top end of our guidance range. For the full year 2025, total revenue was $70,600,000, 22% higher year over year. Notably, variable royalties were 50% higher year over year with the fourth quarter setting a new record. Our royalty stream today is fueled by a balanced mix of customers across all our vertical markets, with the number of large royalty reporters tripling in the last two years. At the end of the fourth quarter, annual contract value plus royalties was $83,600,000, up 28% year over year. Above the top end of our guidance range and at a new record high. Remaining performance obligations, or RPO, which is our contracted future revenue, at the end of the fourth quarter totaled $117,000,000, representing a 32% year-over-year increase. Another record high for the company. As disclosed in the notes to our financial statements, we expect approximately half of our RPO will be recognized as revenue in 2026. This projection excludes cancelable and non-cancelable FSA. Non-GAAP gross profit in the quarter was $18,500,000, representing a gross margin of 92%. GAAP gross profit in the quarter was $18,300,000, representing a gross margin of 91%. For the full fiscal year, non-GAAP gross profit was $64,800,000, representing a gross margin of 92%. GAAP gross profit was $63,700,000, representing gross margin of 90%. Now turning to slide six. Non-GAAP operating expense in the quarter was $20,800,000. We continue to reinvest a portion of our top-line growth into technology innovations, customer solution support, and our global sales team. Total GAAP operating expense for the fourth quarter was $26,700,000, which included acquisition-related expenses of $1,400,000 in the fourth quarter. For the full fiscal year, non-GAAP operating expense, which excludes the Cycuity acquisition expenses, was $77,200,000, representing an increase of 14% from the prior year. This was broadly in line with our long-term goal to manage the rate of increase in non-GAAP operating expense to around half that of the rate of increase in revenue. GAAP operating expense for the year was $96,800,000. We believe that our ongoing investments will help accelerate our top-line growth in the coming years. At the same time, we are delivering operating leverage by controlling G&A spending, which has now remained broadly flat on a non-GAAP basis for over three years. This has resulted in eight percentage point year-over-year improvement on non-GAAP operating margin. Non-GAAP operating loss in the quarter was $2,200,000, also above the top end of our guidance range. For the full 2025 fiscal year, non-GAAP operating loss was $12,500,000, representing a $2,400,000 improvement over the result for the prior year, and at the top end of our guidance range. GAAP operating loss for the fourth quarter was $8,500,000 compared to a loss of $7,100,000 in the prior-year period. For the full year, GAAP operating loss was $33,100,000. Non-GAAP net loss in the quarter was $2,300,000, or diluted net loss per share of $0.05 based on approximately 43,700,000 weighted average diluted shares outstanding. GAAP net loss in the quarter was $8,500,000, or diluted net loss per share of $0.19. For the full fiscal year, non-GAAP net loss was $14,100,000, or diluted net loss per share of $0.33 based on approximately 42,300,000 weighted average diluted shares outstanding. GAAP net loss for 2025 was $34,700,000, or diluted net loss per share of $0.82. Moving to slide seven and turning to the balance sheet and cash flow. We ended the year with $59,500,000 in cash, cash equivalents, and investments. And we have no financial debt. Free cash flow, which includes capital expenditure, was positive $3,000,000 for the fourth quarter and positive $5,300,000 for the full year, close to the top end of our guidance range. I would now like to turn to our outlook for the first quarter and full year 2026, and refer now to slide eight. For the first quarter 2026, we expect ACV plus royalties of $85,000,000 to $89,000,000, revenue of $20,500,000 to $21,500,000, with non-GAAP operating loss of $3,500,000 to $2,500,000, and non-GAAP free cash flow of negative $1,500,000 to positive $1,500,000. For the full year 2026, our guidance is as follows: ACV plus royalties to exit 2026 at $100,000,000 to $104,000,000. Revenue of $89,000,000 to $93,000,000 including approximately $7,000,000 from the Cycuity business, noting that the majority of revenue derived from the Cycuity business we expect to be ratable. Non-GAAP operating loss of between $9,000,000 to $5,000,000, approximately $1,000,000 of which we expect to be related to the Cycuity acquisition and non-GAAP free cash flow of positive $5,000,000 to positive $9,000,000. Building on the strong deal execution in 2025, illustrated by the 32% year-over-year growth in RPO exiting the fourth quarter, and incorporating the anticipated growth in Cycuity’s semiconductor cybersecurity assurance software business, we continue to believe that Arteris, Inc. is on a path to profitability. We expect to report a non-GAAP operating profit for a period as early as 2026. With that, I will turn the call back to the operator for the Q&A portion of our call. Operator? Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then 2. We will pause for a moment as callers join the queue. We have a question from Kevin Garrigan from Jefferies. Your line is open. Operator: From Madison DePaula from Rosenblatt Securities. Your line is open. Madison DePaula: Can you help us size the cross-sell opportunity? By outlining which customer segments you expect to engage first and kind of expand on how Cycuity changes your ability to increase content per customer over time? Karel Charles Janac: Yes. So, you know, hardware security assurance is becoming a major issue as we said on the earnings call, there is about a 15x growth in sort of hardware attacks, security attacks on semiconductors. So hardware security is becoming a major issue. And because of that, we are very excited about the Cycuity hardware assurance software because normally it can be used by our substantially larger customer base, but it can be used by essentially any semiconductor company, and those chips have to be protected regardless of the complexity. So we think that it opens up a significant opportunity to enhance the system IP value that we provide, but also to address basically any semiconductor out there. So we are very excited about what we have been able to accomplish, and we will look forward to keeping you updated on our progress. Madison DePaula: Okay, great. Thank you. Operator: Again, if you would like to ask a question, please press star then 1. Our next question is from Kevin Garrigan from Jefferies. Your line is open. Kevin Garrigan: Yes. Hey, guys. Sorry about that. Congrats on the great results and outlook, and thanks for taking my questions. Your NXP announcement—so NXP is now using four of your solutions, which I think is probably up from one or maybe two. Are you seeing more interest from customers to deploy an entire suite of solutions? And I would imagine that if you do get customers that are deploying the entire suite, that puts your licensing ASPs well above the $1,000,000 that you were targeting a couple years ago? Karel Charles Janac: Yes. Absolutely. And if you use everything from us, prior to the Cycuity acquisition, you are going to be well north of $1,000,000. And with Cycuity, it is going to be higher than that. So we basically have more to sell to our customers. And cybersecurity is a big issue now. A lot of markets such as automotive and aerospace, and even data center, are requiring ISO 21434 certification for cybersecurity protection. And so, you know, we think that this certainly helps drive the ASP significantly above the $1,000,000 average project size. And also, the other thing that is helping to go above the $1,000,000 is that the chiplet projects where you are dealing with multiple pieces of silicon where essentially every chiplet is a license and every chiplet is a royalty, also helps that trend. So we are very positive about the dynamics of our business. Yes. Kevin Garrigan: Got it. That makes a ton of sense. And then, Nicholas, just a question for you. Can you talk a little bit more about the strength in royalties that you saw? Was there a specific end market that saw surprising strength, or was it more just about your customer diversification strategy? Nicholas Bryan Hawkins: It is a little bit of both. And hi, Kevin. Thanks for joining the call. You may have seen that the number of major reporters has grown from one, five years ago to three about two years ago to nine today. So there are big reporters of the six-figure-plus per quarter royalty reporters. That is a really important metric to us. And one of the issues that we look at there is looking at the spread across geos and also across market verticals. Of those nine large reporters today, they are spread across several segments. There are several in the automotive segment, and that remains our largest single vertical. But we do have now a very rapidly emerging consumer, enterprise, and even now aerospace large reporters. So I am very happy that it is a broad spectrum of strength and look forward to some further growth in the future. Kevin Garrigan: Yes. Got it. Okay. Perfect. Thanks, guys, and congrats on the results. Karel Charles Janac: Thank you. Kevin Garrigan: Thanks, Kevin. Operator: Once again, if you would like to ask a question, please—our next question is from Gus Richard from Northland. Your line is Gus Richard: Yes. Thanks for taking the question and congratulations on the results. In Q4, the royalties had a significant quarter-on-quarter step up. Is there any catch-up royalty in that number? Or should we expect that to be the run rate going forward, with a seasonal bias? Nicholas Bryan Hawkins: Yes. No. That is an excellent question, Gus. And this is Nicholas, by the way. There was a single royalty pickup which was reasonably sized. It was less than half $1,000,000, but that is a decent pickup which we saw in the fourth quarter. So it did get a bit of a boost from that. So the 50% variable increase includes that. If you exclude that, the growth rate year over year was still in the low 40s percent, which is above our trajectory and our longer-term guidance CAGR for the next five years. So we are very happy that it is already growing at that rate. Audits—you can never guarantee when they are going to produce a positive result for the company. When they happen, they are great, but you cannot bank on them. Gus Richard: Got it. And then, just a little bit about Cycuity and its impact on the P&L. My top line went up at the midpoint of guidance about $7,000,000. How much of that was Cycuity for the full year? And then can you talk a little bit about the impact on the P&L in terms of step up in OpEx going forward? Nicholas Bryan Hawkins: Yes. No, it is another excellent question, Gus. So, yes, of the $91,000,000 midpoint guide—it is $89,000,000 to $93,000,000 as the range for revenue in 2026—of that $91,000,000, approximately $7,000,000 is Cycuity. So $84,000,000 is the Arteris, Inc. original business. And that represents about a 19% year-over-year growth. As far as the rest of the financial impact from Cycuity, we do expect them to be a slight contributor to the loss for the year, so about $1,000,000 worth of loss. By the fourth quarter, we expect them to be roughly breakeven, which is in line with the pre-Cycuity Arteris, Inc. business. And as far as free cash flow is concerned, we are also expecting them to be something like a $1,000,000 to the negative over the full year and about $1,500,000 negative in the first quarter. This often happens in acquisitions, as I am sure you have seen before. And there is a little nuance around gross margins. Some of the government work that they do actually involves subcontractors. And the GAAP accounting for subcontractors is that those expenses are not OpEx. They are treated as cost of revenue. So there is something like a one to two percentage point drop in gross margin intensity. But that is literally a flip between OpEx and gross margin. Gus Richard: Okay. Got it. That was helpful. And then my last one is, when you did the Cycuity acquisition, you guys announced an ATM and you were going to use that to replace the cash that you used for the acquisition. And I am just wondering where are you in that equity-raising effort and when can we expect that to conclude? Nicholas Bryan Hawkins: So we are in the process of going through the activation, Gus. We cannot activate during a quiet period, as you probably know, because we have MNPI during that period before we announce our results. So we will be going through the activation process shortly. We then are going through a process of setting up the traditional guardrails. We have a pricing committee on the board, and they will agree guardrails in terms of pricing and quantum. So you can expect maybe some small amounts to dribble through in the first quarter. It just really depends on how the market moves and so on. We have no intent at the moment to utilize anything close to the full amount that is available there. Gus Richard: Thanks for the help. Operator: There are no questions at this time. I would now like to turn the conference back to Karel Janac for the closing remarks. Please go ahead. Karel Charles Janac: Okay. Thank you for your interest in Arteris, Inc. We look forward to meeting with you at the upcoming non-deal roadshow and investor conferences in the quarters ahead and updating you on our business progress. Thank you very much. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good afternoon, and welcome to the Applied Materials, Inc. earnings conference call for the latest reporting period, 2026Q1. All participants will be in a listen-only mode. After today’s prepared remarks, we will open the call for questions. As a reminder, this call is being recorded. I will now turn the call over to Michael Sullivan. Michael Sullivan: Thank you, and good afternoon, everyone. Welcome to Applied Materials, Inc.’s 2026Q1 earnings conference call. Joining me today are Gary Dickerson, our President and CEO, and Brice Hill, our CFO. Before we begin, please note that today’s discussion contains forward-looking statements. Actual results may differ materially from those discussed. For more information, please refer to our SEC filings and the investor relations section of our website at investors.appliedmaterials.com. I will now turn the call over to Gary Dickerson. Gary Dickerson: Thank you, Michael. Good afternoon, everyone, and thank you for joining us. Applied Materials, Inc. delivered solid results in 2026Q1, driven by strong demand across AI, foundry-logic, and memory. Our customers continue to accelerate node migrations and new 3D scaling approaches, which is expanding the opportunity for our differentiated materials engineering portfolio. We are executing well on our roadmap and investing to support our customers’ long-term capacity plans. I will now turn the call over to Brice Hill for the financial results. Brice Hill: Thank you, Gary. In 2026Q1, we delivered strong revenue, margins, and cash flow. We are focused on operational discipline and supply chain execution to meet customer demand while advancing our technology leadership. We returned capital to shareholders through repurchases and dividends, and we continue to invest in R&D and capacity to support long-term growth. We will now open for questions. Operator: We will now open for questions. Our first question comes from Vivek Arya. Vivek Arya: Thank you. Could you discuss the sustainability of AI-related demand into the next few quarters and how it influences your WFE outlook? Gary Dickerson: Thank you, Vivek. AI demand remains robust and broad-based, supporting sustained WFE strength. We see continued investment in leading-edge foundry-logic and in advanced packaging, as well as improving trends in DRAM and NAND. Our pipeline and customer engagements give us confidence in demand durability over the coming quarters. Operator: Our next question comes from Stacy Rasgon. Stacy Rasgon: Thank you. How should we think about gross margin trajectory given mix and any supply constraints? Brice Hill: Thank you, Stacy. Gross margin will reflect product and customer mix, as well as continued improvements in productivity and cost. We are managing supply constraints proactively, and we expect margins to trend favorably as mix normalizes and our cost actions take hold. Operator: Our next question comes from Timothy Arcuri. Timothy Arcuri: Thanks. Can you comment on the cadence of orders in foundry-logic versus memory and any color on regional trends? Gary Dickerson: Thanks, Timothy. Foundry-logic remains healthy with strength at leading nodes, while memory is improving, led by DRAM and HBM-related investments. Regionally, we see continued momentum in the U.S. and Taiwan, with activity also picking up in Korea. Operator: Our next question comes from Atif Malik. Atif Malik: Thank you. What are you seeing in advanced packaging, and how does Applied Materials, Inc. differentiate? Gary Dickerson: Thank you, Atif. Advanced packaging is a strong growth vector driven by heterogeneous integration and AI. We differentiate with a comprehensive toolset across wafer-level packaging, hybrid bonding, and inspection/metrology, enabling customers to scale performance and power efficiently. Operator: Our next question comes from Yu Shi. Yu Shi: Thanks. Could you update us on your capacity expansion plans and lead-time improvements? Brice Hill: Thank you, Yu. We continue to expand capacity in critical product lines and are investing in supply resiliency. Lead times are improving as we qualify additional suppliers and streamline our operations. Operator: Our next question comes from Joseph Quatrochi. Joseph Quatrochi: Thanks. How are you approaching capital returns and balance sheet priorities this year? Brice Hill: Thank you, Joe. Our priorities remain consistent: invest in the business for long-term growth, maintain a strong balance sheet, and return excess cash to shareholders through buybacks and dividends. We expect to continue repurchasing shares at a steady pace while funding strategic investments. Operator: Our next question comes from Harlan Sur. Harlan Sur: Thank you. Any update on China demand and export controls impact? Gary Dickerson: Thank you, Harlan. We continue to comply with all regulations. Demand in China remains mixed by segment, with mature nodes steady and certain leading-edge areas impacted by restrictions. Our global footprint and broad portfolio allow us to support customers across regions within the regulatory framework. Operator: Our next question comes from Krish Sankar. Krish Sankar: Thanks. On services, can you talk about growth drivers and attachment rates? Brice Hill: Thank you, Krish. Services growth is supported by our expanding installed base, higher attachment to performance-based agreements, and analytics-driven optimization. We are investing in automation and remote capabilities to enhance uptime and yield for our customers. Operator: Our next question comes from Brian Chin. Brian Chin: Thank you. How are you positioned for gate-all-around and backside power transitions? Gary Dickerson: Thanks, Brian. We are well positioned with a broad suite of deposition, etch, CMP, and inspection/metrology solutions. Gate-all-around and backside power introduce new materials and integration challenges where our leadership in materials engineering and co-optimization is a key differentiator. Operator: Our next question comes from Christopher Caso. Christopher Caso: Thank you. Any color on equipment pricing and competitive dynamics? Gary Dickerson: Thank you, Chris. Pricing remains rational, reflecting the value of performance and total cost of ownership. Competitive dynamics are stable, and we continue to win based on technology differentiation, productivity, and service. Operator: Our next question comes from Toshiya Hari. Toshiya Hari: Thanks. Can you discuss EUV-related process steps and opportunities for Applied Materials, Inc. as customers scale HVM? Gary Dickerson: Thanks, Toshiya. EUV scaling increases requirements for patterning adjacencies, hard mask engineering, clean, and metrology/inspection. Our integrated solutions help customers improve line-edge roughness, CD control, and defectivity, which are critical as EUV moves deeper into HVM and to higher NA. Operator: Our next question comes from CJ Muse. CJ Muse: Thanks. What is your outlook for NAND versus DRAM WFE into the next few quarters? Gary Dickerson: Thanks, CJ. DRAM WFE is leading the recovery, particularly with HBM-driven investments, while NAND is improving at a slower pace as supply/demand rebalances. We expect both segments to grow through the year, with DRAM outpacing NAND near term. Operator: Our next question comes from Mehdi Hosseini. Mehdi Hosseini: Thank you. Can you update us on your long-term model and OpEx trajectory? Brice Hill: Thank you, Mehdi. We continue to target a balanced long-term model with operating leverage as revenue scales. OpEx will grow at a measured pace focused on R&D and customer enablement, with discipline on overhead. Operator: Our next question comes from Srini Pajjuri. Srini Pajjuri: Thanks. Any updates on HBM-specific tools and demand visibility? Gary Dickerson: Thanks, Srini. We are seeing strong pull for tools supporting HBM, including patterning, dielectric deposition, and advanced packaging steps like hybrid bonding and TSV-related processes. Visibility extends through multiple quarters given customers’ capacity plans. Operator: Our next question comes from Charles Shi. Charles Shi: Thank you. How is your metrology and inspection business trending? Gary Dickerson: Thank you, Charles. Metrology and inspection are growing as process complexity increases. Our e-beam and optical platforms, along with computational products, are gaining traction to address challenging use cases in leading-edge logic and memory. Operator: Our next question comes from James Schneider. James Schneider: Thank you. What is the status of your supply chain localization and resiliency initiatives? Brice Hill: Thank you, James. We have made progress diversifying suppliers, increasing dual-sourcing, and localizing critical components. These actions improve resiliency, reduce lead times, and support compliance with evolving trade regulations. Operator: Our next question comes from Vijay Rakesh. Vijay Rakesh: Thanks. Could you comment on CFIUS or regulatory developments that could impact your outlook? Brice Hill: Thank you, Vijay. We closely monitor regulatory developments, including CFIUS-related matters. Our outlook reflects the current regulatory environment, and we have incorporated appropriate assumptions. We will continue to engage with authorities and customers to ensure compliance. Operator: Our next question comes from Timm Schulze-Melander. Timm Schulze-Melander: Thank you. What are you seeing in mature nodes and ICAPS-related demand? Gary Dickerson: Thank you, Timm. ICAPS demand remains healthy, supporting power, automotive, and industrial applications. While growth is moderating from peak levels, our broad portfolio across deposition, etch, and inspection positions us well in mature and specialty nodes. Operator: Our next question comes from Joe Quatrochi. Joe Quatrochi: Thanks. Any update on your backlog and book-to-bill? Brice Hill: Thank you, Joe. Backlog remains elevated with a book-to-bill around unity. We are working through the backlog as supply improves and expect stability as demand broadens across segments. Operator: Our next question comes from Chris Caso. Chris Caso: Thanks for the follow-up. Are you seeing any pushouts or cancellations? Brice Hill: Thank you, Chris. We have seen some timing shifts typical for the industry, but no material cancellations. Overall demand signals remain constructive. Operator: Our next question comes from Brian Chin for a follow-up. Brian Chin: Thank you. Can you discuss your R&D priorities over the next year? Gary Dickerson: Thank you, Brian. Our priorities include gate-all-around, backside power, advanced packaging, EUV adjacencies, new materials for scaling, and expanding our metrology/inspection capabilities with AI-driven analytics. Operator: Our next question comes from Harlan Sur for a follow-up. Harlan Sur: Thank you. Any updates on services margins and mix? Brice Hill: Thank you, Harlan. Services margins are stable to improving, supported by higher attachment, software content, and productivity initiatives. Mix continues to shift toward performance-based contracts. Operator: Our next question comes from Stacy Rasgon for a follow-up. Stacy Rasgon: Thank you. How should we think about OpEx growth versus revenue in the near term? Brice Hill: Thank you, Stacy. Near term, OpEx will grow modestly, below the pace of revenue, as we drive operating leverage while prioritizing R&D and customer support. Operator: There are no further questions at this time. I will now turn the call back to Michael Sullivan for closing remarks. Michael Sullivan: Thank you for joining us today and for your continued interest in Applied Materials, Inc. A replay of this call will be available on our investor relations website at investors.appliedmaterials.com. This concludes today’s call. Have a great day.
Operator: Good day, and thank you for standing by. Welcome to the AVITA Medical, Inc. Fourth Quarter and Full Year 2025 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message saying your hand is raised. To withdraw your question, please press star 11 again. Be advised that today's conference is being recorded. I would like to hand the conference over to your first speaker today, Ben Atkins. Please go ahead. Thank you, operator. Welcome to AVITA Medical, Inc.'s fourth quarter and full year 2025 earnings call. Joining me on today's call are Cary Vance, Interim Chief Executive Officer, and David O'Toole, Chief Financial Officer. Today's earnings release and presentation are available on our website at www.avitamedical.com under the Investor Relations section. Before we begin, I would like to remind you that this call includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are neither promises nor guarantees and involve known and unknown risks and uncertainties that could cause actual results to differ materially from any expectations expressed or implied by the forward-looking statements. Please review our most recent filings with the SEC for comprehensive descriptions of the risk factors. Any forward-looking statements provided during this call are based on management's expectations as of today. I will now turn the call over to Cary. Cary Vance: Good afternoon in the U.S., and good morning in Australia. Thank you for joining us today. Before we get into the numbers, I want to start by coming back to how we closed the last call. In Q3, I ended with three priorities: driving disciplined execution, refining our commercial focus, and positioning AVITA Medical, Inc. for growth in 2026. The fourth quarter was about delivering on those commitments. You can see that summarized on the slide in front of you. We exited the year with a more disciplined operating model, improved visibility into cash use, and a clearer understanding of how our customers adopt and use our products. We refined our commercial focus around utilization in our core burn and trauma centers. And importantly, removed sources of friction, reimbursement uncertainty, and restrictive balance sheet constraints that had weighed on execution throughout 2025. These are not headline outcomes on their own, but together, they matter. They make the business more understandable, more forecastable, and more repeatable. As we walk through the quarter today, you will hear how those execution priorities show up in the numbers, our operating cadence, and in how we positioned heading into 2026. Turning briefly to the results. We reported fourth quarter revenue of $17,600,000 and a full year revenue of approximately $71,600,000. This represented about 11% growth over 2024 and was in line with our updated revenue guidance. From my perspective, the fourth quarter was less about acceleration and more about control. The numbers reflect the business that is operating more predictably with greater discipline. David will walk through the details in a moment. A major focus throughout 2025 was resolving reimbursement uncertainty of ReCell. As of today, six of the seven Medicare Administrative Contractors have published payment rates for ReCell procedures. This removes the key constraint that weighed on utilization throughout the year and has begun to restore confidence for clinicians. As we said last quarter, predictable reimbursement not only for our products, but also for the clinicians who use them, is what allows our strong clinical and real-world health economic data to translate into routine standard use of ReCell. With that clarity in place, we are now seeing early signs of utilization beginning to normalize as accounts reengage. Ultimately, growth in this business is driven less by adding new hospital accounts and more by increasing adoption, utilization, and repeated use of our products—ReCell, CoHiliX, and PermeDerm—by clinicians. Roughly 90% of our revenue today comes from about 200 burn and trauma centers. We have aligned sales incentives, forecasting assumptions, and field activity around earlier adoption and repeat use within these core accounts. We have also continued the shift away from bulk ordering toward more organic monthly usage patterns. Utilization matters, because it creates predictability for clinicians, for hospitals, and for our business. As we look ahead, utilization will become an increasingly important way we value execution internally. Today, the focus is on establishing the right operating cadence and doing the fundamentals well, so progress can cascade and compound over time. That consistency is supported by the breadth of our platform. Our strategy is built around a single integrated platform—ReCell, CoHiliX, and PermeDerm—used repeatedly by the same clinicians across multiple patient episodes. ReCell remains the foundation of our business, supported by extensive clinical evidence demonstrating faster healing, improved outcomes, and shorter hospital stays. The CoHiliX I post-market study is now fully enrolled. And the PERMEADERM-one study is nearing full enrollment. These studies are designed to generate practical real-world clinical and economic evidence that reflect how surgeons use these products in wound care, with data expected later in 2026. At the 2026 Boswick Burn and Wound Symposium last month, investigators presented early findings and case experiences from these studies. Also notable, two cases presented from the podium reported all three of our technologies—ReCell, CoHiliX, and PermeDerm—used together on individual patients. This reinforces that our strategy to evolve from a ReCell-only story to a multiproduct acute wound care platform is translating into real-world clinical practice and higher revenue per patient opportunities. Outside the U.S., we are taking a disciplined distributor-led approach as we build our footprint in select markets where there is clear clinical need and the right regulatory and operational foundations in place. Since receiving CE Mark approval for ReCell Go last October, we have supported initial clinical use in a small number of European markets, focused on establishing familiarity and operational readiness. In the aftermath of the tragic nightclub fire in Crans-Montana, Switzerland, our teams and distribution partners were able to respond quickly to requests from surgeons because those foundational elements were already in place. Our role in situations like this is to remain responsive and reliable in support of patient care under extraordinarily difficult circumstances. We will continue to partner closely with the burn community to help ensure access to ReCell where and when it is needed. As David will walk you through, our commitment to execution discipline is reflected in our financials, particularly in our cost structure, cash use, and balance sheet. In January, we refinanced our debt through a new credit facility with Perceptive Advisors LLC. This was less about adding capital and more about removing the distraction of restrictive covenants so the organization can stay focused on execution. Turning to 2026, we expect full year revenue of $80 to $85,000,000, representing growth of approximately 12% to 19% over 2025. This outlook reflects normalization of ReCell utilization, expanded portfolio use within core accounts, contributions from CoHiliX and PermeDerm, and a more predictable operating environment. This is execution-led growth, driven by consistent delivery, quarter by quarter, and not one-time events or aggressive assumptions. With that, I will turn the call over to David to walk through the financials in more detail. David O'Toole: Thank you, Cary, and good afternoon, everyone. As Cary outlined, the fourth quarter marked the close of the year of stabilization for AVITA Medical, Inc., and the transition into a more execution-focused phase of the business. I will walk through what that execution discipline looks like in the numbers, particularly across costs, cash use, and our balance sheet. Turning first to the full year view for 2025, we reported revenue of approximately $71,600,000, representing 11% growth over 2024. This marked a further consecutive year of revenue growth for the company, and reflects a business that continued to grow despite the reimbursement-related. Full year gross margin was 82.1%, compared to 85.8% in 2024. This decrease reflects certain inventory reserves and impact from product mix and the increased contribution from CoHiliX and PermeDerm. As we previously discussed, while the product mix impacts the reported margin percentage, these products contribute incremental gross profit without a commensurate increase in operating expenses, supporting operating leverage over time. The combination of year-on-year revenue growth and gross margins above 80% provides a solid foundation for us going forward. Turning to the fourth quarter. Total revenue was $17,600,000, compared to $18,400,000 in the prior-year period. This was consistent with our revised revenue expectations and showed stabilization within our business. Fourth quarter gross margin was 81.2%, compared to 87.6% for the same period last year, driven by inventory reserves and product mix. Moving to operating costs, total operating expenses in the fourth quarter were $24,700,000, down 5% year over year. This reduction was driven primarily by lower sales and marketing expenses, reflecting reduced headcount, compensation, and commissions following the commercial transformation earlier in the year. General and administrative expenses were essentially flat, while research and development increased modestly due to planned investments in our PermeDerm and CoHiliX post-market studies. The fourth quarter included $1,200,000 of one-time severance costs, which will not be reoccurring. Excluding these costs, fourth quarter operating expenses were down 10% year over year. For the full year, even with the nonrecurring severance costs included, operating expenses declined by $10,400,000, or 9%, reflecting a substantially lower operating structure going forward. Turning to cash. The key takeaway here is improved control and visibility around cash use. The fourth quarter marked the third consecutive quarter of improvement in net cash use, declining from $10,100,000 in Q2 to $6,200,000 in Q3 and $5,100,000 in Q4. As we look towards the first quarter in 2026, cash use will increase due to the timing of annual compensation and payroll-related items, which is expected and planned for within our operating model. We ended the quarter with $18,200,000 in cash and marketable securities. In January, we refinanced our debt through a new credit facility with Perceptive Advisors LLC. The levels and flexibility in this facility are meaningfully better aligned with our current operating trajectory. Under the new agreement, the revenue and cash covenants provide substantially more headroom. To put that in context, the initial trailing twelve-month covenant of $68,500,000 translates to only $15,400,000 of revenue in Q1 to not trigger the revenue covenant. For the full year 2026, the trailing twelve-month requirement of $73,000,000 is aligned significantly below our 2026 revenue guidance. In addition, the minimum cash covenant has been reduced from $10,000,000 to $5,000,000, significantly lowering covenant risk and reinforcing that the facility was structured to support execution rather than constrain it. The facility is interest-only with no amortization, and includes optional incremental capital if needed subject to meeting a certain revenue milestone. Overall, this refinancing was about simplifying the balance sheet, reducing friction, and removing distraction. From a financial perspective, our priorities for 2026 are straightforward: maintain disciplined control of operating costs, support revenue growth with a stable and scalable cost structure, and continued cash efficiency as revenue increases. Through that financial framework, an improved capital structure, and a clear line of sight into 2026 growth, we believe AVITA Medical, Inc. is better positioned to execute consistently and move towards financial sustainability. With that, I will turn the call back to Cary. Cary Vance: Thanks, David. In summary, the actions we have taken over the past several months have positioned AVITA Medical, Inc. for a stronger and more consistent 2026. We have restored reimbursement clarity, simplified our commercial focus, removed operational friction, strengthened financial discipline, and advanced the clinical evidence underpinning our multiproduct platform. Those actions set the execution milestones we will report against throughout the year. As we move through 2026, our focus is straightforward. Do what we said we would do. Report it clearly. And let execution speak for itself. With that, let's open for questions. Thank you. At this time, we will conduct a question-and-answer session. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. And our first question comes from the line of Ryan Zimmerman of BTIG. Your line is now open. Ryan Zimmerman: Good afternoon, and thanks for taking our questions, and appreciate all the color and clarity today. On the guidance, David, with the new revenue covenant, how would you have us think about the pace of growth through the year? Is the $15.4 million a good jumping-off point for Q1? Or are you trying to message that that is well below what you can do, and so there is no covenant risk there? I think that would be appreciated. And then I have a follow-up. David O'Toole: Yep. And I am sure Cary may have a couple of things to say also, but the $15.4 million should not be taken as anything around guidance at all, Ryan. What we are trying to do is what you indicated, is say that there is a lot of headroom for the covenant number of $15,400,000. You know, we had $17,600,000 in the fourth quarter. We would not expect to go down that much in the first quarter. We have given guidance of $80 to $85,000,000, and even if you annualize that just over four quarters, you would not get to anywhere close to that $15.4 million number. Cary Vance: So, you know, we are not giving quarterly guidance, as you know. But that $15,400,000 was just to tell everyone that the new debt was structured to take covenant risk off the table, and that is what we have done. Ryan Zimmerman: Very clear. Thank you, David. And, Cary— Cary Vance: Sorry. Yeah. Ryan. Hi, Ryan. So, yeah, I would just kind of pile onto that. I think that our jump-off point is Q4. I mean, what we strive to do in Q4 is to kind of normalize and flatten things out in terms of the ordering patterns and our ability to forecast, so we feel good about not only the performance of Q4, but our handle on the business to the point where we were able to, I think, understand Q1. And I think so far, we continue to understand Q1. So I think from Q4 to Q1 and from Q1 through the rest of the year, you should see progressive growth, gradual acceleration. And I think we have a good understanding of our business and more to come on that. Ryan Zimmerman: Appreciate that, Cary. And then, if we could spend a minute on the reimbursement dynamics that affected 2025. So it sounds like much of what hampered 2025 with the MACs is behind you. But if you could give us a little more color into the reestablishment of payment from the six of the seven MACs. What do you have now that you can say with certainty, and what is holding up that seventh MAC? Is there anything we need to be concerned about, or is it just something administratively? Maybe you could spend a little bit more talking through what has transpired over the last, call it, quarter and into the first quarter. Cary Vance: Sure. So first of all, we are highly engaged with all seven. I think that we could put these in buckets, meaning we got commitments months ago that they would publish. Then they did publish, and then once they published, it is a matter of kind of hospital by hospital, physician by physician, them becoming aware, and them putting it into practice in terms of getting reimbursed and kind of returning to a clarity that will help us going forward. So that has occurred as each of the MACs kind of came on board. In terms of that seventh one, we are highly engaged with them. That is all I can tell you is that there is no reason to be concerned, just that we are engaged with them in a process and in their process, and we are hopeful and expect that they will publish as well. Ryan Zimmerman: Okay. Thank you. Thanks for taking my questions. Cary Vance: Sure. Thanks, Ryan. Thanks, Graham. Operator: Thank you. One moment for our next question. Our next question comes from the line of Joshua Thomas Jennings of TD Cowen. Your line is now open. Hi, congratulations on all the progress and the refinancing, and great to see the six of seven MACs have established payment rates. I wanted to just ask about, first, can you share with us just a core customer experience where CoHiliX and PermeDerm have made it through the VAC process? And are you seeing signals, or what signals are you seeing that give you confidence that they ultimately can be strong CoHiliX and PermeDerm attachment rates in ReCell cases. Cary Vance: Yeah. I mean, I think—thanks, Josh. I think the process is that we have a champion in some of these accounts for PermeDerm and/or CoHiliX, and we work with them from a clinical perspective, economic perspective, to help them understand the value. And then it is put into VAC, and that champion helps move it along, and the idea is that once it comes out of the VAC, that that same champion then starts to push it into the department and into their practice. So we have seen that in a few of the VACs where those products have exited. And so that has been effective in terms of us getting some uptake out of the VAC. Joshua Thomas Jennings: Excellent. And is there kind of an all-star account where CoHiliX and PermeDerm made it through that VAC process and you are seeing nice attachment rates in ReCell cases? Cary Vance: Well, no. I probably cannot point to one right now, but I would say that when we were at the Boswick Burn conference, as I said in my comments, there were a couple presentations from physicians that used all three of the products, ReCell, CoHiliX, and PermeDerm. And I think that, again, is early days in terms of someone using all three of those, but I think we will be able to report out more going forward as these products come out of the VAC and as they begin to be used in conjunction with each other. Joshua Thomas Jennings: Understood. And you still have CoHiliX-one, PermeDerm-one study data to help with that utilization trajectory. And just ultimately, do you see CoHiliX and PermeDerm adoption driving increased demand for ReCell as well? I mean, I have been thinking about ReCell pulling through CoHiliX and PermeDerm, but down the line, could CoHiliX and PermeDerm get you into more accounts or just drive utilization higher in the near 200 trauma/burn center base? Cary Vance: Yeah. I mean, it is a good question. I think ReCell is the established brand. It is the product that has been around the longest. But, ultimately, we have relationships in these accounts. We have physicians that are using ReCell that I think are at least drawn and open to the discussion around CoHiliX and PermeDerm because of the relationship we have and because of their affinity for ReCell. But you are right. I think that those physicians that may not be using ReCell or even institutions that may not use ReCell, if they are drawn to CoHiliX or we end up really making some progress there, of course, it allows you to make a connection and establish a relationship there and have the dialogue around treatment and care that could lead to a ReCell discussion as well. Joshua Thomas Jennings: Excellent. And maybe just lastly, with some of the turbulence around MACs and payment rates for ReCell, just as you start to see adoption and utilization of CoHiliX and PermeDerm over the course of 2026, just review the reimbursement pathway. I think there is a clear pathway, and there are not going to be any hurdles, but just to check that box, if you could lay that out for us, that would be great. Thanks for taking all the questions. Cary Vance: Yep. I mean, again, I think you are correct. We have had to deal with these physician payments through the MACs over the last year, but we do not expect any other disruptions to that process going forward, other than continuing to work through these in the months to come. Joshua Thomas Jennings: Great. Thank you. Operator: Thanks, Josh. Thank you. One moment for our next question. Our next question comes from the line of Ian Arndt of Lake Street Capital Markets. Your line is now open. Ian Arndt: Hey, thanks for taking the question here. I was wondering if you could break down the primary drivers of growth supporting your 2026 guidance. Specifically, how much is predicated on the recovery in base ReCell volumes versus contributions from the CoHiliX and PermeDerm launches. Cary Vance: Would you mind repeating that? It is a little bit quiet. Hard to hear that question. Ian Arndt: Yeah. Sorry about that. Wondering if you could kind of break down primary drivers of growth supporting your 2026 guidance. Specifically, how much is predicated on the recovery in base ReCell volumes versus new contributions from CoHiliX and PermeDerm launches? Cary Vance: Yeah, thank you. It will be mixed. I mean, we expect growth in all three product lines, and we expect most of that to be driven by increased utilization within existing accounts, whether that is additional physicians or additional types of procedures. So we see that trajectory in terms of utilization and have that plan in place. And so we expect all three product lines to grow, and we expect them to grow mostly within existing institutions where we have relationships going forward throughout the year. Ian Arndt: Okay. Thank you. That is very helpful. And I have a quick follow-up if that is okay. In the third quarter, you noted that roughly one third of your target accounts were in the VAC review for CoHiliX. Could you provide an update on the conversion rate of those reviews and the active ordering accounts? Are you seeing any specific bottlenecks in the process? Cary Vance: Any significant—am I seeing—currently, we have—I am sorry. Currently, we have—how many in CoHiliX VAC? Was that your question? Ian Arndt: Yeah. Just based off of the comments from the second quarter. If you could give an update on the conversion rate of those reviews that are now active ordering accounts. Are you seeing any bottlenecks in the process, or could that delay the 2026 growth? Cary Vance: Yeah. So, without just giving a number, I would say that they continue to come out of CoHiliX VAC at a kind of a steady rate, and we would expect that over the next, I would say, six to nine months even. And so as they come out of the VAC, they are starting to order product. And so for us, that is going to be a continual kind of week-by-week, month-by-month, quarter-by-quarter process of anticipating and understanding that they will come out of the VAC and when they do, get them to order sooner, larger, faster, and to have a very positive experience with it, obviously, as well, and to develop more than just that one champion in the account so that it can broaden and deepen. But what we are not seeing in the VAC is bottlenecks other than administrative bottlenecks. It is just they go through their process, and there is no set time. It depends on the account. And we provide them with all the clinical or economic to make the argument that it should successfully go through the VAC. So we have not seen, you know, denials through the VAC really. But it is a process that takes some time. And we have seen that. Ian Arndt: Okay. That was very helpful. Thank you. Thanks for taking the question. Cary Vance: Thank you. Operator: Thank you. This concludes the question-and-answer session. I would like to turn it back to Cary Vance for closing remarks. Cary Vance: Thank you, operator. Thank you to everyone else who has joined us today as well. I look forward to updating you on the progress in the quarters to come. Thank you. Have a good rest of the day. Operator: Thank you for your participation in today's conference. This is the end of the program. You may now disconnect.
Operator: Good afternoon and welcome to the Sensus Healthcare, Inc. Fourth Quarter and Full Year 2025 Financial Results Conference Call. All participants will be in listen-only mode. To ask a question, press star then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Tirth Patel, with Alliance Advisors IR. Please go ahead. Good afternoon. This is Tirth Patel with Alliance Advisors IR. Thank you all for joining today's call to discuss Sensus Healthcare, Inc.’s fourth quarter and full year 2025 financial results. Joining me from Sensus Healthcare, Inc. are Joseph C. Sardano, Chairman and Chief Executive Officer; Michael J. Sardano, President, Chief Commercial Officer and General Counsel; and Javier Rampolla, Chief Financial Officer. Tirth Patel: As a reminder, some of the matters that will be discussed during today's call contain forward-looking statements within the meaning of federal securities laws. All statements other than historical facts that address activities Sensus Healthcare, Inc. assumes, plans, expects, believes, intends, or anticipates, or other similar expressions, will, should, or may occur in the future are forward-looking statements. The forward-looking statements are management's beliefs based upon currently available information as of the date of this conference call, 02/12/2026. Sensus Healthcare, Inc. undertakes no obligation to revise or update any forward-looking statements except as required by law. All forward-looking statements are subject to risks and uncertainties as described in the company's Forms 10-Ks, 10-Qs, and other SEC filings. During today's call, references will be made to certain non-GAAP financial measures. Sensus Healthcare, Inc. believes these measures provide useful information for investors, yet they should not be considered as a substitute for GAAP nor should they be viewed as a substitute for operating results determined in accordance with GAAP. A reconciliation of non-GAAP to GAAP results is included in today's press release. With that, I would like to turn the call over to Joseph C. Sardano. Operator: Joseph? Tirth Patel: Thank you, Tirth, and good afternoon, everyone. Thank you for joining us today. Joseph C. Sardano: Let me start by providing some context around our end-of-year activities and the wonderful news received from CMS. SRT and IGSRT are noninvasive technology that was exclusively designed, developed, and distributed by Sensus Healthcare, Inc. Our SRT technology has been awarded exclusive and dedicated CPT codes that provide physicians unequivocal and clear reimbursement for treating patients with nonmelanoma skin cancer. Let us be reminded that the American Academy of Dermatology states that one in five people in America will have skin cancer. After 16 years of relentless pursuit, these codes provide Sensus Healthcare, Inc. with a fresh start and a clear path forward for physicians and patients who continuously seek a noninvasive alternative to scarring and the lengthy healing times caused by surgery. This demand for a nonsurgical choice is clearly becoming an increasingly popular choice of patients as they learn of their treatment options, as the Medicare statistics have indicated over the past several years. We begin in 2026 with new codes, $22,000,000 in cash on hand, zero debt, and a motivated sales force that we intend to expand during the course of Q1. As we continue to educate the physicians on these new reimbursement codes, we feel that adoption will grow steadily and continuously for years to come. You will notice that the 14 units we shipped in the quarter did not include any sales to our very large customer. Although we believe they will continue to contribute to our business in the future, our growth will come from direct sales and shared services with the end users. We will no longer have to rely on any one entity. We also expect that our international business will continue to grow along with our primary U.S. market. For quite some time, two factors have weighed heavily on our business: customer concentration and the absence of reimbursement codes dedicated specifically to our technology. With CPT codes for our SRT and IGSRT technology to treat nonmelanoma skin cancer now being used, and with a more diversified customer base emerging, both of these factors have been addressed. Turning to our fair deal agreement program, this continues to be an important strategic component of our business. We ended the year with 18 active FDA sites and 10 additional sites pending activation. More importantly, utilization across the program increased substantially year over year. During 2025, treatments were up more than eightfold versus 2024, and the number of patients treated increased by more than 250%. While the market was awaiting news from CMS regarding the codes, we responsibly advised our prospects and customers to place a hold on moving forward until the new codes were made public. All of our customers appreciated the honesty of us informing them of these developments. While the broader market was awaiting reimbursement clarity, in several cases FDA placements have served as a bridge to ownership, with customers electing to purchase systems outright once they did the math on purchase economics. International demand was strong in the fourth quarter, as we shipped six systems internationally, including shipments to China. International sales continue to be attractive from a margin perspective due to lower installation, commissioning, and servicing requirements, and we expect international markets to remain an important part of our growth strategy. Looking ahead, we are encouraged by early activity in the first quarter 2026. Based on our current pipeline and customer engagement, we expect first quarter system shipments to exceed fourth quarter levels, even without any contribution from our historically largest customer. More broadly, 2026 represents a fundamentally different operating environment for Sensus Healthcare, Inc. With reimbursement certainty now established, a more diversified customer base, and expanding international opportunities, our objective is to achieve full-year profitability in 2026. With that, I will turn the call over to Michael J. Sardano to discuss our strategic initiatives and commercial outlook in more detail. Michael? Thanks, Joe. Tirth Patel: I will focus on how our commercial model is evolving Michael J. Sardano: and how these changes position Sensus Healthcare, Inc. for sustained growth in 2026 and beyond. Reimbursement certainty and highly attractive economics have expanded adoption pathways for SRT. Small and mid-sized practices are increasingly evaluating outright purchases and fair market value leases, driven by rapid breakeven, flexible financing structures, and tax considerations. Customers now have multiple ways to adopt our technology. We are able to support fair deal agreements, ownership, renting, or leasing, depending on practice needs. Internationally, momentum continues to build. In addition to ongoing demand in China, we expect more diversification due to the opportunity created by our MDSAP certification. International markets provide both growth and margin benefits and remain an important component of our long-term strategy. Taken together, these developments position Sensus Healthcare, Inc. to scale more efficiently with improved visibility, stronger economics, and a broader set of monetization levers than at any point in the company's history. From a commercial perspective, we are taking a deliberate and disciplined approach to scaling our sales organization in 2026. We have already added one new sales representative and plan to hire an additional three to five reps as soon as possible. This expansion is focused on increasing market education and accelerating lead conversions as customers work through the reimbursement framework and evaluate the most attractive acquisition model for their practices. In parallel, we have refined our trade show and conference strategy for 2026. Compared to prior years, we are placing greater emphasis on select national and regional meetings that consistently generate high-quality leads and decision-maker engagement, while reducing participation in lower-yield events. This more targeted approach allows us to concentrate resources on forums where purchasing decisions are actively being evaluated and where reimbursement clarity is now translating into actionable demand. Overall, due to the new CMS codes, Sensus Healthcare, Inc. is able to make these adjustments that allow for a more focused and efficient commercial model that balances an expanded market presence with operational discipline and positions us to efficiently convert interest into system placements as the year progresses. I will now turn the call over to Javier for a review of our financial performance. Javier? Joseph C. Sardano: Thank you, Michael, and good afternoon, everyone. I will review our financial performance for the Javier Rampolla: fourth quarter and full year ended 12/31/2025, starting with our fourth quarter results. Revenues for the fourth quarter of 2025 were $4,900,000 compared with $31,000,000 in the fourth quarter of 2024. The decrease was primarily driven by a lower number of units sold, reflecting reduced sales to our largest customer, slightly offset by revenue recognized from new placements under our fair deal agreement program. Cost of sales for the fourth quarter were $3,000,000 compared to $6,000,000 in the prior-year quarter. The decrease was primarily related to a lower number of units sold, offset by higher cost of service and costs associated with placements under the FDA program. Gross profit for the fourth quarter was $1,900,000, or 38.8% of revenues, compared with $7,100,000, or 54.2% of revenues, in the fourth quarter of 2024. These decreases were primarily driven by lower sales, higher cost of servicing systems, and costs associated with the new placements under the FDA program. General and administrative expenses for the fourth quarter were $1,800,000 compared with $2,400,000 in the prior-year quarter. The decrease was primarily due to lower professional fees and compensation costs. Selling and marketing expenses were $400,000 for the fourth quarter, remaining consistent with the prior-year quarter. Research and development expenses for the fourth quarter were $1,900,000 compared with $1,600,000 in the prior-year quarter. The increase was primarily due to higher product development costs related to the next-generation systems. Other income, net, was $200,000, remaining consistent with the prior-year quarter. Net loss for the fourth quarter of 2025 was $3,200,000, or a loss of $0.19 per share, compared with net income of $1,500,000, or $0.09 per diluted share, for the fourth quarter of 2024. Adjusted EBITDA for the fourth quarter was negative $3,000,000 compared with $1,900,000 in the fourth quarter of 2024. The decline reflects a net loss in the current quarter compared to net income in the prior-year period. Turning to our full-year results. Revenues for 2025 were $27,500,000 compared with $41,800,000 in 2024. The decrease was primarily driven by a lower number of units sold, reflecting reduced sales to our largest customer, slightly offset by revenue recognized from new placements under the FDA program. Cost of sales for the year were $15,600,000 compared with $17,400,000 in 2024. The decrease was primarily related to lower unit volumes, partially offset by higher cost of service and costs associated with the new placements under the FDA program. Gross profit for 2025 was $11,900,000, or 43.3% of revenues, compared with $24,400,000, or 58.4% of revenues, in the prior year. The decreases were primarily driven by lower sales volumes, higher servicing costs, and FDA program-related expenses. General and administrative expenses for the year were $7,900,000 compared with $7,100,000 in 2024. The increase was primarily due to higher professional fees, insurance costs, and compensation. Selling and marketing expenses for 2025 were $6,500,000 compared with $5,000,000 in 2024. The increase was primarily driven by higher trade show costs and increased payroll expenses associated with higher headcount. Research and development expenses for the year were $7,800,000 compared with $4,200,000 in 2024. The increase was primarily due to significantly higher costs related to beginning code reimbursement efforts in 2025, as well as increased headcount and higher product development costs related to the next-generation innovation systems. Other income, net, was $700,000 for 2025 compared with $900,000 in 2024, related primarily to interest income. The net loss for 2025 was $7,700,000, or a loss of $0.47 per share, compared with net income in 2024 of $6,600,000, or $0.41 per diluted share. Adjusted EBITDA for 2025 was negative $9,600,000 compared with $8,700,000 in 2024. We ended the year with $22,100,000 in cash and cash equivalents, unchanged from year-end 2024, and no outstanding borrowings under our revolving line of credit. We are delighted to have such a strong, clean balance sheet as we enter 2026. Prepaid inventory was $1,500,000 at year-end compared with $3,300,000 at 12/31/2024. Inventories totaled $14,600,000 compared with $10,100,000 in the prior year, reflecting inventory build in support of anticipated future demand. And lastly, as Joe mentioned, we expect Q1 revenues to exceed Q4 revenues, and we look to be profitable for full-year 2026. With that, I will turn the call back to Joe. Joseph C. Sardano: Thank you, Javier and Michael, for those updates. Before we open the call for questions, I want to reiterate that Sensus Healthcare, Inc. is entering 2026 with greater clarity, better control over our business, strong customer economics, and more commercial flexibility than at any point in the company's history. The new dedicated CPT codes for superficial radiotherapy significantly improve physician reimbursement and support broader adoption of our technology, while benefiting patients with certainty of coverage for noninvasive treatment options. Combined with a more diversified customer base and our expanding international opportunities, we believe Sensus Healthcare, Inc. is well positioned to deliver stronger and more predictable growth and improved operating leverage. We appreciate your continued support, and we look forward to reporting our progress throughout 2026. Thank you for joining us today. We will now open for questions. Operator? Operator: We will now begin the question and answer session. To ask a question, press star then one. If you are using a speakerphone, please pick up your handset before pressing the keys. To assemble our roster. The first question comes from Anthony V. Vendetti with Maxim Group. Please go ahead. Tirth Patel: Good going, Javier? Hey, how are you? Hey, how are you? Michael J. Sardano: Good. Good. Thanks. So I wanted to talk, so obviously, you know, major positive news with the new schedules. Started 01/01/26. 300% per fraction increase. And you did ship 14, eight in the U.S., six internationally, as you said, none to the largest customer. In your guidance of sequential growth in the first quarter, revenue growth, does that assume nothing from the largest customer? And as you think about 2026, are you expecting any orders from them, or should we look at any orders from the largest customer any quarter in 2026 as upside? Thanks. Joseph C. Sardano: Thanks, Anthony. It is a good question. And as we put together our model for 2026, based on the new CPT codes, we made sure that we did not include any expectations from our biggest customer because of the fact that they have to really reevaluate their model moving ahead. So we did not know what they were going to do or how they were going to do it, but everything that we are going to be projecting for 2026 excludes them for the moment. And if there is anything that they can contribute, it will only make it better for us. So we are looking forward to 2026. We look forward to working with them in 2026 if the circumstances allow us to work together. But if not, we are very, very comfortable moving ahead with these CPT codes because it is a major, major impact for us. Michael J. Sardano: Okay. And in terms of Anthony V. Vendetti: CDI, do you have any update on that and where that is at, and do you expect to get FDA approval for that product sometime in 2026? Joseph C. Sardano: Yes. TBI has been a long, tenuous program for us, and we are working closely with the FDA and continuing to work through this situation that they seem to lack an understanding. And so I do not know when that is going to happen, but we are going to continue to pursue it wherever we possibly can and see what we might be able to come up with. But it is an interesting dilemma right now for the FDA, and we will continue to pursue. Tirth Patel: Okay. Anthony V. Vendetti: And then maybe on the international front, can you talk about the demand outlook internationally and any particular country that would be a positive in 2026 or any concerns internationally in 2026? Yeah, great question, Anthony. I think I will take that one. Michael J. Sardano: So China has been our bread and butter internationally for years. That still is the case. They are obviously the largest country outside of the United States to purchase something like this. In addition to that, I have seen firsthand Taiwan and how that has been growing. We have four or five installations there now over the last two years. Asia in general continues to adopt SRT technology. I know that South Korea is coming in. Japan eventually will trickle in with our MDSAP certification now. As soon as we get through all of the secondary regulatory hurdles from the MDSAP, you will start to see SRT coming in. But I know that there is tons of demand from Asia due to the keloid market. And additionally, we are holding out hopes for the Middle East as well. That is starting to trickle in. And then India, and then, of course, South America, Brazil, where we are still working right now on our regulatory, the secondary regulatory, and we expect to get Brazil clearance this year. So we are very excited to finally take a step into South America as well. Anthony V. Vendetti: Okay. And, yeah, historically, obviously, Brazil is a pretty large market. Okay. Good. Good. I appreciate all that color. I will hop back in the queue. Thanks. Michael J. Sardano: Thanks, Anthony. Operator: The next question comes from Benjamin Charles Haynor with Lake Street Capital Markets. Please go ahead. Joseph C. Sardano: Good afternoon, gentlemen. Thanks for taking the questions. Hey, how are you doing? Operator: Doing great. Living the dream. Tirth Patel: So just to start off for me, any more color you can Operator: kind of add to the reaction that folks have had to reimbursement in terms of what you think it does to system mix, SRT versus IGSRT? Joseph C. Sardano: And then also kind of FDA versus sale versus Operator: other financing options? Javier Rampolla: Good question, Ben. Joseph C. Sardano: I think that we are going to see a couple of tendencies shift here. Number one, the FDA still remains a priority for all of the private equity-backed roll-up groups because that is just the way they would prefer to do business. However, they still are contemplating how they want to get into the market, considering whether it is a fair deal agreement, which is a shared service program, or if they want to enter into some kind of a leasing program, which we will be able to provide them. Clearly, the single customers, the customers that I would say are anywhere between one to 20 centers, the smaller centers, which is, quite frankly, what we had not what our bigger customer was working with, we are seeing a much stronger influence regarding the actual purchase of the equipment or actually going to a lease. With the reimbursements as they are and with the reimbursements guaranteed as they are, they are not in the tendency of wanting to share revenue. They want it all. And I do not blame them. Especially the bigger users are going to want to keep all the money and be more reluctant to split the volumes with anybody. Benjamin Charles Haynor: Okay. And then when it comes to the product mix, Joseph C. Sardano: the product mix, because there is, we still have an opportunity on the ultrasound side, even though there is only one code that reimburses for the ultrasound. But we see more of a tendency to work with the SRT-100 product, and the customer acquiring a handheld ultrasound device to give them the one code that they are going to have reimbursement for. So it is a cost saving for the customer overall. And quite frankly, it is much better margin for us as well. Javier Rampolla: Okay. Got it. And then just Joseph C. Sardano: any change to the level of interest that you have seen from the private equity-backed groups just given the more certainty for reimbursement going forward? We have talked to pretty much all of them, and they are very seriously reevaluating how they want to acquire it. And we are seeing more interest in some of the other groups that were not necessarily involved in looking at the device for skin cancer. But now it is hard to say. But quite frankly, on average, the reimbursement that we are getting from the CPT codes that we have been given actually pays more than most, more than Benjamin Charles Haynor: Yeah. Michael J. Sardano: The demand across the board, just to add color to Joe, demand across the board is more clear. People have, in general, in the past with gray-area type codes, always been on the fence or not, and then they wait and they wait. Now, it is black and white total. It is just a much easier environment to work with. Tirth Patel: With black and white coding, and it is just a matter of us getting Michael J. Sardano: the loudspeaker out there and getting that out there to make sure that everyone understands that going forward. And we have not had enough time to do that yet. It just started 01/01/2026. And Q4, which we are announcing right now, obviously had the leftovers of how we were built in general with the old world. Now it is kind of like a brand-new company again. And we can push from there. We already have the inventory paid for and no debt. Tirth Patel: Got it. And then on Sentinel 2.0, Operator: how is that coming along? And then remind me, is that something that you guys are going to keep for yourself with the FDA program or maybe leasing? Or does that get rolled out more broadly? Joseph C. Sardano: I think we are looking at a more broad rollout for it, and I think that we will see these things rolling out in the near future. So it is exciting for us. It is coming out at the right time, and you will hear more about it in the future. Javier Rampolla: Got it. And then last one, Ben Haynor: on service revenue, how do you see that this year? I know that, obviously, the former largest customer has quite a few units out there that will need service at some point. What is the right way to think about that line? Javier Rampolla: So service revenue still is about 10% of the total revenue for the company. Ben Haynor: You do not see that Javier Rampolla: No. No change. Ben Haynor: Okay, great. Well, thanks very much, gentlemen. Thanks, Ben. Operator: Those are all the questions we have for today. I would like to turn the conference back over to Joseph C. Sardano for any closing remarks. Joseph C. Sardano: Well, I would like to thank everyone for joining us today, and we look forward to updating you on our progress in the quarters ahead. If you have additional questions following the call, please feel free to reach out to our Investor Relations team. Thank you again for your time and continued support of Sensus Healthcare, Inc. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Hello, everyone. Thank you for joining us and welcome to the Expedia Group, Inc. Q4 2025 financial results webcast. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. To withdraw your question, press 1 again. For opening remarks, I will now hand the call over to Rob Bevegni, VP of Investor Relations. Please go ahead. Rob Bevegni: Good afternoon, and welcome to Expedia Group, Inc. fourth quarter 2025 earnings call. Rob Bevegni: I'm pleased to be joined on today's call by our CEO, Ariane Gorin, and our CFO, Scott Schenkel. As a reminder, our commentary today will include references to certain non-GAAP measures. Reconciliations of these non-GAAP measures to the most comparable GAAP measures are included in our earnings release. Unless otherwise stated, all growth rates are on a year-over-year basis, and any references to expenses exclude stock-based compensation. We will also be making forward-looking statements during the call, which are predictions, projections, and other statements about future events. These statements are based on current expectations and assumptions which are subject to risks and uncertainties that are difficult to predict. Actual results could materially differ due to factors discussed during this call and in our most recent Forms 10-K, 10-Q, and other filings with the SEC. Except as required by law, we do not undertake any responsibilities to update these forward-looking statements. This call is being webcast on the Investor Relations section of our website at ir.expediagroup.com. A replay will be archived on our site. A slide deck containing financial highlights has also been posted on our IR website. For today's call, Ariane will begin with a review of our fourth quarter results and update on our progress against our strategic priorities. Then Scott will provide additional details on our fourth quarter financial performance and guidance. After our prepared remarks, we will turn the call over to our operator to begin the Q&A portion of the call. And with that, let me turn the call over to Ariane. Ariane Gorin: Thank you, Rob. Ariane Gorin: Thank you all for joining us today. Ariane Gorin: We accelerated both bookings and revenue growth and expanded margins by over two points. We returned Vrbo and Hotels.com to growth, while sustaining the performance of Brand Expedia, B2B, and advertising. Looking ahead, we are well positioned to build on our momentum as we execute our strategy and capitalize on the opportunities created by AI. In the fourth quarter, we exceeded our expectations, growing bookings and revenue by 11%, and expanding our margins by four points. Booked room nights were up 9%, including high single digits in the U.S., and low double digits in EMEA and the rest of the world. Consumer spending remained healthy, with longer booking windows and lengths of stay relative to 2024. Our B2B and advertising businesses had stellar quarters. We grew B2B bookings by 24%, and advertising revenue by 19%. Our consumer brands bookings were up 5% overall, and double digits outside the U.S. We grew loyalty members by mid single digits, with faster member growth in our Silver tiers and above. And for the second consecutive quarter, all three core brands delivered year-over-year bookings growth, reflecting sharper brand positioning, product improvements, and ever better execution. Turning to our three strategic priorities, I'll begin with our first: delivering more value to travelers. On product, our sites and apps are 30% faster than they were a year ago. We have upgraded our checkout path and added new payment options, giving travelers more flexibility and making booking even easier. We are using AI to deliver more personalized experiences across all our On brand Expedia, for example, our refined recommendation models drove our best fourth quarter attach rates ever. This is a strong signal, as travelers who buy multiple products spend more and return more often. We also know how important it is to give travelers confidence throughout their journey, including when plans change. Our ability to meet this need is an important competitive advantage. Last quarter, we expanded VrboCare, strengthening Vrbo's differentiation and giving travelers peace of mind when booking their trips. Across our brands, we enhanced our help center and servicing capabilities so travelers can effortlessly modify their bookings or get support if things go wrong. This resulted in record traveler self-service levels. And for more complex issues that require a live agent, our advanced agent tools are contributing to materially reduced wait times, even during peak call periods. All of that translates into more satisfied travelers. On supply, we continue to broaden our inventory to give travelers more choice and better value. In the fourth quarter, we grew our lodging property count by more than 10% compared to 2024. We are sourcing more promotional rates, up more than 10 points from the third quarter, and partner-funded promotions were over 30% of bookings in Q4. Nearly 70% more properties participated in our Black Friday sale than ever before. These trends demonstrate the strength of our flywheel, as deeper partner participation increases traveler value and drives incremental demand back to our partners. Turning to our second priority, investing where we see the greatest opportunities for growth. B2B had another fantastic quarter, with double-digit growth across all regions. We gained share with existing partners and benefited from increased marketing activity from some of our largest partners. We added new partners and had more active travel agents than any prior fourth quarter. We continue to invest in new lines of business, extending capabilities from our consumer business into B2B. Last quarter, we launched a cancel for any reason assurance product. And in December, we announced our intent to acquire Tickets to broaden the activities we offer to our partners and their travelers. B2B is a great business, and we will continue to invest to drive future growth. On advertising, we reaccelerated revenue growth and finished the year with a record number of active partners. We continue to expand placements of new ad formats, and after launching video ads in our search results in early 2025, last quarter, we introduced video ads on Expedia's homepage. We are a high return channel for our partners. And as we inject AI into both our ads and our ad targeting tools, our ads are becoming more relevant, in performance. Finally, as Gen AI changes how travelers do trip discovery, it opens up new growth opportunities for us. We are working with all the major platforms to capture traveler demand, ensuring our brands show up prominently in GenAI searches, and function effectively with the agentic browser. We are experimenting aggressively and while volume is still small, every additional integration gives us data and learnings about how to better surface our brands and how consumer behaviors are evolving. These learnings coupled with insights from our own brands, in turn informing the development of AI experiences in our own products. And that is important because while third-party AI experiences are a new way to attract travelers and turn them into loyal members, our biggest long-term opportunity remains direct engagement. Today, two thirds of our bookings come from travelers who begin their planning journey directly with our brands. And those direct bookings are growing faster than bookings from indirect channel. We are confident that our work to make our products even more personalized and intuitive along with our work on supply, customer service, and loyalty, will deepen our competitive advantage. Moving to the third pillar of our strategy, driving operating efficiencies and margin expansion. We expanded margins by nearly four points in the quarter, thanks to our continued operational discipline, and volume leverage. I am particularly pleased with the work we have done to get marketing leverage in our consumer brands. We have improved our targeting and measurement capabilities, reduced our least efficient spend, and reallocated dollars to where we see the highest incremental return. We also continue to optimize our organizational structure for speed and effectiveness, ensuring we have the right skills and velocity to execute on our strategy. At the same time, we are deploying AI internally to give our team superpowers and make our offerings to travelers and partners even more competitive. This is already delivering tangible benefits. Our product and tech teams are using AI to design and build products, improving quality while shortening cycle time. Our supply teams are leveraging AI to speed up inventory onboarding team. And our service team is using AI to resolve traveler issues faster and more effectively. As we grow our business, and increase our use of AI, we are keeping a close eye on cost, and we have been able to optimize our cloud spend through technology improvements, and a more disciplined cloud operating model. In closing, I want to thank our teams for their hard work and our partners for their continued trust in us. We enter 2026, our thirtieth year as a company, well positioned to extend our momentum. Looking ahead, we are confident in our strategy and our ability to execute to drive long-term value for all stakeholders. With that, I will turn it over to Scott. Scott Schenkel: Thank you, Ariane, and good afternoon, everyone. I'm pleased to share our fourth quarter 2025 performance Scott Schenkel: which exceeded the high end of our guidance range with bookings and revenue up 11% and EBITDA margin expansion of nearly four points. As Ariane mentioned, our outperformance was driven by sustained market strength through year end and disciplined execution across the company. We grew share in the U.S. for both hotel and Vrbo, and held lodging share globally. We also saw continued strength from B2B, which was a meaningful driver to our overall performance in the quarter. Our booked room nights were up 9%, driven by continued strength in the U.S., and sequential acceleration in EMEA, where B2C once again saw its fastest growth in nearly three years. Growth in rest of world slowed as issues in Asia weighed on growth in multiple quarters. Gross bookings and revenue grew 11% to $27,000,000,000 and $3,500,000,000 respectively. The impact from foreign exchange was roughly in line with expectations, adding slightly over one point to bookings growth and about two points to revenue. Moving to our segment performance. B2C gross bookings of $18,300,000,000 grew 5% driven by sustained momentum both domestically and internationally. B2C revenue of $2,200,000,000 grew 4%, Scott Schenkel: consistent with last Scott Schenkel: quarter, bookings growth exceeded revenue growth primarily due to book-to-stay timing, as the majority of our revenues are recorded at the time of stay. B2C EBITDA margins were 31.5%, up approximately six points from last year, driven by significant marketing leverage. Margins were further supported by disciplined overhead management as well as continued growth in our high-margin advertising revenues. B2B gross bookings grew 24% to $8,700,000,000 with continued double-digit growth across all regions. Rapid API was again the largest contributor to growth, and benefited from increased marketing activities with some of our largest partners. B2B revenue grew 24% to $1,300,000,000, while B2B EBITDA margins were 24%, down approximately a point. As we have stated previously, we will continue to prioritize investments to future growth, which may modestly weigh on near-term margins. Moving to our cost structure where we again leveraged meaningfully across all our categories. Cost of revenue is $342,000,000, up 3% but leveraging one point as a percentage of revenue driven by continued efficiencies in payments and customer service. Total direct sales and marketing expenses were $1,700,000,000, up 10%. We saw significant leverage in our B2C business with direct sales and marketing down 5%, leveraging half a point as a percentage of B2C gross bookings. This was offset by growth in B2B expense, which reflects partner commissions and is recognized at the time of stay. Overhead expenses were $640,000,000, roughly flat versus last year, while leveraging over two points on revenue. As a reminder, last year, we implemented a series of cost reductions which had a meaningful impact on the margin in the back half of the year, and expect those actions to favorably impact 2026. Additionally, we have already taken action in January with our product and technology organizations to simplify and become more efficient. While we will be using much of the savings to strategically rehire in key areas like AI and machine learning, these type of actions will favor margins as well. Turning to profitability. We delivered fourth quarter adjusted of $848,000,000 with a margin of 24%. The nearly four points of adjusted EBITDA margin expansion was driven by revenue growth, expense leverage and cost out, particularly within B2C direct sales and marketing. Adjusted EPS of $3.78 grew 58%, outpacing EBITDA growth due to share repurchases and a lower tax rate. Moving to our cash position. We ended the quarter with $5,700,000,000 of unrestricted cash and short-term investments, and we remain committed to maintaining debt levels consistent with our investment grade rating. Free cash flow for the year was $3,100,000,000 and reflects the strength of our operating model and disciplined execution of our strategic priorities. In Q4, we utilized $255,000,000 to repurchase 1,100,000 shares of our common stock, and since 2022, we have repurchased over 45,000,000 shares, reducing our share count by 22% net of dilution. We remain committed to returning capital to shareholders. We intend to continue opportunistic share repurchases at a pace similar to recent years and today are raising our quarterly dividend by 20% to $0.48 a share. Turning to our outlook. Our guidance reflects strong bookings momentum as we enter Q1, while remaining appropriately cautious given ongoing macro uncertainty. For the first quarter, we expect gross bookings growth to be between 10% to 12% with revenue of 11% to 13%. At current exchange rates, this assumes foreign exchange tailwinds approximately three points to bookings, four points to revenue, and implies stability in growth at the upper end of the range. For EBITDA, we expect EBITDA margins to be up three to four points. As a reminder, the first quarter is our lowest EBITDA quarter, so the benefits of our prior cost actions will have an outsized impact in Q1 relative to other quarters. For the full year, we expect gross bookings growth to be between 6% and 8% and revenue of 6% to 9%, including one and two points of FX tailwind, respectively. Similar to our Q1 guidance, the upper end of our range implies stability and growth on an FX-neutral basis, while the lower end of the range reflects a more cautious view given the dynamic macro environment. We experienced variability in bookings during 2025 and our 2026 outlook assumes a more seasonal cadence similar to what we saw in 2024. Regarding EBITDA margins, we noted last quarter we expect a more moderate pace of expansion in 2025, as we lap the benefits from our 2025 headcount reductions and marketing optimization. With this in mind, we do expect full-year margins to expand by 100 to 125 basis points as we maintain cost discipline while selectively reinvesting in growth initiatives. In closing, I am proud of the progress the team delivered in 2025, driving faster site performance, a leaner cost structure, and more efficient marketing, all of which strengthen our confidence in the outlook shared today. With clear momentum across our strategic priorities, we are well positioned for long-term profitable growth and remain confident in our ability to and create shareholder value in 2026 and beyond. With that, we will now open the call for questions. Operator: We will now open for questions. If you would like to ask a question, please press 1 on your telephone keypad. To withdraw your question, press 1 again. Please pick up your handset when asking a question. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from Mark Mahaney with Evercore ISI. Please go ahead. Mark Stephen Mahaney: Thanks. I wanted to ask two questions, please. One, Ariane, could you just talk about the product or the features that you would want to try to roll out or are rolling out in order to really enhance the travel planning process on Expedia. It is always known as a booking site, but what can you do to kind of capture more people up the funnel and to just kind of keep them there? And then secondly, Scott, you know, a lot of leverage being shown in B2C marketing. Just talk about how much more leverage there is there going forwards, or are there other sources of leverage that are just as big as what you have been able to get out of that so far? Thank you. Ariane Gorin: So I would start my answer saying it is not just what we are doing in the product. It starts with marketing, and we are doing a lot of work to make sure we know travelers. We are targeting them. We are personalizing our marketing to them so that when they are doing discovery, whether it is in social channels or anywhere else, and when they are seeing our brands, they see messages that resonate with them. And then when they land on our brands, we are giving them relevant relevant context so that they then convert. Again, it starts with the marketing, knowing our travelers, having messages that resonate with them, so we are top of mind. Then in the product, obviously, we do a very good job when people land in converting them, but there are things that we can do, whether it is agents of you know, that can help look at if you have a certain budget then, you know, how do we give you ideas? If you want to search by destination, you know, if you want to work search by themes, I think there is a lot of exciting things can come both in the existing flows, but also in natural language flows. You know, right now, we have got an agent, sort of the AI agent in Hotels.com. What works the best is actually the point solutions like AI filters or property Q&A. And what the team is working on, and we will have more to share later this year, is how we can use natural language and sort of AI to allow people to go from the trip planning all the way into the booking. Again, I just reemphasize it is not just when they land with us. It is also how are our brands known and what is the work we are doing in marketing. Scott Schenkel: Mark, to your question on the marketing, maybe a few thoughts and then some context. We have leveraged about 50 basis points as a percentage of GBD in B2C. And we have done that through strong marketing discipline, improving efficiency, by holding the teams accountable, and having a strong point of view about return levels, incrementality, detailed analytical insights, and then reallocation. And I think we have done some really nice work Scott Schenkel: to Scott Schenkel: cut costs sharply accurately. And then as think, redeploy where we see upside between channels. And the improved targeting and measurement capabilities I think have allowed us to be more dynamic in terms of how we manage our direct B2C sales and marketing. And I think the reduced spend on lower performing channels and reallocating has really helped kind of cut costs, take some leverage, and then also reinvest for growth in other channels. So it feels very good. And as we look forward to the rest of 2026, think you can expect more of the same. Ariane Gorin: And just to add to that, I would say at the highest level, we are taking a more disciplined and data-driven approach to our marketing. And it is even more grounded in customer insights. Scott and I challenged the team to improve the returns and they have done a great job. We have significantly stepped up the measurement capabilities we have, our testing velocity, and our understanding of incrementality, and that sits behind a lot of what Scott described. Also, the work that we have done to sharpen our brand value propositions with stronger creative makes our spend more effective. So last year was a big year for relaunching Hotels.com with the Bellboy, and we were able to move awareness and consideration numbers. For Brand Expedia, just last week with the Super Bowl, we launched a new campaign, which is the one place you go to go places. It was actually the most watched ad on YouTube with over 200,000,000 viewers. So that, you know, as the creative is good, that also helps our efficiency. And finally, the product and tech improvements that I talked about in my prepared remarks, the fact that our sites are faster, that they are converting better, that also makes our marketing dollars go further because when we bring traffic into our brands, they are converting better. Mark Stephen Mahaney: Thank you, Ariane. Thank you, Scott. Operator: Your next question comes from Eric James Sheridan with Goldman Sachs. Please go ahead. Scott Schenkel: Part of the answer to Mark's Eric James Sheridan: question. How would you characterize the current competitive positioning of your consumer facing brands? And how much of them have been realigned for where you want them to be in the marketplace today or to the degree level of work still needs to be done to sort of have them operating on a more normalized level from a growth standpoint as we go deeper into 2026. Thanks so much. Yep. Ariane Gorin: I feel very good about we are where we are in the positioning of each of the three brands, and that has been a lot of work over the last twelve to eighteen months. So positioning Expedia as the one stop shop where you go to find everything. Positioning Hotels.com as the hotel pure play with a great loyalty value proposition. And, you know, Savior Way, which we launched at the end of last year, was a key part of that. For Vrbo, positioning it as the trusted pure play vacation rental marketplace, know, last year when we finally launched our promotion suite, that allowed us to, you know, basically expand our supply. In November, when we expanded VrboCare, it gave travelers more trust. So I would say sort of the positioning, I feel good about. We have done a lot of work that are just the basics of the marketplace around supply, around, you know, faster speed, all of those things are great. And now there is really just a lot of growth potential growth as our marketing becomes more effective. There is international growth. As I shared in my prepared remarks, room nights were growing faster outside of the U.S. than in the U.S. So there is always work to be done. But I feel like especially relative to a year ago, we are in a good place for those brands and a healthy place to be able to grow. Scott Schenkel: Great. Thank you. Operator: Your next question is from Jed Kelly with Oppenheimer and Co. Please go ahead. Eric James Sheridan: Hey. Great. Thanks for taking my Jed Kelly: question, and good job. I guess, Ariane, since you have been here or taken over, you have really done a nice job making the business a pretty consistent EBITDA compounder, and you considered generate consistent margin growth. And I do not want to get you too take you too far out, but can you just give us a vision on where you potentially see the margin trajectory of this business could go over the medium term? Thank you. Ariane Gorin: Thank you, Jed. Look. All I what I will tell you is there is more to come. Obviously, you can see in our full-year guide that we see more margin expansion. And it is not only us executing more effectively. It is our marketing executing more effectively. It is us being able to deliver more from the teams that we have. And, of course, the beauty of this business is as we grow, as we get more scale, I think the margins will come. So, you know, I would just say my confidence in the growth comes from the fact that we have got a lot of potential on B2C like I just talked about. Know, B2B there is always more opportunity to get more partners. We are making investments in new lines of business, which know, again, gives us positions us even better to be the one stop shop for our partners. There is more supply. We grew the number of lodging properties in the fourth quarter by 10%, and there is still a lot to go. There are some where we do not have the coverage that we would like. We can get more promotions. Obviously, last year, we added Southwest. We added Ryanair. So that gives me a lot of confidence in growth. And then the ads business, you know, I see a lot of potential especially in using AI to make those ads even more effective. So, yeah, I again, I see growth on the horizon. I am excited about the opportunities, and AI just gives me even more confidence. Scott Schenkel: Yeah. I think just a couple of quick points. I think the dynamic that we are looking at is a really strong quarter for outlook for Q1 as well. So an extra three to four points on margin rate expansion for Q1. But for the rest of the year, as I pointed out in my prepared remarks, to be somewhat muted in the context of versus a 3% to 4% number. Just as we have taken a number of actions I want to come back to that, but a number of actions last year had not only on headcount but also on marketing costs, on cloud costs, those have kind of had a compounding effect over the course of the year and are hitting Q1 strongly. But I think the way Ariane operates is she challenges everyone on the team to get more for less. And so there is a constant drumbeat in the business of do we think about operating smarter, do we do it with less money, and how do we do it in a way that then favors growth as we think about reinvesting some of those funds as well as dropping some of that through to the bottom line. So as we look out over the course of 2026 for certain, and I do not anticipate that culture to change as well. Yeah. Just to ask that, you know, I talk a lot about being brilliant at the basics. Ariane Gorin: And also about making every dollar count. And it is important that we all look whether it is in our cloud spend, whether it is in our marketing spend, whether it is just where we are allocating our time, are we doing it where we can have the highest returns and make the most impact? Jed Kelly: Thank you. Operator: Your next question comes from Conor T. Cunningham with Melius Research. Please go ahead. Scott Schenkel: Hi, everyone. Thank you. Just a helpful comment on the 10% supply growth that you gave for the fourth quarter. Curious on how that is actually trended into 1Q. Mean, obviously, there is a lot of debate around Conor T. Cunningham: hotels going more direct with large language models and so on. And then maybe if you could just parse out branded hotel growth versus ones that are not, I think that would be a helpful outline. Thank you. Ariane Gorin: Sorry. Can you repeat? I missed the first part of the question. You said 10% hotel growth, and I missed the end of it. Can you repeat, please? Scott Schenkel: Just yeah. Sorry. So just on you talked about 10% supply growth. Conor T. Cunningham: I am curious on how that has progressed into 2026. Obviously, there is this debate around hotels going more direct with large language models and so on. So just curious on that. Versus you know? And if you could parse it out a little bit between branded hotels versus ones that are not would be that would be helpful. Thank you. Ariane Gorin: Sure. Okay. Thank you. Look. We continue to add more properties. We, you know, we have added airlines last year. There is even if we have a very good assortment, especially as we are growing internationally, there will be opportunity to do more. And in fact, some of the work we did on AI has sped up the time it takes to onboard properties. It is 70% faster than it was before. So you know, I expect we will continue adding supply. We will continue adding rate plans. And as for the talk about, you know, large language models and what that can do, what we are seeing is our business continues to grow. We are doing work with the large language models and with this, with whether it is ChatGPT or Google and the like to make sure our brands are showing up well there. We are doing work in answer engine optimization, in native integrations, work with agentic browsers, and all of the work that we do there benefits our suppliers because we are doing the complicated work to help them drive demand to them through our business. Obviously, you know, in the same way that they could always get business direct through Google and the like, that will continue to be the case. But as long as we do the job of making sure that our brands have very strong value propositions, that travelers know them, they trust the value they are going to get coming to us, the same thing in our B2B business that we are adding value to the B2B partners, I think the pie will expand. Thank you. Operator: Your next question is from Kevin Campbell Kopelman with TD Cowen. Please go ahead. Scott Schenkel: Hi. This is Jacob in for Kevin. Thanks for taking question. I have two questions. Is Expedia seeing any changes on traffic from Google as they continue to roll out more advanced AI features within travel? Jacob Seed: And then on B2B direct sales and marketing costs of 27% year over year, can you talk about key drivers Scott Schenkel: and how you see that playing out this year? Ariane Gorin: Sure. I will take the first one and then hand it to Scott. Look. We were not seeing material changes right now. We are experimenting aggressively. We are working closely with Google and others as they are adapting their interfaces, making sure that our brands show up well, as I said, through many ways, whether it is answer engine optimization, native integrations, and browsers. I actually think that AI search opens up even more possibilities to reach more travelers, and as there is more context in those searches, there is an opportunity for us to better target and then as we bring those travelers into our ecosystem to better convert. So I think it is an exciting time right now. Again, it is a fast moving time. We are clear eyed about where we all are, but, you know, our strategy is to be in early, to partner deeply, to get learnings from these early integrations, and to find opportunities. Because one thing we have always been good at is figuring out how to surface our brands in third-party experiences and then convert travelers that come to us and we will continue doing that. Scott Schenkel: And for B2B marketing, it really was more aligned with the revenue number, so 24%, versus anything else. Because the dynamic is we book that with the time of stay. And it is more a commission model than it is a rev share model than it is a marketing spend. So it is pretty straightforward. Jacob Seed: Got it. Thank you. Conor T. Cunningham: Yep. Operator: Your next question comes from Kenneth Gawrelski with Wells Fargo. Please go ahead. Scott Schenkel: Thank you so much. Could I want to stick on the B2B side. You talk about any kind of concentration or any specific drivers that is driven that continues to drive the robust growth you see there? And as you look throughout 2026, any factors we should be thinking about on the top line? And then maybe, say, on B2B, you touched upon the margins and perhaps some temporary investment pressure on margins. Could you talk a little bit about the kind of the key factors driving that potential pressure early this year? And then maybe the longer-term outlook is should we think about these the 25% B2B margins as kind of the right place to think about the long-term outlook for the B2B business on the margin side? Thank you. Scott Schenkel: Yes. Ken, I know you work from the bottom up there. First off, on margins, and we talked about this last quarter as well. As we are redeploying a portion of the savings that we are delivering in other parts of the company, we are investing in B2B initiatives that will weigh in the short term on our near term, will be weighing on those on our margins there. But we will continue to do those investments because that is one of the that we see as strong growth opportunity for the company, and I will let Ariane jump in on that in a second. That is factored into our Q1 and our 2026 guide. And so without getting into guiding by business unit or talking about specific numbers, we have had, what, 18 quarters now of strong double digit growth in B2B. So I think it has been relatively consistent and strong double growth. And as we invest in the new products, new lines of business, we feel like we can make that continue going forward. Ariane Gorin: And I would just add, we took actions to win wallet share with existing partners. The B2B business benefited from the supply work that I was referring to earlier. You know, the fact that we had more partners participating in Black Friday. We had an increase in the number of properties. All of that flows through into B2B. Plus, you know, some of our large partners made investments in marketing in the fourth quarter, which we then benefited from. Our travel agency platform, which we call TAP, performed very well. We expanded the loyalty program. We grew the number agents that were active in the fourth quarter. On our template, which a number of partners use, we have improved the configurability. I mentioned we launched our first assurance offering. So it is really the team is innovating across the product and technology, adding supply. We are deepening our partner relationships. And that has been a formula that has worked for us. As I always tell the team, it is a competitive industry. We are going to win some deals. We are going to lose some deals. The important thing is that we keep on adding partners. We keep on innovating. I think the work that we are doing in the new lines of business is going to be very exciting for the years to come. And, you know, we really believe in this business. Operator: Your next question is from Deepak Mathivanan with Cantor Fitzgerald. Please go ahead. Scott Schenkel: Hey. Thanks for taking the questions. Eric James Sheridan: Ariane, can you talk a little bit more about the development efforts on the AI experiences side? Are you approaching it know, generally using the current LLM architecture and your cloud partners, or do you think you need to Scott Schenkel: fundamentally Harshit Vaish: build new AI capabilities specific to travel, maybe with Expedia data in a unique way. And then if I can ask one for Scott, how should we think about the tech and infrastructure investments that required to build and support some of the AI experiences? The platform currently already well positioned to a trade on AI capabilities? Or do you anticipate potentially making some investments on this front? Thank you so much. Ariane Gorin: Sure. So in the product, I think of AI in a couple ways. One is just in the existing flows, how do we use AI to make a better travel experience? So that is, you know, personalization. It is better recommendations. Better ranking models. It is more personalized content. So you know, if someone has always goes to properties that have spas, how do I make sure that that is what they are, you know, that we are highlighting on properties? So that is one sort of real area of, I think, potential product improvement and performance. The other is everything related to natural language engagement with the product, which I talked about earlier. How do you introduce natural language? How do you make it both sort of typing and also spoken? I would say it is earlier days on that, but that is also sort of a vector that we are going down. You I will just give you an example, though, of why I believe both things need to live side by side. Think about something like servicing, you can go into our app and you can go through the native flow and, you know, make changes, cancel, change your room type, in a few clicks. You can also do that in the servicing agent, and we want to make sure that we give people the choice of which of those makes most sense to them. In terms of the question about sort of the architecture and the technology, I would start by saying it is grounded in our data. So a lot of the work we have done the last couple of years has been about making sure that, you know, we have clean data. We have got, you know, customer data, destination data, and the like. And our tech teams are looking at the architecture. They are learning. They are obviously staying on the front foot on how things are evolving. And in fact, some of the partnerships that we are doing, whether it is around agentic browsers and the like, really does keep us on the forefront. And that is true both for our consumer business and for our B2B business. Scott Schenkel: You want to talk briefly about the platform and kind of how you see that, and then I will pick up on the numbers? Ariane Gorin: Sure. I mean, look. The platform, I mean, anybody who tells you their platform is done is not truthful. At the same time, I do not foresee some kind of big platform transformation like we had in the company a few years ago. At all. I think it is about understanding where the technology is evolving, understanding where are the pieces that we need to shift, where are the new architectures that we need to look at. But, you know, I would say it is not on one end of the spectrum or the very other end of the spectrum. Scott Schenkel: Yeah. I think that is well said. I think the dynamic is not a majority of our spend, but it is a continual spend to make sure that our platform contemporary and continues to evolve. I think the other thing I would point to how we are thinking about it, and I think in the spirit of your Conor T. Cunningham: question, Scott Schenkel: we think about reshaping the product and technology teams, what we are trying to do is, you know, look at do we operate smarter, how do we operate in a way that is more efficient and effective, simplify the organization and our decision making and speed? And at the same time, bring new talent in around AI and machine learning that can develop our help develop our product in ways that Ariane just talked about. Ariane Gorin: So Scott Schenkel: while there will be some net benefits to that, I think in the margin rate, overall, I think that is cut cost to invest and grow strategically. Ariane Gorin: And I said in my prepared remarks that even though we are using AI more, we are growing the business, you know, we have optimized our cloud spend and from our technology spend. And going back to the whole theme of discipline and making every dollar you can just count on the fact that the way we are looking at the technology work, it is how do we make sure we have the platform that we need and we are doing it with sort of the cost also in our mind. Harshit Vaish: Very helpful. Thanks, Ariane. Thanks, Scott. Operator: Your next question is from Naved Ahmad Khan with B. Riley Securities. Please go ahead. Great. Harshit Vaish: You very much. Adrian, I have one question on alternative lodging. So you have had alternative lodging on Brand Expedia for some time, and I am curious if you can provide any color on what the uptake is for what the mix looks like for alternate lodging versus hotel today versus maybe a couple of years ago or just last year. Is that growing or are you still trying to get more adoption there? And then for Scott, maybe, you know, can you just maybe talk a little bit about CapEx for 2026 and how should we be thinking about that? Thank you. Ariane Gorin: Sure. It is definitely growing. It is to me, it is not where it is, it is not at its maximum potential, and that is why I believe that there is a real opportunity there. But we made great progress in 2025 on selling vacation rentals on Brand Expedia. We changed the UX. So if you go onto lodging, you now see sort of there is all lodging and then hotels and vacation rental. We brought on inventory. We made sure the servicing experience was great. So there was a lot of work that we did to drive more vacation rentals on Brand Expedia to support our one stop shop value proposition, and there is still upside there. Scott Schenkel: Yeah. On CapEx, it will be roughly in line with 25. I would not anticipate a material change one way or the other. Harshit Vaish: Thank you. Operator: Question is from Deutsche Bank. Your line is open. Please go ahead. Conor T. Cunningham: Great. Thanks for taking the questions. I guess, one, as you think about your 2026 outlook, can you comment at all if it assumes your B2C business accelerates relative to 5% you delivered this year? And how you are thinking about the challenges you may face in terms of delivering acceleration while simultaneously bringing down the intensity of your ad spend. And then maybe just on AI topic of the day, topic of the week, if are you thinking about the potential urgency to invest more aggressively into loyalty in your B2C business as some of these general purpose chatbots take on more of the customer relationship in travel funds. Thank you both. Ariane Gorin: I will take the first. I will take the last of the question, and Scott can take the first. Look. We always feel a sense of urgency to make sure that we are delivering more value and more trust to our travelers. And travel is a high stakes purchase. Know, it or it can be. It is complex. It is high stakes. It is not like a T-shirt, where, you know, if you choose the wrong one, you can send it back. Is it there is something that happens in your trip, you never get your time back. And that is why we are investing a lot in making sure that not only we have a great selection and price and assortment, and the ability to, you know, add trip elements after you bought one, but also building trust. You know, we have got proprietary verified reviews, and we know that 70% of travelers check reviews before they make a booking. So the fact that, you know, when they if they make their booking with us and they do their shopping, they are going to have that trusted information is really important. Or the fact that if something goes wrong in the trip, they are going to be able to, you know, either deal with it in our app or call us is important. You know, I will just add that during the winter storms and government shutdown, we were able to answer our calls on average between one to three minutes. Was the best in the industry, we believe. And, you know, travelers want to know that we have got their back. So, of course, continuing to enhance the loyalty program is one piece of our offer. But there is a lot of different parts that we believe, you know, make travelers want to continue a deep relationship with us. Harshit Vaish: Yeah. Maybe to try and be helpful, I am not going to get into Scott Schenkel: by BU guide for 2026, but maybe just some thoughts around guidance overall. First off, for Q1, we exited Q4 with strong, clear momentum. Think we are all encouraged by our strong start to the year. And we expect our first quarter bookings growth of 10% to 12%. That, of course, includes three points from an FX tailwind, but we expect to be able to deliver that. I would not expect a material difference in growth rates amongst the BUs, but obviously, it does oscillate up and down a bit even in 2025. For 2026, at the high end, our full-year guide of 8% reflects stable healthy growth on a constant currency basis at the high end again. As we will update each quarter as we go along. But again, I would not expect a material shift Scott Schenkel: in Scott Schenkel: an overall growth rate between business units if you look at the last couple of years average. Last year's average, I should say. Scott Schenkel: Understood. Thank you both. Scott Schenkel: Yeah. Operator: Our last question will be from Trevor Young with Barclays. Please go ahead. Conor T. Cunningham: Great. Thanks for fitting me in. You spoke to supply growth earlier in your comments. Was that largely a B2B dynamic outside of the U.S.? Or are you seeing some of that in B2C domestically? We have got a few major hotel supply partners speaking to pushing more inventory to the OTAs in Q3 and Q4 and being sharper on pricing and so forth. And so we were just wondering if that was the tailwind for your U.S. room night growth, contributing to that coming in at high single digits again. And then my second question is on the Tickets acquisition, it appears to be more positioned on the B2B side. Scott Schenkel: Is there an opportunity to leverage that on the B2C side as well to push Conor T. Cunningham: into experiences more broadly across your customer base? Thank you. Ariane Gorin: Sure. So on the first question, the supply, it works on both parts of the business, B2C and B2B. When I talked about 10% growth in number of properties, and then also the promotions, that flows through to both. And that is just the way the platform works, and that is the way our business model works. And it is a value that we deliver to our supply partners is they have one connection, and they can get access to all of the demand. In terms of Tickets, yes, I did talk about as part of our B2B business because it is going to be run by the person who is leading B2B. And we think it is a great value proposition to be able to extend what we are offering in B2B. But, obviously, it is going to, you know, that their expertise is going to have an impact in B2C. So while we are, you know, we will keep our B2C product, when you bring in some expertise like that, it can only help us do even better. Scott Schenkel: Great. Thank you, Ariane. Operator: The Q&A is now over. I will now turn the call back to CEO, Ariane Gorin, for closing remarks. Ariane Gorin: So I just want to thank you all for joining our call today. We closed 2025 strong, and as we enter 2026, we remain focused on executing our strategy to deliver value for all of our stakeholders. So thank you all. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Good day, and welcome to the Legacy Education Inc. second quarter fiscal year 2026 earnings conference call. The call is being recorded and broadcast live and will also be archived on the Legacy Education Inc. website for future reference. To kick off the call, I will turn it over to Nicole Joseph, Senior Vice President of Legacy Education Inc. Nicole Joseph: Thank you, and hello, everyone. Legacy Education Inc. has issued a news release reporting its financial results and corporate developments for the second quarter fiscal year ended 12/31/2025. The release is available in the Investor Relations section of our corporate website at legacyed.com. With us today on the call are LeeAnn Rohmann, Chief Executive Officer, and Brandon Pope, Chief Financial Officer. On today's earnings call, statements made by Legacy Education Inc.’s management regarding the company's business, which are not historical facts, may be forward-looking statements as identified in federal securities laws. The words may, will, Operator: expect, Nicole Joseph: believe, anticipate, project, plan, intend, estimate, and continue, as well as similar expressions are intended to identify forward-looking statements. Forward-looking statements should not be read as a guarantee of future performance. The company cautions you that these statements reflect current expectations about the company's future performance or events and are subject to a number of uncertainties, risks, and other influences, many of which are beyond the company's control, that may influence the accuracy of the statements and projections upon which the statements are based. Factors that may affect the company's results include, but are not limited to, the risks and uncertainties discussed in the Risk Factors section of the annual report on Form 10-Ks and the quarterly report on Form 10-Q filed with the Securities and Exchange Commission. Forward-looking statements are based on the information available at the time those statements are made and management's good faith beliefs as of the time with respect to future events. All forward-looking statements are qualified in their entirety by the cautionary statement, and Legacy Education Inc. undertakes no obligation to publicly revise or update any forward-looking statements, whether as a result of new information, future events, or otherwise after the date thereof. I will now hand the call over to LeeAnn Rohmann, CEO of Legacy Education Inc. LeeAnn, to you. Thank you, Nicole. And good afternoon, everyone. Welcome to Legacy Education Inc.’s second quarter fiscal 2026 earnings call. I am joined today by our CFO, Brandon Pope. We are entering a defining decade for health care, and that creates a clear, durable runway for the kind of career-focused education we provide. Demand is rising, complexity is increasing, and the work needs are becoming more urgent by the day. Against that backdrop, Legacy Education Inc. is focused on scaling quality, improving outcomes, and training job-ready graduates for roles the health care system cannot function without. According to the U.S. Bureau of Labor and Statistics’ latest projections, the healthcare occupation sector is expected to be the fastest growing major industry from 2024 to 2034. About 1,900,000 openings are projected each year on average in these occupations due to employment growth and the need to replace workers who leave occupations permanently. Behind those numbers is a structural reality: an aging population, expanded access to care, and accelerating medical technologies that elevate, not replace, the need for skilled human expertise. In a world rapidly shaped by AI and automation, health care remains one of the most human-dependent sectors in the U.S. economy. Technology assists, but people heal. Machines analyze, but compassionate professionals comfort, treat, and save lives. At Legacy Education Inc., we exist at that intersection where innovation meets humanity, training the professionals who fill vital roles technology alone can never assume. Q2 demonstrated exceptional execution across every key operational and financial measure. We capitalized on sustained demand and translated program expansion into profitable growth and continued to strengthen our fundamentals while investing in the future. Revenue grew 40.7% year over year to $19,200,000, marking our fourteenth consecutive quarter of double-digit revenue growth. Adjusted EBITDA increased 6.610.6% to $3,000,000, reflecting both scale and effective cost management. Net income rose 46% to $2,000,000, or $0.15 per diluted share, up from $0.10 in the prior-year quarter. Ending population grew 6.8% to 3,234, driven by strong enrollment, disciplined marketing execution, and the initial rollout of our new programs. Year to date for six months and for six months ended 12/31/2025, the results were equally strong. Revenue grew 39.6% year over year to $38,600,000. Operator: Please. 30.3% to $6.1 million, reflecting both scale and effective cost management. Net income rose 21.2% to $4,200,000 compared to $3,500,000 last year. These outcomes reaffirm our trajectory toward full-year performance consistent with our expectations and well ahead of last year. They also reflect careful tax governance, disciplined expense management, and continued operational progress across campuses. Building on a record first half gives us momentum, but more importantly, it reflects the execution happening across the platform. Let me walk you through the strategic and operational highlights that are strengthening the business and positioning us for the back half of fiscal 2026. Our new program execution: In Q2 we launched our MRI program at Central Coast College campus with 33 new starts. Also, we are excited about the traction the new cardiac sonography program will bring to the Central Coast Valley, and we will begin enrolling in the second half of the fiscal year for that program. We received accreditation approval for our fourth sterile processing program and have begun enrolling on all four campuses; that will reflect in the second half of the fiscal year. Surgical technology is also gaining momentum with our first cohorts set to begin in the second half, each already contributing to future enrollment pipelines and revenue. In the education delivery, we began introducing the hybrid delivery model at Contra Costa Medical Career College and surgical technology and diagnostic medical sonography programs. This online delivery method allowed us to identify an additional cohort start in both of those programs. We will continue to evaluate the other programs and plan for further expansion of our hybrid programs at Contra Costa Medical Career College. Moving to campus performance, the integration of Contra Costa Medical Career College is complete. Enrollment there tops all-time highs of over 500 students with accreditation alignment strengthening every metric from admissions to placement. In October 2025, the Integrity College of Health campus in Pasadena hosted its two-day ABHUS reaccreditation visit. We are pleased to announce that yesterday, we formally received the notice that our Integrity campus has been granted a six-year grant of reaccreditation, the longest grant period awarded by the accreditor ABHES. The grant demonstrates ABHES' confidence in the strength of our academic delivery, student outcomes, and institutional compliance, and it reflects the disciplined work of our faculty and campus teams to maintain high standards in curriculum, clinical training, and continuous improvement. Our outcomes: The retention rates have remained strong throughout the quarter and into the first half of the fiscal year across all campuses. Our imaging programs have held multiple credentialing review sessions, and we are already seeing the impact of more students entering their credentialing pathways and successfully passing their exams. We will continue to expand this initiative to further strengthen student outcomes and increase graduate placements within these programs. In faculty and innovation, we have made strategic investments in online education leadership and curriculum design infrastructure to support consistency, quality assurance, and compliance across our learning environment. The initiative is designed, as we are scaling, to maintain our strong student outcomes, engagement, and interaction while reducing variability across campuses and supporting scalable program growth. Our faculty are not just delivering curriculum; they are building the future of how we teach. Innovation here is not a buzzword. It is the daily discipline of improving the student experience, adopting better tools, sharing best practices, and refusing to accept good enough when student success is on the line. During Q2, our faculty invested three focus days in professor development and course improvement work, reinforcing our tech-and-touch approach, pairing AI-enabled tools with strong faculty engagement to improve quality and scale. We are integrating AI to support instruction, to reduce administrative burden, and surface actionable insights earlier while ensuring students continue to receive high-touch guidance, feedback, and coaching. The result is a more consistent learning experience and a clearer pathway to retention, credentialing success, and graduate placement. With the workforce, with more than 200,000 registered nursing vacancies projected annually through 2031, and staffing shortages across imaging, surgical, sonography, our mission is tightly linked to solving an urgent national labor need. With that, I am going to turn the call over to Brandon Pope, who will take you through our detailed financial results. Brandon? Thank you, LeeAnn. Let us begin with our second quarter results. Brandon Pope: As LeeAnn mentioned, revenue increased 40.7% to $19,200,000 from $13,600,000, driven by a 49.4% increase in new student starts to 593 from 397 last year. EBITDA increased 54.8% to $2,700,000 from $1,800,000 last year. Adjusted EBITDA rose 61.6% to $3,300,000 from $1,900,000 last year. Adjusted EBITDA margin increased to 15.8% from 13.7% last year. Our effective tax rate was 28.9%. It increased from 27.3% last year. As a reminder, our effective tax rate may fluctuate based on the timing of tax benefits associated with stock option exercises. Our annual effective tax rate excluding these benefits is 29.6%. In the first quarter we experienced high stock option exercises, and we realized those benefits. However, we did not experience the same volume in Q2; therefore, our effective tax rate increased. Net income advanced 46% to $2,000,000 from $1,400,000 last year, and diluted EPS improved 50% to $0.15 from $0.10 last year. Turning to our operating expenses for the second quarter, educational services totaled $10,300,000, or 53.6% of revenue, compared to $7,500,000, or 54.9% of revenue, last year. The 130 basis point improvement was primarily due to operating efficiency and compensation offset by increases in excursion fees and non-cash compensation. General and administrative expenses were $6,100,000, or 31.8% of revenue, compared to $4,300,000, or 31.9% of revenue, last year. The slight improvement was due to operating efficiencies relating to professional fees and insurance, offset by increases in bad debt expense. Our bad debt expense remains consistent at 5% of revenue. Now let us turn to our six months ending December 31, 2025. Revenue increased 39.6% to $38,600,000 from $27,600,000 last year, driven by a 37.2% increase in new student starts to 1,710 from 1,246 last year. EBITDA increased 22.9% to $5,600,000 from $4,500,000 last year. Adjusted EBITDA increased 30.3% to $6,100,000 from $4,700,000 last year. Effective tax rate was consistent at 27.7%. Net income increased 21.2% to $4,200,000 from $3,500,000 last year. Diluted earnings per share was $0.30 compared to $0.29 last year. Coming to operating expenses for the same period, educational services totaled $20,600,000, or 53.4% of revenue, compared to $14,700,000, or 53.1%, last year. The slight increase as a percentage of revenue is primarily attributable to increases in non-cash compensation and excursion fees, offset by reductions in employee compensation. General and administrative expenses were $12,200,000, or 31.7% of revenue, compared to $8,300,000, or 30.1% of revenue, last year. The increase as a percentage of revenue is primarily attributable to increased professional fees, facilities, and bad debt expense. Now turning to our balance sheet. We have a strong balance sheet with $21,100,000 in cash, working capital exceeding $27,000,000, and little debt at $600,000. You will note our AR reserve as a percentage of AR increased to 11.5% from 9.5% last quarter. This simply reflects the timing of quarterly AR write-offs as we implemented a quarterly reserve analysis as opposed to annually last year. Our operating cash flow remains strong at $2,100,000 and reflects the timing of Title IV disbursements and performance-based compensation. In summary, our second quarter performance reflects a disciplined approach to scaling and margin expansion and positions us well into continued investment into growth. With that, I will turn it back to LeeAnn. Operator: Thank you, Brandon. Nicole Joseph: Fiscal 2026 is shaping up to be a pivotal year. Operator: One that underscores both the resilience and strategic progress of our organization. And that momentum is backed by a clear, disciplined plan. Let me outline the continued strategic priorities. Sustained enrollment growth: We will continue to scale what is working in demand generation, optimizing digital performance and marketing while expanding high-conversion referral channels. That includes strengthening employer relationships and building deeper high school partnerships that create a reliable pipeline of aligned, career-motivated students. The focus is not just top-of-funnel volume, but quality starts Nicole Joseph: persistence, Operator: and outcomes. On our curriculum expansion, we are focused on the full deployment and operational readiness of all of our four new allied health programs, ensuring consistent delivery across campuses, faculty preparedness, lab readiness, and externship alignment. In parallel, we are actively pursuing additional regulatory approvals, including our registered nursing authorization across multiple campuses and targeted surgical program specialties—areas where market demand remains strong and our platform is well positioned to execute with quality and compliance. In our operational innovation, our tech-and-touch approach remains a key lever, enhancing the student experience by blending technology-enabled efficiency with high-accountability instruction and hands-on clinical rigor. We will continue advancing hybrid delivery and simulation-based models to help students build competence and confidence, while supporting faculty with enhanced tools, consistent course design, and visibility into student progress. Our expansion: We are taking a measured yet ambitious approach to growth, evaluating accretive acquisitions and assessing organic expansion opportunities, including branch campuses and new programs that align to our operating model, high outcomes standards, and mission to address urgent healthcare workforce needs. As we have mentioned, our acquisition pipeline remains robust, with several single and multi-campus opportunities both within California and in adjacent markets. We continue to prioritize the targets that can integrate seamlessly and contribute immediately to scale and profitability, with a goal of announcing our next deal within this fiscal year. Importantly, we have reinforced our execution by bringing back Joe Bartolome, a proven multi-campus operator with over twenty-four years of senior leadership in career and health care education, as Senior Vice President of Operations. Joe brings deep familiarity with Legacy Education Inc.’s operations and culture from his prior role. His track record includes leading branch expansions, executing acquisitions, and driving operational turnarounds in regulated environments. In this role, Joe will oversee scalable growth across our platform, playing a central role in launching the branch location or locations, integrating potential acquisitions, and ensuring disciplined, outcomes-focused execution that sustains our momentum. Now, as we pursue these growth initiatives, we do it with discipline, in a regulated industry. That brings me to compliance and the federal policy environment. Regulatory change is consistent and constant in our sector, and we are built to navigate it. Our accreditations and federal Title IV approvals remain fully intact. We are executing with strong compliance readiness and operational rigor. We are actively monitoring ongoing Department of Education rulemaking and evaluating potential impacts, but the direction of policy reinforces our strategy: deliver strong outcomes, maintain transparency, and train graduates for high-need health care roles. In short, the industry is moving toward higher standards, and that plays to our strengths. As you heard today, we are delivering the combination of sustained growth, expanding profitability, and a strong balance sheet. We grew revenue, meaningfully expanded adjusted EBITDA, and maintained disciplined cost management, all while continuing to invest in program expansion, delivery innovation, and scalable operational infrastructure. Just as importantly, we are doing it with strong liquidity, low leverage, and positive operating cash flow, which gives us flexibility to execute and the resilience to navigate a dynamic regulatory environment. With that, I will turn the call over to the operator to please open the line for questions. Operator: Thank you. We will now be conducting a question and answer session. Before pressing the star keys. Our first question today is coming from Mike Grondahl, Northland Securities. Your line is now live. Hey, LeeAnn and Brandon, congrats. Mike Grondahl: On a very strong quarter. Let us talk about new student starts first. The 593 was very robust in the December quarter. Can you talk a little bit about what programs, what areas were performing really well or maybe outperformed? Operator: Hi, Mike. Great to hear from you out there. And yes, as we look at our Q3, what we found is that, again, from a timing perspective, we got the benefit of the fact that we were able to add additional cohorts at Contra Costa Medical Career College with the hybrid approval, so that added to the ultrasound or diagnostic medical sonography program as well as our surgical tech program. And those still remain in the top five of the programs that led to that nearly 600 enrollments. So that was a key piece to that. Our vocational nursing also went to those increased enrollments and led to an additional start that we were able to benefit from in Q2. Mike Grondahl: Got it. And then Operator: What we are optimistic about is that we got the MRI launched, but we do have several of the new programs, as we indicated in our comments, that we will be launching in Q3 and Q4. We had received the approvals but were waiting for the state approval that moved us into Q3 and Q4. Mike Grondahl: Got it. And that is what I wanted to focus on next. Those new programs starting kind of January, February, March, April, could you just mention those again? And then what type of students can they support kind of near term and medium term? If that makes sense. Operator: Not sure in terms of when you say what kind of students to support, but I can tell you that from the programs for Q1 and Q2 that we started were the surg tech and HDMC, the sterile processing, and our cardiac AAS program in some of our campuses. But really where we were seeing this is the MRI in our Central Coast too that just led to the one start. Mike Grondahl: Got it. Guess what I was asking is these new programs starting in the second half now, Operator: Yeah. Three Q and four Q. You know, Mike Grondahl: are they able to handle a 20-student cohort, a 30-student cohort? And then what could it maybe be, you know, a couple to several quarters down the road? Operator: Got it. Got it. Thank you for that clarification. And that is where, when you see the 20 upwards to 30, we started 33 in Central Coast with our MRI. We will be able to, as we mentioned, we will be starting the cardiac sonography. All of those programs lend to those types of 20 to 30 seats that we fill initially, and then you will have reoccurring starts every, you know, yes, every—really every three months. Every three to six months. Mike Grondahl: Got it. Maybe just lastly, you talked a little bit about this recent new hire and kind of your willingness and activity on the acquisition front. What is kind of your outlook there? Would you think you could do one still this year? Or what does the pipeline look like? Operator: That is the goal and that is what we have been confident in, in terms of an announcement before the end of the fiscal year, is based off of where we are at in the process of looking at these opportunities. We are on a path that we feel strong that, provided that we have no surprises, we should be able to definitely hit that goal of doing this before the end of the fiscal year. Mike Grondahl: Got it. Thank you. Operator: Thank you. Our next question today is coming from Jeff Cohen from Ladenburg Thalmann. Your line is now live. Jeff Cohen: Hi, Jeff. Operator: Geoffrey, your line is now live. Please proceed. Nicole Joseph: Thank you very much. So, thanks for taking our questions. Jeffrey Cohen: I guess, you talk about—I just wanted to follow along with Mike's question about the M&A front that you have been looking at over probably a number of years. So is any of that outside of the state of California? Or is your intention to stay in the state of California? I am assuming if you add another facility, it would be similar in size to the current facilities. Operator: Yeah. And great question, Jeff. And I—you know, again, trying to reinforce the fact that we are looking at both inside California and also outside of California. There are single campuses, but the majority of these opportunities we are looking at are, you know, multi campuses at this point. That will take us in the adjacent states outside of California. Jeffrey Cohen: Okay, got it. Super. Can you talk about the hybrid programs? Are you finding that students enrolled in the hybrid programs are holding also part-time jobs or full-time jobs? Or is it hybrid in nature, but it is full time as far as commitment? Operator: It is. It is full time as far as commitment. What we are finding is that we are getting a positive response because of just the type of student that has a desire to learn online. They are already embracing so much of this online. And it is the combination of the fact that they do their theory online, and then they are coming into the campus a couple of days a week for lab. So, if anything, what we are trying to balance are the students that were in the full residential programs. They are wanting to transfer into the hybrid programs. But, you know, based off of where they are in their programs, they are far enough along that they cannot do that, but we are eager to continue to keep transitioning the hybrid programs. Because I do not have to tell you the flexibility that falls into this hybrid model just affords a different type of person that thought, with a part-time job, that they could not do this. But they can now with the flexibility of what hybrid offers. Jeffrey Cohen: Okay. That is very helpful. And then could you talk about the back half of the year, or I should say the first half on a fiscal basis? But does it feel like the back half, as far as a cadence, would compare with last year as far as back half versus front half? Any commentary on that front? I know you do not give a specific outlook, but Operator: Yeah. I mean, I cannot give specific outlook, but what I would say is that in terms of looking at your models, the way that we have looked at your models is that I would say that we are aligned with those models, and there might be some opportunity with the new program rollout that may be falling into Q3 and Q4 that we can see a little bit of opportunity there. Jeffrey Cohen: Okay. And then lastly, it seems like your revenue was higher per student. Are more students entering more expensive programs? Or is the hybrid model giving you some leverage as far as the OpEx? Brandon Pope: Yes. If you are looking at this quarter over last quarter, it seems higher primarily because in the second quarter of last year, we had the student population, but we had no revenue. And so this year we do. So that is why it increased as a percentage of revenue, but from $5,700 per student, $5,100 last time. And there are certain programs that are earning at a quicker pace. The longer programs theoretically do—or not theoretically, historically do. And so we are seeing more starts in those programs that LeeAnn mentioned that are higher margin. Mike Grondahl: I got Jeffrey Cohen: it. That is helpful, Brandon. Okay, thanks for taking our questions. Nice quarter. Operator: Thank you, Jeff. Operator: Thank you. We reached the end of our question and answer session. I would like to turn the floor back over to the enrollment for closing remarks. Operator: Thank you, operator. And thank you all for joining us. Q2 reflects strength, consistency, and confidence in our ability to deliver. We remain focused on empowering students, advancing health care education, and creating sustained value for our shareholders. We are proud of what we have achieved and more excited about what lies ahead. To our employees, faculty, and students, I cannot say it enough: Thank you. Thank you. Thank you for your dedication. To our investors, thank you for believing in our mission. We appreciate your continued trust and support, and we look forward to updating you next quarter. Operator: Ladies and gentlemen, this concludes today's call. Thank you for joining us and have a great day.
Operator: Thank you for standing by. My name is Carly, and I will be your conference operator today. At this time, I would like to welcome everyone to the 10x Genomics, Inc. Fourth Quarter and Full Year 2025 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. Simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Cassie Corneau, Senior Director, Investor Relations and Strategic Finance. Please go ahead. Thank you. Good afternoon, everyone. Earlier today, 10x Genomics, Inc. released financial results for the fourth quarter and full year ended 12/31/2025. If you have not received this news release, or would like to be added to the company's distribution list, please send an email to investors@10xgenomics.com. An archived webcast of this call will be available on the investors tab of the company's website at 10xgenomics.com for at least 45 days following this call. Before we begin, I would like to remind you that management will make statements during this call that are forward-looking statements within the meaning of federal securities laws. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated, and you should not place undue reliance on forward-looking statements. Additional information regarding these risks, uncertainties, and factors that could cause results to differ appears in the press release 10x Genomics, Inc. issued today, and in the documents and reports filed by 10x Genomics, Inc. from time to time with the Securities and Exchange Commission. 10x Genomics, Inc. disclaims any intention or obligation to update or revise any financial projections or forward-looking statements, whether because of new information, future events, or otherwise. Joining the call today are Serge Saxonov, our CEO and Co-Founder, and Adam Taich, our Chief Financial Officer. We will host a question and answer session after our prepared remarks. We ask analysts to please keep to one question so that we may accommodate everyone in the queue. With that, I will now turn the call over to Serge. Serge Saxonov: Thanks, Cassie, and good afternoon, everyone. Today, I will start with an overview of our Q4 and 2025 performance. I will then talk about some of the key trends driving our business and how they position us well for future growth. Adam will then talk through the financials in more detail. We delivered $166,000,000 in revenue in the fourth quarter, exceeding the high end of our guidance range, and closed the year with $599,000,000 in revenue, excluding $44,000,000 of upfront revenue related to patent litigation settlements. In the fourth quarter, the operating environment remained largely unchanged from Q3. Customer spending remained subdued and capital equipment purchases remained particularly constrained. Uncertainty in research funding dynamics continues to impact customer timing of purchasing decisions. Despite this challenging backdrop, we saw a modest budget flush towards the end of the quarter and we continue to be encouraged by the solid underlying demand for our solutions. As I reflect on 2025 overall, I am extremely proud of how the team executed throughout the year. While 2025 was challenging and at times highly unpredictable for our customers and the broader life sciences ecosystem, the team delivered consistently quarter after quarter. We made steady progress across the fundamental drivers of the business, advanced our product roadmap, and strengthened our financial position. First, we saw strong momentum in key metrics that are driving the fundamentals of the business. Single cell consumables volumes grew at a double-digit rate each quarter, driven primarily by adoption of our newer lower cost products including FLEX and on-chip multiplexing. These products have expanded access, enabled new applications, and supported increased experimental volume. In spatial, we delivered double-digit consumables revenue growth for the year, driven by Xenium momentum. Strong demand for Xenium translated into meaningful customer expansion throughout the year. At the same time, existing customers, including the earliest and largest users, continue to ramp their utilization. We are encouraged to see customers exploring new applications, running more Serge Saxonov: Delivered multiple product launches across both single cell and spatial. Compared to even just two years ago, we have vastly expanded the capabilities of our platforms through continuous innovation. Within single cell, the launch of our next-generation FLEX assay in 2025, now branded as FLEX APEX, represents a meaningful step change in the capabilities of the Chromium platform. FLEX APEX combines exceptionally high performance with flexible inputs, including compatibility with FFPE and fixed whole blood. It supports both small exploratory experiments as well as ones with high sample counts and large numbers of cells, making it well suited for massive-scale studies. FLEX APEX delivers these features at a lower cost per experiment, thus enabling expanded access to single cell, driving increased reaction volumes, and supporting broader adoption across our customer base. Over a short time, we believe FLEX has become a foundational assay for several of the most important growth areas in the field, including large-scale AI and virtual cell efforts, translational cohort studies, and biopharma discovery and development workflows. As a result, FLEX became our most popular single cell assay by volume in the fourth quarter. We continue to hear strong feedback from customers on its ability to enable larger, more ambitious studies that were previously impractical. We look forward to seeing what our customers will accomplish as these studies progress. We also had meaningful launches across our spatial platforms in 2025. Within Visium, we launched Visium HD 3', enabling researchers to conduct whole transcriptome analysis across a broader range of applications and sample types. We also launched HD cell segmentation to address a key challenge in spatial analysis, helping customers visualize tissue structure in more precise detail. Within Xenium, we launched RNA and protein, enabling multimodal analysis on the same tissue section in a single integrated workflow. Together, these launches significantly expand the capabilities of our spatial portfolio. As I mentioned last quarter, when it comes to spatial, we have seen a strong and growing preference among our customers towards Xenium over other approaches. This trend has continued and will likely accelerate going forward. It is a reflection of both how well the technology works as well as the abundance of insights that scientists are gaining from the platform. Based on the feedback from our customers, it is becoming clear Xenium is the best choice for the vast majority of customers interested in spatial. And finally, we meaningfully strengthened our balance sheet over the course of the year. We grew our cash balance by more than $100,000,000 year over year, reflecting disciplined cost management and focused execution across the business. We intend to continue to effectively manage costs and strategically invest in innovation and long-term growth. As we look ahead to 2026 and beyond, we believe we are well positioned to build on the progress we have made with several strengths propelling growth going forward. First, there has been rapid parallel progress in AI and in the technologies used to measure biology. These two trends are highly complementary. Advances in single cell and spatial technologies have increased scale, lowered costs, and made it possible to generate very large, high-quality biological datasets, while advances in AI are creating new demands for that data. Importantly, this represents a shift in how research is conducted, with AI increasingly acting as a driver of data generation rather than just a downstream analysis tool. We are seeing growing interest in large, well-controlled studies, including perturbation-based experiments designed to capture complexity and resolve causality in biological systems. The partnerships we have announced over the past year exemplify and validate these trends. We are supporting the Chan Zuckerberg Initiative’s billion cell project, which is generating unprecedented volumes of single cell data to fuel AI-driven biological discovery. We are also working with the Arc Institute on the Virtual Cell Atlas, using large-scale perturbation data generated on our platforms to train and validate next-generation models of cell behavior. In addition, our collaboration with the Cancer Research Institute is focused on building high-quality, well-controlled datasets to better understand immune responses and accelerate progress in immuno-oncology. Together, these efforts illustrate how our platforms are becoming foundational for AI applications in biology. Another area that has become increasingly important for us and one we see as a meaningful growth driver going forward is translational research. We are seeing growth in translational research for three fundamental reasons. First, in multiple therapeutic areas like oncology and autoimmunity, we have an increasing number of therapies, but only a limited understanding of which therapies are appropriate for which patient. Second, there is increasing evidence from literature that single cell and spatial are very promising approaches for discovering actionable biomarkers and signatures of response. Third, our platforms have made big advances in scale, cost, and robustness, as well as in compatibility with critical clinical samples, most importantly FFPE and whole blood. It is now straightforward to run large-scale cohort studies, and this is precisely what many of our customers have been doing. We announced a number of initiatives last year with academic medical centers and with industry partners to undertake large-scale translational studies. Translational research is also an important driver of biopharma adoption. Single cell and spatial technologies have relevance across the drug development continuum, but the largest opportunity lies in later translational stages, where biomarker strategies are essential to understand patient response and potential toxicity. This is where our solutions can meaningfully improve the probability of success and where we expect to increasingly focus our efforts. And finally, as this translational work has been picking up, we are hearing growing interest from customers in applying our technologies to patient care. Based on that, as well as a growing body of scientific literature, we believe there is significant potential for single cell and spatial biology in diagnostic applications. Realizing the potential will require the generation of robust clinical evidence and deployment of these technologies in the clinical setting. To enable clinical applications of single cell and spatial analysis, we are pursuing two parallel paths. First, we are continuing to support our customers in generating clinical evidence and will collaborate with them to enable clinical deployment in the future. In parallel, we believe we ourselves are in a unique position to accelerate the arrival of some of the highest impact diagnostics given our technology leadership, understanding of application, and strong position in the research ecosystem. As part of the strategy, we recently announced two collaborations with leading academic medical centers to support clinical evidence generation. With Dana-Farber Cancer Institute, we are focused on tissue-based spatial profiling to support biomarker discovery and therapy selection in oncology. With Brigham and Women’s Hospital, we are pursuing blood-based monitoring approaches to enable longitudinal assessment of disease activity and treatment response in autoimmune disease. We expect to expand this set of collaborations over time as we continue to build programs across various indications. We are also building out a CLIA laboratory to enable clinical deployment of the resulting tests. Stepping back and setting aside the current macro environment, it is hard not to be excited by our position as a company. We believe we are at the nexus of some of the most important trends our industry has ever seen. We have a powerful innovation engine, a high-performing organization, and a strong balance sheet. We are focused on delivering continued innovation across our platforms and believe 2026 will be a particularly exciting year as we advance our roadmap and bring new capabilities to our customers. I feel incredibly privileged by the position we are in, and optimistic about the opportunity ahead. With that, I will now turn the call over to Adam. Thanks, Serge. Before reviewing the fourth quarter results, Adam Taich: I want to take a moment to reflect on 2025 as a whole. Despite a highly volatile external environment that drove some variability in quarterly revenue, we exited the year in a strong financial position. We remained disciplined on spending, strengthened our operating foundation, and meaningfully increased our cash balance, positioning the company for a strong future. With that, I will now focus my commentary on our fourth quarter financial results and the related drivers. Details of our full year results can be found in today’s press release. All growth rates referenced reflect year-over-year comparisons unless otherwise noted. Revenue for the fourth quarter was $166,000,000. This represents 1% growth over the prior year, and exceeded the high end of our guidance range. Our fourth quarter results reflected a challenging operating environment, balanced by continued momentum in the business. As mentioned during our remarks at a recent investor conference, we also saw some unanticipated budget flush late in the quarter which partially contributed to performance in the period. Total consumables revenue was up 6%, with growth in both single cell and spatial. Single cell consumables revenue was up 3% supported by double-digit growth in reaction volumes, in part due to our lower priced 14% driven by Xenium consumables. Total instrument revenue declined 36%, with Chromium instrument revenue down 44% and spatial instrument revenue down 30%. Consistent with the patterns we saw throughout 2025, instrument revenue in the fourth quarter remained under pressure given ongoing funding challenges for capital equipment, though we did see a sequential uptick due to year-end capital spending. Looking at revenue by geography, Americas revenue declined 6%, while EMEA and APAC grew 79% respectively. While the Americas region remained muted amid continued softness in the U.S. academic and government funding environment, EMEA performed better than expected, driven by some late quarter orders as customers worked through year-end spending. APAC had a solid quarter consistent with our expectations. Turning to the rest of the P&L, gross margin was 68% for 2025, as compared to 67% for the prior year period. The increase was primarily driven by lower inventory write-downs, as well as lower royalty and warranty costs, partially offset by higher manufacturing costs. On the operating expense side, we continue to execute with a strong focus on operating efficiency and cost discipline. Cassie Corneau: Consistent with this focus, Adam Taich: total operating expenses decreased 18% in the fourth quarter, primarily driven by lower outside legal expenses and lower personnel costs. We ended the year with $523,000,000 in cash, cash equivalents, and marketable securities, up $130,000,000 from 2024. Turning to our outlook for 2026, while the funding environment continues to be muted, it has reached a measure of stability that we believe supports reinstating full-year revenue guidance. We expect 2026 revenue to be in the range of $600,000,000 to $625,000,000. Excluding upfront revenue related to patent litigation settlements in 2025, this represents 0% to 4% growth over full-year 2025. At the midpoint, our guidance implies a continuation of the trends we saw throughout 2025, including double-digit growth for both single cell consumables reactions and spatial consumables revenue. The guidance range also assumes CapEx funding remains constrained, which will continue to put downward pressure on instrument revenue. We expect the overall environment to be consistent with 2025, with customers remaining cautious in their purchasing decisions. We were encouraged to see the recent NIH budget approval, as well as decisions on both indirect funding and multiyear funding as part of the bill. Notwithstanding this improved clarity, there is still significant systemic turbulence in research funding dynamics that continue to impact customer sentiment and timing of purchasing decisions. Additionally, as we think about the cadence of the year, we anticipate first quarter revenue to be a larger percent of full-year revenue as compared to prior years. This is partially driven by orders received late in the fourth quarter that were shipped in January. Moving to the rest of the P&L, we expect our overall financial profile to further strengthen in 2026. The cost discipline we have embedded over the past year has translated into tangible operating efficiencies. Moving forward, we expect to sustain these productivity gains while continuing to drive improvement across the business and advancing a strong slate of product introductions. With that, Serge Saxonov: I will turn the call back to Serge. Thanks, Adam. Before we turn it over for questions, I would like to acknowledge just how tough 2025 was for our customers and take a moment to thank the 10x team. Despite all the turbulence you stayed focused on our work, our customers, and our mission. It has not been easy, but the progress you have made on multiple fronts is nothing short of remarkable. As a company, we are stronger than we have ever been. We are entering 2026 with great momentum and the landscape of profoundly important opportunities ahead of us. Thank you for everything you do. With that, we will now open it up for questions. Operator? At this time, I would like to remind everyone, in order to ask a Operator: question, press star then the number one on your telephone keypad. We ask that you limit your questions to one. Your first question comes from Tycho Peterson with Jefferies. Hey. Thanks. Serge, just wondering, you know, a month and a half or so into the year here, if you can maybe just comment on anything on ordering patterns that that Serge Saxonov: seeing right now, and then give us a quick walk on, you know, what you are baking in for academic and Tycho Peterson: pharma in particular on some of these larger, you know, perturbed seq type studies. And then also clinical, you know? I mean, you are not the first company today to mention single cell and spatial in clinical. So I am just curious how you think about the timeline of that opportunity. Thanks. Serge Saxonov: Thanks, Tycho. Yes, several questions inverted in there. So first of all, just the general kind of sentiment out there and the customer orientation. Yes. We would say that, you know, it has been the environment has been similar, is similar to what it has been for the past couple of quarters. You know, 2025 is pretty similar to what we are seeing now and what we expect to see kind of throughout the rest of the year. Certainly, it has been gradually improving, certainly compared to 2025. But there is a lot of uncertainty still remaining, and caution among our customers. There are a number of issues that are going on in the academic sphere. U.S. academic funding, when it comes to staffing, when it comes to the timing of disbursements, criteria by which grants are reviewed and judged, universities are uncertain around their budgets, multiyear funding, pocket decisions, things like that. So overall, I think the environment, like Adam mentioned, is generally pretty steady, and not as bad, again, as it was the first half of last year. But there is still a lot of uncertainty remaining. On, you know, as far as this year is concerned and kind of the drivers going forward, certainly, we are excited. As I mentioned earlier in my remarks, there is a big wave of AI-driven projects for perturb-seq type applications, and our products, especially FLEX, are incredibly well suited for the purpose. And you could actually see that now coming out in the preprints, other publications, validating the premise. And so we certainly have a lot of excitement that we see around this application, around these trends. They were meaningful, relatively small percentage of our business last year, and we expect it to keep growing going forward. And I think what is particularly exciting to us is that there is, as you look to the future, the upside is enormous. There is, like, really no credible ceiling to how much data people are looking to generate, how much data would be useful to generate for these AI models. Operator: Your next question comes from Douglas Schenkel with Wolfe Research. Douglas Schenkel: Questions. Adam Taich: First, Adam Taich: on pricing, it sounds like single cell consumable revenue grew and reaction volume was up. What I am having a hard time figuring out is was volume growth enough to offset pricing? I guess a long-winded way, what I am trying to get at is, you know, how should we think about how volume and price trended into year-end, and then how are you contemplating those factors in guidance? Douglas Schenkel: Yes. Sure. Adam Taich: Yes, so let me take that one, Doug. So yes, I think maybe starting with Q4. So, you know, when we think about the full year, full year 2025 reaction growth was 22%, in part due to the launch of, in Q4, FLEX APEX, we had 30% plus volume growth. So really nice trend sort of rounding out the year. So when we are thinking about that balance for 2026, the best way to think about it is premium consumables, if you think about the midpoint of our guide, it is flat. Right? So essentially, at about flat, and there are a bunch of different combinations and permutations that could get you there, you know, depending sort of the mix of product and various volumes. That is the way that we are thinking about the guide and the components of the guide. We talk Operator: about Adam Taich: continued pressure as it relates to CapEx. We talked about double-digit, you know, ongoing strength in our spatial consumables. And if you sort of think about the Chromium consumables business at 0% growth, Adam Taich: that is sort of roughly where we are. There is a bunch Adam Taich: of different ways you can probably get there, you know, based on product uptake, you know, particularly around the FLEX franchise. But that is really where we are thinking about 2026. Operator: Your next question comes from Puneet Souda with Leerink. Puneet Souda: Yes. Hi, guys. Thanks for the Serge Saxonov: questions here. Let me ask mine on FLEX APEX. Serge, it appears that FLEX V2 is rebranded as APEX. Maybe just a quick clarification there. What was the mix of FLEX V1 versus V2 in the fourth quarter? And I am wondering if you can take a minute and talk about how you are thinking about FLEX, I mean, the APEX product playing out throughout 2026, how pricing is going to be impacted as the adoption for that grows. And how should we think about the 3' 5' GEM-X Puneet Souda: kits switching over to potentially to APEX and how to think about the, you know, the pricing headwind from that because that could be fairly meaningful. So just want to understand those drivers and sort of the timing of how that plays out. Thank you. Serge Saxonov: Yes, Puneet. Thanks. Thanks for the question. Yes, so first of all, yes, I mean, FLEX APEX, we launched it last quarter in Q4, and it was really strong out of the gate. It is, yes, it is too early to talk about sort of the breakdown of the different versions of FLEX within the larger assay category. But obviously, it did really, really, really well, and also now getting great feedback, as customers are actually running through the experiments, generating data, and looking forward to ramping and to increasing their usage. So all kind of great trends. Again, I would emphasize that it is still very early. You know, it was only partially available in Q4, and so still, you know, we are still very much in the early part of that adoption curve. Now, as we think about going forward, I think it is kind of important to delineate the different buckets of single cell use, kind of going back to your question around where FLEX is going to Puneet Souda: get adoption for. So first of all, Serge Saxonov: there is a lot of new use cases, and it is an unambiguous trend here when we, what we hear from customers, that this FLEX APEX is now opening up new opportunities, new experiments, new studies that they were not contemplating before. And so that is purely additive, and that is where our commercial team is focused, on is driving these applications, enabling these new use cases, enabling all this additional volume. Also, yes, there is a large fraction of single cell use where people are just not going to switch. Back to your question about universal 5', 3', you know, we have lots of other products that are uniquely necessary for the use cases that researchers are using them for. Also established workflows where they are not looking to switch. And then finally, there are people that are going to switch either from the earlier versions of FLEX or from some of the other products like 3'. And, you know, what we are hearing is that some of them will just spend the same amount of the same budgets that they have but just run more samples. And some will run the same number of samples but pay less per sample. It is definitely kind of a headwind that we are watching carefully. But, you know, one thing I just want to emphasize, that Puneet Souda: it is important to appreciate Serge Saxonov: that it is not just single price drop across the board. There are multiple dynamics here and multiple categories of customers. And our focus is fundamentally on driving additional extra volume. And clearly, that was a good trend that we saw in Q4. As Adam mentioned, out of the gate, there was greater than 30% reaction volume growth, Puneet Souda: and, and Serge Saxonov: you know, it is not an unreasonable kind of anchor point to think about 2026. Operator: Your next question comes from Daniel Arias with Stifel. Serge Saxonov: Serge, can you maybe just talk about the push into the clinical translational space Daniel Arias: It sounds like it is going to get going with these institutions that you talked about last month. What are your expectations when it comes to those types of customers using single cell and spatial products? And then how broad is that push going to be this year? Is it sort of meant to be a pilot program of sorts with those hospitals, Daniel Arias: or is it Adam Taich: part of a larger commercial effort? Serge Saxonov: Thanks. Thanks, Dan. Yes. So there are actually two separate sort of categories of efforts that we have. There is a future-looking set of initiatives that we are undertaking to stand up future clinical applications for diagnostics in the future using single cell and spatial technologies. We are super excited about them. A lot of it is driven by just the interest we see from customers and from physicians that are out there. And as I mentioned earlier, our goal here is to kind of pursue a hybrid strategy where we enable our existing customers to develop clinical evidence and to ultimately deploy these technologies in clinical settings. And we are also undertaking our own efforts to build up clinical evidence and build up a CLIA lab to deploy these tests. We believe we can do this particularly efficiently, leveraging our existing assets. I am very excited about these efforts. They are future-looking. That said, they are also synergistic with our current business because they provide a measure of validation to where this technology is going. They give customers comfort in adopting single cell and spatial in research, in the current research applications, and in drug development applications. And then kind of the second category of effort are more near term around, again, translational research. This is where our products are already being used and, you know, there is potential for a lot more. Again, there is a fair amount of our single cell products and spatial being used on patient cohorts to look for biomarkers to drive drug discovery. But the promise here is to really scale this up and make it routine and go to more customers with much larger volumes. I would say that the opportunity there is at least as big as what we have seen in basic science, and our products now are in a place where they can support these kinds of applications, these kinds of efforts, and it is a big focus for our commercial team this year as well. Operator: Your next question comes from Kyle Mikson with Canaccord. Kyle Mikson: Hey, thanks for taking the questions. Puneet Souda: The comments on consumables and Kyle Mikson: reaction growth were helpful. But on instruments and this guidance here, just could you talk about which franchise you think will experience the largest impact from the CapEx headwinds in 2026? And then secondly, just on translational revenue with the new biopharma-focused commercial team, were there any like proof statements in 2025 that give you confidence that biopharma can break through, you know, like 30% of revenue in 2026, get to on behalf of revenue over, thanks. Serge Saxonov: So yes. So let me pick up that second question first, Kyle. So yes, we are very excited about the for translational research. I would say that both in academia and medical centers, academic medical centers, and in biopharma, you know, our eventual goal, you are right, is to drive to a place where, at some point, half of our revenue is driven by biopharma. We are not making a claim about, you know, doing this this year, clearly, but we expect to take steps in that direction this year. We, you know, we talked about adoption in large-scale translational research projects last year. Quite a few of them publicly announced. Even this year, we have already announced a number of them. And I think it is pretty clear that this is just the beginning. When we talk to biopharma customers, there is clearly potential for single cell use and spatial use all across the drug development continuum. We have been very much kind of historically focused on the early discovery stage, and now there is potential to expand downstream into translational use cases, into biomarker programs, and both the dollars that are spent there and the size of the cohorts, size of the experiments, is just much larger. And so that presents a really great opportunity for us, for which there is, you know, tangible yet at this point early evidence of potential. And like I said earlier, our products are now at a place where they are perfectly suited for those applications. Adam Taich: I can take the second piece of the question, Kyle, around CapEx. I mean, what we are seeing broadly is that, and anticipating in our guide, that CapEx funding environment just broadly remains constrained. That said, there is typically more pressure on the higher-end, you know, side of CapEx. You know, we actually grew Chromium instruments on a unit basis year on year from 2024 to 2025. We did that in large part, and we will continue to do so as needed in 2026 here, by working with our customers, trying to ensure that we are getting any of the capital barriers they may have sort of out of the way. And if we can get package-type deals where there is a consumables commitment, it ends up working out well given the margin profile in our consumables. So we will continue to do that into 2026. Operator: Your next question comes from Daniel Brennan with TD Cowen. Daniel Brennan: Great. Thank you. Thanks for the questions. Serge Saxonov: Maybe one on the price/volume again for Chromium. So is it fair to think that in the flat Chromium consumable guide, it is kind of a similar math, maybe, volumes up Daniel Brennan: 20, price down 20. Serge Saxonov: You know, the price is kind of a tricky thing because it is not like-for-like, but I guess that is the first question. The second one is just while NIH is still under pressure, albeit hopefully getting better, you know, you Adam Taich: put up Serge Saxonov: good numbers overall in China and EMEA. So I am wondering if you could speak a little bit to how you are thinking about the outlook, what is baked into the guide between the different academic customer groups in different regions. So even if U.S. is weak, like, if there are other regions, could they pick it up? And then final one is just the balance sheet. Really strong. Great cash generation. What are the plans with the cash that you are building as we look at 2026? Thank you. Well, yes, maybe I will start with that last question. Yes. Like, we are very happy to focus for us last year for multiple reasons. You know, a big one just to give us a cushion. The environment was highly, highly unpredictable, and we wanted to make sure that we can execute on our priorities regardless of what happens to the macro environment. And so as part of that, as a consequence, you know, the team has done a great job of increasing efficiencies and driving really tight cost management and are in a good place now. Also, it gives us a really strong position and ability to deploy capital as we, as necessary, as we look at the landscape of opportunities out there. We are always looking at and evaluating the landscape. Do not have any hard rules around where we might invest. Always driven by fundamentally the strategy, looking to where the world is going, what are the big opportunities, what are the big questions that need answering, and then determining what technology needs to be built, what products need to be built in the service of that, and that is what drives our investment, and again, good to be in a place where we have the resources to pursue our strategies. Okay. I can take the, or at least give you some thoughts, Dan, on the price/volume as it relates to Chromium, and again, we thought, Adam Taich: kind of coming back to our guidance philosophy and trying to provide information that we think is useful, you know, for modeling and understanding our business. The reason that we provided, kind of at the midpoint, we are thinking about Chromium consumables as flat, there are a bunch of different combinations and ways that you can get there. I guess what I would share with you, you know, sort of again is in Q4, 30% reaction growth and the Chromium business grew 3%. We are not suggesting, you know, obviously, what I am telling you at the midpoint, that the Chromium business on the consumables is flat. Not suggesting that, you know, it is going to be, you know, plus 30, down 30. There are a bunch of different ways we can get there, and given the underlying complexity of the portfolio, we certainly have been trying to do our best to communicate that. You know, FLEX APEX just came out. You know, we had fairly a stub of a quarter, you know, in Q4. Good trends here early in Q1, and a lot of that, both on the price side given the mix of product and product price, as well as the volume, is really going to play out during the course of the year. And even on an internal basis, we can see sort of how that could play out. That is, you know, really part of the range of the guide that we have provided. Operator: Your next question comes from Patrick Donnelly with Citi. Patrick Donnelly: Great. Thank you guys for taking the questions. Adam Taich: Adam, maybe some for you just on the guidance. Can you just talk about the confidence on the spatial piece? It sounds like you guys are talking about, you know, good growth there. Just that shift with Xenium and Visium, it sounds like Xenium is picking up a little bit. So yes, if you could just talk about that, it would be really helpful. Then you did mention the cost profile kind of strengthening up. If you could put anything around the margins, that would be helpful. Appreciate it. Sure. Yes. Let me start sort of on the spatial side. Yes. We had a very strong year on spatial consumables in 2025, driven entirely, you know, by the Xenium franchise. So, you know, Visium, just full disclosure, in 2025 did not grow. So all of the growth that you are seeing in the spatial consumables side of things comes, you know, and more, from the Xenium side of the business. Customer sentiment is incredibly strong. Utilization rates, you know, are fantastic. I think as we have discussed before, we have got customers that, you know, run them around the clock and have to go, you know, sort of expand their fleet. Still got new customers buying in even in a CapEx-constrained environment. You know, we have been able to do an admirable job. Sales team is doing a really good job getting instruments out there. So feel confident where we are on the spatial consumables number, you know, that we can hit double-digit growth again here in 2026. I think just broadly to your question on cost, yes, it is really important for us just to ensure that we are deploying the resources wisely. We spent a lot of time in 2025 really ensuring that we are making moves to strengthen our balance sheet. You know, we were successful in that regard with cash up $130,000,000 from 2024 to where we are right now. And you will continue to see that type of cost discipline, you know, here in the company as we move into 2026. Operator: Next question comes from Mason Carrico with Stephens Inc. Adam Taich: Hey, guys. Last year, you gave full-year reaction numbers for Chromium, Visium, and Xenium. It seems like you guys chose to not give that this year. Could you just give some color on Xenium reaction growth in 2025? It would be helpful to gain some insight into the utilization trends there. And then you guys have answered a handful of questions on FLEX, but if you talked about the adoption cadence, I mean, are you expecting the transition to be a more gradual migration or more front-end loaded this year? Serge Saxonov: Basically, yes, let me just take the first question first. So, I mean, the short answer is, like, it is a little too early to tell. Like I said earlier, like, I just said, we did not even have a full quarter in Q4 of FLEX APEX adoption. Clearly, there is a lot of pent-up demand, and that has been really great to see. There has also been great feedback coming back from customers who are actually adopting it and using it, and there is a lot of interest in ramping up, and especially ramping up new kinds of experiments that people were not contemplating before. Again, it is just too early. All the early signs are encouraging, but it is too early to talk about, like, the various specifics of the cadence. Adam Taich: And, yes, you will see when the 10-K hits why the reactions, to your question there, and I think it was specific around Xenium. So Xenium reactions were 14,500 for the year, and that was up about 34% over the prior year. And like I said, that will be in the K. Operator: Next question comes from Subhalaxmi Nambi with Guggenheim Securities. Looking ahead to AGBT, how are you thinking about competitive dynamics from some other players launching solutions this year? And what levers can you pull to stay ahead from a share perspective? Are there any competitive pressures baked into guidance at this point? Serge Saxonov: Yes. So, like, look, we feel really good about our position in the business, both in spatial and single cell. We have, you know, as you look at what has been happening recently, the last several quarters, it has been kind of a similar story pretty consistently, where not much when it was spatial, but really not much impact on our business. Clearly, Xenium is growing really fast, much faster than sort of other offerings out there, from a much higher base. We, you know, as we go forward, feel really good about our competitive position both with respect to current competition and as well as any potential competition that is out there. We have been innovating continuously over the past several years and extending the gap between us and other potential offerings. And we certainly, again, we keep a pretty good pulse about what is happening out there in the market and various products and launches, and feel quite good about where we are relative to the field. Operator: Your next question comes from Daniel Leonard with UBS. Great. Thank you for taking my questions. This is Lu Li on for Dan. I think one question on Visium. Given that it did not grow in 2025, can you just update us in terms of the go-forward strategy on the platform? Any plan to put it back to positive growth? Thank you. Serge Saxonov: Yes. So, yes, Visium is a good platform for quite a number of applications for our customer use cases, and we have been very diligent in making sure we support those customers and drive those applications. And we absolutely will continue to do that. But that said, like I said earlier, we are learning more and more, like, with pretty strong definitiveness, that Xenium is really the best choice for spatial analysis for the vast majority of use cases. And we have been investing in the Xenium platform. We expect to keep doing that in the future. And, yes, that is kind of how it is going to, I think, balance out going forward. A lot of growth going forward in Xenium, and Visium will have its place. Operator: Your next question comes from Michael Ryskin with Bank of America. Michael Ryskin: Great. Thanks for taking the question, guys. Adam Taich: Maybe a boring one, but your comments about the timing shift or the pacing through 2026, then you called out Q1 to be larger compared to prior years because of the orders late in the fourth quarter. Could you just expand on that a little bit? Like anything in particular that stood out there? Just relative to your comments on budget flush with one customer and to your product line? Just a little bit unusual if you got such a meaningful swing. Michael Ryskin: Just kind of want to get a sense of what that is attributed to. Maybe was there any additional price you gave to capture those orders? Just color on that would be helpful. Thanks. Sure. Adam Taich: I can take that one, Mike. Yes. I guess, to the last part, it was not really a pricing dynamic. We did mention, I think, at an investor conference in January that we did see some unanticipated budget flush, which is, you know, part of the reason that we ended up, you know, beyond the guide that we had set. Some of those orders that came in late in December, we were not able to fulfill until January. So that was a couple million dollars that essentially carried over and spilled into Q1. So that is, you know, part of what gives us confidence, you know? And then, again, we are, you know, a good way into Q1. Although it is a fairly small number for Q1. So the way we are thinking about the quarter is, Adam Taich: historically, Adam Taich: we have been, you know, 23% or so in Q1. If you think about sort of the full year, probably about a point higher than that, so closer to 24%, you know, as we think about Q1 as a percent of where we are if you are thinking about that at the midpoint of the guide. Operator: Next question comes from Luke Sergott with Barclays. Salem Salem: This is Salem Salem on for Luke. Thanks for taking our questions. Puneet Souda: Just wanted a quick update on the timing of the Scale Bio technology integration. Are the expectations to kind of retain roughly the same throughput that Scale on its own can achieve while retaining the same quality of the legacy 10x technology, and are you able to kind of use the proposition of this new sort of integration to win over these new AI customers now with kind of the promise of providing something even higher throughput down the line? Thanks. Salem Salem: Yes. Serge Saxonov: Yes. So first of all, on the question of sort of AI customers and those applications, predominantly, the right solution there is FLEX APEX. That is resonating really, really well for a number of reasons. It is incredibly scalable. It has huge sensitivity, like really, really good sensitivity. It is really robust, works across many different cell types and tissues. There are a lot of kind of technical reasons, but it is just a really, really great product. And, again, there have been papers, and there have now been preprints that have been coming out just validating that it is really perfectly suited for that. As far as the Scale technology is concerned, so what is currently in the market, as we have said before, like, on the spectrum of our overall revenue, it is not really material. And we are obviously excited about the technology that Scale brings to us and incorporating it into future products. We have not yet talked about what those future products are, but there is definitely great potential, and in due time, we will talk about it. Operator: Your next question comes from Casey Woodring with JPMorgan. Puneet Souda: Great. Casey Woodring: Thank you for taking my questions. Maybe first one, I wanted to dig into your plan to set up a CLIA lab. Can you maybe talk more about which indications you plan to target first, and timing of, excuse me, generating clinical evidence for these diagnostics applications and, you know, actually standing up the lab and going through all the certifications and all that? And then how should we think about the CapEx required to build out the lab and that return on investment over time? And maybe just as a follow-up to that piece, you know, how should we think about potential impact from diagnostics customers that are seeing 10x enter as a competitor? Serge Saxonov: Yes. I mean, good questions. So these are, yes, very good thematic questions here. One, maybe just to step back. I just want to emphasize how excited we are about this direction. A lot of it is driven by, again, the interest from our customers and just generally physicians out there. We believe there is huge potential in clinical applications of single cell and spatial. We are starting to make some initial investment and efforts along this direction. They are early. They are really for the future. One great thing is that we have a lot of assets, both in terms of technology, in terms of our position in the research market, in terms of the infrastructure we have here. Building up clinical evidence is actually really, really efficient for us, and we can do this in a way that does not materially impact our P&L. Casey Woodring: Our Serge Saxonov: strategy is a hybrid strategy where we absolutely are going to enable customers to develop clinical tests in the future. We are working with quite a number of them right now, help them generate clinical evidence, help them deploy those tests, the necessary tests in the future. But, again, we also believe we are in a unique position for some applications to really accelerate their arrival and to drive impact sooner and faster than otherwise would have been possible because, again, we have all these assets that we can deploy in a really, really cost-effective manner to do that. We talked about two big applications specifically for tissue-based tumor profiling to guide therapy selection for all these new generations of therapeutics that are now coming online that are targeting different expression markers. And also blood, we talked about application of using single cell from blood to guide monitoring and treatment selection for autoimmune diseases. Another really, really big and exciting application. So, again, these are efforts all aimed towards the future. We have set out to build a CLIA lab, and we are targeting early next year to stand it up. Again, we believe we can do it very, very efficiently, make use of a lot of the assets we already have, and in that sense, it is going to be very minor, if any, impact on our P&L. Operator: Your final question comes from Matthew Larew with William Blair. Hi. Good afternoon. Serge Saxonov: Wanted to follow up on AI, and one is Daniel Arias: for Adam, which is if you could quantify at all either revenue orders related to AI in 2025 or the expectation in 2026. The second part, Serge, for you, which is, I guess, a bit higher level. You know, it sounds like demand right now is in service of, you know, larger projects, virtual cell foundation models. I guess I am curious if you expect that demand to be iterated over time where customers are constantly building models, you know, based in part on large perturbation sets rather than sort of a one-and-done. That is kind of the first part. And, you know, last year there were some papers out around the idea of in silico perturbation. So I am curious how you see that complementing or competing. And then the third, I guess, higher level one, Serge, is, you know, you have a network of CRO partners around the world, and certainly 10x can, you know, you are an expert user of your own products. So just as you have some of these more non Daniel Arias: traditional Daniel Arias: companies or groups of people entering the space and building models, you know, maybe if the customer group might shift at all for your products and maybe if that alleviates, you know, the capital constraints that some smaller customers might face if it becomes more outsourced. So I understand there is a lot there, but I guess one on the near-term opportunity and then the bigger one is just how you see the space playing out over time. Serge Saxonov: Yes. So maybe I will start there. First of all, in terms of kind of providing potential service offerings to customers that want to generate very large datasets, that is really something that has been on our minds and that we have certainly had people come to us about. And we do have some service offerings that could potentially play a larger role in the future as we think about it. Stepping back, you know, the bigger part of your question around potential for AI and how it will evolve. Yes, I think very much like kind of your first framing, where we feel the continuous kind of growth in demand and scale. I do not think there is anyone who thinks that we are anywhere near the scale we need, and that there is going to be any less usefulness to generating more and more data where we currently are. So I think we are just at the very early stages of the sort of the scaling revolution for generating AI. It is sort of very analogous to what has happened in other domains where AI has been applied. There are good reasons to think why it might be even more relevant and powerful for these kinds of biological datasets where the complexity is just enormous. And then the second kind of part of your framing there was whether in silico experiments can, at some point, replace the sort of biological data generation. And I, yes, I think a very strong view. I think it is very hard to argue with the fact that biology is just insanely complex, and we are very, very far from understanding it. If we start getting close to the point where, you know, we are actually solving biology, then okay. But we are, like, very, very far away from it. And so the runway here is enormous. We need to generate lots and lots of data, and I do not think there is anyone who would materially disagree with that Serge Saxonov: premise. Serge Saxonov: And maybe I will just pick up that last, that first bit of the question. In terms of how much demand is driving right now. I kind of mentioned earlier, I mean, it is meaningful. You know, we talked about very large projects last year that have been running, that have been gearing up. Still relatively small percentage of the business. We do expect all this to grow, and a lot of it is actually being driven by FLEX APEX. It is the perfect assay for all these projects, for driving perturbation screening, for doing it across many different cell types and tissues. But it is still very, very early days. And like I said earlier, what is particularly exciting here is that as we look to the future, there is really no cap to the upside here. Operator: There are no further questions at this time. With that being said, we will conclude today’s conference call. We thank you all for joining. You may now disconnect.
Operator: Good evening. Operator: Thank you for attending today's Pinterest, Inc. Fourth Quarter and Full Year 2025 Earnings Call. My name is Megan, and I will be your moderator for today. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question during that time, please press star 1 on your telephone keypad. We ask that you limit yourself to one question. I would now like to pass the conference over to Pinterest, Inc.'s VP of Investor Relations and Treasurer, Andrew Somberg. Andrew, you may proceed. Andrew Somberg: Good afternoon, and thank you for joining us. Welcome to Pinterest, Inc. earnings call for the fourth quarter and full year ended 12/31/2025. Joining me on today's call are Bill Ready, Pinterest CEO, and Julia Donnelly, our CFO. The statements we make on this call reflect management's view as of today and will include forward-looking statements. Such statements involve a number of assumptions, risks, and uncertainties, and actual results may differ materially. For information about assumptions, risks, uncertainties, and other factors that could affect our results, please refer to our Forms 10-Ks and 10-Q, each filed with the SEC and available on our Investor Relations website at investor.pinterest.com. During this call, we will present both GAAP and non-GAAP financial measures. A reconciliation of non-GAAP to GAAP measures is included in today's earnings press release and presentation, which are distributed and available to the public through our Investor Relations website. Operator: Lastly, Andrew Somberg: all growth rates discussed today are on a year-over-year basis unless otherwise specified. I will now turn the call over to Bill. Thanks, Andrew. Bill Ready: Good afternoon, and thank you for joining our fourth quarter and full year 2025 earnings call. Before I get into the quarter, I want to address the moment we are in. AI is changing how people discover, how they form intent, narrow choices, and move from inspiration to action. Pinterest is designed for this shift. When users have intent but do not have the exact words, brand, or product in mind, that is where we win. I am proud of how we have transformed the company over the past three and a half years. We have taken Pinterest from a platform with declining users into a growing AI-powered visual-first shopping assistant and search destination that has now put up 10 straight quarters of record high users. Today, we see over 80,000,000,000 monthly searches on our platform, most of which are visual, and generate 1,700,000,000 monthly outbound clicks. Over that same time period, we have launched numerous performance ads products to build a unique, full funnel ads platform, moving from single-digit revenue growth to consistent mid-teens or better revenue growth, all while significantly expanding margins. All of this combines to make Pinterest a stronger, more profitable business than ever before. We ended 2025 with 619,000,000 global MAUs, up 12% year over year in Q4. User growth accelerated in the second half as we continue to introduce AI-led features for both users and advertisers. Bill Ready: However, we are not satisfied with our Q4 revenue performance and believe it does not reflect what Pinterest can deliver over time. While we absorbed an exogenous shock this year related to tariffs, disproportionately affecting ad spend from our top retail advertisers, this quarter also underscored where we need to move faster. Most importantly, we need to further broaden our revenue mix and accelerate the next phase of our sales and go-to-market transformation. These efforts will be led by Leigh Brown, who joined in late January as our first Chief Business Officer. We are moving with urgency to return over time to the mid to high teens growth or better that we have been consistently delivering. The path forward is clear, and we are laser-focused on delivering the next phase of Pinterest. Our priorities, which I will walk you through today, are to, first, continue building differentiated visual search, discovery, and shopping experience. We have made Pinterest into a highly personalized visual-first shopping destination, and we need to continue to build on our strong momentum with users. Second, keep AI at the core of everything we do, from highly personalized user experiences and new features like Pinterest Assistant, to the advertiser experience through Pinterest Performance Plus, and to optimizing our own internal operations. And third, accelerate monetization through improved go-to-market and sales execution so our revenue consistently reflects the strength of our user activity. With that context, I want to begin where every platform starts, with users and engagement. It is clear that we are in a period of rapid innovation in our industry, with new AI chatbots quickly scaling to hundreds of millions of users. However, competing for user engagement is not new to us, and we have been able to thrive because we are doing something separate and distinct. During that same period when AI chatbots were scaling, we reported 10 consecutive quarters of record high MAUs, 100% of which are logged in, and reached 105,000,000 UCAN MAUs. The Gen Z population, often the earliest adopters of this new technology like AI chatbots, are also flocking to Pinterest. Gen Z represents over 50% of the users on Pinterest today, and they remain the fastest-growing user cohort on our platform. Our ratio of weekly active users to monthly active users, or WAU to MAU ratio, has held steady year over year even as we achieved record highs in users. Importantly, we are also deepening engagement per user in the areas that matter most, as queries, boards created, and clicks to advertisers continue to grow faster than users overall, both globally and also in our highest engagement UCAN region specifically. To understand how we have been able to carve out this distinct position and grow users and engagement even as chatbots scale, I would like to expand upon how we positioned our platform for visual search and discovery. Stepping back, e-commerce spent the first two decades focused on perfecting buying online—cheap and fast fulfillment, often at the expense of shopping, the joy of discovering what you actually want. Today, there are countless places to buy, but few great places to shop. And that is where visual discovery matters most. As AI adoption accelerates, general purpose search is increasingly up for grabs, as the largest players pour capital into general purpose LLMs. But fit-for-purpose search still wins in key verticals like travel and consumer products. Our differentiation is clear. We are using AI to power visual search, discovery, and shopping, not general purpose text-based search. Pinterest sees over 80,000,000,000 searches a month, and the vast majority are visual, while our newest visual search features are growing fastest. Engagement is growing because our unique curation signal and taste graph, combined with cutting-edge AI, has improved relevance significantly and made our surfaces much more actionable. Users open Pinterest to a personalized visual feed that starts their shopping journey without having to enter a prompt, bringing the promise of agentic commerce to life. And they can buy seamlessly by linking to an advertiser's mobile app or site, or increasingly via one-click checkout from the advertiser within our app. As I have said before, in many ways, AI is following the same pattern cloud computing did over a decade ago. It is rapidly becoming a set of foundational capabilities available to everyone. The winners will be the companies that combine those capabilities with truly differentiated data and solve problems in unique ways for users and customers. That is exactly what we do at Pinterest. We have created one of the largest search destinations in the world by pairing those building blocks with our unique feedback loop and dataset—one of the largest image corpuses in the world and the rich curation signal from hundreds of millions of users that forms our taste graph. In 2025, our taste graph grew by nearly 40% as users make more associations across Andrew Somberg: pins, Bill Ready: products, boards, retailers, and brands. A larger taste graph means we can surface more relevant content and make truly differentiated recommendations. Not only do we have differentiated signals, we are also leveraging AI in a highly capital-efficient manner. We are model-agnostic and focus on what delivers the best results for our specific use case, giving us the flexibility to test multiple approaches. As a result, we use a combination of AI models, including our own proprietary fit-for-purpose foundation models, leading third-party proprietary models, and increasingly open-source models that we fine-tune on our unique signal. In 2025, we introduced OmniSage, our core AI model trained on our taste graph to turn those associations into a single high-value recommendation signal used to retrieve and rank content. The application of OmniSage drove a 450 basis point lift in sitewide saves. Additionally, in a continuation of our work to increase context windows and bring a user's full history across all major surfaces on Pinterest, we developed a proprietary foundation ranking model called PinFM. This model distills lifetime user actions into the recommendations on the home feed and related Pins, driving personalization in nearly every impression our users see. This launch brought meaningful sitewide engagement gains, including a 240 basis point increase in saves across the platform. Finally, as open-source models have made tremendous strides in performance, we developed a model framework called Navigator 1, which allows us to leverage visual embeddings built on our taste graph and fine tune open-source models to power our newest AI-driven experiences. This framework reduces latency and delivers approximately 90% reduction in cost versus utilizing a leading third-party proprietary model. These models form the foundation for the next generation of AI-driven discovery experiences on Pinterest. A great example of this is Pinterest Assistant, which we launched in beta in Q4. Pinterest Assistant is a voice-activated, visual-first conversational assistant that will leverage Navigator 1 to expand our multimodal discovery capabilities and seamlessly flow between images, voice, and text. While we are still iterating, we are encouraged by how people are using the product. Compared with traditional text-based search, users are asking a significantly higher share of commercially oriented questions—about 25 percentage points more—when using Pinterest Assistant. Pinterest Assistant also helps users learn the names and terms for whatever they are looking for, making it easier to find similar items in the future. That is exactly the kind of high-intent, high-value engagement we want to enable. We expect to meaningfully broaden access to US users over the coming months. Lastly, AI is at the core of how we are improving efficiencies internally, as roughly 50% of our new code is AI-generated. Taken together, these advances give us confidence that we can keep improving relevance, engagement, and advertiser performance while remaining disciplined on AI spend by leveraging Pinterest's unique first-party data. With that, now I will turn to the fourth quarter and our priorities for the year ahead. As I stated upfront, we are not satisfied with our Q4 revenue growth, and we are moving with urgency to close the gap. Many of the largest retailers have been disproportionately hit by tariffs and have been pulling back on advertising spend across the industry as they seek to protect their margins. Our higher mix of large retailers relative to some of our peers has resulted in us feeling more of an impact. This highlights the need for us to further accelerate our growth with a broader set of mid-market, SMB, and international advertisers with less than $30,000,000,000 of GMV. This is the next phase of our sales and go-to-market transformation. Stepping back, as we were building our performance ads platform, we deliberately started by serving the largest retailers, given that is where consumers do the most shopping and was the fastest way to provide comprehensive inventory and selection to shoppers. This strategy has been effective, as reflected in our user and engagement trends and in our ad supply, with paid clicks to advertisers up roughly fivefold over the last three years. However, this strategy is also what has led to higher exposure to large retailers compared to some other platforms. We saw continued softness from this cohort of large retailers in Q4. While we see opportunity over the long term, the near-term outlook for this cohort on our platform remains pressured given these headwinds. At the same time, the scale of the monetization opportunity we are pursuing has grown significantly. We are now competing for full funnel and performance marketing budgets across a broader range of advertisers and global markets than ever before. We made significant progress growing with a broader set of mid-market, SMB, and international advertisers in 2025, but not enough to offset the headwinds that the largest retailers faced. So we have proven we can serve mid-market, SMBs, and international advertisers, but we need to accelerate our growth within these segments. Also, while we have made progress evolving our sales organization from primarily selling upper funnel brand advertising a few years ago to full funnel and performance marketing, our monetization still does not fully reflect the value of the clicks and conversions we are driving. This quarter made it clear that capturing this opportunity requires a higher level of sales and go-to-market sophistication, with globally scaled selling motions as well as deeper technical expertise, particularly around measurement and attribution. To lead this next phase, we are pleased to welcome Leigh Brown as our new Chief Business Officer with responsibility for scaling Pinterest's global monetization Andrew Somberg: efforts. Bill Ready: Leigh is a proven business and sales leader with deep experience building and growing advertising businesses at the intersection of technology, media, and commerce. Claudine Cheever also joined us in February as our new Chief Marketing Officer, bringing extensive background with the world's largest online retailer. With this leadership in place, we believe we have the right team to pursue the significant long-term opportunity ahead. Now let me turn to the key levers we will be executing against as we move through 2026. Operator: First, as I have shared, Bill Ready: we are prioritizing broadening our revenue mix with a primary focus on deepening our footprint with both mid-market enterprises and SMB advertisers. These advertisers, who on our platform range from roughly $30,000,000,000 down to tens of millions in annual GMV, continue to represent a significant opportunity for us to scale advertiser demand. Relative to the largest advertisers I was describing earlier, we believe this group has exhibited stronger advertising spending trends in the current environment and has been a strong growth driver for competing ad platforms. By further unlocking this opportunity, we create a powerful flywheel. More diverse advertiser demand allows our models to serve more relevant, highly personalized ads to users. This relevancy not only improves the user experience but drives superior performance for our advertisers and higher yield for Pinterest. While we are seeing healthy revenue growth from this group today, we believe we can accelerate that momentum over time with new leadership and a more sophisticated go-to-market approach, along with the enhancements we are making to Pinterest Performance Plus that I will talk about in a moment. As part of our multiple ways to win, we have also been on a multiyear journey to bring in new sources of demand via multiple third parties to complement our first-party demand. We previously announced the agreement to acquire TV Scientific, a leading connected TV performance advertising platform. This acquisition is an important step toward leveraging our valuable, high-intent audience beyond Pinterest's own surfaces and starting to monetize off-platform supply. Acquiring TV Scientific, which comes after a partner and several years of exploration in this space, supports our roadmap to make Pinterest a full funnel and performance solution across search, social, and, over time, connected TV. It opens up larger and incremental budget pools. We are excited to welcome this outstanding team and to begin helping advertisers reach our high-intent audience on connected TV. Second, we are continuing to advance Pinterest Performance Plus by investing in the next wave of bidding and performance enhancements. Since 2023, we have increased the number of shopping SKUs with a paid ad impression by roughly five times. Over the past year, we accelerated this trend with the launch of Pinterest Performance Plus ROAS bidding in Q1 2025, which adds more granular bidding functionality and allows advertisers to optimize for conversion value, not just the number of conversions. We still see significant opportunity to deepen catalog penetration, as we remain a long way from having bids and budgets against advertisers' full product catalogs. As advertisers increasingly adopt AI-driven automation platforms, the next step is optimizing our bidding system to become more tightly aligned with the advertiser's measurement source of truth. Late last year, we began to pilot integrations with a few of our most sophisticated advertisers' proprietary in-house measurement systems to help us optimize bids to drive more of the outcomes those advertisers value. So far, this pilot has delivered promising results, with one advertiser increasing its bids on Pinterest by more than 30% reflecting the higher value it was seeing from the platform under this new value-based optimization approach. We expect to expand this pilot to additional large, sophisticated advertisers in 2026. To serve an even broader set of advertisers who rely on third-party measurement partners, later this year, we will enable deeper, direct integrations between Pinterest and a number of measurement partners. These integrations will allow automated two-way data transfer so we can continuously train and optimize our bidding models to reflect advertisers' highest-valued outcomes, and thus show up more favorably in their measurement systems. Additionally, these measurement systems are increasingly assigning more credit to events leading up to a conversion, such as view-through attribution. For example, Omnilux, a leader in medical grade LED light therapy, partnered with Pinterest and its measurement partner, Northbeam. After leveraging Northbeam's clicks plus deterministic views model, Omnilux saw a seven times increase in attributed transactions to Pinterest through view-based attribution. For a full funnel platform like Pinterest, this shift should support increased budget allocations over time. As part of our broader effort to give advertisers more control over expressing what matters most to them, and building upon campaign customer groups which we introduced two quarters ago, we recently entered beta for Pinterest Performance Plus New Customer Acquisition. Available exclusively through Pinterest Performance Plus campaigns, this feature helps advertisers efficiently acquire new customers by allowing them to assign their own customized values to different audiences. We can optimize toward that outcome. In initial testing, advertisers saw new customer conversions increase by an average of 64% in campaigns where New Customer Acquisition was enabled compared to control campaigns without it. In closing, this is a moment of extraordinary innovation at Pinterest and across our industry and one that we have been building toward for the last several years. Our user and engagement trends reinforce that our product direction is working, and we know where we need to execute better to drive faster and more durable growth to ensure monetization follows that engagement. Importantly, I am proud not only of what we are building but how we are building it. We have made deliberate choices that put user trust and well-being, especially for young users, at the center of the experience, and we are seeing those choices rewarded as more users than ever come to Pinterest each month. It is clear that parents and regulators around the world are raising the bar for online safety, particularly for teens and kids. We are proud to lead the way by tuning our AI for positivity and giving our users more agency and choice over their experience. This positions us well as these standards evolve. We are creating a positive place on the Internet where people can invest in themselves, and proving that you can build a strong business based on positivity. With that, I will turn the call over to Julia to share more details about our financial performance. Julia Donnelly: Thanks, Bill, and good afternoon, everyone. Today, I will be discussing our full year and fourth quarter 2025 financial results and provide an update on our first quarter 2026 outlook. All financial metrics, except for revenue, will be discussed in non-GAAP terms unless otherwise specified, and all comparisons will be discussed on a year-over-year basis unless otherwise noted. I will start with our fourth quarter results. We ended the quarter with 619,000,000 global monthly active users, or MAUs, growing 12%, our tenth consecutive quarter of record high users. We continue to demonstrate user growth across all of our geographic regions. In Q4, our US and Canada region had 105,000,000 MAUs, growing 4%. Our Europe region had 158,000,000 MAUs, growing 9%. And in the rest of world markets, we had 356,000,000 MAUs, growing 16%. Moving to revenue. In Q4, our global revenue was $1,319,000,000, up 14% year over year, or 13% on a constant currency basis. We saw strength from our conversion objective. Across verticals, growth was driven by retail, though with puts and takes within that as we have described, and driven by smaller but faster-growing categories on our platform, including financial services and telecom. Turning to our geographical breakouts for Q4. Revenue in the US and Canada was $979,000,000, growing 9%. Growth came from retail, financial services, and telecom. In Europe, revenue was $245,000,000, growing 25% on a reported basis or 18% on a constant currency basis. Growth in Europe was driven by retail but was lower than our expectations. We saw a second-order effect on cross-border spend from certain large global retailers who pulled back ad spend in Europe, as well as UCAN, as they recalibrated across their global portfolio due to the same tariff and margin pressure as Bill described earlier. Revenue from Rest of World was $96,000,000, growing 64% on a reported and constant currency basis. In Q4, overall ad impressions grew 41% while ad pricing declined 19% year over year, driven primarily by the continued mix shift impacts from growing ad impressions in under-monetized international markets. Moving to expenses. In Q4, cost of revenue was $221,000,000, up 15% year over year and up 7% versus Q3 due to increased infrastructure spend related to our user and engagement growth. Our non-GAAP operating expenses were $562,000,000, up 13%. The increase was driven by headcount investments in marketing and R&D as we continue to invest in AI initiatives and grow our sales force. Within G&A, expenses grew at a higher than typical rate year over year, primarily due to certain legal costs not expected to repeat, as well as lapping certain insurance proceeds received in the prior year. In Q4, we delivered adjusted EBITDA of $542,000,000, with an adjusted EBITDA margin of 41%, up 20 basis points versus Q4 last year. For the full year 2025, free cash flow increased 33% to $1,250,000,000. This compares to 2025 adjusted EBITDA of $1,270,000,000, representing free cash flow conversion of 99%. Our ability to generate significant free cash speaks to the inherent profitability of our business and asset-light nature of our model. Investors should continue to analyze our free cash flow annually as quarterly free cash flow can fluctuate due to the typical seasonality of our business. We ended the year with cash, cash equivalents, and marketable securities of $2,500,000,000. We made further progress mitigating dilution in Q4 as we deployed $500,000,000 towards share repurchases, bringing our full year 2025 share repurchases to $927,000,000, a total of 30,000,000 shares. In addition, we utilized $399,000,000 of cash in the year on net share settlement of equity awards. Combined, for full year 2025, these actions have driven an approximately 1.6% decline in year-over-year fully diluted share count, which compares favorably to our stated positive 2% to 3% average annual target. Now I will discuss our guidance for the first quarter, which does not include any impact from TV Scientific as we await regulatory approval for closing of that transaction. We expect Q1 revenue to be in the range of $951,000,000 to $971,000,000, representing 11% to 14% growth year over year. Based on current spot rates, our guidance assumes the impact of foreign exchange to be approximately three points of tailwind in Q1. For the first quarter, we expect adjusted EBITDA to be in the range of $166,000,000 to $186,000,000. We anticipate Q1 2026 non-GAAP cost of revenue to grow sequentially from Q4 2025 by low single-digit percent. In Q1, within non-GAAP operating expense, we will focus our investments on our sales transformation and additional R&D hiring to support our AI efforts. Next, I want to share some color about the trajectory of margins throughout the year. Starting with cost of revenue. In 2026, we are making deliberate investments in high-ROI areas, such as GPU capacity to enable key AI initiatives. These investments will allow us to train and serve visual foundation models and our conversation models that advance our capabilities in multimodal search and discovery, as well as Pinterest Assistant. In addition, we will continue to build more powerful AI models that are enhancing full funnel ROAS for our advertisers and ads relevance for our users. We also have been signaling for some time that we have captured much of the benefit from our multiyear infrastructure cost optimization efforts and are now reaching diminishing returns. As a result, we expect modest headwinds from cost of revenue as a percentage of revenue in 2026. That said, we are acting decisively to free up investment capacity elsewhere within the company. In January, we announced a restructuring, including a series of organizational changes to simplify how we operate, reduce layers, and increase efficiency so that we can invest more intentionally in the areas that matter most, especially AI and our go-to-market transformation. The result of these offsetting dynamics is that we expect adjusted EBITDA margins to be roughly in line with 2025. So while we anticipate year-over-year adjusted EBITDA margin pressure in the first half, based on our current outlook, we expect full year 2026 adjusted EBITDA margin to be roughly in line with 2025 at approximately 30%. While the acquisition of TV Scientific has not yet closed, we do expect closing to happen in Q1 or Q2, which we anticipate would cause a roughly 100 basis point drag to adjusted EBITDA margin in 2026, leading to 29% for 2026 overall on a combined basis. To illustrate the potential revenue impact of the acquisition, I will also share that we estimate TV Scientific's Q4 2025 revenue would have contributed less than two points of growth to Pinterest revenue in Q4 2025. Stepping back, over the last two years, we have made meaningful progress toward our long-term margin goals. Adjusted EBITDA margins expanded by nearly 700 basis points from 2023, reaching 30% in 2025, reflecting both operating discipline as well as the inherent profitability of our model as we have scaled. Our margin outlook for 2026 reflects our decision to lean into the high-ROI investment opportunities we see for ourselves in this crucial moment and to capture the full opportunity ahead. However, our fundamental view of the profit potential of the business is unchanged, and we therefore still expect to achieve our adjusted EBITDA margin targets of 30% to 34% over the medium term. Given the strength of our user and supply dynamics, and the organizational actions we are taking to strengthen our sales and go-to-market efforts, we believe our revenue growth should be higher over time, and we continue to have conviction in our ability to reach our long-term targets. We are making the right decisions today to emerge from this period better positioned to compete for the large and growing opportunity ahead. With that, I will hand it over to Bill for some final words. Bill Ready: Thanks, Julia. I want to thank our team at Pinterest, our advertising partners, and all the people that come to Pinterest to find inspiration and take action. And with that, we can open the call up for questions. Operator: Thank you, Bill. If you would like to ask a question, please press star followed by 1 on your telephone keypad. If for any reason you would like to remove your question, please press star followed by 2. Again, to ask a question, please press star 1. We ask that you limit yourself to one question. As a reminder, if you are using a speakerphone, please pick up your handset before asking your question. We will now open for questions. The first question will go to the line of Doug Anmuth with JPMorgan. Doug, your line is open. Bill Ready: Great. Thanks so much for taking the question. Can you just talk more about the drivers of 4Q revenue, including the home impact that you saw, then also how you are thinking about the 1Q guidance? Thank you. Julia Donnelly: Sure, Doug. I will take that one. So in Q4, our largest retail advertisers created a more meaningful headwind than we expected as they sought to protect their margins in this dynamic environment and pulled back on ad Operator: spend. Julia Donnelly: We believe this pullback on ad spend from larger advertisers was felt across the industry but impacted our platform to a higher degree given our current revenue mix. We also saw a second-order effect of the same dynamic into Europe as well, with some of these same large global retailers pulling back on spend in Europe as they rebalance across their global portfolio. On the Home category, where there was a new furniture tariff enacted last October, the Home category remains challenged overall, but the performance there was generally in line with our expectations at the time of guidance. Looking ahead to Q1, we expect these headwinds will continue and may become slightly more pronounced in Q1, including in US and Canada and in Europe. It is also worth noting that we recently implemented a restructuring in January and are going through a sales and go-to-market transformation, and that may cause some near-term disruption, which we factored into our guidance to be prudent. All that is to say we are in a moment in time where both of these near-term factors are impacting us, and we know we have a lot of execution to do on the monetization side, and we have started that process. Visibility is not perfect, and obviously, we do not guide beyond one quarter. Looking kind of even beyond Q1, and, you know, we cannot predict the macro nor can anyone perfectly. But we are not seeing any new factors today beyond what we have described that would create more headwinds to our current trajectory. A few things to think about as we go forward to 2026. In terms of external factors, we have talked about the larger retailer headwinds, which we will start to anniversary in 2026. For internal factors, we talked about our measurement product release and sales and go-to-market transformation, which may take a couple of quarters to play out, but we are encouraged by the new leadership we have in place with Leigh and the quick actions he is taking there. So all of this will take time, but we are moving quickly to ensure our revenue matches the strength of the users and engagement we are seeing on the platform today. Thank you, Doug. Our next question will go to the line of Ross Sandler with Barclays. Ross, your line is open. Andrew Somberg: Great. Bill, can you elaborate on how you and we are changing go-to-market team and basically, how is this new organization or reorganized team likely to drive wallet share in digital advertising for Pinterest? And then Julia just mentioned this, what is the lag period between when the new team kind of comes together and when it might be generating, you know, positive results in the form of, you know, share gain? Thank you very much. Bill Ready: Thanks, Ross. Leigh has only been here for a few weeks, but he is already moving quickly and taking decisive action. You know, as with any sales transformation, there can be, you know, some modest disruption in the near term as we rebuild and retool the organization to best position the company for the long term, but we are doubling down on broadening our revenue. And consistent with the areas that we have been talking about with you all, you know, all of last year, particularly across mid-market enterprise and SMB advertisers and closing the monetization gap in international markets, including rethinking how we cover some of these areas. Over the past year, we have made good progress on this. We have doubled the growth rate of our managed SMB business. We expanded with mid-market enterprise advertisers in the $1 to $30,000,000,000 range. And international revenue growth accelerated to 38% versus 25% in 2024, but we believe growth in these areas should be higher, which is why we need to move faster and be bolder. And to do this, you know, we need to restructure and reallocate resources across those opportunities. We need to adapt more quickly to grow within the fastest-growing parts of the market that we see contributing more significantly to the overall growth of competing platforms. So we are also doubling down on measurement and technical capabilities within our sales team. We have made significant progress from where Pinterest was just a few years ago as an upper funnel-only platform and sales team to one that can compete for performance budgets with the largest, most sophisticated advertisers. But we know there is significant opportunity in driving greater performance selling capability across our sales organization and across the segments of the business beyond large advertisers. This is actually really important as the industry has advanced measurement and attribution with large platforms becoming more aggressive and claiming credit for outcomes even when they do not own the click or conversion. You would see this reflected in others talking about “modeled conversions.” This is an area where we know we have not moved fast enough. But we are laser-focused on addressing this and we have, we talked about some of the successful pilots that we have already put in place and that we have underway. So while we expect this to play out over a couple of quarters, we are planning, you know, we are planning prudently around it as we think these changes are essential for us to capture what we continue to see, you know, as a much larger, you know, long-term opportunity, more consistent with the long-term targets that we have talked about previously. Julia Donnelly: Thank you, Ross. Our next question will go to the line of Ken Gawrelski with Wells Fargo. Ken, your line is open. Operator: Thanks so much. I want to just follow up a little bit on this last point about broadening that advertiser base. And I know, Bill, you talked about this in the prepared remarks around broadening beyond the large retailers. But can you talk a little bit more about how much tech investment beyond just kind of sales and go to market, but more tech investment might be necessary to broaden that advertiser base, broaden and deepen that advertiser base. That is question one. And just to follow on, on the engagement side, you know, you have seen it—it is kind of rare that we see in this industry where you see really strong engagement trends. You know, at least the third-party data that we follow suggests you have had very healthy time spent increases both domestically and internationally. And I think that syncs up pretty well with your commentary on these calls. But yet, you see that the ad revenues kind of decelerate here. And I understand there are specific pressures. Maybe you could just talk a little bit about the dynamics around your impression growth and, you know, and click outs relative to what you might, the pressure you might be seeing on pricing and maybe even conversion, if, if the consumer is less healthy? Thank you. Bill Ready: Thanks, Ken. So like the rest of the market, we are seeing strong performance amongst our managed SMB business. We actually think that is one of the fastest-growing parts of the market, and a part of the market that we have been, you know, under-indexed to. These advertisers represent approximately 15% of our revenue today, so we are very active there, but it is a lower percentage than other platforms. You know? And I mentioned the, you know, the revenue growth rate of this group nearly doubled in 2025 versus 2024. And so we see opportunity over a multiyear period to make this a larger part of the business. And, again, we think that is, you know, where we see competing platforms, you know, having, you know, significant growth. And so that growth we have had there demonstrates that we have got product that can compete there. You know, SMBs who are adopting Performance Plus campaigns to automate and simplify setup with AI are seeing stronger performance and are spending more on our platform. So as we noted last quarter, we see a 12% higher monthly revenue growth rate with these managed SMB advertisers versus nonadopters. So the ongoing improvements we are making to Performance Plus around measurement and attribution will be particularly important for this group as they have leaner teams and often rely on third-party measurement platforms to validate performance. So looking forward, we will continue to focus on driving Pinterest Performance Plus campaign adoption as well as simplifying the advertiser onboarding experience. So there is more for us to build on product, but the product that we have today we know can work and is driving good progress there. And, you know, it will take time, but Leigh and the team are focused on bringing a new level of sophistication to our go-to-market efforts, including how we sell to a broader range of advertisers, particularly with SMBs. And then, you know, I will give it to Julia to hit some of the other part of your question there. So I would just add on to add on to Julia Donnelly: that, and we will hit—Ken, Ken, I think you had a second question on sort of engagement, which we will go back to. But just want to add on that into SMB. Bill was talking about SMB as obviously a large opportunity for us, but it is sort of one of multiple ways that we have to win, as we have talked about on previous quarters, right? Other growth drivers include deepening our share of wallet with mid-market enterprises, growing internationally, growing with agencies in US and internationally, and using third-party demand to complement our first-party business. We are also continuing to drive growth in emerging verticals, including financial services, technology, and entertainment, all of which we think can help us build a broader base of revenue and more resilient platform over time. I think we had a second part to Ken's question as well, so I will turn it back to Bill for that. Bill Ready: Yeah. You know, on the engagement side, you know, a couple things I would note. You know, we have talked about this, that, you know, to transform the platform, you know, we need to start with users first, get the shopping behavior and the search behavior. And, you know, on that engagement, you know, we talked about the 10 straight quarters of record high users. I actually think one of the things, you know, we shared this for the first time last quarter, and I do not think it got as much discussion on the call. But as we talked to folks across the industry, it has really raised some eyebrows in terms of the 80,000,000,000 monthly searches that we are doing. You know, to put that in context, you know, you can go look at third-party data as to what other platforms are doing. If you ask ChatGPT how many prompts per month ChatGPT does, it will tell you about 75,000,000,000 monthly prompts. And so we are doing 80,000,000,000 monthly searches and generating 1,700,000,000 monthly clicks. You know, that makes us one of the largest search destinations in the world. And importantly, you know, more than half of those searches are commercial in nature compared to, I think, you know, OpenAI has shared that they have approximately 2% that would be commercial there. So not only have we created one of the largest search destinations in the world and are doing, you know, approximately as many searches per month as ChatGPT is doing prompts in a month, more than half of that is commercial. And so we have talked about how we needed to go from winning that engagement to then getting the advertisers behind that and then getting measurement so they could see that and lean more into their budgets. You step back from it, we are still relatively early on in that journey. You know, we only became fully committed to being a performance ad platform just a few years ago, and you have the largest ad platforms in the world that have been at this for 20-plus years that we are competing against. But the growth that we have delivered is really indicative of, you know, how much unique user engagement we have there. But, obviously, we have a lot more of that to do. And I would say our users and engagement are out in front of where our ad platform is. The ad platform has been growing significantly, and the ad platform is out in front of where our sales and go-to-market capabilities are. And as we are—as we have proven out that we can sell not only to those largest retailers, but also to those midsized retailers that we have been talking about, and SMBs and international, and now moving beyond our O&O, just the complexity of that sales organization has increased significantly, and the need to have technical performance selling ability, measurement ability within the sales organization—that has changed significantly as well. So these are the things that are embedded in that sales transformation that we are talking about, and we are—not only do we think there is a gap to cover between our monetization and our user engagement, we think that gap is quite significant and why we feel really encouraged about the long-term potential of our business. I shared in my remarks, search is more up for grabs than it ever has been, you know, at least in the last 25 years. And I am not aware of another company in the Western world that could claim anywhere close to the search volume that we are talking about, you know, other than us, OpenAI, and Google. You know, and, obviously, we have a lot more to do to monetize that, but we have a clear line of sight as to what we need to do to get there. Julia Donnelly: Thank you, Ken. Our next question will go to the line of Eric James Sheridan with Goldman Sachs. Eric, your line is open. Operator: Thanks for taking the question. Maybe building on the answers so far in the call, Bill. You know, when you think about ChatGPT and their launching their own ad product and you have a lot of ambition for growth across the industry at the same time that the industry is moving more automation and more AI and machine learning, can you bring together your vision for how you see Pinterest broadly fitting into this increasingly competitive landscape for digital advertising budget dollars? I will just ask the one and leave it there. Thanks. Bill Ready: Alright. Thank you, Eric. You know, over time, we believe ad dollars will ultimately flow towards clicks and conversions, and we have that engagement. And, you know, that has continued to grow, including in UCAN, our largest, most mature market. So while this has always been a competitive market, we have a unique curation signal. We have a differentiated full funnel platform. And we have created one of the largest search destinations in the world now with 619,000,000 global users and shopping as a primary use case. We have one of the highest commercial intent audiences of any platform. Again, we are very early on in that monetization journey, but the others that would claim large search volumes are also very early. And so I think that, you know, the ad market is still quite large. You know, there are a lot of dollars still flowing to places that, you know, are not necessarily highly performant. We think there are a lot of dollars still up for grabs. As we deliver high commercial intent, strong performance, there are a lot more dollars available. And so I talked about, for example, the TV Scientific acquisition as one of us now starting to monetize our audience beyond our owned and operated. We think there is a real opportunity in that commerciality beyond just our O&O surface. And this has happened before. You have seen this play out before where those that have high commercial intent are able to monetize that across multiple surfaces, including beyond their O&O. So we think that, you know, again, we acknowledge that the revenue performance we put up in Q4, while pressured by the tariffs and our, you know, our greater mix towards large retailers, while that has presented some near-term headwind, the long-term commerciality of the platform, the very significant volume of search activity that we are getting, the high commercial intent, and our ability to—that we have now proven that we can drive performance advertising budgets—gives us confidence that, really, this is about how we get that performance to a broader set of advertisers through greater sophistication. And we think what we have is quite unique. I shared those stats, you know, again, 80,000,000,000 searches per month, you know, similar to, you know, what ChatGPT would say that it provides in prompts per month, but with a much greater mix of commerciality—50% of our searches being with commercial intent, 1,700,000,000 monthly outbound clicks. You know, there is a lot of that that we still have to monetize. But we have a clear line of sight to do so. We just have to do that across a broader set of advertisers, and we think that is quite unique in the ecosystem, and there is room for multiple winners. So even as, you know, another new search player comes in, I think there is room for multiple to succeed. And what we are doing with the, you know, completely visual-forward nature of our platform—you know, those 80,000,000,000 monthly searches, the vast majority of those are visual in nature—it is just completely different than what anybody else is doing. We think that is a distinct space that, you know, not only are we winning there now, we see the very unique data that we have giving us a sustaining advantage. Even as AI advances, we talked about how we are able to use low-cost, open-source AI and our own internal proprietary models, train that against that data, and then get very different results. I shared on prior calls that our latest multimodal visual search models outperform leading proprietary off-the-shelf models by 30 full percentage points on the relevancy of shopping recommendations. That is really about that flywheel effect of the unique signal on our platform and the AI trained on that unique signal. So those are all the things I would point to that give us confidence that, you know, and I think, again, it is best demonstrated by what we have done over the last 10 quarters of 10 straight quarters of record high users, but also, despite the sort of near-term bumps here, where we see that there is a lot more monetization opportunity ahead even just for the engagement that already exists on the platform today. Hopefully, that helps. Julia Donnelly: Thank you, Eric. Our next question will go to the line of Colin Alan Sebastian with Baird. Colin, your line is open. Andrew Somberg: Great. Thanks for taking my question. Operator: I guess, maybe for Julia, but a lot—obviously a lot of moving parts here. But given some of the top-line headwinds, salesforce transition, and the opportunities you have to unlock with some of the reallocation of investments, could you maybe walk through a little more detail the puts and takes on the adjusted EBITDA outlook for the year, just as we move through the year and then you balance some of those, the impacts from some of those various factors? Thank you. Julia Donnelly: Thanks, Colin. So we anticipate adjusted EBITDA margins, as I said on the call, to be kind of roughly in line with 2025, excluding the approximately 100 basis point drag from the TV Scientific acquisition, which results in sort of 29% for full year 2026 overall. But to get into some of the puts and takes underneath that, we are intentionally investing in cost of revenue, specifically in GPU capacity, to enable key AI initiatives, which I described earlier in my prepared remarks. But we believe this will drive further improvement to advertiser performance and, therefore, advertiser budgets, and continued user and engagement growth. So we expect this cost of revenue investment to be approximately 100 basis points in 2026, similar to the gross margin outlook implied in my Q1 commentary earlier. Moving to OpEx. In January, we took action on a restructuring which we anticipate will generate approximately $100,000,000 of annual non-GAAP OpEx savings. Now, we expect to reinvest roughly half of those OpEx savings primarily in our sales transformation and in AI talent. So as a result, the net impact between the cost of revenue investment and the OpEx savings I just described gets you to roughly flat margins for the stand-alone Pinterest, Inc. business in 2026 compared to 2025. On top of that, we expect the acquisition of TV Scientific, which is, you know, a higher-growth business but also earlier-stage business—we expect the acquisition of TV Scientific to be a 100 basis point headwind to full year adjusted EBITDA margin, including some modest further deleverage on cost of revenue. So we will continue to be responsive to the overall environment and thoughtful allocators of capital. But based on what we see today, these are the puts and takes that get us to our expected 29% adjusted EBITDA margin for 2026. As I said before, we have made significant progress against our long-term targets, reaching 30% in 2025, and obviously this continues to be a very high-margin business, and we continue to have conviction in margins reaching 30% to 34% over the medium and long term. Thank you, Colin. Next question will go to the line of Brian Thomas Nowak with Morgan Stanley. Brian, your line is open. Andrew Somberg: Thanks for taking my questions. Just to go back to the advertising go-to-market change so we can sort of understand a little bit what you want really change this year, Bill. Can you give us sort of a couple of examples Operator: of your current go to market Andrew Somberg: with SMBs and international and some tangible examples of what you would like to change 12 months from now, just so we can understand the KPIs and the go-to that you are most focused on, to make this right? And then secondly, with the first-quarter guide, you might have mentioned there is an assumption on some disruption expected in the advertising side. Can you just walk us through sort of, like, practically what are you expecting to be disrupted with the org change? Thanks. Yeah. Thanks for the question. You know, so in terms of, like, how we are thinking about it, you Bill Ready: one, should step back and put things in context for a moment. You know, we only started building a true performance ads platform just a few years ago. Our first true CPC product for advertisers did not go GA until 2023. So we are sort of two years and a partial quarter into even having a platform that drove clicks to advertisers. As we have talked about before, we started with the very largest advertisers. We have been working our way down. Our SMB—the main product that we needed to enable that for SMBs—was Pinterest Performance Plus because SMB advertisers need something that is much more automated, more set-it-and-forget-it. Pinterest Performance Plus went GA at the start of 2025. As we deployed that through 2025, you know, we saw that working well. As I mentioned, we doubled the growth rate of our SMB, our managed SMB population. That is now 15% of revenue. But we know that can and should be much larger. And so, you know, it is a different kind of selling, you know, to those kinds of advertisers. You know, the things that we need to do to run that—also the measurement integrations that we need to do—as they rely on a set of measurement partners different than what the very largest advertisers would. So, you know, that is part of that go to market, which is, you know, how do we have those sellers set up to sell performance, understand the measurement, particularly measurement source of truth that are used by the advertiser, and then how to help that advertiser get the most out of our AI-driven tools like Pinterest Performance Plus to configure those things for performance are some of the things that we are driving through. And, again, you know, Leigh is only a couple weeks in, but, you know, these are things that—we have made progress on this. Again, doubling the growth rate of SMBs over the course of 2025. We have made progress, so we have clear line of sight what to do. We just need to take bigger, bolder steps, and we are confident now with Leigh here, we have got the right leadership in place to go do that. Operator: Yeah. And the second part of your question, you know, on terms of Julia Donnelly: Q1 and what I was referring to there on the near-term disruption, I think we obviously took the difficult decision to go through that restructuring activity in January. Part of that did impact some of our frontline sellers and on the measurement side as well. And so as we are kind of getting ahead of that and backfilling those roles, obviously it will take a little bit of time for those new folks to come in and ramp up to full productivity. So I do think we are anticipating a little bit of that impact here in Q1, but all of that is factored into the guidance. Operator: Thank you, Brian. Julia Donnelly: Our next question will go to the line of Justin Patterson with KeyCorp. Justin, your line is open. Operator: Great. Thank you. Bill, you mentioned earlier that Pinterest visual feed brings the promise of agentic commerce to life without having to enter prompts. Can you expand some more on just what agentic commerce means for Pinterest and the steps to get there? Thanks. Bill Ready: Yeah. Thanks for the question, Justin. You know, the broader promise of agentic has tremendous potential, and we are leaning into the places where we see the most opportunity to solve compelling user problems. So let me start with first the way we think about the broader agentic opportunity and what it really means for users. The promise of agentic is one where users trust AI to help them along a commercial journey, to remove friction, and to find products they love, you know, all without the user having to do as much of the work. That is exactly where Pinterest has been leaning in. Our visual search, discovery, and personalization means that users are instantly met with relevant products that they are interested in when they open up the Pinterest app. We are helping them complete those commercial journeys without having to type in a single prompt. So, you know, that is the agentic nature that we are solving for already, which is the user does not have to tell us what next step to take. We are meeting them with products that help them along their—and recommendations that help them along their commercial journey. In essence, we are helping our users know what to buy before they know what to ask for, which has historically been, you know, one of the biggest problems in search is that people do not have the words to describe what it is they are looking for. So on top of that, we have enabled capabilities that make the purchase in a single tap without ever leaving our site, most notably with Amazon. This has resulted in users, searches, clicks, and overall commercial intent all growing significantly and accelerating over the last three years. And in Q4, we accelerated our product even further, introducing Pinterest Assistant, which adds voice to the new modality. So we are seeing very strong traction in real-world application of this type of experience for users, with our AI capabilities at the core of how we are delivering on it. What we see less demand for in the near term is an experience where agents complete the full shopping journey without the user being involved at all. We see users wanting to be in the loop for the foreseeable future. And in the future, when users, you know, are—well, right now, you know, when users are ready to confirm a purchase, making it very seamless for them to do so. And at whatever point in the future users are ready to actually trust the agent to press the buy button for them, that will actually be one of the easiest parts of the commercial journey to solve, given how many frictionless buy buttons exist in the market today. So I think there has been a lot of discussion of the promise of agentic, and a lot of it sort of goes all the way to “the agent will just go do everything for you.” We are focused on the AI doing the thing that the users need the most help with today, and not getting in the way of the users for the thing that they want to make sure that they verify, which is, you know, the user being in the loop at that last moment saying, “Yep. That is the thing. Ship it to me.” I press a button, and it is on the way. And that is what is happening on the platform today and why, you know, we are seeing the, you know, very strong user engagement trends that we talked about. Julia Donnelly: Thank you, Justin. Our last question will go to the line of Ronald Victor Josey with Citigroup. Ron, your line is open. Andrew Somberg: Great. Thanks for taking the question. I wanted to ask two really quickly. Operator: Bill, on TV Scientific, you talked about the new sources of demand and highlighted Pinterest, you know, third-party partners in the past. But with TV Scientific expanding beyond the platform, talk to us how this acquisition can open up larger budget pools as it just accelerates TV Scientific as well as Andrew Somberg: Pinterest's overall scale. And then on the go-to-market and the revamp that we are planning there in the first half of the year, would love your thoughts—just where are we on the process there? I know, obviously, Leigh just Jason Helfstein: just joined not too long ago, but any insights on timing and, like, rebuilding that team? Thank you. Bill Ready: Thanks, Ron. So on TV Scientific, yes, you are exactly right. You know, over the last couple of years, we have been bringing in third-party demand. This now is our first meaningful foray into third-party supply. And this is very consistent with what you would see from other high-intent platforms, where you can take the high intent that you have on your own platform and then drive more relevant, more performing ads on other surfaces based on knowledge of that intent. And in terms of—this is an area we have been sort of studying and experimenting in for a couple of years now. And, you know, we started with a partnership with TV Scientific to allow us to, you know, understand their technology, their team, and we moved from that to—because, you know, they are driving today, you know, search-type performance advertising in TV and connected TV, which is very aligned with our approach, and we think we can, when we combine that with our very highly commercial audience and the scale of that audience, as I have shared a few times—you know, the over 80,000,000,000 monthly searches, you know, and that being primarily visual, which obviously would align with, you know, TV and sort of the visual nature of that—we think there is a lot we can do to together drive more performant connected TV advertising, which is one of the fastest-growing, you know, areas of the ad market. So I talked about, you know, more exposure to SMB and international given that those are fast-growing. Connected TV is also fast-growing, and I think there is a lot we can do to bring performance there. So, hopefully, that helps on the TV Scientific acquisition. You know, it effectively turns Pinterest into a full funnel search, social, and connected TV performance solution, opening up larger and incremental budget pools. And, of course, these things take time, but, you know, we are quite excited about the opportunity. You know, on the other part, on the go-to-market revamp, you know, I have commented on that a good bit. And so, you know, the timing and rebuild—you know, these things do take some time. You know, we are in flight on these things already. Again, the way I would characterize this is, you know, looking back at 2025, you know, we talked about diversifying the revenue base all through 2025. We were talking to you all about that on the calls then, of expanding to those midsized retailers, expanding to SMBs, expanding to international. We executed on those things. I would say that we had good execution. We need great execution. And, you know, so all that is to say, you know, we are not starting for the first time on this thing. It is really about how do we learn from the efforts we have had, you know, so far, double down, go faster with greater clarity, you know, with those teams and bolder decisions around what are the different levers needed for those different segments of the business. It is just a more complex selling organization. Again, I think we have got the right leadership in place now with Leigh to go after that, but this time zero is not at this moment. This is really about sort of us finding the next gear in that transformation. We have really good line of sight to that. And I commented that with any of these kinds of things, you can expect at times a quarter or two of disruption as you move through some of those things. But, again, we have got clear line of sight to how, you know, these have already been faster-growing areas for us, and it is really about us doubling down in those faster-growing areas. Operator: Thank you, Ron. Julia Donnelly: That will conclude the question and answer session. I would now like to pass the conference back over to Pinterest CEO, Bill Ready, for closing remarks. Bill Ready: Thank you again to all of you for joining the call and for your questions. We look forward to keeping this dialogue going, and we hope you enjoy the rest of your day. Operator: That concludes today's earnings call. Thank you for your participation, and enjoy the rest of your day.
Operator: Ladies and gentlemen, good afternoon, welcome to the DexCom, Inc. Fourth Quarter and Fiscal Year 2025 Earnings Release Conference Call. My name is Abby, I will be your operator today. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session. During the question and answer session, if you have a question, please press star 1 on your telephone keypad. As a reminder, the conference is being recorded. I will now turn the call over to Sean Christensen, Vice President of Finance and Investor Relations. Mr. Christensen, you may begin. Sean Christensen: Thank you, operator, and welcome to DexCom, Inc.'s fourth quarter and fiscal year 2025 earnings call. Our agenda begins with Jacob Steven Leach, DexCom, Inc.'s President and CEO who will summarize our recent highlights and ongoing strategic initiatives. Followed by a financial review and outlook from Jereme M. Sylvain, our Chief Financial Officer. Following our prepared remarks, we will open the call up for your questions. At that time, we ask the analysts to limit themselves to one question each so we can provide an opportunity for everyone participating today. Please note that there are also slides available related to our fourth quarter and fiscal year 2025 performance, on the DexCom, Inc. Investor Relations website on the events and presentations page. With that, let's review our safe harbor statement. Some of the statements we will make on today's call may constitute forward looking statements. These statements reflect management's intentions, beliefs, and expectations about future events, strategies, competition, products, operating plans, and performance. All forward looking statements included on this call are made as of the date hereof, based on information currently available to DexCom, Inc. are subject to various risks and uncertainties, and actual results could differ materially from those anticipated in the forward looking statements. The factors that could cause actual results to differ materially from those expressed or implied by any of these forward looking statements are detailed in DexCom, Inc.'s annual report on Form 10-Ks, most recent quarterly report on Form 10-Q, and other filings with the Securities and Exchange Commission. Except as required by law, we assume no obligation to update any such forward looking statements after the date of this call or to conform these forward looking statements to actual results. Additionally, during the call, we will discuss certain financial measures that have not been prepared in accordance with GAAP. Unless otherwise noted, all references to financial measures on this call are presented on a non-GAAP basis. This non-GAAP information should not be considered in isolation, or as a substitute for results or superior to results prepared in accordance with GAAP. Please refer to the tables in our earnings release and the slides accompanying our fourth quarter and fiscal year 2025 earnings call for a reconciliation of these measures to their most directly comparable GAAP financial measure. Now I will turn it over to Jacob Steven Leach. Thank you, Sean, and thank you everyone for joining us. It's an honor to join you today with my first earnings call since officially stepping into the role of CEO last month. As many of you know, in more than twenty years at DexCom, Inc., I've had the privilege of helping build the CGM category and redefine diabetes care. But as I reflect on all the innovation and impact we've delivered, I believe we are still early in our journey. There remains a massive opportunity to help improve metabolic health for our customers globally. And I'm excited to lead DexCom, Inc. into our next chapter. I recently had the opportunity to share my initial vision as CEO and highlight three key areas of focus for our organization. First, we will be the premier glucose sensing solution for all. Glucose remains central to all stages of metabolic health management. And we still see significant opportunity to improve the experience of glucose sensing. This will include greater sensor accuracy, improved reliability, stronger connectivity, and more. We will always keep pushing to enhance this experience for our customers and further entrench our position as the market innovator. A great example of this can be seen today with the broad rollout of our DexCom G7 15-day system. As of early January, this product is now available across all channels in the US. And while it's still early, the initial feedback has been excellent. Customers and physicians have been thrilled with the longer wear time, which reduces the number of sensor changes required each month, as well as the new algorithm, which offers our greatest accuracy to date. We are currently in the process of building greater awareness of this product's availability in the market, and we will be working hard to get G7 15-day into the hands of as many people as possible. Our second strategic priority is that we will set the standard for customer experience. This includes raising the bar for all of our customers. Not only the individuals that wear our sensors, but also prescribers, caregivers, distribution partners, payers, and more. We want DexCom, Inc. to consistently create experiences that delight our customers and make their lives easier. We recently highlighted several new products and features that do just that. This includes My Dexcom Account, our newly launched digital support system, which is significantly streamlining the customer support experience and saving valuable time for our customers. We also have additional offerings planned as we further integrate AI into this customer experience in the near future. We are also excited to start the early access launch for DexCom Smart Basal this month. We have always looked for ways to ease customer burden and improve outcomes. And Smart Basal has the potential to become the new standard for any person managing type two diabetes with basal insulin. We believe this personalized dosing module can lead to more accurate basal insulin titration, accelerate the time to reach optimal dose, significantly simplify workflows for the prescriber, and most importantly, improve outcomes for those using our products. Our DexCom Direct EHR integration, which is now live, or onboarding at over 160 health systems, provides a quick and easy connection to customer CGM data across multiple EHR platforms. This is something that the prescribing community has been requesting for years and we are happy to be the first to provide this in our industry. For Stelo, we recently announced a comprehensive nutrition database that will be launched shortly in our smart food logging feature. Following this update, Stelo can provide a detailed breakdown of macronutrient information for each meal, giving customers a better understanding of how food choices impact their glucose. We will also be following this up with a completely redesigned app experience later this year, which will offer a more consumer friendly experience and enhanced customer insights. And just last week, we received clearance for a new patch technology that we believe will provide an even better experience for customers across our entire product portfolio. This technology has demonstrated in clinical trials the ability to strengthen sensor survival on our G7 system including G7 15-day. This is the type of customer focused innovation that we need to continuously deliver. We want to create meaningful, seamless experiences for our customers that drive greater satisfaction, engagement, and utilization. Ultimately, this can also increase customer lifetime value and serve as a growth driver for our business. Our third strategic priority is that we will expand international market share. The core pillars of our international playbook remain the same. We can drive growth and share through broader DexCom awareness and by expanding CGM access for more people globally. In recent years, we've also broadened our market reach with the expansion of our CGM product portfolio, which can be tailored to the needs of each market and reimbursement system. We now have several examples of how this tiered offering has enabled us to win new coverage, and greater share. We also plan to add to our portfolio in 2026 with Stelo, and a new CGM system in our international markets to expand access to new segments of the market. I could not be more excited about the significant opportunity across our international markets. In fact, as we look across the evolving market landscape internationally, there is a path for this opportunity to become even larger than our core US market. As you can tell, there is a lot to be energized about as I step into the role of CEO. I am also very encouraged by the way we closed out 2025. In the fourth quarter, we delivered revenue growth of 13%, which brought our full year revenue above the high end of our most recent guidance. This reflected continued strong new customer demand and encouraging sell through trends as the quarter progressed. We will now look to build on this momentum as we move into the new year. I also want to call out continued progress from our manufacturing and logistics teams which left us exiting the year at an operational high note. Over the course of Q4, we built our inventory toward preferred levels of finished goods, reestablished more efficient shipping routes through ocean freight, and continued to strengthen performance throughout our supply chain. As expected, this helped us deliver nice sequential improvement in gross margin and drove the expected reduction in the sensor deployment issues that we identified earlier last year. Our team was able to manage all of this while simultaneously preparing for our G7 15-day product launch. We know that first impressions matter, so we have been incredibly focused on product performance and ensuring a great initial experience. It has been rewarding to now see that effort be recognized in the market. In summary, we have a lot to be excited about in both 2026 and in the coming years. Along those lines, we are currently planning an investor day for May 2026 where we plan to provide additional details on our outlook. We hope to see you there. With that, I will turn it over to Jereme. Jereme M. Sylvain: Thank you, Jacob Steven Leach. As a reminder, unless otherwise noted, the financial metric presented today will be discussed on a non-GAAP basis. Reconciliations to GAAP can be found in today's earnings release as well as the slide deck on our IR website. For 2025, we reported worldwide revenue of $1,260,000,000 compared to $1,110,000,000 for 2024, representing growth of 13% on a reported basis and 12% on an organic basis. As a reminder, our definition of organic revenue excludes the impact of foreign exchange in addition to non-CGM revenue acquired or divested in the trailing twelve months. US revenue totaled $892,000,000 for the fourth quarter, compared to $803,000,000 in 2024, representing an increase of 11%. As Jacob Steven Leach mentioned, we saw sell through trends build over the course of the fourth quarter, which we are now also seeing carry into the new year. This is correlated well with our broader G7 15-day product launch, which has already generated a lot of interest among customers and prescribers. International revenue grew 18%, totaling $368,000,000 in the fourth quarter. International organic revenue growth was 15% for the fourth quarter. Our international business finished the year well, with particular strength in some of our largest markets, including Germany, United Kingdom, and France. France ended the year as one of our fastest growing markets as we benefited from significant type two access expansion at the end of last year. This is a great example of our ability to drive growth and market share as broader type two coverage forms across the globe. Our fourth quarter gross profit was $799,800,000 or 63.5% of revenue compared to 59.4% of revenue in 2024. As expected, we drove more than 200 basis points of sequential gross margin improvement during the fourth quarter. This reflected continued progress in our freight expense as we were able to reestablish ocean shipping during the quarter as well as continued improvement in our scrap rates as we strengthened supply chain performance throughout the quarter. Given some of the supply challenges we had in 2025, this demonstrates the dedication and incredible work by our team for our customers. Operating expenses were $4,683,000,000 for 2025, compared to $451,700,000 in 2024. Operating income was $331,500,000 or 26.3% of revenue in 2025 compared to $209,500,000 or 18.8% of revenue in the same quarter of 2024. Adjusted EBITDA was $422,200,000 or 33.5% of revenue for the fourth quarter compared to $300,100,000 or 27% of revenue for 2024. Net income in the fourth quarter was $265,100,000, $0.68 per share. We remain in a great financial position, closing the quarter with approximately $2,000,000,000 of cash and cash equivalents. Our strong cash position provides us with significant financial flexibility. This was evident during the fourth quarter as we both settled our expiring $1,200,000,000 convertible notes in cash and repurchased another $300,000,000 of stock in the open market. Even after this activity, we remain in a great financial position. This is also supported by our growing free cash flow profile. In 2025, we have surpassed $1,000,000,000 of free cash flow for the first time. Turning to 2026 guidance. As we stated last month, we anticipate total revenue to be in a range of $5.16 to $5.25 billion, representing growth of 11% to 13% for the year. This guidance assumes continued strong category growth and incremental growth contribution from Stelo, and new product advancements across our platform. It also assumes that the coverage landscape remains predominantly the same as it stands today, but we will continue to push for additional CGM access globally. From a margin perspective, we expect full year non-GAAP gross profit margin to be in a range of 63% to 64%, non-GAAP operating profit margin to be approximately 22% to 23% and adjusted EBITDA margin of approximately 30% to 31%. Our guidance assumes gross margin will improve 200 to 300 basis points in 2026 as we benefit from lower freight expenses, additional manufacturing efficiencies, and the growing contribution from G7 15-day. We also expect that gross margin expansion to play through an operating margin expansion in 2026 even as we have incremental hiring and spending planned to support sales, innovation, the launch of our Ireland manufacturing facility late in the year. These investments will better position us to capitalize on broader global coverage, including our expectation for Medicare coverage for the type two non-insulin population. With that, we will now open for questions. Sean? Sean Christensen: Thank you, Jereme M. Sylvain. As a reminder, we ask our audience to limit themselves to only one question at this time and then reenter the queue if necessary. Operator, please provide the Q&A instructions. Operator: Thank you. And we will now begin the question and answer session. If you have a question, please press star 1 on your telephone keypad. If you wish to be removed from the queue, press star 1 a second time. If you are using a speakerphone, you may need to pick up the handset first before pressing the numbers. Again, it is star 1 if you have a question. And our first question comes from the line of Matthew Charles Taylor with Jefferies. Your line is open. Matthew Charles Taylor: Hi, great. Thanks for taking the question. Jake, I wanted to ask you on your first call as CEO to talk a little bit more about some big picture items. You mentioned in your comments that feel like the company is early on the the glucose journey, on the fencing journey. And I guess I'd imagine a lot of that has to do with the potential coverage to come here in the future. So I wanted to have you talk a little bit more about where the existing legacy and core markets could go in the coming years, but also with an eye to non intensive type two coverage that we could see coming over the next twelve to twenty four months. Thanks. Jacob Steven Leach: Thanks, Matt. You know, I really do think we are in the early innings of a game here with when you think about the size of the problem out there with metabolic health and the growth of diabetes globally. And then you look at the solutions that we provide with our technology and the outcomes that we can drive, if you look across every segment of patients that we serve, whether it is type one, type two insulin users, or type two non insulin users, we drive significant outcomes both health outcomes for the user and their prescribing physician, but also financial outcomes for the health systems. And so the awareness of those outcomes continues to grow, and we have generating evidence for years to help unlock the access for millions of users so as you mentioned, you know, as we look at the landscape of coverage, we have started, you know, towards last year, seeing coverage unlocked commercially for type two non insulin users, and we are on the verge of of expansion into the broader group of type two that are covered by Medicare. And so when that expansion happens, it is almost 12,000,000 people would then suddenly get access to CGM. So that is why when I think about the road ahead and the the durable years of growth we have got, there is just this tremendous opportunity to have an impact on the lives of of many people. And, you know, as you think internationally too, the opportunity there is pretty significant. As I mentioned in my comments, it is we so we see this being larger the US over time. Now internationally, typically, the coverage trails a bit from the US, but with the evidence we continue to generate, and the awareness we continue to generate, we are confident that over time, this access is going to continue to open and provide opportunity for us to impact more more lives. Operator: And our next question comes from the line of Lawrence H. Biegelsen with Wells Fargo. Your line is open. Lawrence H. Biegelsen: Good afternoon. Thanks for taking the question. I guess I will follow-up on type two noninsulin. Jake, based on your response there, it sounds like you think it is coming soon. The CMS I am asking about the CS CMS proposal. You know, your main competitor is saying first half 2026. Are you in agreement with that? And when when are when should we expect to see the RCT data and and just maybe lastly, how do you want us to think about the kind of potential impact from CMS coverage of of type two non insulin, non insulin? Thanks for taking the question. Jacob Steven Leach: Yeah. Thanks, Larry. You know, as we, we we continue to work with CMS, and, you know, actually, as we have been sitting here waiting for the coverage decision from them, actually had the ADA update their their guidelines for type two non insulin and really further moving towards recommending the product for that group and recommending if they have a choice. And so I think that is clearly based on the real world outcomes that we have been generating. So we mentioned at JPMorgan around the the registry we have started for non insulin users, and that is basically people that have covered today that are type two non insulin users, and at those outcomes, we are seeing great sustained outcome in terms of health improvement and high sensor utilization. And so that gives us confidence that we know that we can make an impact in this population, and, clearly, the the private payers have seen that and have started moving the direction of coverage. And so we are going to continue to do everything we can do to support a coverage decision here with with Medicare, in which one of the things you mentioned is our randomized control trial in type two non insulin users that trial, we are very excited to read that trial out here towards the middle of this year. And, you know, it is a trial about 300 people. We have got two arms, you know, those who are not using CGM and those using, standard care methods. And we are fairly excited to share the results of that as as we get towards the end of the study. Operator: Our next question comes from the line of Travis Lee Steed with Bank of America. Your line is open. Travis Lee Steed: Hey, everybody. Wanted to ask about fifteen day and, you know, both how we should think about the rollout of that, the impact on in margins, and and also kind of the use of that to to open up new markets. I I heard you mention new products, launching internationally and talking about international getting to be bigger than the US. That is only 30% of your company today. So lot of international growth there. So just wanted to kinda touch on on those two topics. Jereme M. Sylvain: Yeah. Sure, Travis. This Jereme. I I can certainly start on the margin side, and and then I can turn over to Jacob Steven Leach in terms of you know, talking about long term opportunities outside the US. So, you know, as we think about the fifteen day product, you know, clearly in the US, it is launched today, and and and we would expect that to to certainly start to contribute to margins over the course of this year. The reality is it starts to contribute to margins even more in future years because this is a year about getting folks interested, making sure they understand the benefits, really converting a base over time. Start with new patients, and we will convert the base. So the contributions, yes, there will be some some some certainly some help this year, and and you can see that in our gross margin guidance. The real opportunity starts as you get further out. Obviously, Stelows on a fifteen day platform. G7 has moved to that platform. You can imagine most of our products moved to that platform over time. And and as as we launch out new product platforms, that is obviously the focus. So you can see where that becomes kind of the basis for launching. And that cost ultimately, it it becomes a bit of an advantage, right, in terms of going into new markets. It is really hard to get into this space. There is there is really, you know, a few companies that can really produce it at scale. And that scale is how you are able to build the product at a cost that as you move into, say, some emerging markets, where you can take advantage of those opportunities, both wear length and cost, and ultimately delivering the highest quality product within those confines. So I do think it does provide us an opportunity, not only from a margin perspective, but also from the opportunity of expanding and driving new opportunities where there is a fit for need purpose for our product. You have already seen us move to fit for need where you start to see our product portfolio strategy outside the US. This just helps us continue to drive down that pathway. Jacob Steven Leach, you wanna give some some just thought longer term on international and and what we can do with that? Jacob Steven Leach: Sure. Yeah. Absolutely. The fifteen day product wear time, we will be extending that to the portfolio globally. So we have launched it on Stelo. We have launched in the G7. In the US, we are going to extend it globally. And the feedback from users has been pretty incredible. One note that is important is that, you know, over the time frame that we have had seven in the market, we have made a lot of enhancements to the product and to the technology. To the processes, everything about how build that sensor and provide it to users has been enhanced. And so the fifteen day product got all of that from day one, so as we launched this new version of G7, seeing great feedback about both the longevity of the sensor, the reliability, but also the accuracy. This is the most accurate sensor we have ever produced. And users are noticing it. You can see it out there in the blogs. You can see it in customer feedback. They really are seeing that this algorithm enhancement we have made is playing through in their their experience, which is important as we are striving to continue to be the premier glucose sensing solution for all. And so excited about the ability to continue to to expand fifteen day across the portfolio. Operator: And our next question comes from the line of Robert Justin Marcus with JPMorgan. Your line is open. Robert Justin Marcus: Great. Thanks for taking the question. Jereme, I wanted to ask on the OpEx guide. You have a 63% to 64% gross margin and when I do the math, it looks like you are getting about a 100 basis points of deleverage on OpEx to get to the the range. So what are you spending it on after such a great year of expense control? What where are you kinda listening the the flow a little bit in 2026? Thanks. Jereme M. Sylvain: Yeah. It is it is a fair question, Robbie. And and look. We had a we had a really great year this year in terms of OpEx control. In fact, I think Q4 you know, you you look at the spend profile sequentially from Q3 to Q4. Spend is essentially flat. And so, you know, really great job done by the team there. Jereme M. Sylvain: As you as you roll forward the map, I mean, if if you kinda use it in round numbers, the the goal is not necessarily to delever. I think if you kinda know you gotta play within the ranges a bit to get there, but the goal is not necessarily to delever. The point is is the leverage in the P&L next year predominantly will flow through gross margin. And and the goal is to keep the op margin or the op expenses as a percent flat. Now what is running through that P&L is the launch of our Ireland manufacturing facility. So we have a facility in in Ireland that you guys are all all aware of it. We are going to be hiring and staffing up. We will obviously be turning on there will be a lot of folks there in training. We will be running, you know, validation validation samples across those lines. We expense those that happen. So there is a big investment in that in that manufacturing facility. We will turn that on here likely in the fourth quarter of this year. At which point those costs will come out of OpEx and up into COGS. But as we ramp up those expenses over the course of the year, you will see those playing through. That is what really soaks it up. So, obviously, that is a bit of a one time thing when you are opening up a facility. Those will dissipate as we move, obviously, to turn that facility on into 2027. Underneath all of that, Robbie, I think it is important to note that because you are still getting leverage it is just there is an investment we are making into a facility though, obviously, that that that investment in leverage will obviously then play through in 2027 and beyond. So we are still getting leverage there. We are still getting leverage obviously in gross margin. The work continues. Just this year, gross margin is going to do a little bit of the work while there is some I will say, temporal things running through OpEx. Operator: And our next question comes from the line of Danielle Joy Antalffy with UBS. Your line is open. Danielle Joy Antalffy: Hey. Good afternoon, guys. Thanks so much for taking the question. Jake or or Jereme, whichever one wants to take this, I had a question on how you guys are thinking about utilization. And obviously, as basal ramps, I I I suspect utilization is coming down a bit. And as we do get coverage for non insulin using two utilization will also look different there. And I am just curious as you guys are sort of thinking about not only 2026 but beyond and obviously do not want to front run the analyst day, but even qualitatively, how to think about utilization based on what you know today. Thanks so much. Jacob Steven Leach: Yeah. Thanks, Danielle. You know, as we look at the spectrum of users with our you know, the the highest utilization we see in those those AID users type one on automated and some delivery systems, you know, they are they are well north of 90% utilization, which makes sense because those AID systems do not operate without sensor connected to them, and they are you know, the ease of use and the outcomes that they drive are so powerful that that is what we see there. Jereme M. Sylvain: Type two IIT and non AID Kevin Ronald Sayer: type ones are it is very similar. It is kind of in that 90 to 85% range. And those those utilization rates have remained fairly consistent over time. So we are not seeing much much change there. To your question around Bazel and and also the NIT users. So Bazel, we have had a longer time frame with those users as coverage opened up a number of years ago. And so that that group has about an 85 to 80% utilization rate. That is actually what we saw in our in our studies, you know, and we have seen it play out the real world, which is always great when you see the clinical trial actually reflect real world use. And so 80-85% in that type two base. Some of the more recent learnings is from our registry where you know, we we always anticipated that type two non insulin users might not have the same rate of utilization as those type two basal users just because of the the difference in the insulin. They are not taking a dose of insulin. There is not the risk of hypoglycemia. Number of those things. So we are kind of assume there might be slightly less utilization in that group. In the registry, which is which is this new group of patients that have coverage, for CGM, that are type two non insulin users, that registry is about twelve months old, and we are seeing high utilization rates in that group very similar to those basal when you are in a reimbursed environment. I think that is that is a key we see the best utilization when our patients have coverage. And so we are seeing good utilization there, and and we will continue to track it. But so far, those rates have remained pretty stable. And it is an important aspect as we think about our expansion globally. And as as we continue to see more customers come on to to the products. And important also because type two is our largest opportunity as we think about the long term, and so we will keep those in mind. But we are feeling good about what we are seeing you know, as we look at user experience too, there is really an opportunity to drive further utilization as we get more engagement with the product. And so as we make the software updates, we start adding more AI insights to the technology. The idea is can we drive utilization even higher? So I think that is still a question to be to be out there, but I would like to see it improve even further. Jereme M. Sylvain: Think the best way to take it, Danielle, is at least back to the models is to think about it as the utilization, the trends have remained the same. In fact, there is work we are doing to make them better. It is just really more about the mix. And as you guys are modeling, by cohort, think about it that way versus utilization by cohort going down. Just make sure you have the mix right, and and and that should help out. Operator: And our next question comes from the line of David Harrison Roman with Goldman Sachs. Your line is open. David Harrison Roman: Thank you. Good afternoon, I wanted just to maybe dig a little bit more into the 2026 revenue outlook and maybe specifically around just the new patient dynamic. I think sometimes we get wrapped around the axle on this record, new patient dynamic. That may or may not be significant as we look forward here. But can you maybe just give us some broader perspective on what is assumed from sort of underlying volume growth at different ends of the guidance range? And what are some of the factors operationally that need to play out that would put you the 13% level, and and what would put you at the 11% level? Jereme M. Sylvain: Yeah. Thanks. It is a it is a fair question. And and at the end of the day, I know we do spend a lot of time talking about new patients. At the end of the day, what drives revenue is your patient base. And and, obviously, a key component to that is how many new patients you add, but it is also what you do around retention, utilization, and then, of course, price. And so and so, you know, as as you think about the the puts and takes into next year, you know, think about it this way. You know, we start we start we exit the year. And I will and I will talk about this in the in the coral, say, G and D series business. We actually are talking about patient base growing at about 20%. Almost 20%. And so that is your starting point for what you would expect in terms of starting point for volumes as you move into the year. Over the course of the year, our expectation you know, is is we have a couple points of price, and and that has been consistent. Our our and that the the remainder in the delta what I would say is any anticipations around unit volumes would be around mix. And the reason mix is still there, it is much smaller than it used to be. We do still have a lot of new coverage coming on, specifically in the PBM space for for type two non insulin. And then outside the US, we are winning a lot of tenders in in Dexcom One Plus, and it comes at a different price point. So that mix is still there. And and it will but will come down from from 2025. That mix impact. So that puts your unit volume growth there just south of that 20. It puts you in the, you know, the mid to upper teens, and that gives you kind of presumptions around unit volume. You know, from there in terms of that, you are thinking about the inputs. We we talked a little bit about this at JP Morgan, so we are happy to reiterate it. We do not necessarily need a record new patients to hit the the low end of our guidance. And you would wanna hit a record new patient to certainly hit the top end of the range and and beyond. And so that is the way we are going to run the business. Obviously, we had a record new patient year in 2025. We will obviously focus on on setting high targets internally and achieving those targets internally. But that gives you some of the inputs and puts and takes in the guidance. The other piece of the guidance, I think, is just important to note. This assumes coverage stays predominantly the same. And so, obviously, if things change around coverage, that would change our our patient outlook certainly. And then we would have to kinda give you guys an update as that moves through the year. Hopefully, that gives you some puts and takes. You are right though, David. The the end of the day, these are all puts and takes around a user base and how that user base grows and moves over time. And that is why it is it is really important we always acclimate everybody with how did our user base grow year over year, and you guys have the most recent update based on our last touch point. So they use the puts and takes and and and any other questions, we would be happy to follow-up with. Operator: And our next question comes from the line of Jeff Johnson with Baird. Your line is open. Jereme M. Sylvain: Jeremy or Jake, I think you pointed on your prepared remarks about Jeff Johnson: strengthening U. S. Sensor uptake trends in the fourth quarter and said those continued into the first quarter. Maybe you could just flesh that out a little bit for us. What was that some of the recovery from the central deployment issues kind of midyear? Was that continued strength in maybe T2 AID uptake? Anything you can point to there and just talk about maybe Jeremy, you also mentioned your installed base being an important driver of growth. Just how stable that T1 and IIT T2 user base has been now as Libre three is starting to launch in the U. S? Thanks. Jereme M. Sylvain: Yeah. Thanks, Jeff, for the question. You know, I think as you look at you know, the the we look at what is called sell through trends. And that is that is our way of looking at who is ultimately you know, going to the pharmacy or going to the to the DME, picking up product. That becomes really important. You know, you can look at other things. There is various other data points we use but we certainly use those as well because that is people actually physically picking up and using the product. And we saw that improve over the course of the fourth quarter and continue. Now there is a couple different reasons out there, and and certainly, you know, part of it is going to be certainly some work we have done around, you know, certainly, sensor deployment. Jacob Steven Leach alluded to it earlier. We have done some really nice work around that. We have seen our warranty rates coming down and and certainly our complaint rates coming down. Moving into the year. That is that is exciting to see. It also helps to have launched our fifteen day product. We only launched it in the DME in the fourth quarter. So that is not necessarily a large piece of it, but certainly, we expect having that new product out there to be a really good opportunity. And then, you know, naturally, as you would expect, as as we get out in front of physicians one, two, three, four times, and and and they can see the coverage landscape changing for those non insulin users. You know, that certainly starts to play out a little bit as well. I think what you are seeing is a little bit of all that. I mean, all of these things are intertwined. The end of the day, you know, providing a a fifteen day product and all the features and the accuracy associated with great, having less sensor deployment challenges is great. And and certainly having our our Salesforce out calling on folks. All those things really coming together. So we are seeing that play through. In terms of stability of the user base retention utilization, know, you are kind of alluding more to the retention side. It is been it is been stable. I mean, we have not seen many changes at all. Over that time frame. Certainly, there was there was a lot of there was some noise. Over the course of the summer, but I think we have been we have been very focused on making sure that we have gotten in front of those and that the experience that folks have when using the product is an excellent one. Jacob Steven Leach alluded to it earlier. Spent a ton of time really focused on this speaking to patients, speaking to to physicians, speaking to advocacy groups over the course of time, and making sure we are listening. And and to the extent that we do need to make changes, make those changes. All in all, at the end of the day, I think what it proves is DexCom, Inc. has built an incredible product. Built on amazing accuracy. And and and I think people are passionate about one, using the product and making sure they are getting all the benefit out of it. I think you are you are seeing that as we are getting out into the field. So we have seen that stable. I I I would expect to see that stable moving forward. Even with know, other even competitive product launches out there. Operator: And our next question comes from the line of Marie Yoko Thibault with BTIG. Your line is open. Marie Yoko Thibault: Hi, good evening. Thanks for taking the questions. Jeremy, wanted to on pricing. You mentioned a couple points of pricing as one of the factors being some of the commercial unlock of the type two noninformed patient population. Would you have us thinking about any potential facing headwinds as we think about the Medicare unlock that could be coming here in the next twelve months or so. And most, of course, volume will be an offset. The the amount of volume mix will make a difference, but how would you have us thinking about that in regards to the couple points that you referenced with the commercial? Thanks. Jereme M. Sylvain: Sure. Yeah. You know, every year, you know, when we go through negotiations, it is interesting. You know, it is it is we are always asking for more coverage, and and and and for good reason. Right? There is a lot of folks who ultimately need it, we know that we can deliver value really to all pathology. But but, you know, every year, there is it is the classic, you know, volume price conversations, and and everybody goes through it. It has been pretty stable for some time. As you are so so nothing new this year, but, you know, in the context of how you are thinking about, you know, CMS and you know, coverage and how that unlocks, you know, I I think the the the way CMS at least has has done work around this space is they have done the work around competitive bid. Really, that is where the the the rubber hits the road in terms of how they are thinking about it from that perspective. If you think about how how the approvals work, you know, there is there is there is an L code. Ultimately, that is proved. And and and that coding applies to where the coverage ultimately sits. That typically does the approval. Pathology approval, it is the is the guidelines, the rules. Pricing is typically handled separately from that. And so I think what what you have got is you have already got a natural mechanism in place for what is a fair value is through the competitive bidding process, which I we will we will we will obviously work through, and we would expect that to to kick in really here more in 2028. So I think that is at least how we are thinking about it in terms of how that unlock would play out statutorily is maybe the best way to put it. Should something change, we will certainly keep you posted. But at least that is our read on on kind of how the that would play out, and we will know a lot more. Right? Obviously, we are we are excited about CMS coverage. We we talked about it. We are building for it as we speak. I mean, as we start to build capacity today, we are building to be ready for it as if it came tomorrow. So that I mean, that is how bullish we are on on on it coming. And so, you know, we will we will certainly give you more more feedback as we go because we we obviously expect it to be a key part of everything we do this year, including, obviously, an RCT readout. Which, again, we will have here in the first half. Said the middle of the year, obviously, it is it is going to be in the first half. We committed to that, but but as we kinda move here over the next few months. Operator: And our next question comes from the line of Matthew Oliver O'Brien with Piper Sandler. Your line is open. Matthew Oliver O'Brien: Jason, and Jeremy, I would love to double click on that that commentary on international just saying that, you know, you are gonna you are gonna basically make up think it is about a $2,000,000,000 delta between your US and your OUS business. And I know it is going to take time. But can you talk about you have got a big competitor out there. They have got a huge international business. How do you do that? How do you close that $2,000,000,000 delta? And I am assuming we are we are just talking revenues and not just volume. How do you do that? Over what time frame? Is it fifteen years? Is it five years? And and then, Jeremy, what kind of impact does it have do we have any pockets of weakness on the margin side as you are scaling that business that it is becoming a bigger portion of the overall revenue base. Thanks so much. Jacob Steven Leach: Yeah. Thanks, Matt. You know, when I look at the international opportunity, there is two big pieces. Right? There is the opportunity to continue to within the markets we are already present in. If you think about we have we have established pretty strong businesses throughout Europe and we are just getting started in the Asia Pacific region. And so when you think about just going deeper in the patient populations, you know, coverage across the international markets, as I mentioned earlier, trails the US. So there is really a lot of coverage to still unlock when we think about the international patients. You know, type two basal is only starting to coverage wins. We got a win in France. We have seen Japan move there. And, you know, we are we are looking towards Germany to start. We have got some coverage there for basal insulin users, but that is just basal. I mean, there is still the opportunity for NIT around the globe. If you just look at the the sheer volume of patients and the impact that we know that our tech technology can make, the opportunity is there. The key and the unlock is for us to generate the the evidence make sure there is awareness of the evidence, the advocacy from both the clinicians and the patients and basically drive that through each of these markets. We have been very successful. We have we have basically we have been the leader in driving evidence generation for the unlock millions of lives, and so we are going to keep doing that. Around the globe. It takes work. Every health care system is slightly different. It is actually reflection of that is in the the fact that we have a a pretty substantial product portfolio outside the US to really meet the needs of both different segments of users, but also the different tiered structures of pricing that we see outside the United States. And so we are going to continue, as we mentioned, to add another product to that portfolio, which will help us expand to that the customers that we do not have today. And so going to be very focused on on driving access and also making sure we have a product per that takes advantage of that access when it comes, and we will be ready. I think previously, with our focus in the United States, we there was more opportunity outside of United States we did not take advantage of, as you mentioned, that our competitor did. But we are we are going to be ready this time as more access opens. We are going to be there to be the one for for taking the share there. Jereme M. Sylvain: Yeah. In terms of time frame, it it will take a little while. You know, it is not going to be in the next five years. Jereme M. Sylvain: And the reason is is we have a lot of bullish expectations still here in the US. And so that is why I think it is really important. We will talk about, obviously, we are going to be talking about it until we see the coverage with CMS expansion, obviously. And we will not stop there. We will be looking to try to expand into prediabetes and beyond. And so, you know, the US has a long runway ahead of it. As you think about the international markets, though, you know, we are still not in. Tons of markets around the world. And so the Jacob Steven Leach alluded to the markets we are already in. There is an opportunity to go deeper. There is certainly an opportunity to work on taking share, and and we will do that. And you know, I think we have done a really nice job over the years. But there is a lot of markets we are we are going to need to go into over the years, and and we have plans to do that. We will talk a little bit more about it in May at at our investor day. But a lot of opportunity with that is not even in our P&L and or in our revenue today. That that we can see ahead of us. And so and so, yes, it it it is a longer term vision. Absolutely. But when you start to sit down and think about the countries we are not in today and think about, you know, how many folks around the world are impacted with diabetes, and and the coverage that is starting to kick up when we we show up in countries, you can see the the opportunity is immense. And it is really on us to get out there, make sure we get into those countries, and we are in those countries to take share. So it it is more than five years. You are you are it is fair point. And we will have a little bit more color as we as we get into May. Operator: And our next question comes from the line of Jason with Raymond James. Your line is open. Jason Bedford: Good afternoon. I had a question on Basal, which is seems to be the segment of the market that is taken a little longer to evolve. What has been the hurdle to to deeper adoption into this segment? And do you view Smart Basal as a tool to kinda reintroduce G7 to this population? And drive better growth? Jacob Steven Leach: Yeah. Thanks for the question. You know, to your point, we we do feel like Smart Basal is a great opportunity for us to meet the needs of of the patients. I think we have seen good growth in basal given the population and the coverage and as we continue to wanna expand that across the globe, we are going to use this new tool. And and it is really designed to improve the user experience both for the patient and the prescriber so that when they think about a patient who is going to go on to basal insulin therapy, this is the product they should get. They should get a G7 paired up with Smart Basal. And the system, we we are very excited to start piloting that that technology this month. We have got a number of clinics across the United States already selected. They will come on, and we we would tend to learn from the workflows and how this product fits in seamlessly. To their workflow and and drives the outcomes that both the patients and the physicians are after. Getting to the right dose faster so that they can really see the benefit of that insulin therapy. I think as we we do more of that and we we get the experiences around it, it is going to drive more and more share of of that patient population. Jereme M. Sylvain: Feel better, Jason. Operator: And our next question comes from the line of Michael K. Polark with Wolfe Research. Your line is open. Michael K. Polark: Hey. Good afternoon. I have a gross margin question, maybe two parter. So in 2025, I think there were 325 basis points of one timers called out scrap freight and small receiver recall. If I look at the '26 guide, the midpoint calls for 270 bps of expansion. So not not even getting all of that one timer stuff back and and and also not considering credit for fifteen day, which is starting. So the question is why is this the right gross margin guide? And do you agree or where are we on the scrap and and freight kind of overhangs. And if I could sneak in one related item just on hardware mix in the US. Excluding Stelo. In 2025. What was G6 versus G7 ten day and by the end of '26, what will G6 mix be versus G7, ten day, G7, fifteen day? Thank you. Jereme M. Sylvain: Got it. So I will I will I will answer the first one. You know, at the the I think you have a little bit too much math in what I call the O COGS associated with that. It is a little bit less than that. And so what you should see as you think about the year if you were rolling it forward, is is you will see improvements across the certainly, OCOG. A little bit a little bit of that will spill here in Q1 just because you cap enroll certain variances and obviously, freight and scrap stays in, but there is certain variances as you are getting up to speed. So you just have to be mindful of that. It does not go away immediately overnight. Because you do roll those in. But but it is a little bit less than the number you have. It is little bit of roll into the year. You will see the improvements play through. You will also see fifteen day, and so you will you will see those numbers. And and and likely, what you will do is you will pop out of the top end of our of our guidance range. But just just remember, in the fourth quarter, we turn on Ireland. So all of those fixed costs we talked earlier with Robbie about that weigh down the P&L in the first three quarters. In the op margin side or the OpEx side flip to COGS, and so we would actually expect a decline in our gross margins in the fourth quarter you have a full facility turning on all those costs, but the production levels will be much lower. And so there is a lot of fixed overhead that you will not pick up in cap and and enroll that. So I I think that that at least helps understand, you know, there that is why there is some geography that might help there a little bit. And obviously, the con the converse of that is you would expect to see op op expenses come down in the fourth quarter. It is all a moot point across the board when you look at op margin. Because it is all geography. But, hopefully, that helps you at least as you are kinda penciling out the year. And then you are thinking about the sequencing over the course of the year. Jacob Steven Leach: Just a little bit too about customer base and the products they are using. So we have seen, you know, rapid obviously, declines of G6 users as they have switched over to G7. And so the vast majority of our our base here in the US is is on G7. And as we we have launched the fifteen day actually in December, we start seeing quite a few up upgrades from G6 to G7 15-day. And so we anticipate that that will continue. And and our intent is towards the middle of this year, is when when G6 will really start phasing out and so we will start building in more capacity for for G7. Operator: And our next question comes from the line of Joanne Karen Wuensch with Citi. Your line is open. Joanne Karen Wuensch: Good evening, and thank you for taking the question. Could you tease out what the Cello contribution was to the 2025 results and what is embedded in your 2026 guidance? And any color you can give on how that is going, that would be wonderful. Thank you so much. Jereme M. Sylvain: Sure. Yeah. So we we talked about a $130,000,000 of Stellar revenue in 2025. And so, you know, kind of at the top end of our two to 3% number. So that is certainly we are happy to see that. And a lot of great progress over the course of the year channel wise and you know, really excited about the the the new and we we shared a little bit of the some of the pictures at JPMorgan on our presentation, so you will see it up on our website. We have got some new new new app coming for Stelo here in the the coming months. So really excited about that. In terms of 2026, you know, we had talked about it contributing about a point to growth in 2026. So guys can do the math on that. Obviously, those are big round numbers just given how big the organization is, but again, we still expect it to be a nice contributor to growth. Albeit, the base, you will actually have a base this year versus, obviously, in 2025, you did not have a base to compare it to. Jacob Steven Leach: And, Joanne, it is just on when you think about the how it is going with Stelo, you know, as Jereme mentioned, we are really excited about the new innovation that we are bringing. We have a whole new redesigned app. We are launching a new smart basically, enhancing the smart food logging that we already had that now will capture macronutrients and things. But what we are seeing is, you know, a whole spectrum of different types of users start using Stella. And particularly, one of the groups that we have got our eye on is this type two non insulin users. These are the folks that that do not have coverage for CGM. And so they are using the Stelo product over the counter. But over time, what we are seeing is there is there is a real opportunity for those folks for us to transition them Cello over to G7 as coverage emerges. And so if Cello becomes a very important part of our portfolio, not just for prediabetes and health and wellness, but also to get type twos access to the technology early and then transition them to a covered product as coverage continues to unlock. Operator: And our next question comes from the line of Brandon Vazquez with William Blair. Your line is open. Brandon Vazquez: Hey, everyone. Thanks for taking the question. Wanted to focus, you know, a little bit on the innovation pipeline, but know there is a lot to be done on the hardware still. We are talking about a G8 and things like that. But there is a lot of software you guys are coming out with, like Smart Basal. We are just talking about Stellows, meal tracking, things like that. Just spend a minute talk to us little bit about what is left in the pipe on the software side. Like, what else can you do here what else can you leverage the software side for? And then maybe the kind of follow-up to that is, do you think at some point you need to start to validate these features in clinical trials for them to make more meaningful impact and drive kind of large scale adoption. Thanks. Jacob Steven Leach: Yeah. Thanks thanks, Brandon. Fantastic question. No. We are nowhere near done. There is so much more we can do. On both that you mentioned the hardware, but also on the software. You know, our goal is to be the premier glucose sensing solution for all people. Which what that really means is that it takes into account all the different journeys that a patient has from becoming aware of our product to a physician prescribing it to the patient onboarding, to them using it and driving the outcomes that are so important. And then, of course, service. In all of those aspects, if you think about that whole journey, there is many things that we can continue to enhance digitally through software. Whether it is for the physician or for the patient themselves, to help them onboard faster. So really our our goal is to remove friction, to remove any kind of speed bumps so that they get the experience that is the highest caliber. And so trying to develop the best solution plus the best experience, and we do feel like over time, that is going to be the winning formula because you have got folks that are not only seeing the outcomes, but they are also sticky and staying and retained and having a wonderful experience for many years to come. Basically increasing the lifetime value. You know, driving those outcomes, as you mentioned, is very important for us to run clinicals and or generate real world evidence that shows the outcome of how those new features do actually drive outcomes. And we have we have done that, you know, basically through all the different patient segments. We have done some recent work with real world evidence type two, but even things like our delayed high alert, which is an innovative feature that is built into the product that basically delays the high alert and it it has clinical outcomes associated with it. And so that is something that as our Salesforce gets out there, and talks to physicians, they can talk about the difference that that the competitive difference that we provide in the outcomes that we drive. And I just one thing I wanted to mention is our Salesforce is so fired up right now based on the fifteen day and all the enhanced we have made and all the enhancements we have coming. We are really looking forward to spend some time with them at the national sales meeting in a couple of weeks, but there is so much more we can do. And I cannot wait to show you guys over time all the innovation that we are going to bring. Jereme M. Sylvain: And to your question, the whole clinical, you know, validation of features, you know, I I think the you know, for example, I mean, most of these that is exactly what you do. Right? I mean, you think about Dex Bazel, that that their SmartBasel that goes through, obviously, a 510(k) clearance US, o US. So just just think about all these features. They are all going through the appropriate clinical pathways where appropriate and where where where meaningful. So expect us to continue to do that, but also expect us to look at new and novel ways to navigate technical features into the hands of users over time and work with the administration on how we do that. And then there is obviously a lot of coming out now about how to bring innovation quicker and Jacob Steven Leach's team is teed up to do just that or the R&D team is teed up just to do that, is to bring innovation quicker and quicker and put it in the hands of users. Operator: And our next question comes from the line of Joshua Thomas Jennings with TD Cowen. Your line is open. Joshua Thomas Jennings: Wanted to ask two parter on G7 fifteen days. Sounds like the early patient experience has been strong. Great durability with the centers lasting out to to fifteen days. Just wanted to see if there is any more color on on any or any data you have just on that durability of where and and does the patch that you just got approved, the new adhesive technology, maybe improve the percentage of sensors that get out to fifteen days, out into the 90% range. And then, I guess it is a three parter, but just any any rebate dynamics that we should be thinking about in 2026 as G7 fifteen day enters the pharmacy channel. Thanks, Ruth. Taking all the questions. Jacob Steven Leach: Yeah. Thanks, Josh. Yeah. Sensor survival longevity, as we call it, is is a super important part and super important part of CGM portfolio. And as we extend sensor wear, it is obviously something we look closely at. And it is actually the the our goal is to ensure a good user experience so we are we do not unlock that extended life until we are confident in its performance. And so, in the field, what we are seeing is very consistent across the patient spectrum with what we saw in our clinical studies. Now we recognize that, you know, from very early days of CGM when it all when our first CGM only lasted three days, not all sensors last, and often, it is as as you mentioned, related to adhesive. And so we have been driving adhesive innovation for several decades. And with the new version of the patch for G7, we are excited that it it it does drive a pretty meaningful improvement in survival, and we will put it across the whole portfolio of Dexcom OnePlus and Stellows so that all of our patients get get the benefit. So it will continue to drive drive that performance. For any sensor that does not last a period of time, we have a very robust program that we continue to enhance around how to ensure patients always have the sensors they need because we know how important this technology is to all of our users and the benefits they get from it. So that goes back to that the idea of setting the bar for service and and being the the the gold star there. We we are making investments there. We are continuing to enhance the way that we handle those types of situations to ensure our users get the best experience. Jereme M. Sylvain: Yeah. And then just your question on rebates. You know, the the there is two ways to think about rebates. One is what is the rebate rate and what is the net price? And then the second piece is is how many folks select you know, the the the the, essentially, the rebate rate. In those plans. The rebate rate in terms of, you know, the the the the pricing slotted right into the G7 ten day. So effectively, G7 fifteen day, G7 ten day are effectively the same price. So that for for a month supply, think that is important. So effectively same same revenue per per per month. On the flip side, in terms of utilization, our expectation oh, not utilization. Select or, yes, inclusion into that rebate catalog, our expectation is 100% of all those sensors. So, you know, sometimes you you start at 96, 97, 98. Now, you know, you move up those areas. Someone folks you know, some say not preferred or or not covered. Fifteen day essentially is slotting in right where G7 is. So we are at 100%, a percent. We should not see any changes essentially in rebates trends as a result of moving over fifteen days. Operator: And our next comes from the line of Richard Newitter with Truist Securities. Your line is open. Jereme M. Sylvain: Just Richard Newitter: simple one for me. I just wondered if you can comment on revenue cadence at all specifically the 1Q, but but anything else throughout the year. I think Street said about a 6% sequential sequentially lower 1Q versus 4Q. Is that, you know, is that a reasonable place and way to think about it or anything else you would call out? Jereme M. Sylvain: It is it is good good question. Fair question. You know, I think cadence wise for the full year, you know, our expectation is continuing to see a little less into Q4 and a little more into Q1. And it just it it is a slow evolution over time, but as more and more goes to the pharmacy, and less and less goes through the the the DME commercial part of the business in terms of at least the total patients. So still both good businesses. You you do not have that stocking dynamic you typically see in house in the fourth quarter where someone tries to maximize benefits. You still have that. You still have a decent sized business, but it is just less of a percentage of the business. So the expectation is, obviously, Q1 is a little bit higher than than typically in Q4. I would say last year, we talked about, you know, Q1 being, you know, a seven to 8% decline, and we came in closer to seven in that range. I would say this year, we have been talking oh, we talked about this at JPMorgan. On stage. We we think it is a six to 7% decline. So I think the street is a little bit is within the range probably at the higher end of that range, but but not far out of it. It is a pretty it is a pretty safe place to be. Six to 7% sequential is about what we would think, and this is a little bit less seasonality this year than than last year. Operator: And our final question comes from the line of William John Plovanic with Canaccord Genuity. Your line is open. Michael Kratky: Hey, guys. It is Zachary on for Bill. Thank you for taking the question. So I guess back to the G7 non intensive type two. So in the past, you say, know, right now, we have 6,000,000 covered lives, and we can get to 25,000,000. You said Medicare would be 12,000,000. So just where do we stand today? And then you know, and just, I guess, explain what I guess, the cadence of covered labs could look like. Thank you. Jereme M. Sylvain: Sure. Yeah. So you are really you are really thinking about the the commercial side of the house. Obviously, the Medicare side of the house will start with fee for service, and then you move into Med Advantage. So, you know, it will go Part B then into Part C, and we can talk about that as it as it comes. But that should happen pretty quickly. On the commercial side, kind of the side, think you are more alluding to in progress we have made. You know, we talked about 6,000,000 lives. It was the three big PBMs, and and we talked about knocking down, you know, some additional plans, etcetera. I I think the expectation is we have knocked down you know, another percent of that market over the course of renewals this year. But that will continue to take place. We you will keep working that. It does not have happen just annually. It is something that we will continue to do. Over the course. So that would be, you know, individual plans, kinda smaller PBMs, PBMs on custom formularies. We got another good chunk of it, I think, but, you know, we will keep chipping away at that. So it puts you at maybe 6,500,000 of the 12 and a half, maybe a little bit higher than that even. But we will keep chipping away, but that is at least the updates. We have a few more in there that continue and you know, I would I would expect to give you updates over the course of the year as we we keep chipping away and and try to get that to to full coverage over time. Operator: And that concludes our question and answer session. I will now turn the call back over to Jacob Steven Leach for closing remarks. Jacob Steven Leach: Thank you, operator, and I would actually like to take this moment to thank our employees around the world. This past quarter and, frankly, this past year demanded focus, resilience, teamwork, and our people really delivered. What what makes DexCom, Inc. special, it is not just our technology. It is the people behind it. Our team's commitment shows up our execution. And in the trust that millions of people place in DexCom, Inc. So on behalf of the leadership team, and our board, thank you to our employees for everything you do. And thank you all for joining us today. We look forward to updating you next quarter. Operator: And ladies and gentlemen, this concludes today's and we thank you for your participation. You may now disconnect.
Operator: Good day, and welcome to the SPS Commerce, Inc. Q4 2025 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your telephone keypad. Please note, this event is being recorded. I would now like to turn the conference over to Irmina Blaszczyk, Investor Relations for SPS Commerce, Inc. Please go ahead. Thank you, Kim. Good afternoon, everyone, and thank you Irmina Blaszczyk: For joining us on SPS Commerce, Inc. Fourth Quarter and Full Year 2025 Conference Call. We will make certain statements today, including with respect to our expected financial results, go-to-market strategy, and efforts designed to increase our traction and penetration with retailers and other customers. These statements are forward-looking and involve a number of risks and uncertainties that could cause actual results to differ materially. Please note that these forward-looking statements reflect our opinions only as of the date of this call, and we undertake no obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events, or otherwise. Please refer to our SEC filings, specifically our Form 10-K, as well as our financial results press release for a more detailed description of the risk factors that may affect our results. These documents are available at our website, spscommerce.com, and at the SEC's website, sec.gov. In addition, we are providing a historical data sheet for easy reference on the Relations section of our website, spscommerce.com. During our call today, we will discuss adjusted EBITDA financial measures and non-GAAP income per share. In our press release and our filings with the SEC, each of which is posted on our website, you will find additional disclosures regarding these non-GAAP financial measures, including reconciliations of these measures with comparable GAAP measures. And with that, I will turn the call over to Chad. Chad Collins: Thanks, Irmina, and good afternoon, everyone. Chad Collins: Thank you for joining us today. The 2025 marks SPS Commerce, Inc. 100 consecutive quarter of revenue growth, highlighting the company's pivotal role in driving efficient collaboration among trading partners. As omnichannel retail has evolved, and supply chains have grown increasingly complex, we delivered solid fourth quarter and full year results despite a challenging macroeconomic backdrop and tariff-related uncertainty, which contributed to spend scrutiny and delayed purchase decisions throughout the year and continued to impact our customers in the fourth quarter. For the full year 2025, revenue grew 18% to $751,500,000. Recurring revenue grew 20% driven by fulfillment growth of 22% year over year. SPS' sustained and profitable growth and ongoing expansion of our network demonstrate our success in delivering the products and services that retailers and suppliers depend on to strengthen their collaboration and drive continuous improvement. In 2025, we acquired Carbon6, to build on the SPS acquisition of SupplyPike in the prior year and extend the reach of our network with clear leadership in revenue recovery solutions. Revenue recovery represents a $750,000,000 addressable market across 1P U.S. sellers and a significant cross-selling opportunity within our network, which we have highlighted throughout the year. For example, All Star Innovations, which offers turnkey solutions for taking products from concept to consumer, has been an SPS fulfillment customer since 2022 and started using the revenue recovery solution last year for several retailers including Walmart, Target, Home Depot, and Amazon. CyberPower Systems, a global manufacturer of power protection and management solutions, is a longstanding fulfillment customer. To drive further efficiencies across their supply chain, they leverage revenue recovery for some of their key customers, including Amazon, Walmart, and Home Depot, and recently added Amazon Canada. Other recent examples of customers who are realizing the benefits of revenue recovery include Outdoor Cap, one of the world's leading headwear manufacturing and importing companies; TaylorMade, an American sports equipment manufacturing company; EOS, a beauty and skincare company; and Bunge, a global agribusiness and food company. Over the years, we expanded our portfolio of solutions through acquisitions and product innovation to support the evolving needs of our growing network while strengthening longstanding partnerships, many of which have spanned decades. As we are celebrating 100 consecutive quarters of growth, I wanted to highlight a customer who has partnered with us throughout that journey. Wolverine Worldwide is a global marketer of branded footwear, apparel, and accessories. They began as a fulfillment customer with a single connection and grew within our network by connecting to additional retailers, and eventually subscribing to analytics. Building on this longstanding relationship, we recently supported Wolverine's expansion into Europe, resulting in a successful go-live on fulfillment with over 300 trading partners. Trader Joe's, a national chain of over 100 neighborhood grocery stores, rolled out EDI requirements across the entire vendor base to reduce manual processes, improve order selection efficiencies, reduce shipping errors, and prepare for future growth. With SPS' fulfillment solution, Trader Joe's is accelerating progress toward 100% vendor compliance. Gambler's, a trusted retail brand for farm and home supply products, recently switched to SPS Commerce, Inc. in an effort to improve order automation and support omnichannel growth. Gambler's opted for SPS' supply chain performance suite and increased EDI compliance from three to nearly 100 vendors. Petco, a pet retailer who operates in over 1,500 locations in the U.S., Mexico, and Puerto Rico, leveraged SPS' retailer management solution to transition over 700 suppliers to standardized digital supply chain requirements. As a result, the retailer reduced manual data reconciliation, delivered measurable efficiency gains, and improved trading partner performance tracking. SPS is committed to ongoing innovation to support customers on their journey to modernize their supply chains. We recently introduced our new agentic capabilities embedded into the SPS supply chain network called MACS. Offering new AI functionality, MACS draws on hundreds of thousands of trading connections, decades of expertise, proprietary network intelligence, and billions of transactions to help our customers unlock greater value from AI. Put simply, by leveraging the data across our network, SPS is competitively positioned to deliver more meaningful and scalable AI enhancements across our product portfolio to better address the trends that are shaping the future of supply chain collaboration. With that, I will turn it over to Kim to discuss our financial results. Kimberly Nelson: Thanks, Chad. We reported a solid 2025. Revenue was $192,700,000, a 13% increase over Q4 of last year and represented our 100th consecutive quarter of revenue growth. Recurring revenue grew 14% year over year. Adjusted EBITDA increased 22% to $60,500,000. For the year, revenue was $751,500,000, an 18% increase, and recurring revenue grew 20%. The total number of recurring revenue customers was approximately 54,600, as the number of 1P customers was flat sequentially while the number of 3P customers declined by 350. ARPU for the year increased to approximately $14,300. Adjusted EBITDA grew 24% to $231,400,000. We ended the year with total cash and cash equivalents of $151,000,000. In 2025, we deployed 76% of free cash flow to repurchase $115,000,000 of SPS shares. In addition, the Board of Directors approved an increase of $200,000,000 in the current share repurchase program, which came into effect on 12/01/2025. Kimberly Nelson: For a total authorization of up to $300,000,000. This demonstrates our commitment to effectively deploy and return capital to shareholders while maintaining a flexible capital structure. Now turning to guidance. For the 2026, we expect revenue to be in the range of $191,600,000 to $193,600,000, which represents approximately 6% year-over-year growth at the midpoint of the guided range. We expect adjusted EBITDA to be in the range of $55,500,000 to $57,500,000. We expect fully diluted earnings per share to be in the range of $0.46 to $0.49 with fully diluted weighted average shares outstanding of approximately 38,200,000 shares. We expect non-GAAP diluted income per share to be in the range of $0.95 to $0.99 with stock-based compensation expense of approximately $17,200,000, depreciation expense of approximately $4,500,000, and amortization expense of approximately $9,600,000. For the full year 2026, we expect revenue to be in the range of $798,500,000 to $806,900,000, representing approximately 7% growth over 2025 at the midpoint of the guided range. We expect adjusted EBITDA to be in the range of $261,000,000 to $265,500,000, representing growth of 13% to 15% over 2025. We expect fully diluted earnings per share to be in the range of $2.50 to $2.58 with fully diluted weighted average shares outstanding of approximately 38,400,000 shares. We expect non-GAAP diluted income per share to be in the range of $4.42 to $4.50 with stock-based compensation expense of approximately $67,100,000, depreciation expense of approximately $21,600,000, and amortization expense for the year of approximately $38,300,000. For the remainder of the year, on a quarterly basis, investors should model approximately a 30% effective tax rate calculated on GAAP pretax net earnings. I would like to now turn the call over to Chad for closing remarks. Chad Collins: Thank you, Kim. Before I conclude my prepared remarks, I would like to take a moment to acknowledge the announcement in our earnings release that Kim Nelson, our Chief Financial Officer, intends to retire after nearly twenty years with the company. Kim has been a steady and trusted leader through some of the most defining chapters of SPS Commerce, Inc.'s journey, from the IPO to our evolution into a global organization that just achieved 100 consecutive quarters of growth. On behalf of the entire SPS team, I want to thank Kim for extraordinary contributions and congratulate her on her well-earned retirement. In addition, I am pleased to welcome Joseph DelPretto, who will assume the CFO role as of 03/16/2026. Joe brings more than twenty years of experience leading finance, accounting, and operational strategy for high-growth publicly traded technology companies, most recently serving as Chief Financial Officer and Treasurer of Sprout Social. With a leadership style that upholds our core values, I am confident Joe will build on the strong foundation Kim created and help guide SPS through our next chapter of growth. Kim will remain at SPS through the transition process to ensure a seamless succession. Today, we also announced the addition of two new independent directors to our board and a cooperation agreement with Anson Funds. Following extensive engagement with a number of our large investors, including Anson, we are excited to welcome Mike back to the board and appoint Phumbi, who together bring valuable experience that will help us advance our strategy. As I pause to reflect on the company's achievements to date, I would like to take a moment to convey my genuine enthusiasm for the opportunity that lies ahead. We recently wrapped up our annual field kickoff event, and I was encouraged to see the sales team so highly energized by our recent launch of AI-enabled products, which we believe competitively position SPS to deliver unparalleled value to our customers. In addition, our reimagined retail go-to-market strategy is enabling more strategic conversations with retailers, initiating new engagements and cross-selling opportunities across our expanded product portfolio. Our competitive differentiation and inherent growth levers support our revenue growth expectations of at least high single digits without acquisitions beyond 2026. We expect to increase our adjusted EBITDA margin by two percentage points annually as we remain committed to steady margin expansion and free cash flow generation to support ongoing share repurchases and drive shareholder value. Lastly, I would like to recognize that our success to date and prospects for future growth are a testament to SPS Commerce, Inc. employees worldwide. Their dedication and commitment to excellence underscores my conviction in our $11,000,000,000 global addressable market and our next chapter of growth. With that, I would like to open the call for questions. Operator: We will now begin the question and answer session. Please pick up your handset before pressing the keys. At this time, our first question comes from Scott Berg with Needham. Hi, everyone. Thanks for taking my questions. Before I get to those, Chad Collins: I guess, Kim, it has been a really fun ride. I do not know why now is the right time. I look forward to catching up on that later, but just know that you will be missed. Getting to the quarter here, you talked about a challenging macro environment that persisted in the fourth quarter. When we look at the numbers, I think we would all agree they came in maybe a touch weaker although within guidance than what we are used to and accustomed to. What were some of the challenges in the quarter that might have maybe impacted your expectations relative to where the numbers kind of ended up? Kimberly Nelson: Sure, Scott. So as we established our expectations for Q4 going back a quarter ago, as you can imagine, there were different scenarios or parameters of how that could play out. To your point, on the top line, we ended up at the lower end of our revenue guidance. We ended up at the higher end of our adjusted EBITDA guidance. So specifically on the revenue side, what we saw in Q4 was a continuation of headwinds that we have spoken about in the past. Some of those headwinds with our existing customers, just more challenging time for them, invoice scrutiny, uncertainty, etcetera. And then, specific on the revenue recovery side, there is nice demand there, so the demand is strong. However, with the take-rate model that we have there, we did see more to the lower end of what our expectation would be along with the Amazon policy changes that have occurred. Chad Collins: Got it. Helpful there. And then, I saw the press release on your new MACS agentic AI solutions there. I guess, how do we think about the opportunity there? Is this some functionality that you think you can monetize on an individual SKU basis, or does this just kind of enhance your product platform and your competitive positioning relative to other competitors out there? Yeah. Yeah. So as I mentioned in the prepared remarks, I am super excited about this new capability that we have launched. So it is really an agentic capability that is built right into the network. So it has access to the network itself plus all our proprietary information about how retailers work and the requirements that retailers have for their supply chain. So we have sort of surfaced that capability up initially, with three new features that are in our Fulfillment product. The first feature is really a chat feature, which allows the user to have guided workflows into how they process transactions back and forth with their trading partners, as well as full inquiry capabilities around retailer requirements, as an example, asking what are the different shipment requirements or acknowledgment requirements that are different between Walmart and Target. The second feature is a monitor capability. So think of this almost like a dedicated agent for a customer that is monitoring all their transaction activities across our network. If there are any anomalies, like an order did not come as expected or they did not send the invoice out as expected, that monitor capability is going to catch that for customers. And then the final feature is allowing agent-to-agent communication. So we know we have a very rich data source in the SPS network, and it is most likely many of our customers will want to interact with that via agent-to-agent communication. So we have launched a model-to-model protocol interface into the network, and that gives full capability for agent-to-agent communication. In terms of the monetization, this is initially available to beta customers, and we do have customers that are using it in the beta format with very good feedback. And as we move through that beta, we are going to monitor the customers’ usage of that and help that inform the monetization strategy. I absolutely believe this will be a competitive differentiator that will help us on the competitive side of the business and also help us with retention. But as we get to understand more and more about how customers are using this, I think the monetization opportunities will become clearer as well. And these first three features are just the first three areas where we are exposing MACS because it is built right into the network itself. We fully expect to be exposing MACS across the entire product portfolio over time. Understood. Thanks. And congratulations on a good quarter. Operator: Our next question comes from Matthew VanVliet with Cantor. Good afternoon. Thanks for taking the questions. Chad Collins: Congrats on the retirement, Kim. I guess as we look forward in terms of reviving growth Timothy Greaves: Here to maybe levels you are more expecting, what maybe additional resources and investments do you think can be made, and drive sort of above-average returns, maybe even pushing beyond some of the community events? Anything that you are already working on and expect to be rolling out here shortly that can help drive the top-line performance. Chad Collins: Sure. Yeah. So, we do expect that for increasing customer count over time, our unique go-to-market with the retail enablement programs will continue to drive a lot of that, and we continue to invest in that area and refine those approaches there. In addition to that, you may have noticed that we brought on a new Chief Marketing Officer, and we are advancing the maturity of our marketing capabilities as a way to win new customers in ways outside of the retail enablement program. So that would be incremental to what we already get with the retail programs, as well as market back to our existing customers, highlighting the broad product portfolio and the opportunity that we have with existing customers, both for the cross-sell opportunity for analytics and revenue recovery, but also the further penetration with fulfillment, adding more trading partners. So, 2025 was a tough year in our end market. We did see a lot of challenges, and the main driver our customers were telling us about was global trade. So as we sort of lap some of those effects in 2026, have more of the cross-selling momentum from the product going forward, we expect all these will continue to drive long-term growth for SPS. Timothy Greaves: All right. Very helpful. And then given the changes at Amazon in particular, is there a thought of maybe pulling back some of the resources for the revenue recovery, maybe waiting to see how that plays out a little more in the market over the next several quarters and sort of reassess from there? Or what is the approach to thinking about continuing to invest in a business that has been underperforming your expectation? Chad Collins: Yeah. So, I think what you will see from us with revenue recovery is we do see the strong demand for this product in the market. So in terms of our ability to cross-sell it to our fulfillment customers and especially the demand that we are seeing from the 1P sellers, which the 1P sellers on Amazon line up much more with our ideal customer profile and our typical fulfillment and analytics customer, that is going well. So I think what you will see is us continue to invest in that 1P area of the business where it very much fits our strategy, lines up with our ideal customer profile. And on the third-party side, not that we will not continue to manage that and there is demand for that product as well, but it probably will not get the same level of total focus as the 1P will. And I think over time, there are probably some opportunities as well in this business to drive the mix a little bit more from take-rate model to the subscription model, but that will come over time. Alright. Great. Thank you. Operator: Our next question comes from Dylan Becker with William Blair. Hey, Chad. Hey, Kim. Dylan Becker: Welcome. My congrats on the retirement. I am looking forward to catching up and hearing what is next, maybe for you, and also for Chad as well too. But as we think about kind of the broader demand backdrop and what we have talked about in the past with some of those initial projects that were into 2026, can you give us any update on how those have continued to progress? And maybe what is implied kind of in the outlook for 2026 as it pertains to your expectations on the mix of the net new customer side of the equation as that had stepped up in 2025, if that continues, as well as some of the cross-selling efforts that have been an area of more resource dedication as well too. Kimberly Nelson: Sure, Dylan. I will take that last one first, then I will hit your other two. So we would continue to expect that the majority of the revenue growth is coming from that ARPU side of the equation. That does not mean we will not continue to add customers. Retail go-to-market, as Chad talked about, is a great way through those retailer relationship management programs to get us in front of new customers, but the mix between the two will continue to be more heavily skewed on the ARPU side. When we think about some of the dynamics as it relates to the retail relationship campaigns, we still see strong demand for that. What we are seeing, however, is that that is probably going to be a bit more, call it, back half versus front half, just the timing of when those are coming in. So still very strong demand, but a bit more later in the year versus earlier in the year. And then as it relates to just some assumptions in our guidance, you may or may not have picked up if you think about the Q1, sort of the midpoint is 6% on top-line growth. For the full year, the midpoint is about 7% of top-line growth. We are still lapping some of those headwinds that we have talked about in 2025 across our business, and we really get to a point in the back half of the year where we have lapped those headwinds. So we are still facing some of those, again, it is the headwinds in the year-over-year compares in the front half of the year that we then have lapped in the back half. Dylan Becker: Very helpful. Thank you, Kim. Then maybe for Chad, kind of sticking with the topic of the idea of AI, MACS is obviously a part of it, but it does feel like there has been more of an emphasis on kind of an accelerated product momentum. And we have talked in the past about how you guys can leverage network to deliver value. But maybe how you are thinking about that innovation cadence ticking up and how that can contribute to a lot of the parts that maybe you guys kind of touched on, but, obviously, customer retention, potential pricing power, serving as that carrot for incremental customer adoption, but really leaning into more of that AI initiative to help continue to support some of the pipeline momentum that you are seeing. Thank you. Chad Collins: Yeah. Absolutely, Dylan. So, what we are hearing from our customers is that data is absolutely key to their AI initiatives, and we are a tremendous source of data. So in our network with our fulfillment product, that generates massive amounts of retail and distribution data. Obviously, our analytics business is based on data itself. And so we are just uncovering more and more use cases where we can expose that utilizing agentic capability. So I mentioned a few that are showing up in fulfillment now. I will also mention that we are doing a major technology re-platforming to our analytics product, which really allows that data that is in that analytics product to fit, just being on some more modern technologies in our customers' AI use cases a lot more effectively. And I do think that you will continue to see innovation from us, but at the heart of that is really the data that is on the network and the insights that customers can get from that. And with the way the agent technology is moving forward, the speed at which that could come, it is really moving quickly. Very pleased with what the team has done and the time frame they have done it to get MACS in the market. Dylan Becker: Terrific. Thank you, both. Operator: Our next question comes from Lachlan Brown with Rothschild and Company Redburn. Dylan Becker: Hi, Chad, Kim. Congrats on the tenure as CFO. Lachlan Brown: On M&A, your last transaction was over twelve months ago now. So how is the M&A environment at the moment? Conscious that publicly traded software has materially derated over the last few months, are you seeing this reflected at all in private valuations? And how competitive are the bidding processes at the moment? Are you seeing much private equity? Chad Collins: Yeah. So we continue to manage an M&A pipeline and stay active in that market. What I would say is we also have work remaining as we integrate the revenue recovery business into everything we are doing at SPS Commerce, Inc., especially on the go-to-market side. And, at this point in time as well, a share repurchase is an attractive use of the capital that we have. So we are just balancing out all of those factors. You will see the board authorized another $200,000,000 of share repurchase, bringing that total to $300,000,000 that they have authorized. And so that can be a definite attractive use of the tremendous free cash flow that this business generates. Lachlan Brown: That is clear. Thanks. And on MACS Connect, which supports MCP and agent-agent communication, presumably great for supporting the SPS ecosystem and your customers. But given your moat is the retail network data, how do you manage AI ERP peers taking that strategic data out and using it to their benefit? And, also, could you potentially look to price MCP access? Chad Collins: Yeah. I think we will price the MCP access. At our field kickoff event we had last week, we did a live demo for our sales team of this MCP interface where we were connected to one of our ERP partners and their agent-to-agent communication, and then we utilized, in this case, Claude—it could have been any type of chat-based LLM capability—and actually showing how that Claude was able to connect data out of the SPS network and this particular ERP provider's data and put that together in a way that was very helpful for many customer use cases. So I think it just exemplifies that we will have use cases that are directly interacting with MACS, our agent, but we will also have many use cases where we are just a participant in the customer's agent-to-agent workflow. And I am confident that the data that we are bringing to that workflow will be valuable enough that we will be able to monetize over time those types of agent-to-agent communications. Lachlan Brown: Makes sense. Thanks for the questions. Operator: Our next question comes from George Kurosawa with Citi. Dylan Becker: Okay, great. Thanks for taking the questions. I want to echo congratulations to Kim. I wanted to follow up on the discussion from last quarter about some enablement campaigns that from a timing perspective pushed out of Q4 and into the first half of 2026. I wanted to just follow up on if you expect to execute on those. Just looking at the guide, it seems like possibly maybe some of those are skewing more towards Q2 than Q1. Just any color on that trend. Chad Collins: Yes. So those particular ones that did slip here into 2026 are still moving forward, and some of them are actually running at this point in time. What I would say, though, is keep in mind as those programs affect customer count, there can be a little lag in that. So because they actually do not really affect the customer count until we are fully up and running and billing those customers. So those programs are continuing. But I would expect them to drive more customer counts in the latter stages of Q2 and more in Q3 than they will in the first half of the year. Dylan Becker: Okay. That is helpful color. And then on the 3P customers for Carbon6, I think you had guided to about 150 net declining customers, seems like it came in a little below that. Maybe just any color on your line of sight to maybe those headwinds normalizing and or how long you expect those to persist for? Thanks. Chad Collins: Yeah. So, we really do think about the 1P customer count and the 3P customer count quite differently given the comments I made earlier about just the strategic focus. So you will see in our results, we are flat from a 1P customer count and then down 350 in the 3P side. As we focus more on the 1P side of revenue recovery, which is really where our ideal customer profile lies. On the 3P side, the dynamics there are our focus is on 1P. We are attracting 1P customers in. Often, 1P customers that we attract are existing customers, because of this ideal customer profile. So they are not going to positively impact the customer count. Whereas on the 3P side, these are much smaller businesses. They do have a higher churn rate. And so there is going to be just some natural churn based on the size of the customer there. So you kind of have this dynamic with a little bit higher churn in 3P. 1P, which might not always increment up on the customer count side because sometimes these are existing SPS customers just taking on the revenue recovery solution. So, hopefully, that is a little bit more color on those dynamics on customer count between 1P and 3P. Dylan Becker: Very helpful. Thanks for taking the questions. Operator: Our next question comes from Christopher Quintero with Morgan Stanley. Lachlan Brown: Hey, Chad, Kim. Congrats on the deserved retirement here. I wish you all the best. I actually wanted to follow up on the enablement campaign commentary. So last quarter, you talked about those moving into the first half of this year, and now we are talking about most of those moving to the second half of the year. So I guess what gives you the confidence that Dylan Becker: Those will actually commit in the second half of the year versus potentially pushing out again to 2027? Chad Collins: Yeah. They are moving forward, Chris. What I was really, when I mentioned maybe pushing out, it was more about just the timing effects of when we start billing those customers. Right? So we kind of need to complete the program. The retailer has to go live, and then we kick in with the invoicing. So, it is not that the programs themselves are directly getting delayed, but just providing a little outlook that the actual customer count impact may come a little bit later. Lachlan Brown: Got it. That is helpful, Chad. And then I want to ask about Dylan Becker: The down-sell activity, reducing the number of connections, reducing the number of document volumes, like how far through we are in terms of Lachlan Brown: How much more downside there is to that, or is this something that is going to continue throughout the rest of the year? What is your best Dylan Becker: Guess or expectation around the trajectory of those trends? Kimberly Nelson: Sure. So we started to see some of the down-sell activity in 2025. So the latter part of 2025. So our belief is that we will have lapped the headwinds by the end of 2026, if that makes sense. Because that is basically a full year then of those headwinds. So our belief is in 2026, we have lapped that down-sell and those headwinds that we have experienced. And we have that philosophy, we have that incorporated into our guidance. Operator: Got it. Thank you, Kim. Dylan Becker: Our next Operator: Comes from Parker Lane with Stifel. Hi, this is Jackson Bogli on for Parker. Thank you for taking my questions. Dylan Becker: Kim, congratulations on the retirement as well. My first question, I am curious, what levers are you targeting to pull to achieve the EBITDA margin expansion in 2026? A little color there would be helpful. Kimberly Nelson: Yep. Happy to answer that. So a lot of it is really a continuation of some of the dynamics that you have seen in 2025. So when you think about, I will start with gross margin as an example. So you may or may not recall that over a multiyear time period, we have made a lot of investments in the overall customer experience, and all right things to do for customers today and customers in the future. But we got ourselves to a position where we were able to now start seeing some of the benefits of that and drive more of the gross margin and those efficiencies. Simply stated, we do not necessarily need to add as many folks as we have had to do historically. You started to see that call it very later part of 2024. You saw that through 2025, and that continues into 2026. So gross margin expansion is a meaningful component of that overall anticipated, call it, 2% of EBITDA margin expansion. That being said, we do see opportunities in other line items as well, particularly in the sales and marketing as well as G&A side. R&D, we do think our level of spend as a percent of revenue is appropriate. We are not really looking to get more efficient there in total. But the larger component in 2026 of the two percentage points of EBITDA margin expansion you would expect to come through gross margin. Lachlan Brown: Okay. Chad Collins: And then secondly, looking at the delays in the enablement pipeline, Jackson Bogli: Are you seeing any bright spots from specific verticals or different size of vendors, or are the delays pretty much across the board? Chad Collins: I would say that is pretty consistent across all the, you know, we have a pretty broad definition of retail, which includes kind of the mass merchant retail, grocery, distribution. It is a pretty consistent behavior across all those. Things food-related, there have been some favorable dynamics from some of the food safety activities that have been regulations there, but overall, pretty consistent across Dylan Becker: Okay. Thank you. Operator: Our next question comes from Jeff Van Rhee with Craig-Hallum. Jackson Bogli: Great. Thanks for taking the questions. Maybe just a couple left for me. As you look at the overall softness in the outlook for the quarter and in the forward guide, can you quantify it maybe and break it down between two drivers, one just being the macro softening at your customers and the willingness to spend versus the percent that is coming from the revenue recovery dynamics? If you had to allocate the weakness in the guide to those two factors, how would you weight that? Kimberly Nelson: So, hi, Jeff. What I would say is both of those are important in the numbers. Think of it as how we exited 2025 impacts your starting point then in 2026, and so that has an impact then, obviously, your Q1, your beginning of 2026. And then implied in our guidance, we are lapping those headwinds, and those headwinds actually are both of what you hit upon there, right? It is right-sizing of some contracts as well as some of the dynamics we have seen on the Amazon policy changes. And we do believe that those headwinds, by the second half of the year, we have lapped that. And so that is implied within our guidance for a slight increase in our overall revenue growth second half of year. Timothy Greaves: Okay. Jackson Bogli: And then just maybe secondly, on the pricing front, when you look at individual customers, understanding people maybe downsized the number of connections, but if you look at the pricing and potential pricing pressure on a per-connection basis, is there anything you would call out in terms of the customers maybe getting more price sensitive on a per-connection basis? And kind of along those lines, I remember over the years, periodically, things would pop up about EDI versus more real-time API-based connectivity. Have you seen any shift in the base and thereby pricing pressure accordingly? Chad Collins: Yeah. No. If you look at it on a per-connection basis, I would say it is consistent. And when customers are typically downsizing, it is because they have lost that business with a particular retailer. Or based on the way their cost of goods have changed, they are deciding not to do business in certain ways with certain retailers. So it tends to be driven more from that. On the API side, in most cases, this is not a choice of how to connect. It tends to be more that the wholesale-type connections tend to be EDI. If it is more modern in a marketplace, it tends to be more API. And our network does both. So we support both types. And in fact, when it is API connect, a lot of times there is potentially more value in that for a customer because those API connections tend to be a little bit more complex than the EDI connections. Mhmm. Got it. I will leave it there. And, Kim, congrats. It Jackson Bogli: Has been just a really exceptional tenure. You have been a class act all the way along. So certainly, wish you all the best. Kimberly Nelson: Thank you. Operator: Our next question comes from Mark Schappel with Loop Capital. Timothy Greaves: Hi. This is Tim on for Mark. Thank you for taking my questions. I guess I will ask around the go-to-market strategy. You know, given the new CTO that you onboarded, is there any changes that we should expect or anticipate over the coming year? Chad Collins: Yeah. We are super excited to have Eduardo on the team. Obviously, he played a pivotal role in our big field kickoff event that we just recently had. I would not say you should expect major changes in the go-to-market, but with this wider product portfolio, the opportunity that we have identified to expand ARPU, definitely more customer practices and things that will help us drive expansion of that ARPU with the customer is a priority in our go-to-market, not an exclusive priority. But driving that ARPU, I think, will be a key component of our strategy and therefore a focus going forward. Timothy Greaves: Okay. I think that is the only question I have. Operator: A reminder, if you would like to ask a question, please press star then 1. Our next question comes from Nehal Chokshi with Northland Capital Markets. Lachlan Brown: Yeah. Thank you. Jackson Bogli: Couple of questions for me. One is that Timothy Greaves: I am pretty sure you addressed, but just to be perfectly fair, Chad Collins: You know, why did the 1P customers be flat quarter to quarter? Because the prior two quarters, you know, that was showing good growth again. Kimberly Nelson: Hi, Nehal. I can answer that. We mentioned this on last quarter's earnings call as well. This has to do with the timing of some of those relationship management, formerly known as community enablement, programs. So the color we had given a quarter ago was the timing of those, instead of being in Q4, was going to be in 2026. And as such, we signaled that our expectations were that the 1P customer count would be flat sequentially. And that is, basically, we landed right on with what our expectations were. Chad Collins: Right. Okay. And, do you expect the pace of 1P customer adds to return to what you were seeing in the second quarter and third quarter as we go through calendar 2026? Kimberly Nelson: Sure. So the biggest driver as it relates to the 1P customer count is related to the relationship management, formerly known as the community enablement, programs. So the timing of those programs will have an impact in the timing of the customer adds. And, so, some of the dialogue we have had here on the call is we have a strong community enablement pipeline. More of that, however, will be in, call it, the Q2 to second half of the year. We still run them throughout the year, but more of those would be later on, closer to the second half of the year. So at this point in time, we would assume that Q1 2026 would also probably be flat to Q4 2025 due to the timing. Jackson Bogli: Okay. And then, Chad Collins: General and administrative, Jackson Bogli: That was up 29% year over year for calendar 2025, Chad Collins: Whereas 15%, 16-ish Kimberly Nelson: Percent of revenue. There are various costs in there that you would expect. There have been investments we have been making in some of our back-end tools and technology from both the tools and technology as well as the team, augmenting the team, etcetera. We do have a stated goal of 10% to 15% for G&A over time. Operator: Thank you. This concludes our question and answer session and today's conference call. Thank you for attending today's presentation. You may now disconnect.
Operator: Good afternoon. My name is Chris and I will be your conference operator today. At this time, I would like to welcome everyone to the Warrior Met Coal, Inc. Fourth Quarter and Full Year 2025 Financial Results Conference Call. At this time, all lines are in a listen-only mode. Following today's presentation, there will be an opportunity to have a question and answer session. This call today is being recorded and will be available for replay once the call is over on the company's website. I would now like to turn the call over to Brian M. Chopin, Chief Accounting Officer and Controller. Please go ahead, sir. Good afternoon, and welcome, everyone, to Warrior Met Coal, Inc.'s fourth quarter and full year 2025 Earnings Conference Call. Before we begin, let me remind you that certain statements made during this call, including statements relating to our expected future business and financial performance, may be considered forward-looking statements according to the Private Securities Litigation Reform Act. Forward-looking statements, by their nature, address matters that are to degrees uncertain. These uncertainties, which are described in more detail in the company's annual and quarterly reports filed with the SEC, may cause our actual future results to be materially different from those expected in our forward-looking statements. We do not undertake to update our forward-looking statements whether as a result of new information, future events, or otherwise, except as may be required by law. For more information regarding forward-looking statements, please refer to the company's press releases and SEC filings. We will also be discussing certain non-GAAP financial measures as defined and reconciled to comparable GAAP financial measures in our fourth quarter press release furnished to the SEC on Form 8-K, which is also posted on our website. Additionally, we will be filing our Form 10-K for the year ended 12/31/2025 with the SEC this afternoon. You can find additional information regarding the company on our website at www.warriormetcoal.com, which also includes a fourth quarter supplemental slide deck that was posted this afternoon. Today, on the call with me are Mr. Walter J. Scheller, Chief Executive Officer, and Mr. Dale W. Boyles, Chief Financial Officer. After our formal remarks, we will be happy to answer any questions. With that, I will now turn the call over to Walter J. Scheller. Thanks, Brian. Hello, everyone, and thank you for taking the time to join us today to discuss our fourth quarter and full year 2025 results. I will start by providing an overview of the quarter before Dale reviews our results in additional detail. 2025 was a transformative year for Warrior Met Coal, Inc. as Blue Creek began reshaping our production profile, cost structure, and long-term earnings potential. This performance was exemplified by our fourth quarter operational and financial results, which exceeded our expectations. As we previously communicated, the longwall operations of Blue Creek began production during the fourth quarter, eight months ahead of schedule, on budget, and funded by cash flows from operations. In continuing our trend of operational excellence throughout the entire Blue Creek project, the ramp-up of the Blue Creek longwall was remarkably smooth, especially for a project of this scale, and delivered a strong operating performance during the fourth quarter. We achieved an annualized run rate of production during the quarter that well supports our increased volume guidance for 2026. I will discuss our 2026 guidance later in my comments. Our strong performance in the fourth quarter, including a record-high quarterly sales volume, wrapped up a remarkably successful year despite weak market conditions for steelmaking coal. We achieved double-digit volume growth in both sales and production volumes for the full year 2025, which were also record-high levels of output for the company. This performance continued to reduce our first quartile cash costs, leveraging the inherently lower cost structure of the Blue Creek mine. In addition to the Blue Creek ramp-up, both Mine 7 and Mine 4 continued their high standards of strong performance, which was particularly important to the overall success of the company. Mine 4 set a new record-high output for both sales and production volume. Total sales volume for 2025 was 9,600,000 short tons, a record high and a 21% increase over the prior year. Production volume was 10,200,000 short tons, also a record high and a 24% increase over 2024. Now let me turn to more specifics on the market conditions during the fourth quarter. Before I share more detail on our operational and financial performance, the primary underlying drivers of the weak steelmaking coal markets for the fourth quarter were a continuation of the same factors we have been discussing each quarter for the past two years. In fact, Chinese steel export volumes for 2025 set a new record high of 119,000,000 metric tons, a 7.2% increase year over year. Chinese crude steel production decreased by 4.4% during the same period, prompting the country to contemplate production controls and implement export licenses. Beyond the sustained strength in key markets such as India, which grew its pig iron production by over 6% in 2025, global steel fundamentals have not shown significant improvement in the last couple of years. While global steelmaking coal markets remain challenged, a continuation of trends we have navigated successfully for the past two years, Warrior's disciplined execution and early contributions from Blue Creek allowed us to outperform despite the environment. Our primary index, the PLV FOB Australia, performed above our expectations for the fourth quarter and averaged $182 per short ton, which was the highest quarterly average in 2025 and marked the first time at that level since December 2024. The index average was 9%, or $15 per ton, higher than the third quarter of 2025 and was 1% lower than the fourth quarter of 2024. As for the main second-tier indices, the Australian LV HCC index price continued its recovery from its low point in the second quarter and averaged $154 per short ton for the fourth quarter. This was $17 per ton, or 13%, higher than the third quarter of 2025 and 1% higher than the fourth quarter of 2024. As a result, the relativity of the Australian LV HCC index price to the Australian PLV index price improved from 82% for the third quarter to 85% for the fourth quarter of 2025. In contrast to the Australian LV index price, the average East Coast HVA index price decreased $6 per ton, or 4%, in the fourth quarter from the third quarter and averaged $135 per short ton. As a result, the relativity decreased from 85% for the third quarter to 75% for the fourth quarter of 2025. We achieved a gross price realization of 75% for the fourth quarter of 2025 compared to 83% in the third quarter of 2025. While the average of both main pricing indices increased in the fourth quarter compared to the third quarter of 2025, our lower gross price realization was primarily driven by a combination of four factors. First, our sales mix of High Vol A quality was 8% higher. Second, that higher sales mix of High Vol A quality was primarily sold into the Pacific Basin. We sold 18% more volume into the Pacific Basin in the fourth quarter than the third quarter of 2025. Third, demurrage costs were temporarily higher in the fourth quarter due to longer vessel loading queues that were attributed to modernization work on a ship loader at the terminal. And fourth, we continue to experience elevated freight rates into the Pacific Basin. As we continue to ramp up Blue Creek production and sales volume, our quarterly gross price realization may be volatile depending upon the relative index price, product mix, geography, tariffs, and freight rates to the Pacific Basin. However, on a long-term basis, including Blue Creek, we expect our annual gross price realization to be approximately 80% to 85%, assuming the relativities of the Australian LV HCC index price and U.S. East Coast HVA index price to the Australian PLV index price historical averages. However, this may not be achievable in 2026 and not until the overall market fundamentals of supply and demand become more balanced across the regions of the world. While Blue Creek product mix will influence our long-term average net selling price, Blue Creek's significantly lower cost structure is expected to more than offset this and drive substantial margin expansion for the company. Strong contractual demand combined with excellent performance from our legacy mines and the additional contribution from Blue Creek enabled Warrior to achieve a record-high quarterly sales volume in the fourth quarter of 2,900,000 short tons. This result compares to 1,900,000 tons in the same quarter of 2024, representing a 53% increase. We sold 881,000 tons of Blue Creek steelmaking coal during the fourth quarter of 2025, which were contractual volumes sold primarily into Asia. Our sales by geography for the fourth quarter breakdown is as follows: 57% into Asia, 34% into Europe, and 9% into South America. Our spot volume was 6% for the fourth quarter of 2025 and was 9% for the full year. Production volume in the fourth quarter of 2025 was a record-high 3,400,000 short tons compared to 2,100,000 in the same quarter of last year, representing a 61% increase. Production from our Blue Creek mine was 1,300,000 tons during the fourth quarter and exceeded our expectations. Our coal inventory levels increased to 1,600,000 short tons at the end of December compared to 1,100,000 tons at the end of September 2025. The increase in inventory reflects the early startup of Blue Creek's longwall production. The early startup of the Blue Creek longwall was a major contributor to the higher volumes and profitability in the fourth quarter and for the full year 2025. As I noted earlier, the ramp-up of production went smoothly and has already achieved a quarterly run rate of 1,500,000 short tons. However, given the expected weak market conditions for steelmaking coal in 2026, we will start the year with an expected production level of 4,500,000 short tons from Blue Creek. We plan to sell the excess inventory that was built up in the fourth quarter before we ramp to a higher production level. We plan to ramp production in line with increases in contractual volumes to ensure we support pricing discipline while maximizing long-term value. Financially, we dedicated another $69,000,000 of capital expenditures in the fourth quarter and $240,000,000 for the full year 2025 to the Blue Creek project. That brings the total project capital expenditures to date to $957,000,000. As a reminder, this is on budget and fully paid out of cash flow without any funded debt. Our total project estimate remains unchanged, ranging from $995,000,000 to $1,075,000,000. The remaining capital to be spent on the Blue Creek project is expected to occur by the end of 2026. The remaining work is primarily related to finishing the barge loadout, finishing a third storage silo at the rail loadout, paving roads, completing storage and shop buildings, and other final project details. None of this final work should have any impact on production from the new mine. Let me take a moment to step back and summarize a few key highlights for the year 2025. First, we were able to start the Blue Creek longwall eight months ahead of schedule, remain on budget, and fund the entire project out of cash flow from operations. Second, adding Blue Creek to our production profile adds significant scale to our operations and significantly further improves the company's first quartile cost curve position, which is expected to drive margin expansion in the future. Third, we were successful in strategically expanding our total reserve base by finalizing two federal coal leases to obtain 53,000,000 short tons of additional reserves. This also created access to other additional privately owned reserves. Fourth, while we made significant investments in Blue Creek, we managed our costs and spending to meet or exceed all of our guidance targets for 2025. I will now turn the call over to Dale W. Boyles for the financial results. Thanks, Walt. Our fourth quarter results continued the sequential improvement quarter after quarter throughout 2025. As Walt discussed earlier, the steelmaking coal markets continue to be pressured in the fourth quarter by the same factors that we have discussed over the last two years. Despite these market conditions, we continue to outperform expectations for 2025 as we met or exceeded our full year 2025 guidance targets on the back of a strong fourth quarter both operationally and financially. Let me first highlight our fourth quarter financial results compared to the third quarter of 2025. Our fourth quarter adjusted EBITDA of $93,000,000 was 31% higher than the third quarter of 2025, primarily due to the following factors: First, our sales volumes were 22% higher in the fourth quarter, including an increase of tons sold from Blue Creek. Second, our average net selling price was dollars per ton lower in the fourth quarter, primarily due to a higher mix of High Vol A volume sold, and that volume was sold into the Pacific Basin on a CFR basis at elevated freight rates. In addition, demurrage was temporarily higher in the fourth quarter as Walt noted earlier. This result was offset by the increase in the average price indices quarter over quarter. Third, cash cost per ton were $7 lower in the fourth quarter and were primarily attributed to Blue Creek's inherently low cost structure, which increased our cash margin per ton. And finally, operating cash flows of $76,000,000 were $29,000,000 lower than the third quarter of 2025. This result is attributed to the increase in working capital, primarily for accounts receivable and inventory, as we ramped up the Blue Creek longwall in the fourth quarter. Our spending for capital expenditures and mine development were a combined $20,000,000 lower in the fourth quarter compared to the third quarter of 2025, primarily due to lower investments in Blue Creek. Free cash flow was about $9,000,000 lower in the fourth quarter. Now let me compare the fourth quarter of 2025 to the prior year fourth quarter results. Warrior Met Coal, Inc. recorded net income of $23,000,000, or $0.44 per diluted share, compared to net income of $1,000,000, or $0.02 per diluted share, in the same quarter of 2024. We reported adjusted EBITDA of $93,000,000 in the fourth quarter of 2025 compared to $53,000,000 in the same quarter of 2024, an increase of 75%. Our adjusted EBITDA margin grew to 24% in the fourth quarter of 2025 compared to 18% in the same quarter of last year, despite the PLV index being 1.3% lower in the fourth quarter of 2025. On a per-ton basis, our adjusted EBITDA margin grew to $32 per short ton in the fourth quarter of 2025 compared to $28 in last year's fourth quarter. The primary drivers of these improvements came from 53% higher sales volumes, lower cash cost including the low-cost Blue Creek tons sold, lower variable transportation and royalty cost, and tightly managing and controlling all other production cost. These improvements were partially offset by a 16% lower average net selling price. Total revenues were $384,000,000 in the fourth quarter of this year compared to $297,000,000 in the same quarter of last year. The total increase of $87,000,000 was primarily due to the 53% higher sales volumes impact of $154,000,000, offset by the impact of a decrease in average gross selling prices of $52,000,000 and a higher mix of High Vol A tons sold of $13,000,000. In addition, demurrage and other charges were $6,000,000 higher compared to last year's fourth quarter. This resulted in an average net selling price of $130 per short ton in the fourth quarter of 2025 compared to $155 per ton in the fourth quarter of last year. Cash cost of sales were $270,000,000, or 72% of mining revenues, in the fourth quarter of this year compared to $226,000,000, or 77% of mining revenues, in the fourth quarter of last year. Of the $44,000,000 net increase in cash cost of sales, there was a $119,000,000 increase in cost which were attributed to the 53% increase in sales volumes. These higher costs were offset partially by $70,000,000 of lower costs that were driven by leverage of lower-cost Blue Creek tons sold and lower variable transportation and royalty cost on lower average steelmaking coal price indices. In addition, we continue to rationalize and tightly manage our spending on supplies, repairs, and maintenance expenses throughout the operations to maintain our low-cost profile. Cash cost of sales per short ton, FOB port, was approximately $94 in the fourth quarter of 2025 compared to $120 in the same quarter last year. The 22% decrease was primarily related to lower overall spending at the legacy mines of $11 per ton due to tightly managing our overall spending, lower variable participation royalty cost of $5 per ton on lower steel prices, and $10 per ton from the incremental sales of low-cost Blue Creek tons. These lower costs resulted in higher cash margins per ton. Our fourth quarter 2025 SG&A expenses were $18,000,000 and were less than $1,000,000 higher than the same quarter of the prior year, primarily due to higher employee-related expenses. Depreciation and depletion expenses were $56,000,000, which was higher than the fourth quarter of 2024, primarily due to the additional assets placed into service at Blue Creek and the higher sales volumes in 2025. We recorded income tax expense of approximately $13,000,000 on pretax income of $36,000,000 in the fourth quarter of 2025. Our full-year 2025 effective income tax rate varied from the statutory federal income tax rate of 21% primarily due to tax benefits recognized for depletion expense, marginal gas well credits, and a foreign-derived intangible income deduction, which exceeded pre-tax book income, resulting in an effective income tax rate of a negative 5% for the full year. Now let's turn to cash flows for the fourth quarter of 2025. Cash flows from operating activities were $76,000,000 in the fourth quarter of 2025 and were $22,000,000 higher than the previous year's fourth quarter, despite Blue Creek's negative impact on working capital. Working capital increased by $8,000,000 during the fourth quarter as the company ramped up production and sales volumes at Blue Creek. Free cash flow was a negative $28,000,000 due to $76,000,000 in operating cash flows less cash used for capital expenditures and mine development of $104,000,000. Capital spending totaled $94,000,000, which included $69,000,000 spent on Blue Creek as previously noted. Mine development costs for Blue Creek in the fourth quarter were $10,000,000. Now that Blue Creek longwall has started production, we do not expect to incur any mine development cost in 2026. While investments in Blue Creek and other development projects drove higher capital spending in 2025, the company continued to maintain strong liquidity and delivered year-over-year improvements in cost efficiency, positioning Warrior Met Coal, Inc. for enhanced profitability as Blue Creek ramps toward full production. Our total available liquidity at the end of the fourth quarter this year was $484,000,000 and consisted of cash and cash equivalents of $300,000,000, short-term investments of $43,000,000, and $141,000,000 available under our ABL facility. And finally, let me turn to our current outlook and guidance for the full year 2026 as detailed in our earnings release. We expect steelmaking coal markets to remain generally consistent with 2025 levels. However, we enter 2026 from a position of significant strength with higher contracted volumes, record production capacity, and a structurally lower cost base driven by Blue Creek. While the assumption that prices will remain consistent with 2025 may seem conservative given the recent rally in index pricing, we believe the recent global mining production disruptions and inclement weather events may be temporary. We expect PLV prices may revert downward following the remediation of these disruptions. We anticipate total sales and production volumes to be significantly higher in 2026 than 2025 as a result of starting the Blue Creek longwall eight months early and reaching new record-high output levels. Overall, company contracted volume in 2026 is approximately 90% of total sales volume. Our sales volume guidance is approximately 0.5 million tons higher than our production volume to reduce our inventory levels to our optimal target level of just below 1,000,000 short tons. And lastly, we expect to spend the remaining construction CapEx of $50,000,000 to $75,000,000 on the Blue Creek project in 2026. From a free cash flow perspective, we expect 2026 to be free cash flow negative due to the ramp-up of sales and production at Blue Creek, increasing our working capital and spending the remaining project capital expenditures in the first quarter. We expect to be free cash flow positive in the second half of the year. Obviously, expectations are highly dependent upon the steelmaking coal markets’ actual pricing indices. I will now turn it back to Walt for his final comments. Thanks, Dale. Warrior Met Coal, Inc. is exceptionally well-positioned to deliver higher free cash flow and long-term value creation. We expect 2026 sales volumes to be more than 30% higher than 2025 and production volumes to be more than 20% higher than 2025, driven by the contribution of the new Blue Creek mine over the entire year. We expect to reduce our coal inventory levels to just below 1,000,000 tons, which has been reflected in our sales volume guidance. In addition, we have included approximately 4,500,000 tons of production from our Blue Creek mine, which could potentially be higher if we continue to be successful with the trial shipment and engage in more long-term contracts with customers. Currently, we have 90% of our 2026 midpoint sales volume under contract, including 85% of the Blue Creek volume. As we look at current steelmaking coal market conditions, pricing levels remain notably strong and well above our original expectations. We believe this elevated pricing environment is primarily due to tightness in the premium quality segment as a result of recent supply constraints stemming from Australian weather disruption and mine production-related challenges in Australia. While it is difficult to predict how quickly supply chains will normalize, we anticipate that prices will remain supported through most of the first quarter. However, we believe these disruptions are temporary, and unless global steel fundamentals significantly improve, PLV prices should retreat and continue to be impacted by the same market factors that we have seen over the last two years. As a result of the recent increase in PLV price, East Coast High Vol A price has become disconnected from the Pacific Basin indices and may weigh down overall gross price realizations due to the abundant supply of that quality of coal. While we have lots of cautious optimism, we run our company to prepare for the downside risk of weak steelmaking coal markets and hope we are conservative on our price assumptions as Dale just noted in his comments. In conclusion, 2025 marked a transformational year for Warrior Met Coal, Inc. The early startup of Blue Creek and the strategic expansion of our reserve base have strengthened the foundation of our long-term growth strategy and significantly enhanced our ability to meet sustained global demand for premium steelmaking coal. With Blue Creek now contributing meaningfully to our scale and cost structure, we enter 2026 from a position of exceptional strength, supported by expected record volumes, a stronger first quartile cost platform, disciplined capital allocation, and a clear pathway to higher free cash flow generation. Our world-class assets, operational excellence, and commitment to long-term value creation position Warrior Met Coal, Inc. to deliver stronger financial results and increase stockholder returns as we move forward. We appreciate your continued support and look forward to updating you on our progress throughout the year. With that, we will now open for questions. Operator? Operator: Thank you. At this time, I would like to remind everyone that. And your first question today comes from the line of Nicholas Giles with B. Riley. Please proceed. Nicholas Giles: Thanks, operator. Good evening, guys, and congrats on the progress. You have come out with some really robust guidance here in 2026, and costs are being guided to a range of $95 to $110, fairly wide. But just my first question was what is the PLV price assumption you are using? And then, given that costs in the fourth quarter came in below the low end of this range, what would prevent that level of cost being repeated in the first half year? Thanks. Dale W. Boyles: Good question. The PLV assumption there is a range of $185 to $215. So it is a little wider just thinking about the potential increases related to transportation and royalties with the elevated pricing here early in the year. Uncertain as to how long that will continue throughout 2026, but we do expect the PLV prices to come back down. On the cost side, good question there. Strong cost performance from the existing mines and Blue Creek—what is going to keep it that low would be prices staying this low. Right? Because if we have elevated pricing, which we will have in the first quarter, it appears, then obviously, our transportation and royalty costs go up. So the cash cost of production should be fairly steady, but transportation and royalties would be higher. Nicholas Giles: Got it. No. I appreciate that detail, Dale. Just to confirm, you said $185 to $215, that is on a short ton basis, correct? Dale W. Boyles: Correct. Nicholas Giles: Second one was I think you alluded to some of this in your prepared remarks, but how should we be thinking about working capital over the course of 2026? Is it fair to assume you will build kind of early in the year here? And then same thing on the tax side. I think you had a tax benefit in 2025, but what should we be penciling in for cash taxes in 2026? Dale W. Boyles: On the working capital side, definitely the ramp-up of accounts receivable and inventory, because we will be selling more of the Blue Creek tons this year. So expect that. But as we said in our prepared remarks too, we are going to try to take our overall inventories down 500,000 tons. That is probably going to come more evenly over the year. So the first half, the first quarter, will weigh heavily on working capital. And we should get a little relief in the second quarter, definitely in the second half of the year. From a tax standpoint, that really depends on pricing. And you know that the 45X credit kicks in in 2026, and we have said that is about a $40,000,000 benefit to Warrior Met Coal, Inc. So with these price assumptions, I would say we might not be a cash taxpayer in 2026. If prices stay at a higher level, we will be, but just not a large amount, I do not think. Nicholas Giles: Got it. Really helpful. One last one, if I could. You have been really successful in adding some federal leases here in the recent months. I think you made—there was one more tranche since we last spoke. And so I was just wondering if you could remind us what those payments look like. I think they are spread out over a number of years. Dale W. Boyles: Yeah. That is right. Total, it is four years, they are about $9,000,000 a year. So there are four payments left. Nicholas Giles: And that would be reflected in the guide or outside the scope of the guidance? Dale W. Boyles: That is all in there. Nicholas Giles: Got it. Okay. Well, guys, I really appreciate all the detail. Turn it over for now. But continue best of luck. Dale W. Boyles: Thanks. Operator: And the next question is from George Eadie with UBS. Please proceed. George Eadie: Yes, good day, gents. Can I just go back to guidance again? I mean, you came in 600,000 tons above original production of sales for 2025 and $20 a ton above the original midpoint price. These cash cost numbers, even on my estimates in putting in that PLV range you said, still seem very conservative. I mean can you talk through maybe how you came there still year on year? Like, I struggle to see, even running $195 PLV a short ton, how you can not be looking for big guidance again? Thanks. Dale W. Boyles: Okay, George. Yeah. I mean, we built into the guidance, you know, just some conservatism that we said in our comments here. And hope we are wrong on the price assumptions. So specifically, I am not really sure what you are targeting other than we tried to match the cost guidance with kind of where prices might be for the year in that range, but you may have some of that early in the year and if they do trend downward, you would have some impact. Now one of the things you have to remember, that was a PLV assumption. And if you looked at the relativities of the Low Vol HCC to the PLV, that was about 85%. And here in the fourth quarter, it has been running about 80%. So very similar to what we have seen in 2025. On the flip side though, the U.S. East Coast index is running at about 65% relativity. Anything we sell into the Atlantic is going to have, you know, some margin offset there because of that. So those are some of the factors that we have just tried to consider here and be conservative on because we do not know why the trend on the East Coast High Vol A index is so disconnected from the other indexes. So I am just trying to think about how that might trend the rest of this year. George Eadie: Yes. Okay. No. Thanks, Dale. Just your comment earlier about being free cash flow positive in the second half. I mean, to the comment from working capital before, if I assume a sort of net neutral working cap position in second quarter, hard to not see you free cash flow positive in the second quarter, obviously depends on prices as well. But is it a quite good chance even if sort of prices trending a bit lower, we could see a lot of free cash in the second half and second quarter? Dale W. Boyles: Yes, I think we could, given where the prices have been recently. If they stay that way in the first quarter, we could see the second quarter breakeven. But still too early to tell there, but I do think the second half we will be generating a lot of cash. George Eadie: Yeah. And just on that, Dale, so cash $300,000,000. Is that still a nice minimum buffer? And should we start thinking from second half all that cash growth gets given back to shareholders? And can you remind us how to think about returns from the second half? Should all that come back out the door? Or if not, why not? Dale W. Boyles: Well, I think our cash level right now at $300,000,000 plus the investments, I guess, is about $342,000,000. So that is about where we want to see it on a long-term basis, maybe slightly higher. So we might build some cash just a little bit there. But I do expect us to start returning cash to shareholders in the near future. Now is that this year in the second half? It is dependent on pricing, but I would expect that we would start returning that cash. Now in what forms, I think what we have said and been pretty consistent about, we think that will be through a higher fixed quarterly dividend because we are going to be a significantly larger company with all the volume increases, and then we would supplement that with some special cash dividends and maybe some selective stock buybacks to take advantage of opportunities there. So I think we would see a combination of those forms. George Eadie: Alright. So just on that, Dale, the share price is below 86 today. I think you and I both think that is cheap. Why not start going now with the buyback and getting ahead of that before the stock gets more expensive? I think you think also the shares are probably going to get higher; why not go early on the buyback? Dale W. Boyles: Well, it is a possibility. I am not going to commit to a particular stock price. We will just have to look at what are the cash needs of the business at the time and what is the best distribution or the best way to distribute that cash to shareholders. Thanks. Operator: And the next question is from Katja Jancic with BMO Capital Markets. Please proceed. Katja Jancic: Hi, thank you for taking my questions. You mentioned earlier that there is a big disconnect between High Vol A and the PLV markets. With more High Vol A volume coming to the market over next year, is there a risk this disconnect could actually at least stay or even potentially become wider? Walter J. Scheller: I think you are right. I think it will stay for a while. When we look at the tons that have been brought into the market with Metinvest bringing their mine back online, Leer South coming back online, and Blue Creek coming online, that is quite a few tons that need to be absorbed. That is going to take some time. So I think that we are probably looking at a market that is fully supplied for the time being. I think that will get absorbed; just over what time it takes for that to happen, I am not quite sure, but I think, given some of the things about where growth is occurring, those tons will get absorbed and we will get back to a more balanced market. Katja Jancic: And then maybe I missed this, but Dale, you talked about working capital build in the first half. How much of a build could we see? Dale W. Boyles: Well, really, it depends on prices, Katja, because that influences our receivables quite a bit, and how quickly can we bring down our inventories. But it could be upwards of $50,000,000 or better in the first half. Katja Jancic: Okay. Thank you. Operator: The next question comes from Chris LaFemina with Jefferies. Please proceed. Chris LaFemina: Hey, thanks, operator. Hi, guys. Thanks for taking my—most of my questions have been answered, but I just have maybe one or two follow-ups. So the first is back on the point of capital returns. You comment on maintaining that level of cash on the balance sheet, but you also have a net cash position. So you have financial capacity to use some debt. I understand in mining, in particular in coal mining, balance sheet is sacred, but you will be a low-cost producer and if prices fall you will be an even lower-cost producer and you can weather the storm pretty much no matter how bad it gets. So the question is, would you consider using balance sheet for buybacks in an environment where prices were a lot lower? I know it is a lot of hypothetical situations there, but would you use balance sheet? And if not, why would you not? That is my first question. Dale W. Boyles: Yeah. No. Good question, Chris. I mean, we have kind of done things a little different than the rest of the industry in the past. So if prices were to decrease quite significantly, to me, if we have that cash on the balance sheet, that would be an opportunity, a real opportunity, for us to take advantage of a buyback. So I think that would be a good situation that we will look to do that. Chris LaFemina: Okay. Good. I will leave it at that. Thanks a lot. Good luck. Operator: And the next question is a follow-up from Nicholas Giles with B. Riley. Please proceed. Nicholas Giles: Hey, thanks so much for taking my follow-up. There have been a lot of questions around the realizations, but just for the avoidance of any doubt, can you just remind us what you said on what you are assuming for the relativity as it relates to your guidance? Obviously, there is a relative assumption attached to that cost guidance. So just curious what those are. Dale W. Boyles: Yeah. In just overall gross price realizations, we are looking at about 75% for the year. So hopefully we are conservative there. But if you look at the East Coast index, it is 65 today. And so that has a big significant impact. And like I say, it has been decreasing. It decreased in the fourth quarter $66 a ton. So that went from 85 to 75%. So a big swing during the third quarter to the fourth quarter. Walter J. Scheller: Got it. But I do think we need to be careful about how we look at relativities. And remember that right now, our assumption is High Vol A is pretty well supplied, and for relativity to improve, that means the Low Vol price has to come down to it. So I prefer to see the relativity stay apart if the High Vol price is not going to increase. Nicholas Giles: Understood. No, I appreciate that perspective, Walt. And maybe just one more if I could. Looks like sustaining CapEx ticked up by maybe $20,000,000 or so. Not a huge step change just given you do have a new mine coming online. What should we be assuming in kind of 2027 and beyond for sustaining capital? Walter J. Scheller: Well, I think where we are looking at CapEx for this year, that is going to be pretty normal for where we are right now. I think we will see an uptick of $20,000,000 to $30,000,000 a year. And I do not know how quickly that will occur, but as we continue to run Blue Creek and have replacement capital for continuous miners and longwalls and things like that, we will see an uptick of $20,000,000 to $30,000,000. Dale W. Boyles: Yeah. That is right, Nick. So, sorry, I was going to add something to that. So if you factor in Blue Creek, at $20,000,000 to $30,000,000, you are probably looking at $110,000,000 to $140,000,000 somewhere roughly on a run-rate basis. Nicholas Giles: Okay. Understood. Dale W. Boyles: We can pull that down depending on the price environment. But you are going to be—each year is going to increase for a while because of Blue Creek as more and more things need to be replaced, etcetera, going forward. Nicholas Giles: Okay. Okay. And I lied. I promise this will be my last question. But just anything more to add on the contracting activity? I think you spoke to it, but where do things stand from a contracting perspective for Blue Creek? Could any incremental contracting activity limit the volatility in your realizations, or are you really at the mercy of the market, if you will? Walter J. Scheller: I do not think it is going to limit the volatility any more than we see. The High Vol A price volatility is going to be the only limit on the Blue Creek price volatility. And in terms of volumes and percentages contracted, right now we are, I think, about 80%, 85%. And as we see that number increase, and we see that inventory level come down, that is where we will start to see the opportunity to start to increase production levels because what we have seen, we can clearly do that. Nicholas Giles: Okay. Well, kudos to Charles and his team on that front and, guys, congrats again on all the progress. Thanks so much. Walter J. Scheller: Thank you. Dale W. Boyles: Thanks, Nick. Operator: Our next question comes from Nathan Pierson Martin with The Benchmark Company. Please proceed. Nathan Pierson Martin: Thanks, operator. Good afternoon, gentlemen. Question on Mine 4, running at record levels, really above its nameplate capacity, I think, the last few years. Are you guys expecting that to continue? And then related, could you break down full year sales guidance of 12.5 to 13.5 million tons by mine? I think it would be helpful when trying to understand how to think about the potential quality mix. Walter J. Scheller: Well, I think we will see Mine 4 running about the same level it did this past year and Mine 7 running about the same level it did this past year, and then we will see the 4.5 from Blue Creek. In terms of Mine 4, Mine 4 has done an outstanding job of managing their production up and at the same time their spending and their costs down, and I would expect that to continue. They achieved very, very well last year and I do not see a reason why that will change. Nathan Pierson Martin: Appreciate that, Walt. And then I noticed some questions on shareholder returns. So maybe taking a step back, how should we think about your priorities for free cash flow overall? Dale W. Boyles: Well, I think the priorities once we get past Blue Creek would be to return cash to shareholders. You know, until these markets change and demand any further growth on volumes, we would be focused on shareholder returns. Nathan Pierson Martin: Alright. Very helpful, guys. That is all I had left. Best of luck in 2026. Operator: And at this time, there are no further questions in the queue. I would now like to turn the call back over to Mr. Scheller for any final comments. Walter J. Scheller: That concludes our call this afternoon. Thank you again for joining us today. We appreciate your interest in Warrior Met Coal, Inc. Operator: Thank you. This concludes today's conference. You may now disconnect your lines and have a pleasant day.
Operator: Greetings, and welcome to the CVRx, Inc. Q4 2025 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance, as a reminder, this conference is being recorded. It is now my pleasure to introduce Mike Vallie of ICR. Please go ahead. Good afternoon. Thank you for joining us today for CVRx, Inc.’s fourth quarter and full year 2025 earnings conference call. Mike Vallie: Joining me on today's call are the company's President and Chief Executive Officer, Kevin Hykes, and Chief Financial Officer, Jared Oasheim. The remarks today will contain forward-looking statements, including statements about financial guidance. These statements are based on plans and expectations as of today, which may change over time. In addition, actual results could differ materially due to a number of risks and uncertainties, including those identified in the earnings release issued prior to this call and in the company's SEC filings. I would now like to turn the call over to CVRx, Inc.’s President and Chief Executive Officer, Kevin Hykes. Thanks, Mike. Good afternoon, and thank you for joining us for our fourth quarter and full year 2025 earnings call. We delivered fourth quarter revenue of $16,000,000 and full year revenue of $56,700,000, representing growth of 410%, respectively. 2025 was a year of important and necessary investment in our commercial foundation. We strengthened our sales organization, refined our go-to-market approach, and advanced critical initiatives that position us for growth ahead. As we reflect on the year, it is important to remember what drives our work. Heart failure affects 6.7 million Americans, many of whom remain symptomatic despite optimal medical therapy. These patients, often referred to as the walking wounded in the heart failure community, suffer with significantly diminished quality of life, including limited mobility, chronic fatigue, and the inability to perform basic daily activities. Operator: While guideline-directed medical therapy has demonstrated survival benefits, Kevin Hykes: when taken compliantly, it does very little to improve how patients actually feel on a day-to-day basis. Operator: In fact, Kevin Hykes: multiple studies in this population have consistently shown that these patients would trade longevity for better quality of life. They do not want to simply live longer, they want to live better. To play with their grandchildren, to walk their dog, and to maintain their independence. Barostim addresses this critical unmet need. Unlike medications that primarily target survival, it demonstrably improves exercise capacity and quality of life, giving patients back the ability to engage in the activities that matter most to them. When we talk about our market opportunity, it is important to consider our indicated population not just in terms of the annual incidence, but also the prevalence pool. While approximately 76,000 patients are newly diagnosed each year and enter our indication, Operator: heart failure is a chronic disease state. Kevin Hykes: Patients are not only eligible for Barostim therapy in the year that they are diagnosed. They can live four, five, or six years within our indication as their disease progresses, and benefit from treatment throughout that time. When considered on this prevalence basis, there are 339,000 patients today who are indicated and who could benefit from Barostim therapy, representing a $10,500,000,000 market opportunity that remains well less than 1% penetrated. Our focus remains on making this therapy widely available to all patients who can benefit. Operator: In 2025, we built Kevin Hykes: the foundation necessary to reach more of these patients by executing on our three strategic priorities: building a world-class sales organization, driving deep adoption in targeted centers, and reducing the barriers to adoption. Starting with our progress on the sales force, we undertook a deliberate transformation of our commercial organization to build the right team for our next phase of growth. We are pleased with the quality of talent that we have attracted and the progress that we are seeing in their development. By year-end, we had expanded to 53 territories with 252 active implanting centers, up 10% and 13%, respectively. This expansion positions us with the capacity to drive meaningfully higher growth as our reps mature. While integrating these many new representatives has created some near-term impact on growth, we are increasingly confident in the team's ability to execute our program-focused selling approach as they gain experience. We have also implemented several important changes to accelerate the productivity of our sales team. We have optimized our field leadership structure, added dedicated training resources, and focused our representatives on a narrower set of high-potential accounts, typically three to five, where they can drive deep adoption and truly change clinical behavior. Our second priority is creating sustainable Barostim programs that demonstrate deep adoption and consistent utilization. We are starting to see the validation of this approach, as evidenced by higher and more consistent utilization at the account level. The path to creating a sustainable program starts with the intentional targeting of high-potential centers. This is followed by the development of an aligned and redundant stakeholder network that includes not just a clinical champion, but administrative support, multiple prescribers, and multiple implanters. The final necessary element is a defined Barostim workflow that ensures effective and efficient patient identification, referral, screening, and implantation. Where we see these three elements in place, we see deeper adoption and consistent utilization, creating a flywheel effect. Barostim becomes part of how heart failure is routinely managed, rather than an episodic consideration. Importantly, in the accounts where this flywheel effect is beginning to take hold, we are seeing significant additional runway for much deeper penetration. For example, the top 20% of centers had an annualized implant rate of about 19 implants in Q4. We believe each of these top centers has approximately 300 patients who are currently indicated for the therapy. Operator: This demonstrates the substantial opportunity Kevin Hykes: that we have through continued program development in our existing account base. Our third priority is our continuing focus on addressing the three fundamental barriers to the adoption of Barostim therapy. Operator: Patient access, therapy awareness, Kevin Hykes: and clinical evidence. Operator: As it relates to patient access, Kevin Hykes: the most significant and impactful development is our transition to Category I CPT codes, which took effect on 01/01/2026. This major milestone is an important validation of Barostim therapy from the perspective of physicians, hospitals, and payers. The Category I code will improve patient access by eliminating the automatic prior authorization denials associated with Category III codes, improving reimbursement predictability, and formalizing the implanting physician payment at a national average of approximately $560. We believe that this change will meaningfully reduce friction in the prior authorization process going forward. We are also seeing encouraging progress in our ongoing efforts to improve coverage. Our 30-day Medicare Advantage prior authorization approval rate reached 46% in 2025, up from 31% in 2024. This represented remarkable progress for a therapy with a Category III code, and with the Category I code now in effect, we are optimistic that these approval rates will continue to improve. On the awareness front, we significantly expanded our medical education programs in 2025. We completed over 150 local, regional, and national educational events targeting physicians and advanced practice providers who manage heart failure patients in the community. Our focus on APPs, the nurse practitioners and physician assistants who see these patients far more frequently than physicians, has become a key leverage point in building sustainable referral networks around our targeted centers. Finally, regarding clinical evidence, we recently announced the initiation of the landmark BENEFIT HF trial following CMS approval of Category B IDE coverage last month. This prospective randomized controlled trial will evaluate impact on all-cause mortality and heart failure decompensation events in an expanded population with ejection fractions up to 50% and NT-proBNP levels up to 5,000. The trial is expected to be one of the largest therapeutic cardiac device trials ever performed in heart failure, randomizing 2,500 patients at approximately 100 centers in the United States and Germany. If successful, this trial would expand our prevalence-based addressable market from approximately 339,000 patients to over 980,000 patients, effectively tripling our market opportunity to approximately $30,000,000,000. Importantly, patients with higher ejection fractions and NT-proBNP levels are already being seen by these same clinicians that we work with today, making this an easily accessible adjacent population. The CMS approval of Category B IDE coverage is critical, as it ensures Medicare coverage for patients enrolled in the trial, reimbursing hospitals at approximately $45,000 per procedure, consistent with current commercial reimbursement rates. Operator: With CMS coverage secured, Kevin Hykes: we expect to begin enrollment in 2026. The net cash impact from the trial is expected to be $20,000,000 to $30,000,000 spread over five to seven years, with the majority coming in the later years. Operator: Beyond this randomized controlled trial, Kevin Hykes: we continue to develop real-world evidence and to support investigator-initiated research demonstrating positive patient outcomes, including reductions in hospitalization, improved ejection fraction, and improvement in cardiac function. We also strengthened our balance sheet in early January through an amendment to our debt facility that extends the maturity date to 2031 and provides access to additional capital as we achieve certain milestones. In summary, 2025 was a year of building the right foundation for sustainable growth. Operator: Transformed our sales organization with high quality talent, Kevin Hykes: validated our program selling strategy with proof of Operator: deeper adoption, Kevin Hykes: and made significant progress in reducing the barriers to adoption, including significantly improving patient access to Barostim therapy. Importantly, we also secured approval and coverage for a landmark randomized controlled trial, which has now been initiated with first enrollments expected in 2026. While our growth rate reflected the natural ramp period for our newer sales reps, we made meaningful progress on the strategic elements necessary to drive improved performance. We believe these initiatives will support our accelerated growth and make Barostim therapy more accessible for heart failure patients in 2026 and beyond. Operator: Before Jared discusses the financials, Kevin Hykes: I am excited to announce that Greg Morrison was appointed as our new Chief Human Resources Officer and will be joining CVRx, Inc. in March. He will succeed our current CHRO, Tanya Austin, who is stepping back due to personal reasons. Greg brings over 30 years of leadership experience in medical devices, serving as the senior HR officer in seven different medical device companies. We are grateful to Tanya for her significant and impactful role in the Jared Oasheim: transformation of our commercial team, and appreciate her continued support through the transition period. Now I will turn the call over to Jared for a detailed financial review. Kevin Hykes: Thanks, Kevin. Unless otherwise stated, year-over-year comparisons are for the three months ended 12/31/2025 compared to the three months ended 12/31/2024. In the fourth quarter, total revenue generated was $16,000,000, an increase of $700,000, or 4%. Revenue generated in the U.S. was $14,900,000, an increase of $600,000, or 4%. Revenue units in the U.S. totaled 478 and 404 for the three months ended 12/31/2025 and 12/31/2024, respectively. The increase was primarily driven by continued growth because of the expansion into new sales territories and new accounts, as well as increased physician and patient awareness of Barostim. We ended the year with a total of 252 active implanting centers as compared to 223 at the end of 2024, and 250 as of 09/30/2025. We had 53 sales territories in the U.S. at the end of the year compared to 48 at the end of 2024 and 50 on 09/30/2025. Revenue generated in Europe was $1,100,000, an increase of $100,000, or 10%. Total revenue units in Europe increased to 49 from 41 in the prior-year period. The number of sales territories in Europe remained consistent at five for the three months ended 12/31/2025. Gross profit was $13,800,000 for the three months ended 12/31/2025, an increase of $1,100,000, or 8%. Gross margin increased to 86% compared to 83% a year ago. Gross margin was higher due to an increase in the average selling price and a decrease in the cost per unit, primarily due to an increase in manufacturing efficiencies. R&D expenses increased $200,000, or 7%, to $3,000,000 compared to the prior-year period. This change was primarily driven by a $300,000 increase in compensation expenses, mainly as a result of increased headcount, partially offset by a $100,000 decrease in clinical study expenses. SG&A expenses increased $1,800,000, or 9%, to $22,000,000 compared to the prior-year period. This change was driven by a $1,300,000 increase in compensation expenses, mainly as a result of increased headcount, a $500,000 increase in advertising expense, and a $300,000 increase in travel expense, partially offset by a $300,000 decrease in consulting expense. Interest expense decreased $100,000 to $1,400,000 from a year ago. This decrease was driven by the lower interest rate on the levels of borrowings under the term loan agreement with Innovatus Capital Partners. Other income, net, was $700,000 compared to $1,100,000. This decrease was primarily driven by less interest income on our interest-bearing accounts. Net loss was $11,900,000, or $0.46 per share, for 2025 compared to a net loss of $10,700,000, or $0.43 per share, for 2024. Net loss per share was based on 26,200,000 weighted-average shares outstanding for 2025 and 24,700,000 weighted-average shares outstanding for 2024. As of 12/31/2025, cash and cash equivalents were $75,700,000. Cash used in operating and investing activities was $40,800,000 for the year ended 12/31/2025, compared to $40,500,000 for the year ended 12/31/2024. Regarding our balance sheet, in January, we amended our term loan agreement with Innovatus Capital Partners to increase the existing facility by $50,000,000 to an aggregate principal amount of up to $100,000,000, subject to achieving certain milestones. At closing, we borrowed an additional $10,000,000, bringing our total outstanding principal to $60,000,000. The interest-only period is extended four years from the closing date and is extendable to five years upon achieving certain revenue milestones. Jared Oasheim: The term loans mature in May 2031. Now turning to guidance. For the full year of 2026, we expect total revenue between $63,000,000 and $67,000,000. We expect full year gross margin between 84% and 86%. We expect operating expenses to be between $103,000,000 and $107,000,000. For Q1 2026, we expect to report total revenue between $13,700,000 and $14,700,000. With that, I will now turn the call back over to Kevin for closing remarks. Kevin Hykes: Thank you, Jared. As we look ahead, we have several catalysts in place that we believe will drive improved performance. The Category I CPT codes represent the culmination of years of work on the reimbursement front. We expect to see the benefits build throughout the year as prior authorization processes adapt to the new coding structure. Our sales organization is increasingly experienced and productive, with our transformation now largely behind us. Operator: Finally, Kevin Hykes: the initiation of the BENEFIT HF trial represents one of the most significant developments in our company's history. While this trial will not have material impact on our 2026 revenue results, it will create significant visibility, credibility, and goodwill in the heart failure community. On a long-term basis, if successful, BENEFIT HF positions us for meaningful long-term growth and will roughly triple our addressable market. We remain focused on our core mission, to positively impact the standard of care for heart failure and address a significant unmet need for hundreds of thousands of patients. We are confident in our ability to execute against that mission in the year ahead, and to reach significantly more patients in the years to come. Now I would like to open the line for questions. Operator? Operator: Thank you. Ladies and gentlemen, if you would like to ask a question, please press 1 on your telephone keypad. You may press 2 if you would like to remove your question from the queue. It may be necessary to pick up your handset before pressing the star keys. And the first question comes from the line of John Young with Canaccord Genuity. Please proceed. Kevin Hykes: Hi, Kevin, Jared, congratulations on the strong end to the year. And thank you for taking the questions this evening. First, on BENEFIT HF. John Young: On the strategy, can you talk about the initial sites? Will these be new or existing commercial sites? And what is the overlap in the current indication too? Will there be any revenue generation from the cases? Thank you. Kevin Hykes: Sure. I will take that one, John. I appreciate the question. So there Operator: we are early Kevin Hykes: in the recruitment of centers. As we suggested, there will be about 150 centers in the U.S. with a handful in Germany. We are approaching these centers on the basis of their interest John Young: in the therapy and their impact within the heart failure community. So there is a mix of centers that are already using Barostim in today's indicated population, and some that have not yet begun commercial implantation. And so I presume as we proceed through the site activation process, we will have a blend of centers even as we reach 150, but a significant number that have some experience already commercially with the therapy. Do you want to handle the revenue question, Jared? Sure. Jared Oasheim: Hey, John. Yes. So right now, the trial design is set up where they are expecting 2,500 randomizations. It is set up where two-thirds of them will be randomized to the device arm and would require an implant. And each one of those units, we are expecting to be reimbursed by Medicare or Medicare Advantage plans for hospitals, so we would be selling those devices. So in total, we would be selling somewhere around 1,600 or 1,700 devices as a result of this trial. John Young: Okay. That is helpful. Thank you. And then just the growth of active accounts in Q4, the sequential growth was a bit low. I am sure it is reflective of the sales strategy of going deep, but how should we expect that to trend through 2026? Again, thanks for taking our questions. Jared Oasheim: Yes, great question. Yes. And we have always pointed this out, it is a net basis. Right? So we added more than the two, but we also sunset quite a few accounts here in the fourth. As we go into 2026, the guidance is still assuming that we are going to be adding around three territories on a quarterly basis. And as you know, John, our expectation is each one of those territories would be managing between three to five active implanting centers. So based on that growth alone, we are continuing to expect to be adding high single-digit account adds on a net basis each quarter in 2026. John Young: Thanks so much. Jared Oasheim: Thank you. Operator: The next question comes from the line of Brandon Vazquez with William Blair. Please proceed. Max Smock: Hey, Max on for Brandon. Thanks for taking the questions. Kevin, just on BENEFIT HF, just to double down on it. You know, you gave some good color in your prepared remarks, but I was just curious, do you guys see any scenario where, you know, some of the chatter around the trial can actually be a tailwind for the core business, Operator: while the trial is going on. Max Smock: Yes. Thanks, Max. I think that is a good question. The short answer is yes. While we do not Kevin Hykes: expect significant revenue contribution from trial sites in this next year, there certainly will be a goodwill effect and a credibility effect Operator: from the trial. This is, as we have said, the largest therapeutic device trial ever conducted in heart failure. We believe it is a landmark trial on that basis. It is a signal that we believe and have great confidence in this therapy. Kevin Hykes: And I think we are starting to see some of that already. Positive feedback from the community. They are pleased at the scientific rigor and the scale of this trial, and they are excited to be part of it. Operator: So the short answer is yes. From a goodwill standpoint, absolutely. Kevin Hykes: That is helpful. And then, you know, I know we are only, call it, a month and a half into the year. But Category I code went into effect January 1. And I was just wondering if you guys could Max Smock: share any, you know, anecdotal examples you have heard thus far on how that has helped lower barriers to treatment? I mean, maybe how you see that tailwind building throughout the year? Operator: Thanks. Max Smock: Sure. Thanks, Max. Yes, I would say we are still very much in transition mode. Kevin Hykes: But it is progressing as we had expected. Right now, our focus is really on making sure that those codes are updated Operator: with each of the payers, Kevin Hykes: resubmitting prior auths that were in process in late 2025 that were sort of now caught Operator: in the gap. So resubmitting them with the new codes and ensuring that all new submissions are using the new code. So it will take us Kevin Hykes: some number of quarters likely to get through this transition, but we are in fact seeing payers who have historically rejected 100% of our prior auths now beginning to approve them. Operator: We have also seen some of the Medicare Advantage payers approving at a higher rate and more quickly than they have historically. So early days, but certainly some positive signals. Great. Thanks for taking the questions. The next question comes from the line of Matthew O'Brien with Piper Sandler. Please proceed. Anna: This is Anna on for Matt. Thanks for taking our questions. I guess I just wanted to ask on the guide at a high level. I know you have guided to 11% to 18% top-line growth. That is an acceleration from what we saw this year. So I was just wondering, you know, what gives you the confidence and what is contemplated in the low end and the high end of the guide. Jared Oasheim: Yes, appreciate that question. So I think as we look back to 2025, we did go through a bit of a reset after the first quarter, understanding that we had cut a little bit deeper than initially anticipated within the sales organization. After that reset was done in 2025, we have seen pretty nice sequential growth from Q1 all the way through Q4 as we have continued to watch those new reps that we hired in 2024 and 2025 get further up the productivity curve. Now we do expect a bit of a seasonal dip from Q4 to Q1 as reflected in our guidance. But after that seasonal dip going from Q4 to Q1, we do expect to see that return to sequential growth throughout the rest of the year. So it is what we are seeing within the sales reps and their productivity to date that is giving us the confidence to be able to see a reacceleration of growth in 2026. Operator: Great. Thanks so much. Jared Oasheim: Thank you. Operator: The next question comes from the line of Robbie Marcus with JPMorgan. Please proceed. Lily: Hi, this is Lily on for Robbie. Thanks for taking the question. There has been a lot of focus on building out and getting the salesforce to be more efficient. So can you talk a bit more about what you have been seeing lately in getting reps up the productivity curve and how we should be thinking about the pace of improvement over the course of 2026. Jared Oasheim: Yes. Happy to dive in a little bit deeper on that one, Lily. So throughout 2025, we spent the first quarter making sure we had the right team members in place, maybe getting a few more of them hired in during the second and third quarter of the year. We have continued to see those reps go through the onboarding process, the training process, and more of them reaching the activation state, seeing that total number of active territories grow to 53 by the end of the year. We also saw the number of revenue units per territory continuing to increase as we went throughout 2025. And, you know, I think we have mentioned, you know, some of the metrics at the account utilization level, but we are seeing more of our accounts achieving that point of one implant a month here in the fourth quarter. And so as we get more and more of those reps up that productivity curve, the expectation is they are going to be working on those workflows at those centers to build those flywheels to see more centers treating one a month. And so I think it is all of that positive momentum we saw throughout 2025 that gives us confidence to be able to continue to see growth in sales productivity as we go into '26. Lily: Great. That is helpful. And then just as a follow-up, you have had a few nice quarters of gross margin in the 86% plus range. I see the guidance for 84% to 86% for 2026. Is there any reason this should go backwards? If you could highlight some of the key drivers we should be keeping in mind for gross margin this year, that would be helpful. Jared Oasheim: Yes. I would say we were really happy with the results we saw in gross margin in 2025, both from the price standpoint and also the cost per unit standpoint. So in '25, we exceeded expectations on ASPs in the U.S., getting north of a $31,000 ASP. I think as we think about 2026, we do not want to get over our skis and start setting that as the expectation. So in our base case, in the guide, we are setting the expectation on the U.S. side of the business for ASPs of around $31,000. On the cost side, again, we continue to see manufacturing efficiencies throughout the year driving that cost per unit down. We also understand that we have significant capacity at our manufacturing facility here in Minnesota to produce more and more units. So there is an opportunity to see that cost per unit come down further as we continue to produce more units. However, we are not baking that into the initial guide here for 2026. Lily: Great. That is helpful. Thanks so much. Operator: Thank you. The next question comes from the line of Frank Takkinen with Lake Street Capital Markets. Please proceed. Frank Takkinen: Great. Thanks for taking the questions. Frank James Takkinen: I was going to start with one more on the BENEFIT trial. I am just curious on kind of how to think about how you expect this cohort of patients to react to the technology. And I think we have talked about this before and just making sure you get to patients prior to that disease state advancing to a more severe state. And if you are getting to them earlier, are you seeing a more durable response? Is that the expectation? Maybe it is less on absolute terms, but it is getting them closer to kind of pre-disease state. Just curious if you are treating some of these earlier-stage patients what your guys' expectation would look like. Sure. Thanks, Frank. I will try to answer that. Operator: You know, the Frank James Takkinen: HFrEF population, those are patients between 35 and 50 ejection fraction, have not been widely studied historically. We have a decent sense of the event rates in that group, Frank Takkinen: which you would expect to be a little bit lower than the event rates in the sicker Frank James Takkinen: 35 below, the proper HFrEF population. Kevin Hykes: But it is very much the same disease. Unlike HFpEF, which is a different disease, both HFmrEF and HFrEF are neurohormonal disorders. It is the same disease, Frank James Takkinen: with differing degrees of severity. So we expect that they will respond to Barostim in a very similar fashion that the HFrEF patients do. Beyond that, obviously that is why we are running the trial, Operator: it is a large trial because the event rates in that mrEF population are lower, so statistically, you need to study more patients to generate more events. But we would expect to see very similar responses from that population, whether it is on the primary endpoint of survival and of heart failure hospitalization or the secondary that relate to quality of life and other important clinical consideration. Frank James Takkinen: So too early to tell, but we are confident that we have defined the trial in such a way and empowered it in such a way Operator: that we can prove a difference in both of those populations. Kevin Hykes: Whether we catch them earlier, slightly earlier in their disease, Operator: or when they are properly below 35 as we do today. Hope that helps. Little complicated. Yes. Frank James Takkinen: No. That is perfect. I appreciate it. And then just for my follow-up, going to ask maybe once more on kind of the center activation and strategy to go deeper. If you were to think about the guide, low end versus high end, what is more important? Is it the activation of the right centers, or is it more a same-store sales proposition? Jared Oasheim: Yes. Appreciate that question, Frank. Yes. I mean, our goal here is to drive deeper adoption. And so that is priority number one for all of our sales reps, is make sure you have the right accounts activated first, but then second, to really start to build that network effect around those centers to make sure all the referral physicians and APPs know about this therapy and what types of patients it will help. And so it is all about driving deeper adoption and seeing that same-store sales number increase in 2026. In addition to that, we will be adding new territories, as I mentioned, so about three or so per quarter. And each of those new territories are also going to be activating centers. So we will still see new center adds throughout 2026, but we believe the majority of the growth is going to come from deeper adoption at the existing centers. Operator: Perfect. Frank James Takkinen: Thanks for taking the questions. Kevin Hykes: Yep. Operator: And the final question will come from the line of Chase Knickerbocker with Craig-Hallum Capital Group. Please proceed. Chase Knickerbocker: Good afternoon. Kevin, I just wanted to start on Chase Richard Knickerbocker: some of those top accounts that you mentioned that exited the year at a pretty stark run rate from a device implant perspective. I mean, what do they have in common? I think particularly kind of around the stakeholders of those accounts, I would be interested to hear as far as kind of what resonated with them that made them, you know, such high-volume adopters fairly quickly. And then maybe kind of the characteristics and the approach of the salesperson as well. That would be helpful. Max Smock: Sure. Thanks, Chase. I presume you are referring to the comment about the top 20% of our accounts are doing basically 19 units per year, about one and a half per month. Yes. So it is a great question, and it is Frank James Takkinen: exactly what has—the insights from those accounts are what led us to refine and optimize our go-to-market strategy. And what we see in those accounts Operator: are places where you have not just a single champion, Frank James Takkinen: but in fact a supportive CEO or CFO that understands the profitability. You have multiple heart failure specialists that understand which patients can benefit. Operator: You have a pool of cardiologists in the community who are screening patients and sending them in for evaluation. And you have redundancy at the surgeon level. Frank James Takkinen: So that you can continue to consistently implant even when a surgeon goes on vacation or sabbatical or changes roles, etc. So it is sort of as simple as that. That is what we think good looks like. Operator: And that is exactly how we are now incentivizing our sales team. We are paying them a premium for units that come from centers that have those very characteristics. Because we know when you have that sort of redundancy and you have that repeat utilization, that is sort of the flywheel that starts to turn, and that is what causes them to continue treating patients on their own. Frank James Takkinen: Whether or not you remind them or not. So that is really the fundamental insights that drove our revised go-to-market strategy. Chase Richard Knickerbocker: If you kind of take that cohort, Kevin, that 20%, what is the age of those accounts? Are there some that are, you know, fairly short? Maybe you kind of initiated them in '25 or early 2024. Or are those some of your accounts that have been implanting Barostim for the longest? It is probably across the board, but just some thoughts there as far as kind of Max Smock: sure. How long it takes some of these accounts to get there. Kevin Hykes: Yes. And what I can say definitively, it takes more than six months. Right? Because that Operator: scenario that I described takes time to establish. Frank James Takkinen: But I think beyond that—so there are none that are brand new, but there is a pretty wide spectrum, some of whom have been with us in developing that resilience and that flywheel for a number of years. There are some that are as new as nine months or even twelve months. So, again, some of that stems from us learning more Operator: about the kinds of centers that can be successful and being more intentional Frank James Takkinen: and disciplined about where we engage. Right? That network I described does you no good if the baseline Operator: characteristics in the account are suboptimal. So you want to start with the right account, then you want to establish that network, Frank James Takkinen: and then you want to get the flywheel turning. So it is a little bit of everything, thankfully. Chase Richard Knickerbocker: Got it. Maybe just one on BENEFIT for me. What portion of the enrollment do you expect to be OUS? And, you know, we should not be thinking that there is, you know, revenue recognition there. I mean, that is something—it will just be expense. I mean, just kind of talk me through how much it will be OUS and then how you expect to treat it. Kevin Hykes: That is a great question. It will be a very, very small number of centers. Operator: For a number of the reasons you pointed out and some others. Kevin Hykes: So this will very much be a U.S.-focused trial, a Medicare-focused trial, again with the benefit of the Category B Frank James Takkinen: reimbursement sitting behind it. Chase Richard Knickerbocker: So a very—a very small. And then just last, Jared, any thoughts on kind of path to profitability? You know, obviously, we have got some net expense from the trial. You know, just overall thoughts there. And if at some point, there is a decision to, you know, eventually kind of slow down the territory adds or just kind of help me think about how you expect to manage the business to profitability over the medium term? Jared Oasheim: Yes. Appreciate the question. So right now, we had $75,000,000, $76,000,000 at the end of the year. We noted in our preannouncement in early January that we added $10,000,000 from the debt amendment, so up to $86,000,000 to start 2026. With the guide, you know, we are expecting to burn somewhere around $30,000,000 to $35,000,000 in 2026. But what we do know is we have at least two years of cash on the balance sheet today. We also have access to an additional $40,000,000 of nondilutive capital through the debt amendment, and those are triggered based on us hitting certain revenue milestones over the next couple of years. So we have access to plenty of capital today. There is no need to go out and raise additional capital at this point in time. I also know there were some questions around the filing of the shelf and ATM in late 2025, early 2026. And that was purely good corporate housekeeping. Our old shelf had expired in 2025, so we needed to refresh the shelf and put a new one up this year. So with $86,000,000 in the bank, two-plus years of cash available to us, there is no need to go out and raise any additional capital at this point. As to the path to profitability, it is all about generating leverage. Right? We hired a whole bunch of really good reps. It is now pushing them up that productivity curve to drive a faster growth rate on the top line than we are seeing on the SG&A line. And that is our plan—is that we are going to continue to drive them up that product curve and continue to add new heads to see that growth rate. We will in the coming years. But with $86,000,000 of cash, it is not a concern for us. Operator: Understood. Thank you. Thank you. This concludes the question-and-answer session. I would like to turn the call back over to Kevin Hykes for closing remarks. Kevin Hykes: Thank you, operator, and thanks to everyone for joining today. We appreciate your continued support and look forward to updating you on our progress next quarter. Operator: Thanks. This concludes today's conference. You may disconnect your lines at this time. Enjoy the rest of your day.