加载中...
共找到 17,603 条相关资讯
Operator: Ladies and gentlemen, hello, and welcome to today's Tyler Technologies, Inc. Fourth Quarter 2025 Conference Call. Your host for today's call is H. Lynn Moore, President and CEO of Tyler Technologies, Inc. Later, we will conduct a question and answer session, and instructions will follow at that time. In order to address your questions and stay within the allotted time, please limit yourself to one question per person. You may get back into the queue for a follow-up. As a reminder, this conference is being recorded today, February 12, 2026. I would like to turn the call over to Hala Elsherbini, Tyler's Senior Director of Investor Relations. Please go ahead. Hala Elsherbini: Thank you, Abby. Operator: And welcome to our call. With me today is H. Lynn Moore, our president and chief executive officer and Brian K. Miller, our chief financial officer. After I gave the safe harbor statement, Lynn will have some initial comments on our quarter, and then Brian will review the details of our results and our annual guidance for 2026. Lynn will end with some additional comments, and then we'll take your questions. During this call, management may make statements that provide information other than historical information and may include projections concerning the company's future prospects, revenues, expenses, and profits. Such statements are considered forward looking statements under the safe harbor provision of Private Securities Litigation Reform Act of 1995 and are subject to certain risks and uncertainties, which should cause actual results to differ materially from these projections. We would refer you to our Form 10-K and other SEC filings for more information on those risks. Also in our earnings release, we have included non-GAAP measures that we believe facilitate understanding of our results and comparisons with peers in the software industry. A reconciliation of GAAP to non-GAAP measures is provided in our earnings release. We have also posted on the Investor Relations section of our website under the financials tab, a scheduling and supplemental information including information about our quarterly recurring revenue and booking. On the events and presentations tab, we posted an earnings summary slide deck to supplement our prepared remarks. Please note that all gross comparisons we make on the call today will relate to the corresponding period of last year unless we specify otherwise. Lynn? Hala Elsherbini: Thanks, Hala. Operator: Our fourth quarter results provided a solid finish to 2025. H. Lynn Moore: A year that demonstrated the resilience of our business and end markets. Throughout 2025, we demonstrated what decades of disciplined execution look like. Navigating shifting macro sentiment while advancing our strategic priorities and delivering on key performance metrics. Recurring revenue growth and free cash flow are two key metrics both surpassed expectations in the fourth quarter. Recurring revenues grew 11%, led by SaaS revenue growth of just over 20% and transaction-based revenue growth of 12%. Free cash flow was a fourth quarter record up nearly 10% with our free cash flow margin expanding to an exceptional 41%. Public sector market fundamentals and the demand environment remain strong. Generally healthy budgets are supporting an active pipeline, and RFP and sales demo activity remain at elevated levels. As agencies prioritize modernization of aging mission critical systems essential to their digital transformation, workforce optimization, and efficiency initiatives. Our sales organization delivered solid execution in the fourth quarter, as total SaaS bookings grew 9.6%. In particular, we saw strong momentum from flips of on-premises clients to the cloud, both the number and the value of flips signed during the quarter represented new quarterly highs. Annual contract value from flips signed this quarter rose 64.5% over last year and 54.8% sequentially. We are well positioned to capitalize on the significant opportunities ahead, supported by a proven business model and clear competitive advantages. Our four key growth pillars guide our execution. Completing our cloud transition, leveraging our large client base, growing our transactions business, expanding into new markets. Our transaction-based business continues to be a significant growth driver, and I want to highlight the progress we made during 2025. We consolidated our payments operations across Tyler under our new industry proven leader, Ryan O'Connor, executing a unified payment strategy that positions us to capture greater value and drive operational efficiencies. We are focused on value-added transaction services that are deeply embedded in our solutions across multiple use cases. Like utility billing, municipal courts, licensing and permitting, property taxes, and parks and recreation. This full end-to-end integration provides significant value for our clients by streamlining operations and improving citizen experiences while also creating a differentiated competitive position for Tyler. Now I'd like to highlight a few fourth quarter wins that illustrate progress against our growth objectives with a broader list of key deals included in our quarterly earnings deck. We expanded our relationship with one of our major state enterprise clients, signing contracts for digital motor vehicle titling, which will be transaction funded and SaaS contracts for a statewide cashiering solution well as our recreation dynamics and data and insight solutions. In Alabama, signed SaaS contracts for our enterprise ERP solution with two of the state's largest school districts. The Jefferson County Schools and the Huntsville City Schools. We also signed a SaaS agreement for our enterprise jail solution with Riverside County, California. An existing court software client. I mentioned earlier it was one of our biggest quarters ever for flips. Contracts signed in Q4 for flips of on-premises clients included LA County, California, flipping their enterprise permitting licensing system while also adding our fire prevention mobile sys solution in the cloud as well as payments. Enterprise public safety flips with the cities of White Plains, New York and Beverly Hills, California, our first public safety flip in California. Two of the six largest counties in Texas, Travis County and Collin County, signed a contract to flip their enterprise justice solutions. Contra Costa County, California also is flipping their enterprise justice solution while adding traffic court, including payments, to their portfolio of Tyler solutions. And enterprise ERP flips with Marin County, California and Madison, Wisconsin. We also continue to see sales success in transactions, with key wins and an active pipeline of opportunities that reinforce the strength of our unified payment strategy. Key fourth quarter wins included a payments contract with Multnomah County, Oregon, an existing appraisal and tax software client, We also signed a contract with the State of Maryland Administrative Office of the Courts, an existing enterprise justice software client for payments and disbursements. Finally, our state sales team is building early momentum, opening new doors and advancing strategic statewide opportunities. Through strong internal alignment and collaboration, we signed a statewide contract this quarter with the New Mexico Department of Corrections, for our inmate services financial suite warehouse management administration suite. Now I'd like Brian to provide more detail on the results for the quarter and our annual guidance for 2026. Thanks, Lynn. Total revenues for the quarter were $575,200,000 up 6.3%. During the quarter, we recorded a one-time noncash loss reserve related to a contract dispute with a state government client. In early 2022, we received a notice termination for convenience under a software license contract with that client. Upon receipt of the termination notice, we ceased performing services and sought payment as contractually owed fees in connection with the termination for convenience. This type of dispute is very unusual for us, and we have disclosed its existence in our financial statements since 2022. Since then, we have attempted to resolve the dispute and filed a lawsuit to enforce our rights and remedies under the contract. Although we believe our products and services were delivered in accordance with the terms of our contract and that we are entitled to payment in connection with the termination for convenience, at this time, the matter remains unresolved. While we are continuing to pursue our claims, we have no remaining balance sheet exposure. The reserve resulted in the reversal in the fourth quarter of approximately $8,800,000 of license revenues and $900,000 of professional services revenues. There is no impact on recurring revenues or cash. Excluding the impact of this reserve, revenue growth in the quarter would have been 8.1%, our operating margin would be 120 basis points higher, and EPS would be $0.17 higher. Subscriptions revenue continued to exhibit strength and increased 16.1%. Within subscription, SaaS revenues grew 20.2% and eclipsed $200,000,000 in a quarter for the first time. As we've discussed previously, there's often a lag of one to several quarters from the signing of a new SaaS dealer flip to the start of revenue recognition. Because of this as well as the timing of SaaS renewals and related price increases, SaaS revenue growth and SaaS bookings both year over year and sequentially may fluctuate from quarter to quarter. Transaction revenues grew 12.1% to $1,967,000,000 driven by higher transaction volumes for both new and existing clients, increased adoption and deployment of new transaction-based services, and higher revenues from third-party payment processing partners. As previously discussed, revenues under the Texas payments contract ended in Q4. Actual revenues from the contract in the fourth quarter were approximately $3,000,000 which is almost $4,000,000 less than we anticipated going into the quarter. Total bookings in Q4 were solid at $601,000,000 essentially flat with last year's fourth quarter against a very difficult comparison. For the full year, total bookings grew 1.4%. Total SaaS bookings, including new SaaS deals, flips of on-premises clients, expansions, and renewals, grew 9.6% year over year. As we've discussed previously, last year's fourth quarter bookings included an unusually high number of large deals including a $25,000,000 eight-year agreement with the State of Maine, as well as some pull forward of deals because of deadlines for the commitment of federal ARPA funds. Bookings growth this quarter was driven by strength in flips, expansions and renewals, coupled with solid new client activity. Total SaaS bookings for the full year grew 4%. Annual contract value from flips signed this quarter was $28,100,000 up 64.5% over last year and up 54.8% sequentially from Q3. Our total annualized recurring revenue was approximately $2,060,000,000 up 10.9%. Our non-GAAP operating margin was 24.1%, down 30 basis points from last year. For the full year, our non-GAAP operating margin was 26%, up 150 basis points from last year, reflecting a continued positive shift in revenue mix towards higher margin SaaS and transaction revenues and efficiency gains across our cloud operations. Cash flows from operations and free cash flow were both robust and reached new highs for a fourth quarter at $243,900,000 and $236,900,000 respectively. For the full year, free cash flow was $620,800,000 with a free cash flow margin of 26.6%. We ended the quarter with cash and investments of approximately $1,160,000,000 and $600,000,000 of convertible debt outstanding, which we expect to repay when it matures in March. Our annual guidance for 2026 is as follows. We expect total revenues will be between $2,500,000,000 and $2,550,000,000. The midpoint of our guidance implies growth of approximately 8.3%. We expect GAAP diluted EPS will be between $8.30 and $8.61 and may vary significantly due to the impact of discrete tax items on the GAAP effective tax rate. We expect non-GAAP diluted EPS will be between $12.40 and $12.65. Our estimated non-GAAP tax rate for 2026 is expected to be 23% up a half percent from 2025. We expect our free cash flow margin will be between 26%–28%. We expect research and development expense will be in the range $242,000,000 to $247,000,000. Other details of our guidance are included in our earnings release and in the Q4 earnings deck posted on our website. I'd like to add some additional color around our revenue guidance. We're pleased that our SaaS and transaction revenues are growing in line with or ahead of our 2030 objectives, and that lower margin revenues like services and hardware are growing at a slower rate. Subscription revenues in total are expected to grow between 12% and 15%. Within subscription, SaaS revenues are expected to grow between 20.5% and 22.5%. Transaction revenues are expected to grow between 5%–7%. As we've discussed for some time, our payments contract with State of Texas ended in 2025. Transaction revenues from that contract totaled approximately $36,000,000 in 2025. Excluding the impact of the Texas contract, our expected transaction revenue growth in 2026 would be between 10%–12%. And our expected total revenue growth would be between 9%–11%. Maintenance revenues are expected to decline 5% to 7%. Professional services revenues are expected to grow 3% to 5%. License revenues are expected to grow 15% to 17%. Excluding the impact of the contract loss reserve recorded in 2025, license revenues would be expected to decline 30% to 32%. Hardware and other revenues are expected to decline 17% to 19%, as 2025 included revenues associated with deliveries of hardware under two large contracts for our student transportation and enforcement mobile solutions. Also note that our guidance does not include the impact of any potential acquisitions in 2026 including the recently announced pending acquisition of For The Record. While we expect that transaction to close late in the first quarter, it is subject to regulatory approval and the timing is therefore uncertain. Now I'd like to call the turn the call back to Lynn. Operator: Thanks, Brian. H. Lynn Moore: I'm pleased with our fourth quarter performance. Closing year of solid performance that exceeded our expectations. I remain confident in our ability to deliver sustained growth through our unique competitive strengths that position us to lead our clients' digital transformation through enhanced cloud capabilities, an elevated client experience at every touch point, and the next wave of AI modernization. I'd like to provide a few brief updates on AI. As we discussed during our third quarter call, there's a lot of noise in the market. But in the public sector, technology alone does not win. For more than 25 years, Tyler has guided clients through successive ways of transformation and our approach remains the same. Deep domain expertise, trusted client partnerships, and disciplined execution. We are seeing that approach translate into real adoption. Over the past year, the Tyler resident AI assistant has gone live in six states: Alabama, Hawaii, Indiana, Mississippi, Nebraska, and South Carolina. Strengthening our broader resident engagement portfolio and making digital government more accessible and responsive. Indiana continues to be a strong proof point with approximately 17,000 residents using the assistant each month, generating nearly 50,000 questions directed to government services. That level of sustained usage helps agencies manage a high volume of routine questions through self-service reducing the need for manual responses and freeing staff time higher value work. We also saw continued commercial momentum with our AI-enabled solutions in Q4. Highlights included contracts for priority-based budgeting with the Alabama Department of Corrections, and the City of Plano, Texas. We also signed a contract with Fairfax County, Virginia for our AI resident assistant solution, our first resident assistant win at the county level. On the product side, we are transitioning agentic AI concept to disciplined deployment. We will initiate early access with select customers in Q1, integrating agentic capabilities directly into our enterprise permitting and licensing and supervision platforms. By embedding AI into the operational workflows that drive daily decision making, we expect to unlock significant efficiency service improvements. Following validated performance with early adopters, we plan a phased expansion through 2026 and beyond. Importantly, building this road map together with clients. Our enterprise ERP AI client advisory board held its initial meeting last month, reinforcing feedback we have also heard in forums like last year's Tyler Connect, our Courts and Justice Executive Forum, and our State Connected Forum. Clients do not want bolt-on tools that add complexity. They want practical AI that is deeply integrated into the systems they already run, governed appropriately, and that solve real world problems in a dependable trusted way. That is exactly where Tyler's deep domain expertise, trusted partnership, and disciplined execution differentiates us. And why we believe no one is better positioned to deliver it. As we grow free cash flow, we remain highly focused on our disciplined capital allocation and being responsible stewards of Tyler's capital to drive long term shareholder value. We continue to balance investments across multiple areas by making targeted investments in product development and R&D with particular focus on improving cloud operations, and scaling AI solutions that demonstrate clear ROI for clients. We are also building enhanced feature sets that advance product differentiation, and reinforce our market leadership while maintaining disciplined spend that drives both innovation and internal efficiency. During 2025, we completed four strategic acquisitions that deepen our capabilities and expand our addressable market. We recently signed a definitive agreement to acquire For The Record. A digital court recording pioneer with over 30 years of experience as a trusted category innovator. We've had a minority investment in For The Record since 2015, a natural extension and significant addition to our courts and justice portfolio. For The Record elevates agencies with advanced platform including AI-powered, multilingual transcription technology that perfectly complements our own courtroom technologies. Solving a critical need for a court reporting industry that faces growing challenges. Its proprietary cloud-enabled software is specifically designed for the complexities of today's courtrooms and will help create a seamless courtroom ecosystem expanding efficiencies for judges, clerks, and attorneys. By bridging the data courtrooms generate every day, with the digital case file, and accelerating tasks that data can inform through AI, these solutions offer a new category of judicial intelligence to our offerings. We look forward to welcoming the team after closing and to working together to drive our shared mission of improving access to justice through transformative technology and deliver a truly comprehensive solutions that benefits the industry. Last week, we announced our board's authorization of a new share repurchase program of up to $1,000,000,000, replacing our previous repurchase authorization. This announcement underscores our confidence in the trajectory of our business and reflects our view that Tyler shares represent an attractive value at current levels. Our reliable cash flow generation and extremely strong balance sheet enable us to opportunistically return capital to shareholders while continuing to invest for sustained growth. Each year, we become foundationally stronger and better positioned to on our long term growth strategy and we remain on target to achieve our 2030 goals. We look forward to updating our progress toward our 2030 objectives, and providing additional insight into our purpose built AI strategy and broader strategic initiatives during our upcoming investor day scheduled for June 9 in Frisco, Texas. We hope to see you there. Now we'd like to open up the lines for Q&A. Operator: Thank you. We will now open for questions. If you would like to ask a question, please press 1 on your touch tone phone. If you're using a speaker phone, please pick up your handset and then press 1. If you would like to withdraw your question, simply press 1 a second time. As a reminder, please limit your question to one question so that we may stay within the allotted time. And we'll pause momentarily to assemble our roster. And our first question comes from the line of Matthew David VanVliet with Cantor. Your line is open. Matthew David VanVliet: Hey, good morning. Thank you for taking the questions. I guess kind of a multi part question on SaaS flips I guess how should we think about the level this quarter on a go forward basis? Is this kind of a new baseline given the success you've had and the ability to help do those flips quickly and efficiently for customers. Then second part with that, how should we think about any upcoming renewal cohorts Any anything to call out from a a sizer quantity there that might influence a greater success on the flip side? And and how tight has that been so far? Thank you. Yeah, Matt. On the first part, we we don't guide to a flip number. We have said that we expect flips to continue to grow. From the level they're at now. They certainly can vary from quarter to quarter. We've said that we still expect the peak, especially with respect to large clients, to be in the 2027 through 2029 time frame. But but I guess it would be accurate to say that that this is the base that we expect to to continue to grow from. Don't think there's anything particular to call out around renewal cohorts. We obviously have very high renewal rates. The timing of renewals varies across the year. We are having continued success, and Lynn mentioned a couple of those flips that had add on components to them, so we are having continued success with selling additional products and services to existing clients as they flip to the cloud, and we expect, continue to expand that opportunity. Alright. Great. Thank you. Operator: And our next question comes from the line of Joshua Christopher Reilly with Needham. Your line is open. Joshua Christopher Reilly: All right, great. Thanks for taking my question. As we think about the ACV from new SaaS deals, can you remind us the comp issues for Q4? It seems like that was a good number adjusting for the large deal activity a year ago. And I know you don't guide to it, but, should we expect growth off that $53,000,000 figure that you did in 2025 and 2026. Thank you. Yeah. We don't guide the specific bookings numbers, but we do expect bookings to grow SaaS bookings to grow in 2026. And when we've given some commentary on the market conditions that support that expectation and Q4 was a really good solid sales number. Last year's fourth quarter, as a reminder, had a number of large deals, especially deals that were multimillion dollar SaaS deals. Biggest was a $25,000,000 eight year deal with the State of Maine for resident engagement portal. We had an $11,000,000 deal with Kenosha, Wisconsin for ERP. And three other deals that were over $4,000,000. Also, those deals last year had a longer duration. This year, the average duration of the SaaS of the new SaaS deals was closer to our our sort of standard at 2.3 years. Last year, it was 3.7 years. So there was a duration component to last year's bookings as well as just an unusually large number or high number of large deals. This year, the the mix of deals, the number of large deals was I'd say, more normal. I'd say too, Josh. The the individual factors that still go into a client's decision to flip still exist. But I do think one of the factors one of things I talk about, whether it's flips or other things around Tyler, is momentum builds builds momentum. And the more success that clients see their neighbors and peers having, helps to helps with that decision. But there there's still sometimes, you know, budget concern budget issues or technology issues or version issues that we we're still dealing with. But, clearly, the more success we have, it will it will continue to build and create more success in the future. Thank you. And our next question comes from the line of Terry Tillman with Truist. Operator: Your line is open. Terrell Frederick Tillman: Good morning, Lynn, Brian and Hala. Thanks for taking my question. It's a two part question. I saw in one of the slides on some of the deal activity, it was a the state sales team in New Mexico did a corrections deal. I know you all have been working on building out some of the kind of state focused sales teams more, to get more out of the the opportunities you have there. So maybe if we could, double click into that And the second part of the question, somewhat unrelated is, when we look at the SaaS revenue, you gave the guide for '26. Is there any way to think about sequencing each quarter? I mean, could there be quarters where it's sub-twenty, some quarters where it's well above 20? Just anything more you could share on kind of the flow. Yeah. Sure, Terry. I'll I'll start. Brian, I'll let you take the second one. Yeah. Our state sales team this was an initiative we really started a little over a year ago. It's taken some time to sort of build out and we're still in the early stages of it. But we're pretty excited with the results that we've seen so far. The collaboration across Tyler, the ability for that state sales team to leverage their relationships, to get Tyler products in through those those connections. Know, it's one of the reasons we we acquired NIC to begin with. That deal in New Mexico a deal that doesn't happen without that state sales team. And it's collaboration across them and a couple of other divisions. We don't often talk about we don't really actually don't often. We don't talk about awards. We only talk But the state sales team also had really good, sales success in Q4. about bookings. But generally speaking, the success that that sales team had really encouraging, particularly with some larger deals over $1,000,000 in ARR. Q4, Some of that take time to ramp up, some that can expand over time. But we're we're excited about where it is, but but we're early innings with that. And but it it's something that's I think that we're gonna continue to leverage over the the upcoming years. And, yeah, the midpoint of our guidance for SaaS growth is 21.5%. I I don't think there's anything in particular that stands out with respect to any single quarter being varying a lot, from that 20 plus percent to range. It it can vary with timing of that lag from when we sign something to when the revenues actually hit. As well as the timing of flips. But generally, I think growth would be expected to be fairly consistent across the year. Great. Thanks. Operator: Our next question comes from the line of Alexei Gogolev with JPMorgan. Alexei Gogolev: Hello, everyone. Can you talk a bit more about partnerships that you have with various AI players, the management and traffic quarter. Maybe you can elaborate on the recent evolution of those partnerships. So with the the partners we use in conjunction with our AI development activities, we do work with Anthropic and AWS and with and OpenAI. We have active relationships with with all of those major players connection with the development work we're doing to bring AI into our products. Operator: And our next question comes from the line of Ken Wong with Oppenheimer. Ken Wong: Fantastic. Thanks for taking my question. You know, you guys called out the the tough comps through most of '25 due to the ARPA pull forward. As you guys look to '26, is how comfortable are you that you know, that that ARPA dynamic was was kind of limited to just that twelve month time frame. Any potential that there's some deals in the pipeline that came out of '26 and beyond? Okay. Yeah. I don't you know, it's it's obviously early in '26. Think what I would say generally when I look at the market, and the leading indicators, the market looks really healthy right now. Our win rates continue to be strong. We talked earlier last year, particularly in the first half of the year, where there was a little bit lighter bookings. And at the time, we were saying there really wasn't a change in the market. There were just more of a delay. We talked about an ARPA hangover. We also talked for whatever reason, some decisions just weren't being made. When you step back and you look at these leading indicators, for example, our public administration group, 2025 saw the the highest number of RFPs that we've seen in five years. Now RFPs take a long time to work their way through, to work through an award, to work through a contract, to work through revenue, but that's a pretty good leading indicator. Our sales, like I mentioned earlier, we don't like to talk about awards. But sales activity in in in sequentially throughout 2025. And into 2025. We mentioned some things going off the state sales team. So and and also really, really strong sales. At public admin group. Our justice group tends to be a little bit lumpier. Public safety has got a lot of momentum. So what we're seeing in the market is is a good healthy demand. We're not seeing anything at this point of delays on on deals. And it gives us confidence in the plan that we put out. Fantastic. Thank you for the color. Operator: And our next question comes from the line of Michael James Turrin with Wells Fargo Securities. Your line is open. Michael James Turrin: Hey, great. Thanks. Appreciate you taking the question. I wanted to just go back to the SaaS revenue line there. Given the initial guidance looks for a bit of a reacceleration in the coming years. So Brian, I wanted to just understand Brian K. Miller: the context of that a bit better. You've mentioned flips. How big a factor are those? And how much visibility do you have into that line given current bookings trends into the coming year? Brian K. Miller: Yeah. And I think at the end of Q3, when we Kirk Materne: gave our sort of initial look into 2026 SaaS revenues and talked at that point about a a confidence that that growth would be above 20%. And and now our our actual guidance is in that 20.5% to 22.5% range. We talked about the the factors that that build up to that revenue growth. The majority of that I think, in around 13% of the growth comes from or 13% growth comes from things that are already booked at the end of the year. And some of those are things that that we signed even going back into the 2024. So the whether it's, the the revenues from those deals actually starting, the or those that we had a partial year of revenues for in 2025 now having a full year of revenues in 2026. So a sizable portion of that growth comes from things that are already in hand. And as we've talked about, Brian K. Miller: bookings, Kirk Materne: grew sequentially, SaaS bookings throughout the year. And so that, we have a high degree of confidence, and there's still some movement around the timing, but those would be, pretty well in hand. Brian K. Miller: About Kirk Materne: 3% to 4% will come from flips, We have a pretty good view of those flips based on either things that are already in the works with clients or conversations we're having with clients around the timing of those flips. So fairly good confidence around the flip number. And then the balance comes from a much smaller part actually comes from new bookings that, are in our pipeline that we'll sign in 2026 and have partial year revenues from So I'd I'd say our visibility is similar to what we've had in prior years. But with the majority of that coming from things that are already booked we have pretty high confidence around that growth. H. Lynn Moore: Yeah, Michael. I mean, we take a bottoms up approach, as as Brian said, and know, you take your existing run rate. You've got the uplift from that. You got full full value run rate. We had some flips last year that pushed that were in our plan that we're expecting to happen this year. And then, obviously, new clients will contribute somewhat this year and then more meaningfully in '27. Thanks very much. Operator: And our next question comes from the line of Saket Kalia with Barclays. Saket Kalia: Okay, great. Hey, guys, thanks for taking my question here. Brian K. Miller: Brian, I I actually thought the duration point that you made on SaaS bookings Saket Kalia: was was really important, and and I think that was a new disclosure. Or maybe just emphasize more And and the reason why I say that is a lot of us look at SaaS bookings, which to your point, were up 4%. For for for '25. But but think by my calculations, duration actually went down by by nearly 40%. Brian K. Miller: And so maybe the question is, is there a way that you think about the annualized value of SaaS bookings S. Kirk Materne: Because I think the view is is that 20% I mean, we just heard it in prior questions. The view is that 20% SaaS revenue growth is gonna be tough to do given mid single digit bookings growth but it feels like duration is a significant headwind. So can you just talk through that dynamic a little bit? Brian K. Miller: Yeah. I mean, in in terms of total SaaS bookings, the duration in especially in the last two quarters of this year, was a significant headwind given not only just the number of large deals, but the number of deals that had sort of longer than our our our standard term. We we generally lead with three years on new SaaS deals, and we've had some some of those in last year, especially the Maine deal, the largest deal had an eight year term to it. So, that has been a factor. In the total SaaS growth. In Q4, actually, if you look at the annual contract value, from new deals and flips, that grew 12% year over year. H. Lynn Moore: And Brian K. Miller: so when you take out the duration factor, the growth was higher than the total SaaS growth. So so you're correct in your observation, and, we would expect that that duration sort of normalizes more towards that that three year standard. But, but it is a it it does mask a bit of the the strength and the last quarter's bookings. S. Kirk Materne: Very helpful. Thank you. Operator: And our next question comes from the line of Aleksandr J. Zukin with Wolfe Research. Your line is open. Aleksandr J. Zukin: Yes. Hey, guys. Thanks for taking the question. I guess maybe Kirk Materne: two for me. The first one, around maybe just bookings growth expectations, on an annualized basis. For fiscal 2026, as you kind of sit here today, just give us a sense for you know, the the mentioned the buying environment improving, but are you seeing any accelerating sales cycles driven by you know, either increased want for AI adoption or increased, fear around other factors driving a faster time, to to to SaaS conversion. And to the extent that you know, again, we're not used to the SaaS revenue guidance yet relative to the many years prior being moved up, this quickly. How should we think about the the the linearity and seasonality of of the SaaS business? And is this a metric you would expect to kind of S. Kirk Materne: you know, H. Lynn Moore: update higher every quarter? Or as we move closer Brian K. Miller: through the year. It it kinda should we rein in our expectations on that front? H. Lynn Moore: On Brian K. Miller: well, we we don't guide to a bookings number for next year. We other than the statement, we said we expect SaaS bookings to grow in '26 over 2025 And as we talked about the market conditions, the activity in RFPs, The that strengthen our pipeline all all give us confidence around that. Think we expect the growth to be fairly consistent across the year. And that does each quarter, there's really solid sequential growth in SaaS. Revenues. And know, other than that, I don't think there's a there's much more to add. H. Lynn Moore: I don't know. You know, we'll we'll modify, Brian K. Miller: you know, guidance throughout the year as we always do, based on conditions. But the other thing I as we pointed out in the prepared remarks, the FTR acquisition is not included in our current guidance. We'll revise our guidance after that closes and the timing of that is uncertain, although we expect that to be towards the end of the first quarter, but it is subject to regulatory approval. So that as well as any other potential acquisitions are not included in that guidance H. Lynn Moore: number. And so, Alex, we Got it. I mean, not a surprise, but we obviously have internal sales numbers, internal bookings numbers, not just for '26, but actually multiyear. The further out you get, the the harder it is. But we have all that internally that we that we drive towards. But, again, we don't publish that. Like we don't we don't pub generally publish awards. As as your question around an accelerated sales cycle, I I don't think we're seeing anything that's either slowing cycles down or accelerating them at this point. I would say, that respect, it's it's more of a back to normal. Whereas earlier last year, that might not have been the case. But I think sitting here today, it's it's it's kinda business as usual in that regard. Yeah. I think in the current year, we're not seeing any Brian K. Miller: meaningful impact of AI either driving accelerated growth or H. Lynn Moore: or Brian K. Miller: slowing growth public sector. Certainly has a high interest in AI, but typically are not the first adopters. So we think more of the impact on sales comes further down the road. Got it. And then maybe just one on the the free cash flow. And capital allocation. On free cash flow, just maybe H. Lynn Moore: contextualize the free cash flow margin guide. I think there's still a cash tailwind from no incremental cash tax payments. Tied to the R and D impact that you lapped. But what's driving the starting guide? Brian K. Miller: Is there is that conservatism? And then on capital allocation, you know, look. The the buyback is one of the biggest you've ever done. Certainly, in the last few years. Is that also a statement in any way around you know, tempering, M and A enthusiasm? Or kinda how do you how are you looking to balance that going forward? H. Lynn Moore: You wanna start with the first one? Yeah. I'll start with the the free cash flow. Brian K. Miller: We certainly expect free cash flow in absolute dollars to grow. We expect the margin to expand as well. So the the the range of free cash flow growth is, from a margin perspective, is point higher than the range last year. There are a lot of different puts and takes around it, growth in earnings or the primary driver of that. So that's the primary starting point. Cash taxes, there's some movement around that. I think we expect state taxes and some of the federal tax benefits to from a cash perspective to be a little lower than we had previously anticipated. The cash tax is a little bit higher, I guess, is the way I I should say it. But, generally, the the earnings growth is the biggest driver there. H. Lynn Moore: And and how it's on capital allocation, buyback, I would say, one of the things I'm actually most excited about right now is our balance sheet. Our balance sheet and free cash flow are the it's the strongest point they've ever been that I've been at Tyler. And that that leads to two things. Clearly, it leads to, M&A opportunities, which we're we're closing on a deal that I think we announced the purchase price was worth of $200,000,000. At the same time, announcing a a significant share repurchase authorization. We closed four deals last year. That that gets me excited. You know, we our 2030 goal is to get to a billion in free cash cash flow. And when you think about the free cash flow we're gonna generate over the next four to five years and the opportunity that creates Tyler, our unique leadership position, to invest in the things that we're doing whether it's additional AI or or product R&D or it's through M&A that's bringing, new competitive stuff in or the share repurchase. It it puts us in a really good position, particularly in a market right now where there's noise. There's noise in the software market, and and I view that as an opportunity it's an opportunity for us to to continue to show our strength, It's it's an opportunity to to continue to differentiate us from a lot of our our competitors, including some that have been, PE owned and others that might have paid really high and then have and may have some high debt, and maybe wondering what's happened to the multiple multiples right now. So it gets us a really a really good spot on the share repurchase specifically. Yes. It's the largest that we've sort of ever authorized in terms of dollars. But I think it's it's warranted given our balance sheet. Our our outlook, not just this year, but really looking out three, four, five years, and currently where the stock sits, it's something that I think you'll see us, take advantage of. Operator: And our next question comes from the line of Charles S. Strauzer with CJS Securities. Your line is open. Charles S. Strauzer: Hi, good morning. Brian K. Miller: Picking up Kirk Materne: on the capital allocation question that was just answered. It When when you look at the M&A opportunities that are out there that maybe a quarter or two ago weren't there because of the because the the valuations have basically contracted Charles S. Strauzer: severely. Brian K. Miller: You know, are you seeing potential opportunities there that maybe more intriguing in the near term versus buybacks? H. Lynn Moore: I would say, in a general sense, yes, Charlie. I've had that discussions specific discussion with some of the executive team. There's been no question not just in the last year, but going back five, six, seven years, there have been deals that we've looked at where the valuations were just getting sort of, I think, ridiculous. And and it would be my sense that people have to re adjust. This is a little different than you know, about three, four years ago when we went through a a rotation of capital out of software. When we're in a period of high interest rates and and and higher inflation. We didn't really see valuations change. And I think I think this this environment should lead to that. The other difference is four years ago, our balance sheet wasn't in the position it was. So those are the things that get me excited about the future. We're gonna continue to look at M&A just because we have a real good visibility on on multi multiyear free cash flow. We're not be reckless. We're gonna continue our disciplined approach. We're gonna look for the right deals at the right time. But, yes, it's something that, again, makes me excited about about the future, and and I'm really glad we're in the position we're in today, given where the market is and given where where sit externally. Operator: And our next question comes from the line of Mark William Schappel with BTIG. Your line is open. Mark William Schappel: Hey. Thank you for taking the question. Brian K. Miller: Brian, I just wanna double click on the SaaS net new ARR growth of 12%. Here in Q4, which I think is great on a very tough comp. Mark William Schappel: Would love to get some color on where you thought that would have been when you gave the preliminary guide last quarter for 20% SaaS revenue growth in 2026 And maybe just how much of your incremental confidence is being driven between the new bookings you're seeing from new SaaS deals versus conversions? Yeah. I mean, Brian K. Miller: we've set a lot of the strength in the bookings. Come not just from conversions, and a really solid pipeline of sort of new name deals, but also around renewals and expansions with existing customers. So a lot of add on sales to existing customers, some of those coinciding with a flip of an on prem customers. And good growth around renewals and pricing on those renewals. So I'd say fourth quarter bookings that inform our guidance for this year We're we're pretty much in line with what we expected when we gave that early look at 2026 growth. We even said back at the beginning of the year in '25, when bookings were a bit slow, that we expected to see strong growth sequentially through the year, and we did, in fact, see that So the underlying market conditions continue to to support that. And I'd say, generally, the the order played out as we expected. Mark William Schappel: And our next Operator: question comes from the line of Clarke Jeffries with Piper Sandler. Your line is open. Clarke Jeffries: I wanted to confirm, if the Texas contract kind of rolled off mid quarter or at the end of the quarter And and just generally, within the guide for transaction revenue next year, what are your rough expectations for merchant fees? Thank you. S. Kirk Materne: Yeah. Texas didn't just end. It's Brian K. Miller: in a single, you know, in on a cliff. It wound down throughout the year really starting early in the year. As some of the services, migrated away. And, originally, the contract was, Charles S. Strauzer: to it's by terms ended in August, Brian K. Miller: We extended that as the the new provider wasn't fully ready to take over all of the services. And so there was, some uncertainty throughout the second half of the year about what the revenues would be. At the end of Q3, we expected that Texas revenues for the full year would be around $40,000,000 and that for the fourth quarter, they ended up being about almost $4,000,000 below that expectation. We ended up with revenues from Texas being around $36,000,000 that it was a very low margin contract, so it didn't have H. Lynn Moore: as meaningful an impact on on, on Brian K. Miller: operating margin, but it did part of our shortfall in revenues in Q4 was related to that contract producing a little bit less revenues than we expected for the year. Merchant fees for the full year will be up more of a I I don't think we've guided to emergency number, but we do expect those to grow. As we've talked about, most of the growth in our payments business is in the gross model. So we're continuing to expand the sale of payment services to embed it with our software, those are generally provided under a gross model. We've also mentioned that we continue to expand services and grow volumes under our existing arrangements. And our tending to move away from some of the third party arrangements that have been on a net model. So more of our payments business will be on gross model and that will drive more growth in merchant merchant fees. H. Lynn Moore: My apologies. Go ahead. Thank you very much. That's it. Operator: And our next question comes from the line of Andrew Sherman with TD Cowen. Your line is open. Andrew Sherman: Lynn, given the state Brian K. Miller: of investor concerns on AI disruption to software these days, it'd be great if you could talk about your barriers to entry, why it would be hard to create your apps and and platform with AI. Thanks. H. Lynn Moore: Yeah. That's a good question, Andrew. At the end of the day, Andrew Sherman: AI H. Lynn Moore: is only as good as the data it's on and the and the access it's got. And the data resides, you know, through our systems It's we have the unique domain expertise regarding workflows. And I think we're just our our relationships with our clients and our trusted relationships, you know, they're turning to us to be their AI partner. We've outlined a number of our AI initiatives. Things that we're doing currently. We've we've embedded AI into, all our flagship products. Doing things like automating, repetitive workflows and things that consume a lot of time that that create measurable savings for the clients. We're we're doing things with both with R&D and and through M&A. And you know, we have examples like AP automation, report writing assistant, geo These are all things that are deeply embedded with our with our, systems of record. That others don't have that access to. And, again, the the trust that our clients have think, is also a significant barrier. We're gonna detail, a little bit more of of sort of how Tyler looks, you know, in the in a cloud living world, utilizing AI at our Investor Day. And you will you will see our strategy, unfold a little bit more there. Sometimes I'm a little hesitant to talk too much about, specific strategic things. Just for competitive reasons, but we will be providing a little more higher higher level at that Investor Day. Operator: And our next question comes from the line of Jonathan Frank Ho with William Blair. Your line is open. Jonathan Frank Ho: Hi, good morning. I wanted to maybe dig in a little bit more embedding transaction capabilities into your products can you give us a sense of where we are in terms of penetrating your large base of installed customers And with this broader rollout of payments capabilities, how do we think about the cadence of adoption over time? Thank you. H. Lynn Moore: Yeah. I think, Jonathan, it's it's gonna depend on the product, and it's gonna depend on on what we're doing with the product. For example, disbursements, AP automation that I just mentioned, is really in its early stages and and doesn't have much penetration. When you look at different product lines, you know, utility our utility billing client base is gonna have a different penetration than maybe our ERP base. Jonathan Frank Ho: And so it's it kinda varies by product, and it varies by H. Lynn Moore: what we're trying to do with that with that product. We continue to introduce new products and continue to embed more things with our products. So I I think right now, it's kinda hard to give a a broad brush look at it, other than to say, the opportunity still is extremely meaningful to us. Operator: And our next question comes from the line of Unknown Analyst with Goldman Sachs. Your line is open. Unknown Analyst: Great. Thanks so much for taking the question. R&D expense, I think the guide a bit higher than our expectations. You mentioned products and AI on the call, but maybe any more detail on specific areas driving that and then how we should think about what peak R&D intensity looks like for this business over the medium Thanks. Yes. R&D as a percentage of revenue is is will be about 8.8 per approximately eight to 9% of of revenue. Up from about 5.5% in 2024. There's or that was the change in 2025. It rose. As we've talked about, we have an ongoing sort of migration of some development expense that is currently reported in our cost of sales. And as we continue to move our business model more towards cloud and more of our development taking place around cloud native products that development expense is moving from cost of sales to R&D. And there's about $20,000,000 of that in in 2026, in the guide. The remainder of the growth is really around investments across Tyler, some of which is AI. Significant amount is AI. We haven't broken out our actual how much of our our increases AI, but there is a growing investment in AI as well as investments across product innovation, widely across Tyler. So I think we we expect to settle in more around the percentage of revenue that we'll see in 2026. As closer to sort of a long term level of R&D investment. Operator: Our next question comes from the line of S. Kirk Materne with Evercore ISI. Your line is open. S. Kirk Materne: Yes. Thanks. Maybe just two quick ones. H. Lynn Moore: Lynn, you mentioned you had your ERP AI S. Kirk Materne: sort of grouped together. I was curious, what are your customers' H. Lynn Moore: asking for or thinking about in terms of monetization? S. Kirk Materne: Around AI? Or or or how do they wanna see AI sort of delivered to them in terms of H. Lynn Moore: you know, how they pay for it? There's obviously a lot of discussion about seats versus consumption. We'd love to hear the feedback you guys have gotten so far, realizing it's early. And then, Brian, I think last quarter, you gave us a little bit of a buildup on SaaS growth. You might have said it earlier, but I think it was something like 12% was coming from booked. You know, there's some coming from, you know, soon to be booked and then some Brian K. Miller: flips. I was wondering if you still have that sort of breakdown S. Kirk Materne: for the updated guidance. Thanks. H. Lynn Moore: Yeah, Kirk. I think I think our clients are looking for efficiencies and ROI. We we will we don't currently plan to don't have current plans to do seat based AI pricing. It's it's more on a a SaaS type model. So what they're looking for is really is is driving that ROI. And those are the discussions we're having. How do we make their lives better? How do we free up those resources? And they're willing to pay for those. Brian K. Miller: Yeah. And and Kurt, on the deconstructed SaaS growth, about 13% of impact of of the you say using 21.5%, midpoint of our our guidance, about 13% comes from prior bookings, some of which would be '24 bookings and '25 bookings. About 5% comes from bookings in 2026. That includes new logos, cross sell, and upsell, and a lot of that is sales back into the existing customer base. Most of those things would be in our pipeline somewhere today, and about 3% comes from flips. Operator: And our next question comes from the line of Peter Heckmann with D. A. Davidson. Your line is open. Peter Heckmann: Hey. Good morning. Long call. Just had a quick question here. Brian K. Miller: In terms of the, amount of acquired revenue in your guidance from the four deals closed last year, is that is it up $14,000,000 $15,000,000 for the full year, a a good assumption? And then in terms of For The Record, you know, for annualized revenue, should we think about something close to maybe $45,000,000 or $50,000,000? Yeah. That would be, the ballpark, for For The Record. Somewhere in that range, we'll we we will update our guidance for the year to incorporate that once that closes. And, yeah, you're in the in the ballpark. It would be somewhere, you know, a little north of $10,000,000 for the revenues from the businesses we acquired during 2025. H. Lynn Moore: I I would caution you too. I agree. We're we're not in a position today to to make any sort of guidance on For The Record, whatever ballpark. That we're talking about. Keep in mind that For The Record has been going through a a a transformative set SaaS cloud shift. Brian K. Miller: With their product offering. H. Lynn Moore: And so that will be ongoing. And so whatever ballpark we have, it'll be a mix of of SaaS and and and and less less profitable type revenue, but that will continue to grow and and and replace just like a a cloud transition that we went through. Operator: And our next question comes from the line of Parker Lane with Stifel. Your line is open. Unknown Analyst: Hi, this is Matthew Kickert on for Parker. Thanks for taking my question. You mentioned S. Kirk Materne: 10% to 12% underlying growth for the payments and transaction segment next year. Brian K. Miller: Is that something you view as a run rate H. Lynn Moore: coming out of 2026? And just more broadly, what S. Kirk Materne: would be some of the levers for midterm growth? On that segment? Thank you. Yeah. That that range is Brian K. Miller: is exactly in line with, I think, that 10% to 13% we talked about as our sort of midterm growth rate for transaction business going back to our 2023 Investor Day. So that that is the right in the range that that we expect to be kind of the run rate going forward. That's driven by our our strategy of expanding the transaction business within our existing software customer base by integrating or by selling integrated payments to those software customers, both new customers and existing customers. It's higher volume, driving driving greater adoption of online services. And driving higher volumes. Through the existing customer base. Longer term, there'll be, more and more contribution from adding disbursements to the portfolio. And then we do have instances where we're providing software products to clients but getting paid under a transaction-based arrangement. So rather than that showing up in SaaS bookings and SaaS revenues, it's showing in transaction revenues. One of the deals Lynn called out this quarter a deal for motor vehicle digital motor vehicle titling solution for one of our state enterprise customers is under that kind of arrangement. So that also contributes to the low double digit SaaS growth or transaction growth. Operator: And our next question comes from the line of Keith Michael Housum with Northcoast Research. Your line is open. Keith Michael Housum: Good morning, guys. Just trying to unpack those bookings numbers a little bit. I know we've been talking about the SaaS bookings primarily, but if I look at your services and other bookings year over year, it's down about 22%. You know, down significantly in the fourth quarter. Can you perhaps just unpack why that is for the year over year decline? How to think about that going forward? Brian K. Miller: Sure. Probably the biggest factor there is the contract reserve, the $10,000,000 contract reserve we took in Q4. Impacted bookings. So it created, basically, negative license revenues. Most of that was reversal of license revenues so that also effectively comes out of bookings. That's the biggest factor there, and that was, I think, $8,800,000 of licenses and a little less than around a million of of professional services. In general, professional services, which we have talked about for a long time, is being very low margin or negative margin business for us, While we have a number of initiatives to improve our efficiency and profitability around the pro services business We also don't want to grow that segment of our business at the same rate the rest of our business grows. So we're having success in delivering software more efficiently with fewer services. Really Charles S. Strauzer: actively, Brian K. Miller: trying to limit the amount of custom development work we do that falls in professional services. So part of that is by design that we don't want to grow services at low margins at the same rate, similar to hardware. So you know, that positive change in the revenue mix is reflected in lower bookings in those categories. So really focused on the higher growth in the more valuable revenue lines in SaaS and transactions. Operator: And that concludes our question and answer session. I will now turn the call back over to H. Lynn Moore for closing remarks. H. Lynn Moore: Thanks, Abby, and thanks, everybody, for joining us today. If you have any further questions, please please feel free to contact Brian K. Miller and myself. Thanks again, and have a great day. Operator: And ladies and gentlemen, this concludes today's call, and we thank you for your participation. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Anterix third quarter fiscal 2026 earnings conference call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question during this session, you will need to press *11 on your telephone. You will then hear an automated message advising you your hand is raised. To withdraw your question, please press *11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Natasha Vecchiarelli. Ma'am? Please go ahead. Natasha Vecchiarelli: Thank you, operator, and good morning, everyone. I am Natasha Vecchiarelli, Vice President of Investor Relations and Corporate Communications, and I welcome you to our fiscal 2026 third quarter investor update call. Joining me today are Scott Lang, our President and CEO; Elena Marquez, CFO; Chris Guttman-McCabe, Chief Regulatory and Communications Officer; and Heather Martin, Chief Marketing Officer. Before we begin, please note that our discussion may include forward-looking statements regarding our outlook, operations, and expected performance. We do not undertake any obligation to update these statements. Additionally, these statements are based on current assumptions and are subject to risks and uncertainties. For a detailed discussion, we encourage you to review our SEC filings which are available on our website. With that, I will now turn the call over to Scott Lang. Thank you, Natasha. And good morning, everyone. Scott Lang: Thank you for joining us. Let me start with this. We are not the same company we were a year ago. We have executed a complete and total refresh of the critical components of this company. We significantly reduced operating expenses while at the same time strengthening our balance sheet. We successfully launched the Anterix Accelerator program. We introduced new products to remove barriers to deployment and also create the opportunity for annual recurring revenue. We have put in place the senior leadership team to execute on the opportunity in front of us. And our recent brand refresh, just unveiled last week at DISTRIBUTECH, reflects this evolution, clearly signaling who we are today and where we are headed. As a result of our efforts, our 900 MHz broadband spectrum is increasingly viewed not as optional, but as foundational. This is evident in how utilities are planning their networks. In one active deployment, Evergy is supporting roughly 4,500 connected devices today, and that is growing significantly each year with a future line of sight to over 1,000,000 connected devices. This is a real-world example of the scale that utilities are deploying to connect and secure their most critical infrastructure assets. Evergy is not alone. We are hearing and seeing the same plans from each one of our existing customers. For example, in our booth at DISTRIBUTECH, San Diego Gas & Electric spoke to the scale and meaningful operational impact that our collaboration has delivered, validating the credibility, momentum, and trust behind the Anterix platform. CPS, our newest customer, had more than 20 members of their team in our booth witnessing this collaboration firsthand and reinforcing their excitement to get started. And with our foundational 900 MHz spectrum now poised to cover more than 93% of the counties in the great state of Texas, one thing is clear. Anterix is the trusted partner for utility private wireless. With eight flagship customers that represent $400,000,000 in contract value, we are the market leader. We remain in active negotiations with a wide range of utilities, from those serving hundreds of thousands of customers and moving at a faster pace to some of the largest utilities in the country serving millions of customers, where the scale and complexity naturally lengthen decision cycles. We look forward to sharing more on these deals with you soon. During our last earnings call, we announced two important products that we launched to address friction points and challenges as utilities move from spectrum decision to an actual deployment. Every utility that I have spoken with is excited about what these products can do for their company and are learning more. With our success, our spectrum still to monetize, and our new solutions, we are making it easier for utilities to move from network design to real deployments, speeding up time to value. To lead this effort, we recently appointed Ross Sparrow as our first Chief Product Officer. Ross is already making an impact, working closely with customers and our ecosystem partners to ensure our product roadmap is grounded in real-world operational needs, while increasing the value delivered per megahertz. Equally significant, we are encouraged by the FCC's plan to consider a Report and Order on February 18 that would enable broadband deployment across the full 10 MHz of the 900 MHz band. We appreciate the leadership shown by the FCC and Chairman Carr in advancing policies that recognize the role of private wireless broadband in supporting critical infrastructure and long-term grid modernization. Taken together, these milestones reflect a company that has done the foundational work and is now moving with total focus and intent. Our strategy is clear. Execution is accelerating. And our confidence has never been higher. We are uniquely positioned to deliver durable, long-term value for our customers, our shareholders, and the entire utility ecosystem. I will now turn the call over to Elena Marquez to discuss our financial performance. Thanks, Scott. Elena Marquez: Under Scott's leadership, we are poised for success from a financial standpoint. We have reduced our operating expense run rate by 20%, accelerated the delivery of 900 MHz broadband spectrum to customers, which resulted in the highest number of licenses we have delivered in a single year, positioning us for our first year ever of positive GAAP net income. On the commercial front, our CPS Energy agreement is a $13,000,000 contract and represents the first commitment under the Anterix Accelerator program. This agreement includes favorable cash timing, with 50% payable upfront and the remaining 50% payable at the end of our fiscal 2027. Importantly, this agreement provides a potential path towards top-line revenue as both parties have committed to negotiate a master agreement for additional products and services. More broadly, our financial position reflects the underlying strength of our spectrum asset and the valuable opportunities it supports. As we expand our offerings to address a broader set of utility use cases and develop additional recurring revenue streams, we continue to believe there is a substantial disconnect between our enterprise value and the significant opportunity that is in front of us. Over the past year, we have become a leaner, more disciplined organization with a sharper focus on execution, capital efficiency, and long-term value creation. Our balance sheet remains strong, with approximately $30,000,000 in cash as of December 31. We have zero debt and over $80,000,000 to be collected during the fourth quarter, including a $6,500,000 initial payment from CPS Energy. We now raise our projected cash proceeds for the current fiscal year to $120,000,000 from the $100,000,000 we previously guided on. Our lean OpEx structure and disciplined spend approach provides flexibility, allowing us to take strategic steps towards creating long-term value for our shareholders and customers. With that, I will turn it back to Scott. Scott Lang: Thank you, Elena. To close, let me be clear. Anterix is no longer just building the foundation. We are scaling a movement. We have the strategy, the team, the momentum, and we are making meaningful, decisive strides every day. The foundation for private wireless is firmly established. Regulatory alignment is advancing, and our engagement with the nation's leading utilities has never been stronger. We are aggressively advancing active commercial to expand our footprint. We are executing on a product roadmap that delivers more value to our customers than ever before. And we are maintaining the rigorous financial discipline that ensures our long-term strength. We are focused. We are disciplined. And we are ready. Thank you for your continued support. Operator, we will now open the line for questions. Operator: Thank you. Press *11 on your telephone and wait for your name to be announced. To withdraw your question, please press *11 again. One moment for our first question. Operator: Our first question comes from the line of George Sutton with Craig-Hallum Capital Group. Your line is open. Please go ahead. George Frederick Sutton: Scott, to your point of foundational versus optional for your spectrum, I wondered if you could, coming off of NARUC that just occurred, give us a sense of what the Public Utility Commissioners are saying. We are hearing increasing pressure on utilities to modernize their grid given the demands and/or the data center demand that is out there? You know, you mentioned Silver Spring Networks. I wondered if you could discuss because that really became a network effect story, a run-the-table kind of thing. Can you give us a sense of where you think 900 MHz fits relative to that network effect concept. I have a thousand questions, but I will limit it to just one more if I could. The products that you are building out, I certainly—I got a sense talking to a number of the partners that the opportunities from the product side are actually fairly significant relative to the size of your licenses. Could you just talk about what the product opportunities may end up resulting in from a revenue opportunity. Scott Lang: Hey, George. Good to hear from you again. Yes. In fact, I was at NARUC. I had the opportunity to meet with a few commissioners and specifically talk with them about connectivity, about the importance of connectivity, and how they are navigating all of the challenges they are seeing across the industry with large investments being asked for and affordability. It is on their mind. And in fact, one of the commissioners I spoke with is a commissioner that was familiar with this whole movement of connecting devices and the importance of it for utilities going all the way back to my first company, Silver Spring Networks, when we touched so many homes and businesses across the entire United States. And so this came up, and this was part of the conversation. And it was on their mind, and we enjoyed—I enjoyed—these conversations and connecting with some of these commissioners. They get it. They see this as important. They see this as a way to keep customers informed, safe, secure, enabling utilities to be responsive when the power is out. And the risk of not having that kind of connectivity, the risk of not having that kind of responsiveness and securing the grid is a great risk. Our message resonates with that audience as well, which I touched on a little bit of the regulation support where I am not just only referring to the FCC support, but across the board because our message resonates. We are proven, therefore eliminating this—you know, utilities often do not like to be first. Well, the next utility is not first anymore. The risk aspect of it is easier for regulators to say, wow. You have eight customers out there. You saw it yourself, George, in our booth, of the testimonies that are being had and how it is making an impact and lighting up their grid and allowing them to be more responsive to outages and collect and connect their critical infrastructure. So commissioners are seeing that same message. Our economics are very strong. The nature of how we have proven this technology and validated by some of the most leading utilities in the nation is strong. And so I think it was—I was pleased compared to one year ago right when I first started, there was not this level of conversation about private broadband wireless. And part of that is that now we are seeing utilities with real success stories talking about it, which you witnessed yourself at DISTRIBUTECH. And that is permeating across every aspect of this industry, our customers, our partners, and now on the regulation side. I thank you for that, George. I love the question. There are a lot of flashbacks I get to that journey that we took with Silver Spring Networks. And, you know, sharing with the team some of the recollections I had and having had been working with Ross Perot for so many years before I started Silver Spring Networks, and he always said he saw so many companies get to where the table was set, ready to go sweep the table and just sweep the opportunities, and they do not think big enough and strategic enough. And at Silver Spring, we did have that kind of network effect where we won one on each side of the country and then literally swept the table across the entire nation as utilities started to stand up, talk about it, advocate our brand, what we were doing. We made it easy for them to have successful deployments. What we have here at Anterix is a table that is set that we did not have 20 years ago when we started Silver Spring. We did not have eight customers that were advocating for us. We did not have a multibillion dollar pipeline of opportunities. We did not have cash and a balance sheet the way we have cash and the balance sheet now. We had a handful of engineers, did not have the strength and the depth of an experienced leadership team at the table. And we yet have that now. And we have the tools and we have the opportunity right here in front of us to think big and really be that change agent that utilities are asking us to be. And so it is—not exactly the same, I like where we are. In fact, I told the team last night, I love where we are at right now. I just absolutely love it. And where we are today versus anything I have seen, and I put it up against any company that you can start the race with, the tools and what we have to work with clearly puts us in a strong lead, and we plan to keep it. It is another great question, George. You know, there is probably close to $8 for every dollar that is spent on us that have historically flown around us versus through us. And that is something that, with the appointment of a chief product officer, we are changing. These two products that we launched, just to give you an idea, are—there is one particular utility that we are in deep discussions with that are interested in both products. And it is a significant increase—I do not want to give percentages yet, but I will say it is a significant increase of just the wireless spectrum alone. There is not a lot of risk. They deliver strong margins, and they are long term, and they are recurring, and they are sticky. All the things that you would love to have that underpins a strong recurring business that is being built as a result of the asset that we have and the success of selling that asset. So it is really—it is a very synergistic kind of opportunity of products that we are getting pulled into naturally by existing customers and they are being built as a result of what we are selling and what we have as an asset. And the reason that is important is one of the other things that—lessons learned and leadership lessons learned—is you do not want to go just chasing everything that moves in order to, you know, try to grab revenue here and grab revenue there because it takes the team away from maniacal singular focus on what we are here to do. And these products are naturally connected to everything Anterix has done and the preparations we have made and what I have called before the superpowers in this company of wireless spectrum leadership. And so I like the products. That gives you a little bit of an idea, hopefully, of the kind of dollars that are there and available. And I guess I will just dismount off of this question with a final comment. And that is, you know, when I use Evergy as an example and I threw out San Diego as an example, and frankly, we could talk about every one of our current customers of what they are doing. For them, they told me in live conversations, this will help them move faster. They are frustrated that sometimes they do not have the skills and the focus internally to stand these networks up once they make the purchases of spectrum. So the tower access and the SIM management piece of that are first stop whenever the spectrum gets purchased. And for them, it reduces complexity. It is good for them. They like it. We make the contracting easy. And it is not a lot of risk, margins. And it is really immediately profitable, generating some nice recurring. But it does not stop there. It also is what we have noticed is helping the prospects that have been at the table that we have been in discussions with, that they now know what the second and third step is once they make a spectrum decision. Versus saying, okay. Now I have got to figure out the next many steps in this long journey to having millions of devices connected. We make it easier for them. We make it a safer place that they can step onto, not just because of the testimonials and the support they are getting from our large customer base now, but we can make it easy for them to get started to actually getting real results of—you know, reducing that time to value is very important to them, and therefore, very important to us. George Frederick Sutton: Perfect. Thank you for the thoughts. Scott Lang: Okay. Thank you, George. Operator: Thank you. And as a reminder, if you would like to ask a question, please press *11. Our next question will come from the line of Mike Crawford with B. Riley Securities. Your line is open. Please go ahead. Mike Crawford: Thank you. I am just thinking about what steps you will be taking if we get, as anticipated, this favorable Report and Order for five-by-five next week. And I know in some markets, like, I do not know, maybe Washington, D.C., you might already have close to 10 MHz of spectrum in the band, but in others, you may have to pay the 600 MHz auction clean prices to get enough spectrum to enable such a solution. But can you just provide some color on where you have concentrations of spectrum and/or not across the U.S.? Scott Lang: I am going to take the first part of that, and then I am going to ask Chris to jump in on the second part of that. The first part of that is yes, we are cautiously optimistic. We are excited about the February 18 in part because we have tried to be responsible of how we have been signaling the progress that we have been making on this for the last several quarters. And we always want to be able to be in a place to underpromise and overdeliver. And so we continue to be enthusiastic, and we are excited about the 18th. And once the 18th happens, we will be sharing in short order and with our investors and our analysts and the broader community of what that means and how we will plan to go forward now that we have 10 MHz. So until that happens, we are not going to make a lot of projections on it at this time. But soon after the 18th, when that is completed, we will be able to talk about it in some level of detail. And I am going to ask Chris to touch on the second part of that question. Chris Guttman-McCabe: Yes. Thanks, Scott. And good morning, Mike. So I think obviously you are spot on in terms of, you know, painting a picture that the mark-to-market, the reality of clearing an incumbent is different. You know, the beauty of our product offering, and to be quite honest, it is fueled by the beauty of our balance sheet, is that we can take our utility customers where they are. Where they are from a spectrum need perspective, where they are from a capital allocation perspective. You have seen it in our contracts. We deliver counties when they want it. We deliver it in a timeframe that matches their access to capital, and we will apply that to the five-by-five approach. So we will—you know, Scott has given us the ability, our balance sheet has given us the ability to be flexible in our product offering. That will continue with five-by-five. And, you know, the reality is the incumbents and the clearing and the unjust enrichment payments, they all become a portion, you know, a part of our basis, and that helps to inform our price point. And that will continue as we move—you know, again, do not want to get too far out over our skis, but we will, as Scott said, come back and have a broader discussion about that after the 18th. Mike Crawford: Okay. Thank you very much. Scott Lang: Okay. Thanks, Mike. Operator: Thank you. And I would like to hand the conference back over to Scott Lang for closing remarks. Scott Lang: Okay. And I would like to say again, thank you all for joining. If you hear a level of excitement, it is because there is a lot of excitement. We love where we are at right now. The opportunity to see the energy and the engagement—at one point, when we had our customers speaking in the booth, we were probably four or five deep in a 180-degree half circle all the way around the booth of current prospects, future customers, future prospects, existing customers, partners. Partners actually wanted to get the microphone and talk about their products and how Anterix has been a good partner. This week at NARUC, being able to talk with commissioners, but also some of our biggest customers were there, saying, wow. You guys have been such a great partner. We love your technology. It is doing these things for us. And I said, hey. Will you go—we need your engagement. We need you to tell those stories with us. Count us in. Anytime, any place, we want to make sure everybody understands what we are trying to get done. And so we like where we are a lot. We are building a great company. We have the table set to do something that is very significant, with an OpEx structure that is being very well managed. And I am looking at Elena that she manages every single dollar. It is in the best long-term interest of our shareholders and our customers and our company of what we are trying to build. And I think we have really got a really great team around the table as well to go execute this. And that is what we are singularly focused on, and we look forward to sharing results as we go forward and being in touch on the events over the next couple of weeks. And thank you again for everyone, and have a terrific rest of your day. Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect.
James Doyle: Hello and welcome to the Scorpio Tankers Inc. Fourth Quarter 2025 Conference Call. I would now like to turn the call over to James Doyle, Head of Corporate Development and IR. Please go ahead, sir. Thank you for joining us today. Welcome to the Scorpio Tankers Inc. fourth quarter 2025 earnings call. James Doyle: On the call with me today are Emanuele A. Lauro, Chief Executive Officer; Robert L. Bugbee, President; Cameron Mackey, Chief Operating Officer; Christopher Avella, Chief Financial Officer; and Lars Dencker Nielsen, Chief Commercial Officer. Earlier today, we issued our fourth quarter earnings press release, which is available on our website, scorpiotankers.com. The information discussed on this call is based on information as of today, 02/12/2026, and may contain forward-looking statements that involve risk and uncertainty. Actual results may differ materially from those set forth in such statements. For a discussion of these risks and uncertainties, you should review the forward-looking statement disclosure in the earnings press release, as well as Scorpio Tankers Inc.’s SEC filings, which are available at scorpiotankers.com and sec.gov. Call participants are advised that the audio of this conference call is being broadcast live on the Internet and is also being recorded for playback purposes. An archive of the webcast will be made available on the Investor Relations page of our website for approximately 14 days. We will be giving a short presentation today. The presentation is available at scorpiotankers.com on the Investor Relations page under Reports and Presentations. These slides will also be available on the webcast. After the presentation, we will go to Q&A. For those asking questions, please limit them to two. If you have an additional question, please rejoin the queue. Now I would like to introduce our Chief Executive Officer, Emanuele A. Lauro. Thank you, James. Emanuele A. Lauro: Good morning, everybody, and thank you for being with us today. Emanuele A. Lauro: Scorpio Tankers Inc. delivered another strong quarter, and a transformative year. In Q4, we generated $152,000,000 of adjusted EBITDA and for the full year, adjusted EBITDA reached $568,000,000. But the real story is not just earnings. The real story is structural strength. Since 2021, we have reduced net debt from $3,100,000,000 to a net cash position of $309,000,000 today. This net cash position is increasing by the day, and has accelerated sharply in Q1. We have fundamentally reset the company. Today, we hold approximately $1,700,000,000 of liquidity and growing. Our daily cash breakeven is $11,000 per day per vessel. In the current rate environment, this translates into powerful free cash flow generation. Even under stress conditions similar to the COVID levels, we remained around cash breakeven. We are structurally resilient with significant operating leverage. We have upgraded the fleet with discipline. We have sold 10 older vessels at a strong valuation, and we have been reinvesting in 10 modern newbuildings. The fleet is younger, more efficient, and positioned for higher earnings power. At the same time, we are increasing the quarterly dividend to $0.45 per share, up 12.5% year over year. We are growing the dividend because we can. Because we have the balance sheet, because the payout is supported by structural cash generation, not temporary conditions. Turning to fundamentals. Rates have improved for five consecutive quarters with momentum continuing into Q1 2026. Refinery closures are lengthening trade routes, ton-mile demand is expanding. Unprecedented strength in the crude market is tightening effective vessel supply in the product tanker space. These are structural drivers and not cyclical noise. We cannot control the market cycle but we can control our preparedness. Today, we operate a modern fleet, we have substantial liquidity, we have structurally low breakevens, we have a net cash balance sheet. This combination creates downside protection, and upside torque. Scorpio Tankers Inc. is positioned to generate significant free cash flow and deliver durable shareholder returns across the cycle. We are stronger than we have ever been, and we are positioned to capitalize on what comes our way. With that, I would like to turn the call to Robert. Thank you very much, Emanuele. Let me first begin with a broader context of the industry, especially for those new to the company. We operate in a cyclical, capital-intensive industry during a period of elevated inflation, constrained supply, and shifting global trade patterns. In that environment, asset quality, balance sheet strength, and disciplined capital allocation matter more than ever. We also operate the youngest fleet in our peer group. That really matters. Younger vessels are more efficient, more commercially flexible, and increasingly advantaged as regulatory standards evolve. Shipping will always be volatile. That is not new and it is not avoidable. What can be controlled is financial structure. Today, we have done that by materially derisking the company. Today, we operate with a net cash position and low cash breakevens. That provides resilience in weaker markets and meaningful operating leverage in stronger ones. For investors, the case is straightforward: hard-asset-backed, conservative financial structure and a platform capable of generating substantial cash flow across the cycle. In uncertain environments, preparation and discipline create opportunity. We believe we are well prepared for both the good and the bad. Just one thing just to be very clear on. As Emanuele pointed out, our newbuildings and disposal of older assets for renewal is being done in a very measured and conservative way. We will continue to ensure that Emanuele A. Lauro: if and when we Emanuele A. Lauro: order vessels, that we are generating more cash through operations and sale of older vessels than the total outlay of the vessel that we are buying. For those of you concerned about the high amount and building amount of cash on the balance sheet that we expect to continue to happen, you should not worry that we have absolutely zero acquisition thoughts of other companies or competitors or large fleets at all. And you are not going to wake up one day in the morning and find that we have made a 10-ship order. This is a very disciplined approach, balancing the arbitrage of selling the older vessels at steep prices and ordering newer vessels when we see an advantaged price to the arbitrage. And with that, I would like to pass it over to James. Thank you. James Doyle: Thanks, Robert. If we could go to slide seven, please. James Doyle: The past 12 months have brought no shortage of headlines. James Doyle: And yet quietly the product tanker market has strengthened for five consecutive quarters. Today, spot rates for LR2s and MRs are approximately $46,000 and $38,000 per day, respectively, rates at which the company generates meaningful free cash flow. And the near-term setup is positive. With a lighter refinery maintenance schedule, refinery runs should increase, supporting continued growth in export volumes. For the first time in several years, the crude market is also providing tailwinds. Elevated crude rates are pulling product tankers into crude trades, tightening effective clean supply. When we step back, three structural forces are driving this market. First, demand remains strong and refining capacity has shifted farther away from end consumers. Second, effective supply growth is constrained. The fleet is aging faster than it is being replaced. And in a capital-intensive industry, that matters. Third, sanctions and geopolitics are reinforcing both dynamics, reshaping trade flows and tightening supply. Taken together, these forces support a constructive outlook both near term and longer. Slide eight, please. Global refined product demand is expected to increase by nearly 1,000,000 barrels per day this year, and that growth is translating directly into seaborne exports. In January, seaborne refined product exports averaged 22,100,000 barrels per day, up roughly 1,000,000 barrels per day year over year. Not only have volumes increased, distances have increased as well. Slide nine, please. Over the last five years, export-oriented refineries in the Middle East have added capacity, while closures in the U.S., Europe, and parts of Asia have removed it. When refining moves farther away from the consumer, products must travel farther. That increases ton-mile demand. This is not cyclical demand growth. This is structural. Since 2019 product tanker miles have increased roughly 20%. Slide 10, please. Aframax and LR2 demand in the Atlantic Basin has strengthened meaningfully, with volumes from the U.S. to Europe nearly doubling over the last year. That alone has tightened vessel availability across the region. At the same time, developments in Venezuela present additional upside. Last year, Venezuelan crude exports averaged roughly 800,000 barrels per day, much of it directed towards China on sanctioned tonnage. Any redirection of those barrels toward the U.S. or increases in production would further increase loading activity in the Atlantic Basin. Importantly, this comes at a time when the Aframax/LR2 market is already operating from a position of strength. Slide 11, please. Today, approximately 54% of the LR2s are trading crude oil. Part of the increase is due to soaring crude rates and the other part is structural. The Aframax/LR2 crude market is roughly 14,000,000 barrels per day, compared to about 3,000,000 barrels per day for clean products. The crude market is simply much larger. The decision to build LR2s instead of Aframaxes is structurally changing the fleet. By 2028, nearly half of the Aframax/LR2 fleet will be LR2s. Given that crude accounts for roughly 80% of cargo volumes in this segment, LR2 crossover into dirty trades will persist. Slide 12, please. Since the EU ban on diesel refined with Russian crude took effect in early January, European imports from Turkey and India have already declined 300,000 barrels per day. Russian refined product exports are still moving but are traveling farther to find buyers. Before the invasion, roughly 10% of Russian exports went to Africa, South America, the Middle East, and Turkey. Today, that figure exceeds 70%. Russian crude has had a more difficult time finding buyers, especially with recent sanctions and retaliatory tariffs. Since July, Russian crude on water has increased from 121,000,000 barrels to 164,000,000 barrels in January. Much of the Russian trade has shifted towards older vessels. As you can see on the bottom right, nearly 50% of Russian crude and product exports now move on ships older than 19 years old, tonnage that is unlikely to reenter the mainstream market. Slide 13. Today, the product tanker order book is almost 19% of the existing fleet, which may seem high, but context matters. As you can see on the left, 21% of the product tanker fleet is already over 20 years old. By 2028, it will be 30%. Sanctions also further tighten effective supply. Roughly 26% of the Aframax/LR2 fleet and 9% of the MR/Handy fleet are sanctioned, with an average age of 20 to 21 years old. In a normal market, much of this tonnage would have likely already exited. Slide 14. When you adjust for aging vessels, sanctioned capacity, and LR2 crossover, effective clean product supply growth is materially lower than the headline order book implies. We expect fleet growth to average roughly 3% over the next three years and potentially lower. Putting this together, demand remains strong and refinery shifts are structurally lengthening trade routes. Supply growth is constrained, as the fleet ages at a faster rate than it is replaced. And sanctions and geopolitics are tightening both points one and two. In both the near term and long term, the market’s fundamentals remain supportive. With that, I would like to turn it over to Chris. Thank you, James. Good morning, good afternoon, everyone. Slide 16, please. Emanuele A. Lauro: This past year, we generated James Doyle: $568,000,000 in adjusted EBITDA, Christopher Avella: and $344,000,000 in net income on an IFRS basis. We have also made $450,000,000 in debt repayments this year, culminating with the fourth quarter prepayment of $154,600,000 of secured debt across four different credit facilities. This prepaid all of the scheduled principal amortization on our existing bank debt for 2026 and 2027. The principal and interest savings resulting from this prepayment have further reduced our cash breakeven levels, which include vessel operating costs, cash G&A, interest payments and commitment fees, and regularly scheduled loan amortization to approximately $11,000 per day over this period. We also entered into contracts to sell 10 vessels at substantial gains and exited our position in DHT. The cash gain on our investment in DHT was almost $30,000,000, or a 24% return on investment when factoring in dividends received. The chart on the right shows the progression of our net debt since 12/31/2021, which declined $3,000,000,000 to a net cash position of $124,000,000 by the end of 2025. As of today, the net cash position is $308,000,000 and we are still pending the closing of the sales of two LR2 vessels for $109,800,000 in aggregate. As Emanuele emphasized, achieving this milestone has given us the confidence to raise our quarterly dividend to $0.45 per share. Slide 17, please. The chart on the left breaks down our outstanding debt by type. Starting at the bottom is our last remaining lease financing obligation on one vessel with Ocean Yield. This obligation: This obligation Christopher Avella: is expected to be repaid before the end of this month, thereby leaving us with a debt stack consisting of secured bank debt with the lending group dominated by experienced European shipping lenders and our $200,000,000 five-year senior unsecured notes, which were issued in the Nordic bond market in January 2025. They are currently trading at around 103% of par. Further to this, $240,000,000 of our $428,000,000 of secured borrowings is drawn revolving debt, an important tool that we can use if we want to repay the debt but maintain access to the liquidity in the future. The chart on the right is our debt repayment profile. With the exception of the final settlement of our last remaining lease obligation, we have no principal repayment obligations on our existing debt until 2028. Slide 18, please. As of today, we have $937,000,000 in cash, and an additional $767,000,000 in availability under revolving credit facilities for a total of $1,700,000,000 in available liquidity. Since November, we have signed contracts to purchase 10 newbuilding vessels. The charts on the right reflect our forward payment obligations on these contracts, along with our estimated drydock schedule through 2027. Note that the timing of the installment payments on our newbuilding vessels and timing of our drydocks are estimates only and subject to change. Our capital allocation decisions over the past three years have afforded us the financial flexibility to meet the obligations under our newbuilding contracts, which total slightly over $700,000,000. Hypothetically speaking, we could pay for all of these vessels today in cash without incurring any new debt. But nevertheless, 70% of these installment payments are not due until the years 2027, 2028, and 2029. With a cash breakeven rate of $11,000 per day, we are in a position to continue to build cash over the construction period. Moreover, the age and specifications of these vessels make them attractive financing candidates, which has the potential to open up opportunities for us to further optimize our capital structure and lower our cost of capital. On top of this, our forward drydock schedule is light, having undergone the special surveys on over 70% of our fleet in the past two years. Slide 19, please. Our cash breakeven rates are at the lowest levels in the company’s history. The chart on the left shows that these expected cash breakeven rates are lower than the company’s achieved daily TCE rates dating all the way back to 2013, with the closest point being the aftermath of the COVID-19 pandemic when global oil consumption was at lows not seen in decades. To illustrate our cash generation potential, at these breakeven levels, at $20,000 per day, the company can generate up to $292,000,000 in cash flow per year. At $30,000 per day, the company can generate up to $617,000,000 in cash flow per year. And at $40,000 per day, the company can generate up to $942,000,000 in cash flow per year. This concludes our presentation for today. Thank you, everyone, for your time and attention. And now I would like to turn the call over to Q&A. Operator: We will now begin the question and answer session. To ask a question, you may press star and one on your telephone. 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, we will pause momentarily to assemble our roster. Our first question comes from Omar Nokta with Clarksons Platou Securities. Please go ahead. Thank you. Omar Nokta: Hi, guys. Good morning. Good afternoon. Congratulations on officially reaching the net cash milestone. Emanuele A. Lauro: I wanted to ask about the dividend. You have bumped it here Omar Nokta: after having bumped it also last quarter. Understanding your aim is really to keep the payout sustainable through the cycles, you have got plenty of free cash flow in today’s market. You have got a fortress balance sheet. How are you thinking about the dividend in the future? Is the aim to do a bump regularly as in maybe once every couple quarters or maybe revisit on an annual basis? Any color you are willing to share. Yes. Thank you very much, gentlemen. Emanuele A. Lauro: So the dividend, first, the main premise is to see if we can—what we would like to do is to grow the dividend through the cycle, pay the dividend through the cycle. That is, you know, the actual momentum of that is dependent on a lot of things. Christopher Avella: I think you have seen our Emanuele A. Lauro: let us say goodwill in the sense that, you know, immediately following the implementation of the increased dividend after the third quarter results, we immediately stepped up now. That is, as Emanuele pointed out, really a reward for all of us for the strength and finish of the fourth quarter. So apart from that, I would like to keep that on detailed. We will review everything regularly. Operator: Alright. Omar Nokta: That is fair, Robert. Thank you. And maybe just a follow-up. You exercised the option on the LR2s. Wanted to ask about the VLCCs. Definitely been a lot of interest lately in that segment, whether it is from the equity markets, charters themselves, or owners placing orders. You sort of got ahead of it a bit last year with those two orders you put in. I think it was back in October, November. Wanted to ask how are you thinking about those right now and whether you have options that came with those that you could potentially add to your tally. Emanuele A. Lauro: Sure. We had options. The VLCC market was, as we all know, a very, very hot commodity. Those options were very short lived. They were options that were valid only until December. At that time, in December, we were in the middle of the holidays, not complete. We did not have complete visibility of how we felt the cash flows were moving in the market at the time, and we did not have strong visibility because of the holidays as well related to potential sale of our own assets, etcetera. So we felt on balance that we could pass that, remain disciplined, especially as we had the LR2 options still up our sleeve. So those VLCC options have gone. They have expired. Omar Nokta: That is the answer I am going to—okay. No. Thanks, Robert. That is very good. I will pass it back. Emanuele A. Lauro: I think as a statement, I think that is a point of proof that we are not hell-bent on spending money because we feel any urge to do that or as fast as we can. We are, as we pointed out at the beginning, just going to do this in a very measured way. Operator: Our next question comes from Greg Lewis with BTIG. Please go ahead. Emanuele A. Lauro: Hey, thank you and good morning, good afternoon, and thanks for taking my questions. Robert, a lot of cash, not going to ask you about that. I did want to talk a little bit about Christopher Avella: the crude market, though, as it relates to LR2s. Emanuele A. Lauro: You know, Scorpio, since its founding, has been pretty—that the LR2s are going to primarily focus on the product side. You know, I guess it seems like the market is kind of merging as older crude Afras are retired and everyone, if you are ordering an Aframax, you are going to coat it. Does that at all change how maybe Scorpio would think about its LR2 fleet, i.e., could we see opportunities for STNG to potentially Lars Dencker Nielsen: bounce those LR2s back and forth between the crude market? Or should we just assume they are going to stay in the products? Emanuele A. Lauro: Lars—yeah. Hi, Greg. I think it is fair to say that the Scorpio approach in terms of LR2 clean or dirty switching has always remained opportunistic. We have a number of our ships in crude already. I think it is important, considering that the global approach that we have, to remain disciplined on these things. So we do not just dirty up ships unless the economics clearly justify it on a sustained basis. There has been the recent dirty outperformance, particularly in the Atlantic Basin, which, of course, we follow. We trade that element as well, and we can also see that the ability to cross-trade has increased between the LR2s and the Aframaxes. The case in point is, I think there are about 515 LR2s trading globally in the world today, and you only have 220-odd trading clean today, which is probably the lowest we have seen since 2020 or 2021. Now that can then give you the kind of thinking—do you go dirty or not dirty? It is always a tactical question. And we obviously follow all these markets. And if you normalize the periods, it has a little bit of a different picture than if you just look at one quarter. But the short answer to your question really is that, of course, we look at it, and we trade it as well. Lars Dencker Nielsen: Okay. Great. Thank you for that. And then just as—oh, man. That is funny. I forgot what I was going to ask you. Just—oh, I feel like I ask you all the time. I feel like every time I talk to you, I talk about this. But I guess I will word it this way. You know, rates continue to be strong. The winter market looks like it has legs. Is there any kind of expectations—in December, you fixed a couple multiyear time charters. Has the appetite from customers increased for multiyear term? Are we seeing more opportunities over the last month or two? Or is that something where, really, just thinking about previous cycles or previous periods of time, you know, summer is coming. Does that have any impact on the opportunity for term charters to pick up, i.e., if this strength in market continues, I imagine customers will be more amped to fix multiyear deals because they know next winter is already around the corner. Emanuele A. Lauro: I will take that as well. We are certainly seeing improving time charter rates. The liquidity in time charters overall is improving as well. It is very strong. There is depth in it, and particularly on the LR2/Aframax market. We see also markets increasing on MRs. But there is for sure an increased demand for longer-term periods. So it is for sure that the momentum is there for multiyear charter rates, and it is very interesting at the moment with that demand. Gregory Robert Lewis: Super helpful. Thank you very much. Operator: The next question comes from Ken Hoexter with Bank of America. Please go ahead. Tim Chang: Hi. This is Tim Chang on for Ken Hoexter. Lars Dencker Nielsen: Thank you for taking my question. Christopher Avella: Lot of momentum for STNG and net cash. Congrats, guys, with Tim Chang: breakevens coming down, raising a dividend. But perhaps a question for Lars, how do you see rates progressing over the next few months or 40–60 days? Been a very firm start to the year. Do you perhaps see counter-seasonal increases continuing into 2Q, pushing you further over levels booked to date, with all the tailwinds from ton-mile demand, some of the geopolitical uncertainty, and just your view there would be great. Thanks. Emanuele A. Lauro: Yeah. I think—yeah. I mean— Operator: Go ahead. I was just going to start off, Lars, just saying since that is in—look. Robert L. Bugbee: I think you very well summarized all of the factors that are almost certainly going to lead to a relatively strong second quarter. Lars, would you like to add on to that? Emanuele A. Lauro: Yeah. Absolutely. First of all, the clean market, if we look at that first, is operating with very little slack at the moment. So you could say, well, you have some headlines on geopolitical stuff. You have headlines around miles. You have headlines around all these things. But structurally, I think we have a very positive product market in front of us. You have some things around some turnarounds taking place, but that has already started in the Atlantic Basin and so on. And still, you have a lot of product moving, and you have open arms from the West to the East, perpetually on the light ends. You have the ton miles we talked about. So it is not just a cyclical spike in my view. I think we have a refining system that is operating at a very high level, and we can see that in terms of the structural support that lends itself to LRs and to MRs in multiple regions. You have had very strong Asian markets. You have had, of course, the Atlantic Basin, and that has been highly reported widely in terms of—we have seen multiyear highs in TC14, etcetera, over the last couple weeks. So today, it is not really about short-term spikes in my view. I think we are seeing a kind of a longer wavelength coming in. And the market, for sure, has proven itself a lot more resilient than probably one initially had anticipated as we moved into 2026. Tim Chang: Got it. That is very helpful. And just another quick follow-up and then I will pass it on. But more of an opportunity longer term, nevertheless, seeing any incremental uplift yet in Aframax/LR2 demand from Venezuelan exports? I know you have spoken in the past with some just kind of illustrative numbers, like an additional million barrels per day equating to roughly 23 incremental vessels. Any update there would be great. Emanuele A. Lauro: I mean, I think—that is why—yeah. Why do you not go forward? Then I can follow up afterwards. Yeah. Tim Chang: Yep. James Doyle: Tim, as you highlight, that is the math. I think so far we have seen about 300,000 barrels a day go to the U.S. The U.S. Gulf refining system is well designed for Venezuelan crude. We have the coking capacity that can turn this heavy stuff into distillate, which is good for margins and for exports. It is unclear whether all of this volume will go to the U.S. and how long production will take to increase in Venezuela. It varies, but I would say on the margin, it is very positive. Lars? Emanuele A. Lauro: That is exactly what I would say as well. At the margins, it is going to be very positive, with the ships that would not have needed to move that are not in the sanctioned fleet. Tim Chang: Appreciate it. Thanks, guys. Operator: The next question comes from Chris Robertson with Deutsche Bank. Please go ahead. Christopher Avella: Just as a follow-up on the topic of Venezuela. We have talked a bit about exports here, but what is the view around naphtha imports in terms of it being a diluent for the crude? Is that market picking up? How does that look right now with increased use of the mainstream fleet? And what did it look like beforehand in terms of those deliveries into the country? Was that on sanctioned vessels? Or what is the dynamic there now? Robert L. Bugbee: To be honest, Emanuele A. Lauro: I think, at the margin, it is not the thing that really is going to change the Atlantic Basin product market on MRs in particular. Of course, it is the way that you would normally transport your naphtha into Venezuela. I think there are other things in the Atlantic Basin that have a lot greater impact in terms of why the market is also strong. It just adds to the fire in the sense that it is an additional positive. Christopher Avella: Got it. Okay. Thank you, Lars. Turning towards just global inventory levels at the moment on the product side. James, I think you have talked about this in the past. Any update around are inventories kind of remaining low and flat? Are they starting to pick up here and grow in OECD? What is the current status there? Robert L. Bugbee: Sure. James Doyle: Thanks, Chris. Look, you always have a buildup of inventories ahead of maintenance. So we have seen that. And the most up to date numbers we have are the U.S. It is still below the five-year average. It has been declining the last few weeks. We have had cold weather, more heating oil demand, and maintenance in the U.S. Gulf is just picking up. So we expect inventories to come in. OECD looks to be relatively in line. So I think from a product perspective, we have not seen huge builds, which is great as you go into maintenance. So things are going to be tight, and so I think that is constructive. And then on the crude side, we were anticipating kind of large builds in the overall market that have not happened. A lot of that is due to a lot of the crude on water that has built up is really sanctioned. And if you recall, there have been these forecasts of up to 4,000,000 barrels crude oversupply. We have not seen that yet. There have been disruptions in Kazakhstan, but overall, we think that the crude oversupply is going to be less than anticipated. And I think that is very constructive because it speaks to how strong demand is in the global system. Operator: The next question comes from Liam Burke with Rinne Securities. Please go ahead. Christopher Avella: Yes. Thank you. One of the macro lifts in the product tanker Liam Dalton Burke: side has been the redistribution of global refinery capacity. And it has been a multiyear lift. Do you anticipate that continuing? Or is that sort of bottomed out now? James Doyle: Thanks, Liam. Well, look, we anticipate it to continue in the sense that about 300,000 barrels that are closing, or part of that has closed, in the West Coast United States—for example, a Valero refinery and a Phillips 66 refinery. And as those refineries wind down in the next few months, it is 300,000 barrels, for example, that the California market needs. And if you speak to those oil and refining companies, they have highlighted they are going to import it from foreign markets. So in many ways, we have not yet seen the benefit of those flows largely coming from Asia. We still think there are going to be more closures in developed markets as well, replacing that lost production. So this is going to continue to go on for the foreseeable future. And then at the same time, as you kind of highlight with the question, emerging markets are not building much refining capacity. It takes a minimum of five, but probably seven years to build a refinery. And that has not started yet. So I think going forward, that is very constructive from a ton-mile demand perspective for us as well. Liam Dalton Burke: Great. Thanks, James. And on the fleet management, you have had a lot of activity in 2025, both on newbuilds and divestitures. You have got a billion-dollar liquidity position. Is there any additional tweaking you need to do with the fleet or you are happy with the assets in place? And your newbuild and your liquidity. Christopher Avella: We will Robert L. Bugbee: we are at present engaged in the secondhand market, and you should fully expect that we would sell: sell Robert L. Bugbee: asset—singular or plural—over a reasonably short time. And that sale and purchase market is super strong. Perhaps, Emanuele, you might like to talk a little bit about that. sell: Sure. We Emanuele A. Lauro: as you said, we continue to engage opportunistically on inbound inquiry on the existing fleet we have. And as we have done in 2025 and before that, we positively reply to inbound requests and engage in potentially selling further assets opportunistically. We are not working at anything specifically on the buy side at present, but we do not exclude substituting and renewing in a conservative way as we have done in the past quarters as you have seen. The S&P market is very hot. There is a lot of interest for tankers. What has happened in the last six to eight weeks in the crude tanker space has definitely attracted a lot of interest into the LR2s as well as trickled down to the smaller sized vessels up to MR, I would say. And this is proven by the fact that Lars has mentioned, I think, in his remarks earlier, there are about 220 LR2s trading clean today, which, in order to see that little number of vessels trading in the clean markets, we have to go back at least five years, to 2021. So this shows the level of interest and the hype that the crude market—the long-awaited crude market momentum—has captured in the last eight weeks and continues to do so. The level of interest is super high. Liam Dalton Burke: Great. Thank you very much. James Doyle: Sure. Robert L. Bugbee: Our last question Operator: comes from Christopher Saya with Arctic Securities. Please go ahead. Emanuele A. Lauro: Hey, guys. Good morning. Good afternoon. Thank you for taking my question. Just first with regards to Q1 bookings. Can you elaborate a bit more on how your LR2s are relating—dirty versus clean? How would you think about bookings on open days here? I mean, there is a $40,000 Operator: difference now on Tim Chang: LR2s and Afra. So how do we think about that spread? Emanuele A. Lauro: Well, I think I will go back to what I said initially, which is that we look at these things opportunistically every single day. But to look at it in a very Lars Dencker Nielsen: short backdrop is probably not the right thing to do. I think when we look at these things, considering the size and the number of ships that we have, we have to look at how we want to deploy these things. And one of the things that we would like to see is that as many owners have moved into dirty, and we were talking about the number of clean ships back, I think constructively that volatility will be an opportunity that we would want to control and take advantage of. And when you say that there is a $40,000 difference, I think $40,000 difference is in a very insular market on a particular week. We do not see $40,000 being the case over time. So if we look at it on a more normalized period, I think that if you look over the quarter, it has been around maybe $10,000 a day, which does not necessarily justify large-scale switching quarter on quarter. So that outperformance that you referred to is probably something we should look at from a longer perspective. I will just say that our approach is always opportunistic when it comes to this. But considering the ships that we have, the contracts that we have as well with some of our key clients, we have to remain disciplined in terms of the— Robert L. Bugbee: So Lars Dencker Nielsen: I guess the key point is we dirty out when it is clearly justified. Robert L. Bugbee: Okay. Understand. I Emanuele A. Lauro: I am just on term rates with you now. Tim Chang: VLCCs, modern VLCCs being on two or one year at Emanuele A. Lauro: $90,000 a day. And it seems like LR2s are more or less flat versus recent points. But if VLCC rates stay at 90, what would you say is a fair level that LR2 should be at? Do you see any upside potential here? If I may, and then Lars, please jump in. I think the LR2s have not—or Aframaxes for that matter—have not remained flat. I think that today, you can fix an Aframax/LR2 for one year in the high forties. And there are the rates for three and five years and the demand for three and five years deals, which has come in strong and has been reconfirmed. We have fixed a couple of ships for five years in Q4 last year, and today, those rates would be starting with a three for a five-year deal, or comfortably with a three for a five-year deal. So definitely, the interest is there, and the rates have increased for our classes of vessels as well. Lars Dencker Nielsen: I will just add that the market on LR2/Aframax has relatively outperformed VLCCs. It is taking a while for the VLCCs to come, so we are very happy to see that the VLCC market finally is coming into its own. Good for that, and it is going to be great for the overall market. So we are happy to see that we are firing on all cylinders now. Liam Dalton Burke: Perfect. Thank you. That is it for me. Robert L. Bugbee: Yeah. I would also—It is quite interesting if you did a cash-on-cash return valuation between either where the product stocks are valuing the vessels or even where the crude are valued, their return on equity at the moment is every bit as strong as the VLCCs. And if you look in the physical side and in terms of the stock side, obviously, the returns for the product tanker are higher as their stocks are selling at less of a premium to NAVs than the crude is. Operator: Ladies and gentlemen, this concludes our question and answer session. I would like to turn the conference back over to Mr. Lauro for any closing remarks. Emanuele A. Lauro: Thank you very much, operator. No closing remarks other than thanking everybody for your time and attention today, and we look forward to being in touch going forward. Thank you. Operator: Ladies and gentlemen, the conference call has now concluded. Thank you for attending today’s presentation. You may now disconnect. Goodbye.
Operator: Good morning. My name is Ludi, and I will be your conference operator today. At this time, I would like to welcome everyone to the Karyopharm Therapeutics Inc. fourth quarter and full year 2025 financial results conference call. There will be a question and answer session to follow. Please be advised that this call is being recorded at the company's request. I would now like to turn the call over to Brendan Strong, Senior Vice President, Investor Relations. Please go ahead. Good morning. Brendan Strong: And thank you all for joining us on today's conference call to discuss Karyopharm Therapeutics Inc.'s fourth quarter and full year 2025 financial results and recent company progress. We issued a press release this morning detailing our financial results for the fourth quarter and full year 2025. This release, along with a slide presentation that we will reference during our call today, are available on our website. For today's call, as seen on Slide two, I am joined by Richard Paulson, Reshma Rangwala, Sohanya Cheng and Lori Macomber who will provide an update on our results for the fourth quarter and full year 2025 and discuss recent clinical developments. Before we begin our formal comments, I will remind you that various remarks we will make today constitute forward-looking statements for purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995 as outlined on Slide three. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in the Risk Factors section of our most recent Form 10-Q or 10-Ks on file with the SEC, and in other filings that we may make with the SEC in the future. Any forward-looking statements represent our views as of today only. While we may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so even if our views change. Therefore, you should not rely on these forward-looking statements as representing our views as of any later date. I will now turn the call over to Richard Paulson. Please turn to Slide five. Thank you, Brendan, and good morning, everyone. Thank you for joining us today. Here in 2026, Karyopharm Therapeutics Inc. is in a defining phase marked by important late-stage clinical milestones, continued disciplined execution, and the opportunity to meaningfully expand the impact and scale of our oncology franchise. Today, selinexor has an established durable, commercial foundation of multiple myeloma within a highly competitive treatment landscape. That business continues to support the company and provide important experience as we advance into new treatment areas. Looking ahead, we see the most significant near-term driver of value in myelofibrosis, with endometrial cancer representing a subsequent opportunity to further expand the franchise. In myelofibrosis, we remain on track to share top-line data from our Phase III SENTRY trial in March. SENTRY was designed to address a clear unmet need by evaluating selinexor as part of a combination approach in a setting where treatment options remain limited. Over time and through clinical experience, we have meaningfully optimized how selinexor is used, including dose refinement and proactive supportive care, resulting in a more manageable and predictable tolerability profile. As we approach this important data readout, our organization is energized and well positioned to deliver on this opportunity. In endometrial cancer, we remain on track to report top-line data from our Phase III EXPORT EC042 trial in mid-2026. This biomarker-driven program targets a defined patient population with limited effective treatment options and represents an important opportunity to expand the long-term commercial profile of the franchise beyond hematological malignancies. From a financial perspective, we continue to manage the business with discipline. As previously disclosed, our cash runway extends into the second quarter, which aligns with key near-term clinical milestones. We have been deliberate in how we sequence spend across the portfolio and we are actively evaluating a range of financing and strategic options to maintain flexibility and align capital decisions with value creation. With that context, I would like to first turn the call over to Reshma Rangwala, our Chief Medical Officer, who will provide a detailed update on our clinical programs and upcoming milestones. Following Reshma, Sohanya Cheng, our Chief Commercial Officer, will discuss how we are preparing from a commercial and go-to-market perspective. Then Lori Macomber, our Chief Financial Officer, will review our financial results and discuss our financial guidance for 2026. After those updates, we will return for additional discussion and Q&A. Operator: Reshma? Reshma Rangwala: Thank you, Richard. I am incredibly excited by the near-term opportunity to read out two Phase III trials that could establish new standards of care in two areas of high unmet need. Start with myelofibrosis where we will have data next month. As seen on Slide eight, I would like to emphasize substantial need for new treatment options for patients with myelofibrosis. JAK inhibitors are the only approved therapies, and while they may decrease burden and lead to very modest spleen reduction, relevant JAK inhibitors including ruxolitinib, the standard of care in frontline myelofibrosis, do not target all of the relevant pathways implicated in myelofibrosis, including NF kappa beta, p53, and fibrosis-inducing pathways. As a result, frontline treatment with monotherapy JAK inhibitors do not adequately address the relevant drivers of pathogenesis in myelofibrosis. On Slide nine, our confidence in selinexor’s potential in myelofibrosis is based upon a substantial body of preclinical, nonclinical, translational, and clinical efficacy as well as safety datasets. These data suggest XPO1 inhibition is a key mechanism that may facilitate potential synergy with ruxolitinib and other drugs relevant in myelofibrosis. This multi-targeted approach enables treatment of the underlying mechanisms that lead to myelofibrosis and we believe may lead to meaningful efficacy across the key treatment drivers as well as the generally safe and manageable side effect profile. As seen on Slide 10, while JAK inhibitors directly inhibit the JAK-STAT pathways, multiple other pathways downstream of JAK-STATs support malignant clone proliferation and survival, bone marrow fibrosis, cytokine storms, and proliferation of abnormal megakaryocytes. These pathways include NF kappa beta, PI3 kinase, AKT mTOR, and TGF beta. A multifaceted approach with dual XPO1 and JAK inhibition simultaneously target upstream and downstream effectors of the JAK-STAT pathway, enabling apoptosis or cell death of the malignant clones. Let us now focus on the key treatment drivers in myelofibrosis, as seen on Slide 11. Spleen reduction, symptom improvement, and lower rates of grade 3+ anemia. First, spleen volume reduction. Note that only approximately one third of patients achieve a spleen volume reduction of greater than 35% with ruxolitinib alone. In contrast, our Phase I data suggests that the combination could more than double the SVR35 rate at 79%. Second is symptom improvement. Data from this trial also showed an average 18.5 improvement in absolute TSS at week 24 relative to baseline, which suggests that combination could provide a meaningful improvement over the 11 to 14 points achieved by patients on ruxolitinib as observed in the Phase III II and TRANSFORM-1 trials. Keep in mind that our 18.5 improvement excludes fatigue, whereas the numbers from the other trials include fatigue. So in reality, the difference could be even greater. Third is lower rates of grade 3+ anemia. The data that we presented in June at EHA from our Phase II, 35 monotherapy trial showed lower rates of all grade and grade 3+ anemia for the selinexor arm as compared to physician’s choice, in myelofibrosis patients previously treated with JAK inhibitor therapies. Our initial blinded safety data from the first 61 patients enrolled in SENTRY also suggests lower rates of grade 3+ anemia when selinexor is combined with ruxolitinib compared to historical ruxolitinib data. Meaningful improvement of these treatment drivers require disease modification or elimination of the underlying mechanisms leading to development of an enlarged spleen, constitutional symptoms, and worsening cytopenias. Data observed from selinexor monotherapy studies in a pretreated myelofibrosis population, as well as our Phase I combination data in JAK inhibitor naïve myelofibrosis, suggests meaningful reductions in key cytokines critical to myelofibrosis pathogenesis, symptom development, and anemia, as well as improvements in bone marrow fibrosis, increased mutational burden. Improvement in these markers of disease monster alone and in combination may lead to improvement in the key hallmarks of the disease including enlarged spleen, cytopenias, and symptoms. Turning to Slide 12, we are eagerly awaiting the readout from our Phase III SENTRY trial next month. Everything within our control to optimize SENTRY for success. As we have previously discussed, we believe that we have, including focusing on the relevant symptom domains and the analysis of PFS can be most accurately evaluated in a randomized trial analyzing TSS by estimating in approximately 350 patients approximately 22.5 which could be the highest baseline TSS observed in a frontline myelofibrosis Phase III trial. Depending on the outcome of our data in myelofibrosis, we also have a significant opportunity to expand into other myeloproliferative neoplasms as outlined on Slide 13. This includes the potential to expand into polycythemia vera and essential thrombocythemia with eltenexor, our leading next-generation XPO1 inhibitor. Let us now turn our attention to endometrial cancer on Slide 15. Reshma Rangwala: In the Phase III EXPORT EC042 trial, the number of PFS events observed to date are consistent with our projections giving us confidence in our ability to share top-line data in mid-2026. In light of the near-term proximity of these data, I wanted to go back and remind everyone about the treatment landscape, our data from our last trial, and recap our current trial design. Our Phase III trial is recruiting patients with p53 wild-type endometrial cancer. Given that checkpoint inhibitors are entrenched in the treatment landscape for patients with dMMR tumors, the trial has been updated to first evaluate the primary endpoint of PFS in patients with p53 wild-type pMMR tumors or p53 wild-type dMMR tumors but medically ineligible to receive a checkpoint inhibitor. If positive, PFS will then be evaluated in all with p53 wild-type tumors. As discussed previously, the long-term follow-up data from our Phase III SIENDO trial indicated that women in the exploratory subgroup with p53 wild-type endometrial cancer and pMMR tumors, roughly half of all patients, experienced a progression-free survival with selinexor as a maintenance therapy following chemotherapy, which exceeds the overall survival that inhibitors have demonstrated in the same population. Let us review some of our long-term follow-up data from our last Phase III trial in endometrial cancer. Slide 16 shows a very encouraging signal in the p53 wild-type subgroup with a hazard ratio of 0.44, and a median PFS benefit of 28.4 months largely due to the early separation of the curves. These data have only strengthened with time and suggest a similar trend may be observed in our ongoing Phase III trial. These results were even more impressive in the subgroup of patients with p53 wild-type pMMR tumors, as shown on Slide 17, the long-term follow-up data from this prespecified exploratory subgroup showed a hazard ratio of 0.36 and a median PFS benefit of 39.5 months. Similar to the broader 18 shows the safety profile at the time of the long-term follow-up, which is something that we will expect to improve when we report data from our ongoing Phase III trial. As you look at these data, keep in mind that SIENDO was evaluating 80 mg of selinexor once weekly. And while antiemetics were used at time, the mandated use of dual antiemetics during the first two cycles of therapy was not part of the clinical trial protocol. This is a key difference when you think about the design of our current Phase III, where we are using a lower dose of selinexor at 60 mg once weekly, and dual antiemetics are mandated during the first two cycles of therapy. That takes us to Slide 19, which contains the trial design of our Phase III EXPORT EC042 trial where selinexor 60 mg is being evaluated as a maintenance therapy in patients with p53 wild-type endometrial cancer. The primary endpoint for the trial is progression-free survival as assessed by the investigator. As I mentioned earlier, event accrual is consistent with our projections, and we remain on track to share top-line data in mid-2026. I am incredibly excited by the opportunity presented by both of these Phase III trials to establish new standards of care in two areas of high unmet need. I will now turn the call to Sohanya. Thank you, Reshma. As shown on Slide 21, our commercial organization executed well in 2025 within the highly competitive multiple myeloma market. XPOVIO net product revenue grew to $32.1 million in the 2025 and $114.9 million for full year 2025. We expect to continue to deliver revenue growth this year and are guiding towards $115 million to $130 million of XPOVIO net product revenue in 2026. Demand for XPOVIO was consistent year over year in 2025 with the community setting continuing to drive approximately 60% of total U.S. sales. XPOVIO continues to be positioned in both the community and academic settings as a flexible therapy with a differentiated mechanism of action oral convenient option. Additionally, given the emergence of new T-cell engaging therapies, and our growing body of evidence around the role of selinexor in potentially preserving the T-cell environment, XPOVIO continues to be utilized in the peri T-cell engaging therapy setting. Let us turn to Slide 23. As we work to expand beyond multiple myeloma, let us now focus on myelofibrosis, where selinexor has the potential to play a very different role where the patient populations, competitive dynamics, the dose of selinexor, and potential impact on patients are fundamentally different. This is why our commercial opportunity in myelofibrosis is so much greater. Taking a closer look at dosing and patient population differences between the two diseases, it is important to recognize that the side effect profile often associated with XPOVIO stems largely from its use at higher doses in multiple myeloma following our initial approval. Those historical concerns accurately reflect how selinexor is expected to be used at a lower dose with dual antiemetics in frontline myelofibrosis if approved. The other fundamental difference between the two diseases is the unmet need and competitive landscape. In myelofibrosis, the only treatment options that patients currently have are JAK inhibitors, with ruxolitinib monotherapy being the standard of care for the past 15 years and only about one third of patients that receive ruxolitinib volume reduction of 35% or more with two thirds of patients not adequately responding. As Reshma outlined, our data highlights offer opportunity to meaningfully improve patient outcomes by increasing the proportion of patients that achieve rapid, deep, and durable spleen volume reduction, as well as symptom improvement and lower rates of grade 3+ anemia while also potentially modifying the underlying disease. Slide 24 provides an overview of our opportunity to be the new market leader with the first ever frontline combination therapy as we combine with the current market leader to offer better outcomes for patients. As you look at the overall prevalent market there are 20,000 patients living with myelofibrosis in the U.S., which represents a multibillion dollar marketplace, with approximately 6,000 newly diagnosed patients each year. Our commercial efforts will focus on the approximately 4,000 newly diagnosed patients with intermediate to high risk myelofibrosis that have a platelet count above 100,000. Based on the market research that we have conducted, 75% of physicians expressed intent in treating patients with a combination therapy. For duration, we are assuming that we can improve upon the 13-month real-world duration of treatment for ruxolitinib. Taking all of this into account, we believe that our peak revenue opportunity may approach $1 billion annually in the U.S. alone. Turning to Slide 25. We have the capabilities in sales, market access, marketing, and medical affairs to support a launch in myelofibrosis. The team that we have assembled has deep experience in hematological oncology and rare disease launches. This group plus the robust teams that support them will allow us to launch rapidly. Our current sales organization has deep relationships and experience with accounts that will be key to our launch. As outlined on Slide 26, 70% of myelofibrosis patients are treated in the community setting. The majority of these patients are treated at five large community networks, such as U.S. Oncology and Florida Cancer Specialists, and approximately 200 other large community accounts. Academic institutions represent the other 30% of patients and more than 70% of these patients are treated at the top 50 academic institutions. Importantly, a majority of the top 50 academic institutions are participating in SENTRY and/or SENTRY-2. So the clinical care teams that work with myelofibrosis patients in these institutions are already very familiar with selinexor plus ruxolitinib for frontline myelofibrosis patients. As we focus on the concentrated group of accounts outlined on this slide, we believe this will allow us to launch rapidly. Turning now to Slide 27. We are energized by the opportunity to reshape frontline myelofibrosis treatment by pairing selinexor with the current standard of care. Today, two thirds of patients still fail to reach SVR35 on ruxolitinib, an unmistakable unmet need. Our selinexor–ruxolitinib combination is a convenient all-oral regimen. Our teams are already engaging the key accounts, positioning us for a fast, efficient launch. Just as importantly, selinexor fits seamlessly into existing workflows. No new testing. No operational hurdles. No disruption to how patients receive care. That simplicity makes adoption far easier. With positive data and regulatory approval we will be ready to drive rapid meaningful uptake and deliver a therapy with the potential to change the trajectory for patients. Now I will turn the call over to Lori. Good morning, everyone, and thank you, Sohanya. Turning to our financials on Slide 29. Total revenue for the 2025 was $34.1 million, an increase of 11.8% compared to the 2024. For the year, total revenue was $146.1 million, a slight increase from 2024. U.S. XPOVIO net product revenue for the 2025 was $32.1 million, an increase of 9.6% compared to the 2024. For the year, U.S. XPOVIO net product revenue was $114.9 million, an increase of 1.9% from 2024. Gross-to-net provisions for XPOVIO were 26.9% in the fourth quarter and 31.2% for the calendar year 2025. License and other revenue was $2.0 million in the fourth quarter and $31.2 million for the full year 2025. Keep in mind, our full year revenue included $15.0 million of R&D reimbursement from Menarini, and 2025 was the last year we will receive this reimbursement. Remaining $16.2 million in 2025 was related to royalties, or milestones earned from our international partners including Menarini. Turning to expenses. We remain disciplined in managing operating expenses and allocating capital to our pipeline. This focus continues to translate into solid quarterly and full year financial performance. Research and development expenses for the 2025 were $27.7 million, a decrease of 17% from the 2024. For the full year, research and development expenses were $125.6 million, a decrease of 12% from 2024. These decreases were driven largely by lower personnel following previously implemented cost reduction initiatives and focused clinical trial expenses as we prioritize capital allocation to our Phase III myelofibrosis and endometrial cancer programs. Selling, general, and administrative expenses were $22.8 million for the quarter, a decrease of 16% compared to the 2024. For the full year, SG&A expenses were $105.2 million, a decrease of 9% from 2024. These decreases primarily reflected the continued benefits of our cost reduction initiatives. Lori Macomber: Taken together, our law firm operations improved by approximately 43% in the 2025 compared to the 2024. And improved 24% in the full year 2025 compared to 2024. Interest expense was $12.6 million in the fourth quarter and $45.8 million for the full year. Both amounts were an increase from the comparable periods in 2024 reflecting higher outstanding debt, and higher interest rates as part of our refinancing in October. Other expense was $10.0 million in the 2025, compared to $10.1 million of other income in the 2024. For the full year, other income was $0.2 million compared to $28.4 million of income in the full year 2024. This nonoperational item is primarily driven by reoccurring noncash fair value remeasurements of embedded derivatives and liability-classified common stock warrants related to the refinancing transactions completed in the 2024 and the 2025. This, combined with the $62.4 million loss on the extinguishment of debt in 2025 compared to the $44.7 million gain on the extinguishment of debt in 2024, were the primary contributors to the higher net loss and lower earnings per share in 2025 versus 2024. Importantly, both items are noncash and nonoperational in nature. As a result, we reported a net loss of $102.2 million, or $5.71 per share on a GAAP basis in the 2025, and a net loss of $196.0 million, or $17.93 per diluted share for the full year 2025. More than half of the full year loss was driven by below-the-line items including the loss on extinguishment of debt, and interest expense, which are largely noncash in nature. Excluding these items, our underlying operating performance continues to demonstrate meaningful improvement. Finally, we ended the year with $64.1 million in cash, cash equivalents, restricted cash and investments compared to $109.1 million as of December 31, 2024. Based on our current operating plans, our guidance for the full year 2026 is as follows: total revenue of $130 million to $150 million consisting of U.S. XPOVIO net product revenue and license, royalty, and milestone revenue expected to be earned from our partners, primarily Menarini and Antengene. U.S. XPOVIO net product revenue to be in the range of $115 million to $130 million. R&D and SG&A expenses to be in the range of $230 million to $245 million. We expect our existing liquidity including the revenue we expect to generate from XPOVIO net product sales, as well as revenue generated from our license agreements, will enable us to fund our current operating plans into the second quarter of this year. I will now turn the call back to Richard for some final thoughts. Thank you, Reshma, and Lori. As we have discussed today, Karyopharm Therapeutics Inc. is well positioned as we approach pivotal data that will inform the next phase of the company. We have a durable commercial foundation of multiple myeloma, and we are approaching pivotal data from our late-stage clinical programs that have the potential to significantly expand the role and impact of our oncology franchise, beginning with myelofibrosis in March, and extending into endometrial cancer in the middle of this year. We have continued to refine how our programs are developed and executed, applying clinical experience, optimizing how our therapies are used, and ensuring our Phase III programs reflect what we believe is the right balance of efficacy and tolerability for the settings we are targeting. From a capital perspective, we remain disciplined and deliberate. We are managing the business with a clear focus on near-term value-creating milestones, while maintaining flexibility and optionality as we consider financing and longer-term strategy. Ultimately, our priorities are straightforward. Execute well, generate high-quality data and allow these results to define the next phase of the company. We believe this approach best serves patients, investigators and shareholders alike. We will now open the call for questions. Operator? Operator: Thank you. And ladies and gentlemen, we will now begin the question and answer session. To ask a question, you may press the star followed by the number one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, you may press star followed by the number two. And we kindly ask you to please limit yourself to one question and one follow-up. With that, our first question comes from the line of Colleen Margaret Kusy with Baird. Please go ahead. Colleen Margaret Kusy: Great. Good morning. Thanks for taking our questions, and congrats on all the progress. Very excited for the upcoming data we will see next month. Maybe we can start there. Obviously, the 60 mg data has yeah. That we have seen so far is invest in class. I think as a lot of people are doing a little bit more work ahead of the readout, there have been some questions coming up from investors on just on the 40 mg dose and data we have seen there. So maybe just can we start there? Just any notable difference in exposure? Anything else you think is driving that difference in activity that you have seen for the 40 mg versus the 60 mg in the Phase I? Richard Paulson: Yes. Thanks, Colleen. I think, obviously, our dose is focused on the 60 milligrams and looking at our Phase III trial. But I will let Reshma maybe just talk to that broadly, but I think people should be very focused on the data. Efficacy, safety, and tolerability we have with the 60 milligram in combination with rux. Reshma Rangwala: Yeah. Thank you, Colleen and Richard. So it goes back to our Phase I data in which we evaluated both the 60 mg as well as 40 mg. When you look at the efficacy and safety, there is a clear benefit risk in favor of the 60 milligram cohort as compared to the 40, largely due to the fact that efficacy, both from an SVR as well as TSS, was maximized in the 60 milligram group as compared to the 40 milligram group. Now, when you look at the safety, though, you do not see as stark of a difference. Numerically, yes. Both the heme and non-hemes are slightly higher with the 60 milligram as compared to 40, but you do not see that substantial dose response as compared to, again, what I described in the efficacy. So in total, again, when you look at the efficacy and safety data, it really is in favor of that 60 milligram group. Then layer in the pharmacokinetic data and, therefore, exposures are higher with that 60 milligram group as compared to the 40. So really, the totality of the data from the clinical efficacy, safety, ClinPharm, and then, of course, we have got multitude of preclinical data, translational PD markers that really suggest that 60 milligrams is the right dose in myelofibrosis. Hence, the reason that we have taken that forward in our Phase III. And then, obviously, you are the first potential combination in frontline MF, which is a exciting opportunity. Novartis, a potential competitor potentially just kind of announced some new plans moving forward in MF. Just kind of curious your thoughts on the read through there. Would think, obviously, follows your strategy of enrolling highly symptomatic patients but just curious your thoughts on the read through there. Richard Paulson: Yeah. Thanks, Colleen. Yeah. I think you highlighted it. It really it does talk to the importance of having the right patient population in the trial, which I think we have delivered very well. And overall, really, the continued investment in myelofibrosis space really talks about the unmet need and the significant value that that is seen in myelofibrosis market. So you know, I think as we look at it, you know, regarding the EU and Novartis has indicated they may be moving forward and filing there. That may indicate that the EU regulatory agencies are more focused on 35 and potentially showing you know, more regulatory flexibility, less focus on symptoms. But you know, given our top-line readout data is going to happen in March, we would look to be filing rapidly with our data, obviously engaging in both the U.S. and globally. And so I think this really gives us the opportunity to establish ourselves pending positive data as a standard of care in myelofibrosis, you know, given the fact that Novartis has indicated that they would run another trial for the U.S. And that trial would not read out for a number of years and gives us a significant amount of time to establish ourselves well and become the standard of care in frontline myelofibrosis. Colleen Margaret Kusy: Awesome. And then one more quick one if I can. Just, if you could the comments a little bit about the strategy for eltenexor and other MPNs if MF is positive? Just strategy would look like there and and what the IP is. Could you remind us for eltenexor versus onixor? Reshma Rangwala: Yeah. I will take the first question, and then I will pass over the IP to Richard. But yes, eltenexor is a second-generation XPO1 inhibitor. So just like selinexor, it too is going to inhibit XPO1. It has a couple of differentiating properties, lower IC50s as well as lower penetration through the blood-brain barrier. That has opportunities to lower the dose, potentially dose more frequently, also have a better safety profile, profile. Eltenexor has already been evaluated in a Phase III trial, so we do have some, you know, very encouraging preliminary data, albeit in other tumors outside of the MPNs. I think where we look at the next opportunity is to go beyond MF. Right? We know that MF is just one of multiple MPNs. We have got some really interesting preclinical data that also suggests that XPO1 may be relevant in other MPNs, including PV as well as and so that, I think, would be our next opportunity. Is to expand again beyond MF and start to look at some of these other more chronic diseases like the ones that I just mentioned. Richard Paulson: Yeah. And from a patent perspective, obviously, it is early days yet with regards to our overall strategy there. But you know, right now, with eltenexor, the patent, it goes into mid-2034. But as a reminder, we have not yet yet applied for any patent term extension or patent term adjustment which would extend it, you know, into 2039. So lots of opportunity for us as we continue to move forward and develop in that in that space. Colleen Margaret Kusy: Great. Thanks so much for taking our questions. Six here for the data next month. Richard Paulson: Thanks, Colleen. Operator: Thank you. And the next question comes from the line of Yichun Qian with Cantor. Please go ahead. Yichun Qian: Hi, folks. Appreciate the updates here. Greatest progress in timelines remain intact. Just had a question with regards to the blinded safety data. And just given that you have been able to provide baseline characteristics on a blinded basis with the trial now fully enrolled, curious if there has been an opportunity to kind of refresh that look and if there has been any kind of material change there with regards to discontinuation rates or other AEs like the nausea and anemia and thrombocytopenia. Reshma Rangwala: Hey, Yoni. Thanks for the question. So, no, we have not updated anything beyond what we have publicly disclosed in the past. So, you know, what we have said in the past is, you know, the baseline demographic is disclosed in the ASH abstract, included approximately 320 patients, was very consistent with our expectations for population to be enrolled in a frontline myelofibrosis. With that said, though, we did have an opportunity to update the TSS in approximately 350 patients. Again, you know, something that I have commented before in the past. And that TSS evolution, that baseline TSS evolution without fatigue is, again, really nice. Approximately 22.5 potentially could be the highest baseline TSS, which is something that we were actively striving for. In terms of the blinded safety data, no, we have not done a refresh. We are looking forward to the data next month where we can definitively look at the data across the two arms. Those two, I think, are very encouraging and potentially suggest that patients treated with a combination could have lower grade 3+ anemia. This is, again, based upon extrapolations relative to historical ruxolitinib data, as well as very manageable non-heme toxicities including the GI toxicities, nausea, as well as elaborate there. What is kind of the general. Yichun Qian: Protocol? And if there is any kind of high level view that you can provide with regards to rux dosing and and how in line it is with the label. Reshma Rangwala: Absolutely. So the SELE dose can be reduced. So it can go from 60 to 40 to 20, and then, yes, you know, of course, if the AEs persist, it can be discontinued. Those dose modification guidelines are well specified within the protocol. The ruxolitinib dose modifications are really based upon the country’s local label, right, which by and large are very consistent with the U.S. USPI. So the starting dose is going to be based upon the patient’s baseline platelet count, and then any kind of dose modifications, including reductions, interruptions, and even discontinuations, again, should be followed per the U.S. So we are very strict about that in our protocol. Now given the fact that this is a combination therapy, what we suggest to our investigators is to modify based upon what I call the flavor of the AEs. So if a patient first experiences a hematologic toxicity, for example, anemia, thrombocytopenia, very well described for ruxolitinib, we guide them to modify the ruxolitinib dose first, again, per the U.S. If they experience a non-heme toxicity, then we suggest that they modify selinexor dose. So we try to keep it very easy for the investigator just based upon the kind of AE that the patient experiences. Yichun Qian: Got it. Okay. And one one last quick one. Just with regards to SENTRY-2, could you comment there a little bit on kind of the strategic thought there and kind of utility of that data and what you are hoping to show and how that might tie in with future label extensions within MF? Richard Paulson: Yeah. I can talk to that. Yeah. Mean, overall, obviously, enabling trial is our Phase III frontline combination with ruxolitinib. But really importantly, when we look at the overall efficacy and I think the activity of selinexor, we have seen in a number of our trials really strong monotherapy data. And also, we do know that it is important to be able to expand beyond ruxolitinib in the future. Potentially with selinexor to really play a foundational role across myelofibrosis first and potentially across other MPNs. So our Phase II is really one where we are letting patients start at the platelets greater than 50,000. The 50,000 and above is we just modified the protocol. And within that, it is starting with selinexor as a treatment monotherapy. And then you have the opportunity for patients to be able to add on other JAK inhibitors depending on the need, so they may not need to. But if they do need to, they can add on their JAK inhibitors. And we do know that selinexor is a drug that is able to be partnered with many other drugs. So I think, you know, pending positive data with our Phase III frontline combination with rux, our view would be, you know, to read out the Phase II data, and look at that as an opportunity to really expand from a guideline perspective and enable physicians much more flexibility and the opportunity to establish, you know, selinexor in combination with multiple JAK inhibitors and/or selinexor to be able to treat patients potentially as a monotherapy. But, again, that is an opportunity to expand in the future. An area that I think we are quite excited about and is moving forward well. Anything you would add on to that, Reshma? Reshma Rangwala: No. Nothing. That is great. Yichun Qian: Perfect. Alright, guys. Really appreciate the updates, and best of luck here in the near in near term. Brendan Strong: Thanks, Yoni. Operator: And the next question comes from the line of Brian Corey Abrahams with RBC Capital Markets. Please go ahead. Brian Corey Abrahams: Hey. Good morning. Thanks for taking my question, and look forward to an exciting next couple of months. You reported the Phase III baseline characteristics at the ASH conference in an abstract. And it looks like if you look at the risk status, if you look at spleen volume, the baselines the baselines the patient population looks somewhat milder than what was in the Phase I/II. And then while the I think you pointed out that the TSS score is actually substantially higher, there is a pretty wide range, including patients going down to scores as low as two. So can you maybe talk about what some of those similarities but also differences might mean with regards to, you know, the potential to show as why the delta in the in the Phase III? Reshma Rangwala: Thanks. Sure. Thanks, Brian. You are correct, right? Sort of like if you compare the patient populations in the Phase III, Phase I, I would agree. It is a little bit milder. I think the other aspect that is different is even the baseline hemoglobin. Right? So it was approximately 10 grams. Median was 10 grams in the Phase I. It is approximately 11 grams in the Phase III. So I think by and large, right, yes, this potentially could be a less sick patient population. You know, with that said, though, I do not think it is going to have any impact on the efficacy. Right? And I say that because even when we look at the subgroups, from our Phase I from an SVR perspective, there really is a very nice consistency, including across all of the dips. From INT-1 all the way up until high risk. And even by hemoglobin. So I think it really suggests that there can be meaningful benefit across all of the different subsets of patient populations to, of course, people that are going to have far more difficult to treat disease versus those that are have a little bit more mild disease. Brian Corey Abrahams: No. That is really helpful. Thanks. And then do you have any sort of updated feedback from either KOLs or from regulators on that is maybe shaped your view on what might be a reasonable threshold for symptomatic improvement just in the in the case that you show statistically significant spleen reductions, but do not quite show, get to statistical significance on symptoms. What would be the bar to still potentially proceed with the filing, assuming there are not any safety surprises or anything like that? Reshma Rangwala: Sure. You know, so our goal is to really show statistical significance for both SVR as well as absolute TSS. Right? You know, those are the bars that are included in our statistical analysis plan as well as discussed with the FDA. We think that profile again statistically significant improvement both for the SVR, TSS, in the context of a very manageable safety profile, is really the ideal profile for a new combination therapy, the only combination therapy that would be available for these patients with MF. Even take it one step further, when we talk to our KOLs, right, they do emphasize that SVR is going to be their primary treatment driver, largely because there are, you know, multiple datasets, multiple meta-analyses, that really suggest that the deeper, the more rapid, the more durable the SVR that can be achieved, the more that it may correlate with long term. They are very focused on that spleen volume reduction, and while they say, yes, symptoms are important, you are really, for them, they just want to see some kind of benefit. Benefit above and beyond ruxolitinib. So, again, I think even if you have that outcome in which SVR is positive, TSS is numerically improved, that is a profile that they would be very happy with and clearly would even advocate for the NCCN guidelines to adopt. So you know, I think that is very encouraging from their and a very important voice, right, in the MF space. From a regulatory perspective, they have never commented. Right? They have never commented on what that minimum delta would be. I think, again, I think statistical significance is what we are, you know, striving to achieve here. Got it. That is super helpful. And then maybe one more if I could squeeze it in. Brian Corey Abrahams: Could you just remind us on the regularity of, I guess, DSMB or interim safety looks here and whether or not you would expect that would pick up on any imbalances in the transformation. Thanks. Reshma Rangwala: Yes. So the DSMB does evaluate the data on a regular basis, approximately every four to six months. It is something that we do across all of our clinical trials. And, yeah, they would. You know, they get the totality of the safety data from all AEs, grade 3, 4, SAEs, and, of course, transformations as well. So far, they have not, you know, mentioned anything. And as I mentioned previously, even with the futility analysis, they did suggest that this study continues without modification. Brendan Strong: Thanks again. Richard Paulson: Thank you, Brian. Operator: And the next question comes from the line of Maury Raycroft with Jefferies. Please go ahead. Maury Raycroft: Hi, good morning. Thanks for taking my questions. Maybe as a follow-up to one of the earlier ones, for the 61 patients in the futility analysis group in SENTRY, what can you say about dose reductions you saw for selinexor and/or ruxolitinib? And even though you have been clear that we should not rely too much on extrapolating based on these patients, can you contextualize how the dose reductions compared to your Phase I? And how the rux dose reductions could compare to other myelofibrosis Phase III studies. Reshma Rangwala: Sure. Great question, Maury. I have not commented on the dose reduction from the first 61 patients, specifically for the ruxolitinib, largely because, you know, as you know, the starting dose is going to be very variable again based upon the patient’s baseline platelet count. Extrapolating, you know, the rux dose intensity and the dose reductions in the context of a blinded safety data where that starting dose is very variable, again, can be very challenging. And so, again, it is not meaningful output at this time. You know, let us just wait until the top-line data. With that said, though, we have mentioned that the selinexor dose intensities, whether selinexor or placebo, does look really good. Amongst the 61 patients, the mean relative dose intensity was greater than 95%. Maury Raycroft: Got it. Okay. That is helpful. And maybe just two quick clarification questions. For the first 61 patients, is there anything more you could say about where those patients were recruited from, which regions they came from? Reshma Rangwala: Sure. They were globally. So they were they were going to they are globally recruited. Primarily North America as well as EU. And probably a few more. I do not have the exact numbers, will say, but I anticipate more patients coming from North America just because those were the first sites activated. But, yeah, just assume that this is going to be a population largely recruited, again, within Europe as well as North America. Maury Raycroft: Got it. Okay. And for knowing that the date is going to be in March is really helpful. Just wondering if you are saying whether it is going to be earlier or later in March. Richard Paulson: No. We think guiding to March is pretty strong. So we feel very good about that and continue to progress well, and then we will read the data out in March. Maury Raycroft: Got it. Okay. Thanks for taking my questions. Richard Paulson: Thanks, Maury. Operator: And your next question comes from the line of Wei Ji Chang with Leerink Partners. Please go ahead. Just one. Hi, guys. Thanks for taking my question. Wei Ji Chang: What are the key reasons for confidence in hitting on the TSF endpoint of the SENTRY study? Thank you. Reshma Rangwala: Sure, Jonathan. Great. Great question. I think there are multiple different aspects that give us confidence. So you know, I go back to, you know, the studies the Phase I study’s original secondary endpoint was TSS-50. Right? When we have the opportunity to look at TSS-50 amongst that ITT, numbers were quite strong at approximately 59%, relative to historical ruxolitinib data that have read out, you know, sort of in the mid-40s. So a really nice improvement there. We then looked at absolute TSS, or the observed mean change at week 24 relative to baseline. These are going to be the actual values, not estimated, which is what is going to be coming from the Phase III. Those numbers too, very strong with an 18.5 improvement. The size get it from the Phase I population, which was naïve treated with the combination, or even from our monotherapy study in which we evaluated selinexor as a monotherapy in that previously treated population, you really see very meaningful and rapid reductions in those substantially better than what is again been described for ruxolitinib where the improvement was only 11 to 14 points. So from a clinical perspective, you really have evidence of meaningful TSS improvement from both TSS-50 as well as absolute TSS. Now, the other part that really should be taken into consideration is cytokine levels as early as week four. So the fact that you see that cytokine decrease again explains why you also see that associated clinical benefit. So I think, like, really, those are going to be the key reasons why I have that confidence. I think the other aspects that we cannot lose sight on is the FDA gave us the to change out the endpoint, right, from TSS-50, which we know is very crude measurement of symptom benefit, to a much more sensitive methodology in absolute TSS, which is, again, going to look at that mean change over time. And then the last part that I will just emphasize is that we are looking at TSS without fatigue, and the reason we are doing that is again, there is precedence with evaluating without fatigue. It was established by both ruxolitinib as well as fedratinib, but we also know that fatigue, it is just a very, very difficult domain to meaningfully evaluate. So I think again, being able to incorporate absolute TSS without fatigue as the key measure of improving symptoms is really a significant opportunity to be able to show that significant improvement relative to ruxolone. Richard Paulson: And then, Jonathan, I will just close that because I think as Reshma talked to, we feel very good about that. And then as we have said, feel very pleased with the patient population we have enrolled. It is consistent with the population we had planned, and as we set our targets to ensure we had, you know, a meaningful baseline TSS, we have delivered on that with the TSS scores, you know, appear to be higher than MANIFEST and substantially higher than TRANSFORM, which, again, is what we intended to do. So I think we have set up the trial as well as we could and are extremely excited about reading this out next month in March. Wei Ji Chang: Understood. Thank you. Richard Paulson: Thanks, Jonathan. Operator: And we have no further questions at this time. I would like to turn it back to Richard Paulson for closing remarks. Richard Paulson: Thank you, operator, and thank you, everyone, again for your time and your continued interest in Karyopharm Therapeutics Inc. As you just heard, we are extremely excited to be reading out our top-line Phase III data in the frontline myelofibrosis with selinexor in combination with rux. And we look forward to engaging with you in March as we read that out. You for joining us today. Operator: Thank you. Ladies and gentlemen, this concludes today’s conference call. Thank you all for joining. You may now disconnect.
Operator: Good morning, and welcome to the Darling Ingredients Inc. conference call to discuss the company's fourth quarter and fiscal year 2025 financial results. After the speakers' prepared remarks, there will be a question and answer period, and instructions to ask a question will be given at that time. Today's call is being recorded, and I would now like to turn the call over to Suann Guthrie, Senior Vice President, Investor Relations. Please go ahead. Suann Guthrie: Thank you, and welcome to the fourth quarter and fiscal year 2025 earnings call. Here with me today are Randall C. Stuewe, Chairman and Chief Executive Officer, and Robert W. Day, Chief Financial Officer. Our fourth quarter and fiscal year 2025 earnings news release and slide presentation are available on the investor page of our corporate website. We will be joined by a transcript of this call once it is available. During this call, we will be making forward-looking statements, which are predictions, projections, and other statements about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could materially differ because of factors discussed in today's press release, and the comments made during this conference call and in the Risk Factors of our Form 10-Ks, 10-Q, and other reported filings with the Securities and Exchange Commission. We do not undertake any duty to update any forward-looking statement. Now I will hand the call over to Randall C. Stuewe. Randall C. Stuewe: Morning, everyone. As we close out 2025, I want to acknowledge our employees for continuing to execute on our vision of being the world's largest, most profitable, and most respected processor of animal byproducts. For every end, we believe there is a new beginning as 2025's performance clearly demonstrates. Our 2025 results reflected the uncertainties created by evolving renewables public policy along with the turbulent globalization related to tariffs and trade. Yet our team remained committed to the fundamentals that matter the most. We meaningfully improved our debt leverage, took steps to rationalize and improve our portfolio, and focused on our core strength and advanced our operational excellence. These actions throughout the year strengthened our platform, assisted in generating concrete results, and position us for continued growth and profitability in the future. In the fourth quarter, we delivered solid EBITDA growth and sequential gross margin improvement. Despite a challenging year for Diamond Green Diesel, our best-in-class operations led the industry in results. Darling's combined adjusted EBITDA for Q4 was $336,100,000 and our global ingredients business performed strong with $278,200,000 of EBITDA. In our Feed Ingredients segment, exceptional operational execution drove meaningful margin expansion for the fourth quarter in a row, a clear sign of the momentum our operations team continues to build as they remain laser-focused on driving efficiency and delivering strong results each quarter. The additional week in our fiscal year combined with a favorable lag in fat prices supported higher volumes and sales in the fourth quarter for the year. The U.S. demand for domestic fats remains robust as we continue to operate within agricultural and energy policy direction that is increasingly favorable to Darling Ingredients Inc., to American agriculture, and to American energy independence. Internationally, our global rendering business in Europe, Canada, and Brazil delivered solid year-over-year growth. Turning to our Food segment, global collagen and gelatin demand continues to rebound and our previously announced joint venture with PB Leiner and Tessenderlo is advancing as planned with regulatory reviews now underway. Across the business, we are seeing positive global demand trends that give us a very encouraging outlook for 2026. Our Fuel segment, Diamond Green Diesel, delivered its strongest quarter of the year with $57,900,000 of EBITDA, or $0.41 per gallon. For the full year 2025, DGD earned $1,037,000,000 of EBITDA, or $0.21 EBITDA per gallon, and sold approximately 1,000,000,000 gallons. This performance reinforces DGD's position as the lowest-cost operator with an unmatched supply chain and superior logistics. Even in an uncertain time for the industry, DGD continued to generate positive EBITDA and consistent operations, highlighting the strength of our people and the deep expertise behind our operations. Now looking ahead, we are increasingly optimistic. The policy backdrop is moving in a direction that we believe will soon enhance DGD's earning potential and create a more constructive environment for domestic renewable fuels. Now, as I mentioned earlier, we have taken steps to sharpen our portfolio and focus on our core strengths, which may result in some asset sales in the near future. At the same time, we are open to opportunities that strengthen and expand our core business where it makes sense. Darling Ingredients Inc. was identified as a stalking horse bidder in the bankruptcy proceedings for three rendering facilities from the Potense Group in Brazil, the second-largest rendering company in Brazil. Robert W. Day will share more details on the financials and timing, but these are high-quality assets with strong operational capability and fit naturally alongside our existing footprint. This is an incredibly strategic acquisition of assets that offers important synergies with the rest of our network in Brazil. Now with this, I would like to hand over the call to Robert W. Day, take us through the financials, then I will come back and discuss my thoughts on 2026. Bob? Robert W. Day: Thank you, Randy. Good morning, everyone. As Randy mentioned, third quarter momentum continued nicely into the fourth quarter as combined adjusted EBITDA was $336,000,000 versus $289,000,000 in fourth quarter 2024, and $245,000,000 last quarter. Core ingredients improved both year over year and sequentially. For fourth quarter 2025, core ingredients EBITDA was $278,000,000 versus $230,000,000 in fourth quarter 2024, and $248,000,000 last quarter. For all of 2025, core ingredients EBITDA was $922,000,000 versus $790,000,000 in 2024. While 2025 was a 53-week year for Darling Ingredients Inc., the added week's impact added only around $20,000,000 EBITDA. So by any measure, 2025 for the core business realized significant improvement over the previous year. For the fourth quarter 2025, total net sales were $1,700,000,000 versus $1,400,000,000 in 2024. Raw material volume was 4,100,000 metric tons versus 3,800,000 tons from the fourth quarter a year ago, and for the full year, raw material volume was 15,400,000 metric tons versus 15,200,000 tons in 2024. Meanwhile, gross margins for the quarter improved to 25.1% compared to 23.5% in fourth quarter of last year. Looking at the Feed segment for the quarter, EBITDA improved to $193,000,000 from $150,000,000 a year ago, while total sales were $1,130,000,000 versus $924,000,000, and raw material volume was approximately 3,400,000 tons compared to 3,100,000 tons. Gross margins relative to sales improved nicely to 24.6% in the quarter versus 22.6% in the fourth quarter from 2024. As Randy mentioned earlier, we successfully participated in an auction to acquire three assets formerly owned by the Potense Group in Brazil. We are currently working through terms in the purchase agreement and expect to close later this quarter. The cost of acquiring those assets translates to around $120,000,000, and we expect to fund that with cash flows generated in first quarter of this year. In the Food segment, total sales for the quarter were $429,000,000, a significant increase over fourth quarter 2024 at $362,000,000. Gross margins for the segment were 27.2% of sales, compared to 25.7% a year ago, and raw material volumes increased to 350,000 metric tons versus 320,000 tons. EBITDA for fourth quarter 2025 was up significantly compared to 2024 at $82,000,000 versus $64,000,000. Moving to the Fuel segment, specifically Diamond Green Diesel, Darling Ingredients Inc.'s share of DGD EBITDA for the quarter was $58,000,000, which includes an unfavorable LCM inventory valuation adjustment of $24,000,000 at the DGD entity level. This was the best quarter of the year for DGD as confidence in policy and more disciplined market behavior led to an improved margin environment. Fiscal year 2025, Darling Ingredients Inc.'s share of DGD EBITDA was approximately $104,000,000, and included a favorable LCM inventory valuation adjustment of $140,000,000 at the entity level. Darling Ingredients Inc. contributed approximately $328,000,000 to DGD in 2025. These contributions were offset by $368,000,000 in dividends received, a significant amount of which came from $285,000,000 in production tax credit sales, $255,000,000 of which were paid during 2025 and the balance will be paid in 2026. Other Fuel segment sales, not including DGD, were $153,000,000 for the quarter versus $132,000,000 in 2024, on relatively flat volumes of around 390,000 metric tons. Combined adjusted EBITDA for the full Fuel segment, including DGD, was $85,000,000 for the quarter, versus $84,000,000 in the fourth quarter 2024. For fiscal year 2025, combined adjusted EBITDA was $192,000,000 versus $374,000,000 a year ago. As of 01/03/2026, total debt net of cash was approximately $3,800,000,000 versus $4,000,000,000 ending 12/28/2024. Capital expenditures totaled $156,000,000 in the fourth quarter 2025 and $380,000,000 for the fiscal year. Our bank covenant preliminary leverage ratio at year end was 2.9 times versus 3.9 times at year end 2024. In addition, we ended the year with approximately $1,300,000,000 available on our revolving credit facility. For the three months ended 01/03/2026, we recorded an income tax benefit of $11,000,000, primarily due to the net impact of production tax credits. We paid $6,900,000 of income taxes during the quarter. For the twelve months ended 01/03/2026, the company recorded an income tax benefit of $9,400,000. Similar to last year, the company's effective tax rate when including production tax credit sales was negative 15.3%, and we paid a total of $58,400,000 of income taxes in 2025. Overall, income was $57,000,000 for the quarter, or $0.35 per diluted share, compared to net income of $102,000,000, or $0.63 per diluted share for 2024. As we continue to evaluate each business and position the company to maximize value, we restructured and impaired some of the portfolio in the quarter, resulting in charges of $58,000,000. Adjusting for the restructuring and impairment charges, and to provide some perspective regarding earnings per share in the fourth quarters for 2025 and 2024, an adjusted non-GAAP earnings per share would have been $0.67 per diluted share in 2025 and $0.66 per diluted share in 2024. With that, I will turn the call back over to Randy. Randall C. Stuewe: Hey. Thanks, Bob. In 2025, we focused on executing for today so we can build for tomorrow. That discipline has put us in a strong position as we move into a period of meaningful opportunity. Beginning to see tailwinds forming across our markets, and public policy is on the cusp of becoming tangible and beneficial for our businesses. We believe we are at an inflection point, one where the foundation we have built and the momentum we have created will move us forward. We are excited about 2026 and believe we are well positioned to deliver long-term value for our shareholders. Now looking forward to first quarter, we estimate that DGD will produce about 260,000,000 gallons at improved margins. For the core business, when you adjust for our fourth quarter performance for the 13-week period and exclude some minor year-end cleanup, the quarter was solid. In January, severe weather in the Southeast and Eastern Shore created some moderate operational challenges. Even with that, when considering fat prices and volumes, we only expect a modest pullback relative to Q4. As a result, I am estimating our core ingredients adjusted EBITDA to fall in the range of around $240,000,000 to $250,000,000 for first quarter. Now with that, let us go ahead and open it up to questions. Operator: Certainly. If you are using a speakerphone, please pick up the handset before using the keypad. Once again, if you would like to ask a question, please press star followed by one. First question comes from the line of Derrick Lee Whitfield with Texas Capital. You may proceed. Derrick Lee Whitfield: Hey. Good morning all, and congrats on a strong close to the year. So maybe just starting with guidance. So while I why you are not guiding DGD for 1Q, it seems like to us that the margins are materially stronger than where you were in 4Q. Given the strength of recent credit prices and the softness of tallow and UCO relative to SBO, that is kind of part one. And then part two is as you guys look forward and let us assume we get a constructive RVO, would you likely then put DGD back in guidance at that point? Would love your thoughts on those two. Robert W. Day: Yeah. Hey, Derrick. This is Bob. I guess to answer the last question directly, it is going to depend. I mean, you know, I think that there is just going to depend on the kind of clarity and certainty we have. But as we look at the first quarter, you know, we first of all, we saw strong results in 2025, much better. And we, you know, we continue to see that momentum carry forward into the first quarter. But, yeah, we are not providing guidance and will reconsider that after we get a final ruling on the RVO. Derrick Lee Whitfield: Terrific. And then maybe just one follow-up, perhaps for you, Bob. When we think about the Feed business, it is clearly sensitive to the final absolute RVO. But how would you characterize your business's potential sensitivity to the half RIN concept for imported products and feedstocks? Robert W. Day: Yeah. I think it is hard to answer as it relates specifically to the half RIN concept because there are so many other factors. We have got origin tariffs on feedstocks that are already having a big impact. I mean, I think the bottom line is if policy is supportive to U.S. or even just broader North American feedstock values, that is certainly constructive to our rendering businesses in the United States and Canada. And, you know, based on what we have heard, we are likely to see it manifest in some way that is supportive like that. Operator: Thank you. The next question comes from the line of Thomas Palmer with JPMorgan. You may proceed. Thomas Palmer: Good morning, and thanks for the question. Given where you sit in the biofuels supply chain, I wondered if you might have some insight into what is happening so far in 2026 versus maybe how it might evolve here as we get clarity on the RVO? And specifically, to what extent maybe we are to see more production from biofuels operators that maybe had pulled back and to what extent you are starting to see increased pull in in terms of feedstocks from the biofuels industry? Thank you. Robert W. Day: So if I did not understand the question correctly, Tom, let me know. This is Bob again. I think, you know, we have not seen a significant increase in biofuel production yet in the United States. And, you know, despite better margins, which suggests to us that margins need to get better in order to incentivize more. And so if we have an RVO, ultimately, that results in an increase in demand, we are going to need to see, you know, better margins in order for that to happen. But let me know if I did not answer your question. Thomas Palmer: No. No. You understood it right. I was really just trying to understand if we are seeing anything kind of happening in the background versus, you know, what we are seeing with pricing so far. Second, I did just want to touch on the Food business. There was some constructive commentary in prepared remarks. This is maybe less tethered to the RVO. So I wondered if you would be comfortable maybe talking at a high level about expectations for EBITDA as we think about the coming year. Randall C. Stuewe: Yes. Tom, this is Randy. I mean, the collagen and gelatin business globally is performing very nicely. It had a really nice fourth quarter, carries that momentum into Q1 right now. You know, as we look around the world, demand, you know, a year ago today, we were talking of destocking of, you know, people that have built too much inventory. The industry had added quite a bit of capacity through new players, and the only thing the new players knew how to do was to reduce price to try to move the product and it built inventories. Those have been worked through pretty much around the world. And so ultimately, we look for it will depend on really a year similar to this year, if not better. You know, how it really comes down to trade flows again. You know, keep in mind, there are still lots of tariff issues around the world, and we are a heavy Brazilian producer. And at the end of the day, you know, we were able to navigate that with our customers and suppliers. And I think we will be in better shape as we come on into the year 2026 here. Also, our NexData product line has been launched. The GLP-1 alternative glucose moderation product is getting a lot of repeat orders now, building momentum. And then this spring, we are hoping summer to bring on our Brain Health Nex product. So we are getting momentum with the higher value products here. And then the commodity gelatin part has, what I would say, leveled off and improved from where it was a year ago. Operator: Next question comes from the line of Manav Gupta with UBS. You may proceed. Manav Gupta: Good morning, guys. My first question is going to go a little bit on the policy side first. As this RVO comes out, net of SREs, what would be looked as a constructive number from the perspective of Darling Ingredients Inc.? Like, is there an absolute number, five plus or whatever, which if it is the net number, you would say, okay, that is constructive. And then on the LCFS part, finally, things are moving in absolutely the right direction. And I am just trying to understand based on the revised, you know, the mandate going in, you actually see that carbon bank deplete, which will be a major positive for you. Robert W. Day: Thanks, Manav. This is Bob. So I will go on record saying we support an RVO for advanced biofuels that translates to 5,250,000,000 gallons or 5,610,000,000 gallons. Those are kind of the numbers that have been thrown out there. You know, we will go on record continuing to support those numbers. I think what we would add to that is just anything that resembles anything close to that is extremely supportive and, you know, we believe results in higher margins than what we see in the market today. But I guess I will leave it at that. On the LCFS question, it is an interesting situation because we have the greenhouse gas emission requirements that are, you know, more stringent than they were. We are seeing the bank come down considerably, and we expect that we will continue to see that happen. One interesting aspect about that market is over the last several quarters, we have actually seen less renewable diesel going into California despite better margins. And so that tells us that in order for California to satisfy its mandates, either LCFS credit prices have to go up or RIN prices have to go up. But it has got to incentivize more domestic production to eventually go into California so the rate at which we are drawing that bank down starts to slow down. We have not talked about it in those terms for a long time, but it is absolutely constructive what we are seeing there. Manav Gupta: Perfect, Bob. I am just going to quickly ask a question on the Food JV side. Obviously, you have highlighted multiple benefits of that JV, but you have also in the past said, look, once the JV really takes off, there could be a rerating for the stock. Right? Can you talk about the multiple expansions that can happen as the JV comes to fruition and some of those benefits, which will lead to a higher rerating for Darling Ingredients Inc.? Robert W. Day: Yes. Thanks, Manav. So I think, first of all, you know, we are in a process there. We have signed definitive agreements. We have, you know, done our regulatory filings, and we cannot predict exactly when this joint venture will close. But it is sometime, we expect, in the next twelve months or so. Once that happens, you know, we will focus on integrating plants, maximizing, you know, synergies and opportunities. And then as Randy talked about, throughout all of this, we are very focused on increasing the sales volume of the NexData portfolio of products, which really move that business into the health and nutrition and wellness segment of the market that trades at significantly higher multiples. You know, we believe this is a business that can move into a space that is trading 12 to 16 times EBITDA. And if we accomplish that, and when we accomplish that, we will have to evaluate what is the best way for us to monetize that if we are not being recognized for that kind of a multiple for that business. Operator: Thank you. The next question comes from the line of Heather Lynn Jones with Heather Jones Research. You may proceed. Heather Lynn Jones: So just thinking about the RVO and the probable impact on DAR's Feed business, which is setting up the expectations for '26. Have there been any changes in how you price the lags, etcetera, that we should be aware of as we are thinking about the potential impact later in the year? Randall C. Stuewe: Heather, just to clarify the question. So how we price the—did you say the lags or the legs? Heather Lynn Jones: The lags. So, like, in the past, it has been, like, a 60 to 90 day lag between what we say. Have there been any changes in that? Or how you pay your suppliers as far as, like, your formulas? Not to give us specifics, but just things like that that we should be aware of as we are trying to figure out the impacts for Darling Ingredients Inc. Randall C. Stuewe: No. Not at all, Heather. I mean, what we saw in fourth quarter was the team executed well. They had some forward sales on. Prices came down here, and, you know, we benefited. As the, you know, we were kind of lagging all the way up all year in '25 here, and so got a little bit of a downturn. That was kind of the reason for the guidance for Q1 here at $240,000,000 to $250,000,000. Fat prices are lower. It is wintertime. But they are going to come back sharply here as the industry powers back up. Bean oil is back showing near $0.58 on the board today. And I am starting to see, you know, sales now back of fats, FOB the plants, in a $0.50 plus range now. So, you know, it is coming back for us right now, but there is no change in how we do business there. Heather Lynn Jones: Okay. Awesome. And then I was wondering, just given the recent 45Z proposals from the Treasury, and then just, I guess, a more liquid market as far as monetizing those credits, is there any update that you would give as far as what we should be assuming for the average credit value for Diamond Green? Robert W. Day: Yeah. This is Bob. I would say, you know, we have seen a maturation somewhat of that market where there is recognition of the validity of the credit. It is making it easier to have discussions and make sales. There is some more supply on the market, so that maybe counters that a little bit. All in all, do not expect any significant change to the value of the credits that we are able to sell in 2026 versus what it looked like in '25. Operator: Thank you. The next question comes from the line of Pooran Sharma with Stephens Inc. You may proceed. Pooran Sharma: Good morning, thanks for the question. Congrats on posting some strong results here. I wanted to maybe start off and get a sense as to Q1 Fuel production. I think in the deck, you have it at 260,000,000 gallons. It seems kind of low just given your capacity utilization, and I thought you were going to have DGD 1 back online. So hoping to maybe get some color on the volume expectations for Fuel. Robert W. Day: Yeah. Thanks, Pooran. You know, I guess we are, you know, we have been opportunistic in terms of the way we have managed capacity at Diamond Green Diesel over the last several quarters. In certain cases, we have been able to run at less than full capacity and increase our distillate yields. You know, we have seen wider spreads in some cases, and so a benefit to doing that. I think that, you know, as we look at the first quarter and, you know, what we are really doing is anticipating ultimately a final ruling on the RVO, which would impact the market second quarter and beyond. So we just really want to position the business to maximize production as we get into second quarter and through the end of the year. Pooran Sharma: Okay. Makes sense. Thanks for the color there. And, in the past, I think you have given a percentage split on the core business guide. Of that $245,000,000 at the midpoint, are you able to give us a rough sense on the split between Feed, Food, and Fuel? For the core business? Randall C. Stuewe: So this is Randy. So let us, you know, let us do Randy math here. You know, if you were $278,000,000 in Q4, remember there was an extra week in there. So you have got to divide by 14 and times 13. So you come up with $250,000,000-something there, $258,000,000, $259,000,000. We had a few balance sheet cleanup items that you always do at year end. So that is where we kind of came in at the $250,000,000 mark for the quarter, $240,000,000 to $250,000,000. Remember, that does not include DGD. DGD margins are improving from Q4. Volumes are pretty steady, down a little bit here as we get ready to run harder for the balance of the year. So that is really it. But trying to split it between Food and Feed, kind of impossible at this time. You know, Food for the most part is very, very consistent. So you can kind of back into it yourself. Operator: The next question comes from the line of Conor Fitzpatrick with Bank of America. You may proceed. Conor Fitzpatrick: Good morning. Thanks for taking my question. In fourth quarter, Feed Ingredients processing volume set a record, and Feed revenue per ton and gross margin percentage were the best prints since 2023. Could you maybe break down what has been driving this momentum in the Feed Ingredients segment and help us understand which drivers are more ratable? Randall C. Stuewe: Yeah. Conor, this is Randy. And Bob, help me out here if I leave something out. I mean, clearly, tonnage around the world, raw material tonnage, is very strong. If we look at it, you know, there is no surprise. Beef tonnage in the U.S. is at a relatively low point in my career right now, but it feels like it is rebuilding. But offsetting that is very, very strong poultry tonnage in the East and Southeast. Now you go south to Brazil, beef tonnage is large, very large now. We are extremely full at all plants down there. Europe is very consistent as we look around. So tonnage is really kind of as expected and doing very, very well. Margin management is what we pride ourselves on in the business. And really spread management to try to deliver returns that reflect what it costs to both operate and replace these plants. And so, you know, it was a 2025 kind of focus for us, and it was one that it is kind of hard to talk about to get out there because there is no specific thing. It is each customer, whether it is freight, whether it is, you know, the products we are making at plants, the markets that we are selling. The 2025 year was very challenging because, especially on the protein side, you did not know, was China open, was China closed? You know? And so it becomes very difficult for some of the high-end proteins. The fats, remember, a lot of fat was moving up out of Brazil to Diamond Green Diesel. And with the Trump tariffs, that makes it pretty much impossible now at this time. So we have had to move spreads and raw material costs around there. So it is a whole bunch of little things that are out there that the team really executed well on. Conor Fitzpatrick: Okay. Thanks. And going back to the LCFS, you talked about credit prices needing to rise in order to redirect renewable diesel and biodiesel supply back into California. But maybe could you help us understand what credit price would be required for DGD specifically to redirect product toward California and away from other current end markets? Robert W. Day: Yeah. Hey, Conor. This is Bob. It is hard to answer that because all these markets around the world that we are selling into are consistently changing. And so it is really a relative question. You know, what I would say is in, I guess, a static environment, you know, how much would the credit price have to increase into California for us to sell into California? I am not really sure exactly. You know, I think that it would have to be—yeah. I cannot—it is hard to answer that exactly just because the markets are so dynamic and they are moving around so much. But, you know, what it has demonstrated is that it is going to have to be higher than where we are in order for it to happen. You know, there are better alternatives today for Diamond Green Diesel at least in order to sell into California. Operator: Thank you. The next question comes from the line of Dushyant Ajit Ailani with Jefferies. You may proceed. Dushyant Ajit Ailani: Good morning, guys. Thanks for taking my question. My first one is just wanted to touch on the Brazil rendering facility, the stalking horse bid. Can you talk about the rationale for that some more? And then maybe how do you think of deals like these going forward? Is it going to be a one-time thing that is an opportunity, or could we see more of these? And then also just one last piece on that is also how much do you think that could add to the capacity and the margin profile for the Feed segment changing going forward? Randall C. Stuewe: Yeah. Dushyant, this is Randy. The Potense Group, the Goncalves family, we have worked closely with over the years. They found a buyer that we had them acquire years ago, and it fell apart. It is somebody we have always had our eyes on. These are really first-rate, world-class facilities that, long story short, he spent too much money and was unable to maintain his balance sheet, which is the most important thing in this business, through the volatility that happened and happens in Brazil. So these three—you know, we are doing a combination of things in Brazil. As I said, the tonnage is very large. We are doing a lot of organic expansion and debottlenecking at our current facilities, and these facilities were just perfect within our footprint to bolt on and give us some arbitrage and margin enhancement opportunities. So we were excited to get these, and we are excited to get them closed and integrated. Dushyant Ajit Ailani: Awesome. Thank you. And then just a quick follow-up. I think in your prepared remarks, you talked about potential for incremental asset sales. Could you maybe talk a little bit about the magnitude of those asset sales and then from which segment we could see that? Robert W. Day: Yeah. Thanks, Dushyant. This is Bob. We are intentionally vague about that as we negotiate different options. I think that, you know, what we have said previously is that when we look back at where we have been most successful, it is clearly in areas where we have got core capabilities in our core business, and some of the peripheral areas where we are operating, you know, we can look at it a bit more opportunistically. With some of the impairment that we did, it just repositions our balance sheet so that we are really valuing things based on fair market value, and that allows us to be more agile if we choose to do so. But we are not forced to do anything in any case, and I think that is an important position that we need to have as we look at different opportunities. Operator: Thank you. Next question comes from the line of Andrew Strelzik with BMO. You may proceed. Andrew Strelzik: Hey. Good morning. Thanks for taking the questions. My first one, Randy, I appreciate you are not giving the usual guidance and certainly understand that. But so I am not looking for numbers. But I guess I am just wondering, you know, when you think about kind of a post-RVO, is there anything, any analogous year that that setup kind of feels like? Is there anything from your career in the past from a supply-demand perspective that maybe feels like the setup we could get into in a kind of a post-RVO environment? Randall C. Stuewe: Yeah. We look historically at DGD as, you know, having a first mover capability and the success that it had. I mean, I think everybody knows that the machine is capable of making 1,300,000,000 gallons plus out there. You know, as I look back at 2025, as Bob and I sat here and tried to give what we thought the business would do, you know, we looked at it and said, well, we do not think '25 could be any worse than '24. And we were very, very wrong with that belief and the assumption. We did not get an RVO soon enough. We did not get an LCFS increase guidance soon enough. You know, if we think of this time last year, to kind of give the courage in the industry. And then we had some competitors, oil company competitors out there—some have shut down now—that decided to, as I call it, run for fun. And so pretty interesting environment that we were in last year. Clearly, people are tempering their kind of behavior now, which you would expect. I mean, in all business school things, when you get below variable cost, it just takes longer for rationalization and improved behavior. You know, as we look at '26 here, you know, clearly, we can make you a case for an easy $0.50 a gallon. We can make you a case for $1.00 a gallon at that. But it all hinges on, like we said, on the RVO, which we, as Bob said, you know, 5.02 to 5.6. So we think anything with a five is very, very positive and constructive. And, ultimately, you know, you have got the drawdown in the LCFS coming back, and you have got robust world demand for RD right now. So, you know, it is a hard thing to sit here and say you can say $0.50 a gallon or $1.00 a gallon. You know, we ran $0.41 in Q4. We have said we think Q1 is better. And so, you know, that is the $0.50. And then to go on up to $1.00, we will see what happens. It is going to take, you know, behavior in the industry, and it is also going to take a very robust RVO around the world. Andrew Strelzik: Okay. That is helpful perspective. And then I just wanted to ask a capital allocation question. You have done a nice job from a leverage perspective this past year, not too far off from some of the targets. I guess, how are you thinking about the timeline to achieving the leverage targets and then capital allocation priorities once you get there? Thanks. Robert W. Day: Thanks, Andrew. Let me say first, I think capital allocation priority continues to be paying down debt. How quickly we sort of achieve our goals is going to depend in large part on how much cash DGD generates. And so we will see what that picture looks like once we finally get a final ruling on the RVO. And once that happens, I think we can be a bit more specific about what our plans are. But we sit here today, you know, we like the trend and the direction we are headed. We are going to continue to pay down debt. We will reassess as we have a little bit more clarity on what the cash flow situation looks like going forward. Operator: Thank you. The next question comes from the line of Matthew Blair with TPH. You may proceed. Matthew Blair: Thanks, and good morning. Hopefully, you can hear me okay. Had a question on the SAF market. So one of your major European competitors talks about how European SAF prices are actually below European RD prices, and they are kind of pulling back on their SAF production. You know, what is the picture like on SAF for DGD? Do you have term contracts to, I guess, essentially stabilize that SAF contribution? You know, what are you seeing on U.S. SAF prices versus U.S. RD prices? Thank you. Robert W. Day: Yeah, Matthew. This is Bob. I think, you know, to answer the first part of your question first, in Europe, we have seen SAF trade at a premium. We have seen it trade at a discount. It has fluctuated, you know, as I think everyone knows. DGD has some countervailing duties in order to get into that market, so it is not as readily accessible to us, although we do have sales into Europe, and we can be opportunistic when that market is good. And we have been able to take advantage of that. We still have sales on the books in 2026 that we had made previously. The book is healthy. The market, you know, I think it is starting to—well, is starting to rebound a bit in the United States. In the United States, it is primarily a voluntary credit market, and we have seen more and more interest materialize, and we think we are going to continue to see that as just overall demand for energy continues to increase. So, you know, our book is solid today. There is room to make more sales. We are having really good, constructive discussions about that. And, you know, I do not think that—I think we will be happy with SAF sales, you know, volumes and margins as we look at '26. Matthew Blair: Sounds good. And then regarding the contributions to DGD, I believe in 2025, Darling Ingredients Inc. sent DGD $328,000,000, which, of course, was more than fully offset by the dividends received back. I think 2025 was a pretty heavy turnaround year for DGD. But do you have an estimate in 2026 how much Darling Ingredients Inc. might be sending DGD? Would it be lower than the 2025 number? Thanks. Robert W. Day: Yeah. It is a good question. We do not have a precise estimate, but I would say, you know, we expect it will be less. And you are right. We had three catalyst turnarounds in 2025. You know, we did some design work. There were some things that—some cost items that, you know, needed to be paid for. As we look at 2026, yeah, we anticipate that the contributions will be less. It is going to depend a little bit on the market environment, but based on where we sit here today and the first quarter, we expect it would be considerably less than what it was in 2025. Operator: Thank you. The next question comes from the line of Ryan M. Todd with Piper Sandler. You may proceed. Ryan M. Todd: It is maybe just a couple follow-ups on earlier comments or questions. I mean, we are getting closer to some—well, at least, hopefully, we are getting closer to some regulatory clarity on some of the renewable fuel issues. Randy, can you maybe talk about, you know, are you hearing anything on timing of the RVO or anything you might be hearing out of Washington on some of the gives and takes that may be going on in that discussion? And then maybe on the 45Z, the preliminary rules that we talked about. Can you—you know, it is generally positive and maybe mixed in some regards in terms of that for the relative benefit to running the advantage low CI. Can you talk about kind of what you see as the pluses and minuses for you of the proposal? Robert W. Day: Hey, Ryan. This is Bob. I think, you know, first question around timing. We have spent, you know, a lot of time in D.C. I think that, you know, our perspective is that all key stakeholders had to get comfortable with what the plans and policies were. And in our view, that has happened. The EPA has a heavy administrative burden to get through as it pertains to responding to comment letters prior to them sending over a final proposal to OMB. We believe that is likely to happen soon, and so, you know, hard to say exactly what that means, but probably, you know, it has got a February date to it, in our view. As far as 45Z, and what we are seeing from that, there is really nothing that was unexpected. We expected some positive things, and we are seeing those positive things. So, you know, we have got to do our due diligence and get our legal opinions and make sure that everything is as it is perceived. But as far as it relates to Darling Ingredients Inc. and Diamond Green Diesel, you know, we are seeing what we thought there, and that is positive. I think, you know, the biggest thing that could affect us is just what determines a qualified buyer. You know, DGD was the fastest in the market to convert to producing R100 so that it was selling to qualified buyers, and that was one of the things that allowed us to sell the production tax credits faster than everyone else and at higher cents on the dollar. If we can go back to making R99 and qualify that, it just creates some flexibility that we appreciate, but we do not depend on. So all in all, you know, we see the changes as positive, but either way, not having a significant—you know, it would not have a negative impact on our business. Ryan M. Todd: Okay. Thanks. Operator: Next question comes from the line of Benjamin Joseph Kallo with Baird. You may proceed. Benjamin Joseph Kallo: Hey, guys. Thanks for taking my question. Just to follow up on a couple of things. One, in the prepared remarks, you talked about maybe M&A opportunities outside of Brazil. Could you just talk to us about kind of what your—if you have a size limit on them and, you know, how you would see a limit to adding debt on the balance sheet for that. And then you talked about SAF a bit, but could you just talk about, you know, any more you can on volumes you are seeing there and any kind of pricing trends there? Thank you. Randall C. Stuewe: Thanks, Ben. This is Randy. On an M&A perspective, I would still say we are on an M&A holiday. You know, we are working the world. We see what is out there. Nothing that really turns us on at this time per se. The Potense opportunity was one we were very, very familiar with, and given that it was a forced liquidation, it was something we could not turn down. I think more of our focus around the world is on organic expansion, whether it is in Brazil, Paraguay, China, and the U.S., with the construction of the Mount Olive new rendering plant and then some additional expansion. The poultry side continues to expand here, and we are going to have to use our capital dollars to debottleneck and expand some of our facilities here. So not much there. Bob, you want to comment on the SAF? Robert W. Day: Yeah. I think, you know, one interesting development in the SAF market in the United States is, at the end of the day, the buyers for SAF credits are large companies, often tech companies, banks. The airlines act more as a broker in that case. And so the discussions that we are having are really about how a tech company obtains Scope 3 credits through the acquisition of SAF that, you know, obviously goes through an airline. So the discussions are more strategic in nature, long term, potentially higher volume. They take longer to put together. It is harder to predict exactly when they come together. But as those discussions continue to advance, it is exciting because there is a potential for, you know, more of capacity to be dedicated towards future contracts. And it is hard to say more than that right now today other than the discussions are constructive and we are encouraged by, you know, the direction they are going. Benjamin Joseph Kallo: Thank you, guys. Operator: Thank you. Next question comes from the line of Y. Zhang with Scotiabank. You may proceed. Y. Zhang: Hi, good morning. Thanks for taking my question. I wanted to ask about expectations for core EBITDA for the rest of the year. First quarter is looking a little bit softer, but then it seems 2Q is set up to be better with fat prices recovering. What about in the second half? What could that look like? Randall C. Stuewe: Betty, this is Randy. So, you know, I did the math earlier. First quarter is not looking softer because of 13 weeks. Wintertime rendering is always a challenge in North America. And to a degree, Europe has had some challenges. South America is in the midst of a hot summer. So we are very solid for Q1. We are still trying—if you sit there, we think that the year will improve as we go forward. We are being a bit cautious because until we see that RVO, you know, it is hard to really put your finger on it. But at the end of the day, you are seeing the futures market for soybean oil really try to project a very strong, you know, RVO here. So that will only provide us tailwinds as we go forward. So, you know, hopefully, one is we build momentum through the year. And so, hopefully, we will continue to build momentum and even have a better year than we had last year. Y. Zhang: Okay. Great. And then if you could give us a bit more color on the restructuring and impairments. Does that reflect a change in your strategy? And would you say there are other businesses that could also be reviewed? Randall C. Stuewe: No. I would not say a change in operating. I would say that every so often, we look at our portfolio and say, do we deliver the returns that we want to in different businesses? Do we have the number one or two position in it? And we have a couple businesses out there where we do not have that position. And we cannot get to that position. And so the challenge in this business is always that we are the largest and biggest and best in the world, is finding then a fair price to let go of an asset we cannot be the best at. And so that just takes time, and I think, you know, I would just say stay tuned and be patient, and you will see them materialize here over the—hopefully here in the first quarter, if not very early second quarter. Operator: Thank you. The next question comes from the line of Jason Daniel Gabelman with TD Securities. You may proceed. Jason Daniel Gabelman: Yes. Hey, good morning. Thanks for taking my questions. The first one, just on CapEx, 4Q was a step up from 3Q. Wondering what drove that and then your expectations on spend for 2026. Robert W. Day: Yeah. Thanks, Jason. This is Bob. It is not unusual to see a higher spend in the fourth quarter. Some of this is just the teams wanting to make sure that they get certain things done by the end of the year and paying for the cost of doing that as bills come due. So that is really—it is really not more than that. As we look at next year, you know, we think it might be a slight increase in terms of total maintenance capital versus this year. But it would be consistent with sort of the range of normal on that. So I would call it in that ballpark of $400,000,000. Jason Daniel Gabelman: Got it. And then my follow-up is just on the international renewable diesel markets. And, you know, you mentioned there are other markets that are advantageous to sell into versus California. So wondering what you are seeing out of places like Canada and Europe and other markets that are making them more attractive at the moment? Thanks. Robert W. Day: Yeah. I think that just generally speaking, we are seeing year-on-year increases in demand in those markets. We really have not seen a lot of increase in supply and capabilities come online to compete for that. So it has just proven to be—you know, those have proven to be good markets for DGD, and we think that we will be able to continue to do that. We also think we are going to have a good market here in the United States. And we would love to supply more into that market as well. So hard to say more than that. The SMBs are balanced and strong, and that is the case for a lot of these markets outside the United States. Operator: Thank you. This now concludes the Q&A session. I would now like to pass the call back to Randy for any closing remarks. Randall C. Stuewe: Thanks to everybody for all your questions today. I think we feel very good about how we finished the year, and we feel really good about the momentum we carry into 2026. And if you have additional questions, feel free to reach out to Suann. Stay safe, have a great day, and thanks again for joining us for the call. Operator: Ladies and gentlemen, thank you for attending today's call. This now concludes the conference. Please enjoy the rest of your day. You may now disconnect.
Operator: Hello everyone. Thank you for joining us and welcome to the Waste Connections, Inc. Q4 2025 Earnings Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. To withdraw your question, please press 1 again. I will now hand the call over to Ronald J. Mittelstaedt, President and CEO. Please go ahead, Ron. Ronald J. Mittelstaedt: Okay. Thank you, Operator, and good morning. I would like to welcome everyone to this conference call to discuss our fourth quarter 2025 results and our outlook for 2026. I am joined this morning by Mary Anne Whitney, our CFO, and several other members of our senior management. As noted in our earnings release, adjusted EBITDA margin expanded by 110 basis points in Q4, capping a strong year for Waste Connections, Inc. driven by price-led organic growth, solid waste, and continued operating improvements. For full year 2025, delivered an industry-leading adjusted EBITDA margin of 33%, up 100 basis points year over year excluding lower commodities. We also completed approximately $330,000,000 of acquired annualized revenue, and returned over $830,000,000 to shareholders through share repurchases and dividends, while preserving flexibility for continued growth and return of capital. Before we get into much more detail, let me turn the call over to Mary Anne for our forward-looking disclaimer and other housekeeping items. Thank you, Ron, and good morning. Operator: The discussion during today's call includes forward-looking statements Mary Anne Whitney: made pursuant to the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995, including forward-looking information within the meaning of applicable Canadian securities laws. Actual results could differ materially from those made in such forward-looking statements due to various risks and uncertainties. Factors that could cause actual results to differ are discussed both in the cautionary statement included in our February 11 earnings release and in greater detail in Waste Connections, Inc.’s filings with the U.S. Securities and Exchange Commission and the securities commissions or similar regulatory authorities in Canada. You should not place undue reliance on forward-looking statements, as there may be additional risks of which we are not presently aware or that we currently believe are immaterial that could have an adverse impact on our business. We make no commitment to revise or update any forward-looking statements in order to reflect events or circumstances that may change after today's date. On the call, we will discuss non-GAAP measures such as adjusted EBITDA, adjusted net income attributable to Waste Connections, Inc. on both a dollar basis and per diluted share, and adjusted free cash flow. Please refer to our earnings releases for a reconciliation of such non-GAAP measures to the most comparable GAAP measures. Management uses certain non-GAAP to evaluate and monitor the ongoing financial performance of our operations. Other companies may calculate these non-GAAP measures differently. I will now turn the call back over to Ron. Ronald J. Mittelstaedt: Okay. Thank you, Mary Anne. We are extremely proud of our accomplishments in 2025, led by disciplined execution to deliver better-than-expected operating and financial results. For the third consecutive year, employee turnover and safety incident rates declined, exiting 2025 at multiyear lows. In fact, building on a well-established track record for better-than-industry-average performance, in 2025, we reached historic company record levels in safety, our most important and impactful operating value. Moreover, that momentum has continued into January, when safety-related incidents were down almost 20% year over year to another record low. Additionally, we saw multiyear improvement in employee retention, to achieve our 2025 targeted voluntary turnover level of 10%, and we are continuing to raise or, in this case, lower the bar as we see momentum for continued gains. As expected, these ongoing improvements have driven cost savings, productivity gains, and improved customer service. As we had indicated would be the case, we are realizing related reductions in operating costs throughout the P&L, most notably in labor, repairs and maintenance, and most recently, risk management. Moreover, we have seen incremental benefits from pricing retention as a result of enhanced employee retention and customer satisfaction. In fact, solid waste core pricing of 6.5% in 2025 exceeded our original expectations for the full year, further expanding an outsized price-cost spread and contributing to underlying margin expansion of 100 basis points in solid waste. This outperformance enabled us to overcome incremental pressure on reported margins related to a second consecutive year of declines in value for recycled commodities and renewable energy credits associated with landfill gas sales, as well as continued sluggishness in underlying solid waste volumes. Not only did we report our expected adjusted EBITDA margin expansion to an industry-leading 33%, but we did so in spite of recycled commodity values at multiyear lows and without contribution from operations at Chiquita Canyon Landfill, which we closed at the end of 2024. On the subject of Chiquita and the closure-related outlays, we continue to make progress on managing the elevated temperature landfill, or ETLF, event. The technical aspects of that process are moving forward largely as expected, subject to some timing differences on outlays as we have made better-than-expected progress in some areas. On the other hand, the political challenges of resolving this situation continue to exceed our updated expectations primarily because of related regulatory, permitting, legal, consulting, and other unanticipated requirements that have dragged out and inflated an already burdensome and dysfunctional process. As we have indicated previously, to address these regulatory challenges, we have sought out and we welcome the involvement of the U.S. EPA and constructive efforts to streamline processes, remove regulatory impediments, and enable a more effective and efficient response. We are encouraged by recent meetings we have had with top officials at the U.S. EPA about their further engagement at the site. U.S. EPA has indicated they are finalizing next steps to support short- and long-term solutions to assist Chiquita in further mitigating and managing the reaction and streamlining the regulatory oversight at the landfill. Moving next to acquisitions. During 2025, we closed approximately $330,000,000 in annualized revenue from 19 acquisitions, ranging from West Coast franchises to competitive markets, including integrated businesses, new market entries, and a number of tuck-ins to existing operations. Our expected 2026 rollover revenue contribution of approximately $125,000,000 reflects a few additional deals already completed this year and is expected to grow with our active pipeline. As always, we stay selective about the markets we enter and disciplined about the amounts we pay. We would consider any additional deals as upside to our full-year 2026 outlook. Our focus has been and will continue to be solid waste, and we look forward to building on a model that has consistently delivered value creation. Following multiple years of outsized acquisition activity, we remain well positioned for future growth. With leverage of 2.75x debt to EBITDA, our strong balance sheet and free cash flow generation allow for continued investment in acquisitions, along with other opportunities, including growing shareholder returns. To that end, during 2025, we increased our quarterly per share dividend by 11.1% to return a record amount to shareholders, including over $330,000,000 in dividends, and over $500,000,000 in share repurchases. We have taken an opportunistic approach to share buybacks, and intend to continue to do so. We recognize that market sentiment and capital flows may shift over time; that does not change the fundamentals of our business or the durability of our model, which makes buybacks compelling in the current environment. Additionally, we are reinvesting in the business and positioning ourselves for further growth and value creation through both sustainability-related projects and artificial intelligence, or AI, technology-driven initiatives. Looking first at sustainability. We continue to make progress developing our portfolio of renewable gas, or RNG, facilities, including five already online, with the remainder expected to be operational around year-end. We have also broken ground on an additional state-of-the-art recycling facility expected online in 2027. Looking next to AI and our multiyear rollout, which began in 2025, these investments are aimed at enhancing efficiency and boosting productivity by further digitizing and automating our operations and improving forecasting through data analytics. At the same time, we are focused on service and customer experience for improved transparency and mobile connectivity. What is exciting is that we are just getting started. We are already seeing positive outcomes as we expand the utilization of AI and data analytics across multiple platforms. For instance, we have enhanced our dynamic routing platform to further optimize asset utilization performance. Promising early indications show direct and indirect benefits beyond cost reductions ranging from improvements in safety and employee engagement to enhanced customer satisfaction and retention. We are excited to build upon these efforts as we deploy additional applications and expand our development in 2026 and 2027. I will now turn the call over to Mary Anne to review more in-depth the financial highlights of the fourth quarter, as well as provide a detailed outlook for the full year 2026. I will then wrap up before heading into Q&A. Mary Anne Whitney: Thank you, Ron. In the fourth quarter, we delivered revenue of $2,373,000,000. Acquisitions completed since the year-ago period contributed about $58,000,000 of revenue in Q4, net of divestitures, bringing full-year net acquisition contribution to $377,000,000. Q4 pricing accelerated sequentially to 6.4% and ranged from about 3.7% in our mostly exclusive market Western region to over 7% in our competitive markets. Reported volume down 2.7% was in line with prior quarters and continued to reflect the combined impact of intentional shedding, price-volume trade-off, and ongoing weakness in the more cyclically driven elements of the business. Looking at year-over-year results in the fourth quarter on a same-store basis, roll-off pulls were down 2%, and total landfill tons were up 3%. On MSW and special waste both up 4%, while construction and demolition debris, or C&D, was down 4%. For the full year, C&D tons were down 5% year over year, bringing tons down about 15% from 2023. Special waste, on the other hand, was up 7% for the full year 2025 following declines in two of the last three years. And finally, full year 2025 MSW tons were up 3%, in part as a result of our purposeful increase in internalization in the Northeast and in certain Texas markets. We are encouraged by the consistency of results in 2025 and macro indicators that suggest improving underlying dynamics in the broader economy, but have not factored in a material pickup in our expectations for 2026. Adjusted EBITDA for Q4, as reconciled in our earnings release, was up 8.7% year over year to $796,000,000 or 33.5% of revenue, up 110 basis points year over year. In Q4, we lapped the initial wind-down of operations at Chiquita Canyon Landfill, as well as the toughest year-over-year commodity comparisons, both of which had masked the strength of underlying margin expansion on a reported basis. As anticipated, the outsized benefits from operational improvements that had been contributing all year were more visible in Q4. Along those lines, we were encouraged to see benefit from risk management costs which up until Q4 had been a headwind to reported results. Looking at the full year 2025, adjusted EBITDA of $3,125,000,000 was up 7.7% year over year, with adjusted EBITDA margin of 33%, up 50 basis points. Normalizing for Chiquita and lower commodities, the adjusted EBITDA margin exceeded 33.6%, as expected. Moving next to adjusted free cash flow. Our 2025 adjusted free cash flow of $1,260,000,000 was largely in line with our expectations and reflects underlying conversion of adjusted EBITDA of approximately 50%. Strength of our free cash flow generation largely overcame higher-than-expected cash flow impacts from Chiquita, which totaled approximately $200,000,000. Capital expenditures of $1,194,000,000 were in line with our expectations, including RNG projects spend of about $100,000,000. Our RNG spend for the projects noted will be completed in 2026, and Chiquita outlays are expected to step down, setting up higher free cash flow conversion which has been factored into our 2026 outlook, which I will now review. Before I do, we would like to remind everyone once again that actual results may vary significantly based on risks and uncertainties outlined in our safe harbor statement and filings we have made with the SEC and the securities commissions or similar regulatory authorities in Canada. We encourage investors to review these factors carefully. Our outlook assumes no change in the current economic environment. Our outlook also excludes any impact from additional acquisitions that may close during the remainder of the year and expensing of transactions-related items during the period. Revenue in 2026 is estimated in the range of $9,900,000,000 to $9,950,000,000. For solid waste collection, hauling, and disposal, we expect organic growth in the range of 3.5% to 4%, driven by core pricing of 5% to 5.5%, with expected yield of approximately 4% implying volumes flat to down about half a percentage point. Acquisition revenue contribution of about $125,000,000 reflects deals closed to date. Commodity-related revenue reflects recent values, and E&P waste revenues are expected to be flattish year over year. On that basis, adjusted EBITDA in 2026, as reconciled in our earnings release, is expected in the range of $3,300,000,000 to $3,325,000,000. Adjusted EBITDA margin in the range of 33.3% to 33.4%, up 30 to 40 basis points year over year, reflects the commodity-related drag of 20 to 30 basis points. As noted, incremental acquisition activity, any improvement in the underlying economy, or increase in commodities would provide upside to our 2026 outlook. Depreciation and amortization expense in 2026 is estimated at about 13.1% of revenue, including amortization of intangibles of about $195,000,000 or $0.57 per diluted share net of taxes. Interest expense is estimated at approximately $330,000,000 and our effective tax rate for 2026 is estimated to be approximately 24.5% with some quarterly variability. Adjusted free cash flow in 2026, as reconciled in our earnings release, is expected to increase by double-digit percentages to a range of $1,400,000,000 to $1,450,000,000. CapEx estimated at $1,250,000,000 includes an aggregate of about $100,000,000 for RNG and recycling projects. And our adjusted free cash flow outlook also reflects $100,000,000 to $150,000,000 impact from closure-related outlays at Chiquita Canyon. Normalizing for both non-core impacts, 2026 adjusted free cash flow reflects conversion of approximately 50% of EBITDA or approximately $1,700,000,000. While not providing specific expectations for revenue and EBITDA by quarter, we would offer the following high-level Ronald J. Mittelstaedt: framework. Mary Anne Whitney: For solid waste, we would expect a typical seasonal cadence and related margin progression in 2026, keeping in mind the recent outsized weather events across several geographies impacting Q1. Looking specifically at Q4, we would note the toughest year-over-year Ronald J. Mittelstaedt: comparison. Mary Anne Whitney: given our outperformance in 2025. And finally, for recycled commodities, a reminder that the toughest comparison would be in the first half of the year. Ronald J. Mittelstaedt: Thank you, Mary Anne. Coming into 2025, we emphasized excellence with humility, recognizing our ongoing commitment to a proven strategy for delivering industry-leading results while acknowledging the benefits of new ideas, innovation, and technology. We are excited about our progress in 2025 and the momentum in 2026 for another year of outsized solid waste margin expansion, along with double-digit adjusted free cash flow growth. Moreover, we are positioned for upside from any pickup in the economy or commodities as well as additional acquisitions. We are excited to win from within in 2026 and are grateful for the dedication of our 25,000 employees who set us apart by putting our values into action every day. We also appreciate your time today. I will now turn this call over to the Operator to open up the lines for your questions. Operator? Operator: Thank you, Ron. We will now begin the question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. To withdraw your question, please 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 the line of Sabahat Khan with RBC Capital Markets. Your line is open. Please go ahead. Ronald J. Mittelstaedt: Great. Thanks, and good morning. Maybe just starting with, Mary Anne, the free cash flow commentary that you shared. Mary Anne Whitney: Wondering if you can just delve a little bit more into sort of the sustainability CapEx, where that is going? And then just on the Chiquita as well, it sounds like $100 to $150. If you can just talk about the cadence of that spend, and then more importantly, as we think about free cash conversion in this year into 2027, just how should we directionally expect those two incremental amounts to evolve through 2026 and more so into 2027? Thanks. Mary Anne Whitney: Sure. Well, high level, to be clear, we would expect them both to step down 2026 to 2027. So first of all, in terms of sustainability-related outlays, the $100,000,000 includes the final $75,000,000 that we have been talking about for the large slug, that dozen or so RNG facilities, which, as Ron mentioned in his remarks, almost half of which are online, the balance are expected by around year-end. So that is done there. And then the incremental $25,000,000 that we mentioned is part of our efforts longer term, as we have described, to really de-risk recycle, take advantage of the incremental technology that provides benefits as a set of de-risking, reducing our cost to third parties, and also improving the quality of the recyclables coming. So that is just, you should think of that as there is this opportunity. It is a little out slug. We are always spending a little, but it is part of the $100,000,000 this year. And, again, I would not say that repeats going forward. With respect to Chiquita Canyon outlays, as we described, some of what was the outlays in 2025 reflect getting more done than we had anticipated. So there is some of that that continues to decrease as we move through that process. And then there are other pieces that we had not expected, the pace or the type of outlays that we are seeing. And so we certainly, when you say the cadence during the year, I would not put too much premium on how quickly those outlays are, just as you know CapEx and free cash flow in general is always lumpy during the course of the year. So I would encourage you to just think about it in totality for 2026. Mary Anne Whitney: Great. Thanks for that. And then maybe just stepping back on the broader guidance. I think the commentary indicates not a lot of, you know, not a lot of aggressive assumptions at least on the macro and the commodity prices. Maybe you can just share some thoughts around sort of what you baked in terms of the macro environment. You know, we are hearing some commentary on some of the sector calls around green shoots. If you can just comment on where you see potential sources of upside, whether that is on maybe the cyclical volumes getting a little bit better, whether that is maybe another above-average year of M&A. Just what have you baked in, and where do you think upside could come from if there is for the rest of the year? Thanks. Mary Anne Whitney: Sure. So as we have said, I mean, I would say there are three key things that we have not baked in. One is any improvement in commodity values. And so you see that headwind over the course of the year, which, as I noted in terms of quarterly cadence, is strongest. So the largest headwinds are a lot like Q4 when it was 40 basis points headwind. That is how to think about the first half of the year, and then those abate just as comps get easier. So to the extent that there is any pickup in commodity values, you would see a benefit there. Next, you heard us talk about, you know, with yield of about 4% that volumes are kind of in that flat to down half a point. That is not materially different from what we have been seeing in terms of that piece of the business that is the more cyclically exposed where you have had lower roll-off and C&D tons. And so to the extent that those improve or that there is incremental improvement in special waste, which we described being up year over year, that would be incremental. And we certainly agree with the characterization that others have made about green shoots in the economy, you know, from certain macro indicators. You know, we would point to, within our business, seeing the special waste pipeline firming. I would note that Q4 is our fifth consecutive quarter of improvement. And I look at the recent trends just in January and weekly trends. I continue to see those up in the most recent weeks. Next, commercial service increases are outpacing decreases with overall net new business up. That is encouraging. And while C&D is still down over the year, we have seen the declines moderating. You look back earlier in the year in Q2, we were down about 9% year over year, and we exited the year down more like 3.5% to 4%. So no improvement overall is factored in there. And then the final piece you asked about was M&A, and I will turn it to Ron. But, of course, as is our approach, we do not bake expected M&A into our outlook. What we have provided you are deals that have already closed. Ronald J. Mittelstaedt: Yeah. And, Sabahat, I would say that, you know, when we, at the third quarter call, I think we had reported that we had closed about $250,000,000 by then, that we expected to close some $75,000,000 to $100,000,000 thereabouts. You see we closed about another $80,000,000. That brought that number to $330. In fact, today, we have closed, and last week, closed about another $20,000,000 of that. So that brings you right to that $100,000,000 that we talked about that was out there that could occur during the fourth quarter or the very beginning of the year. So that has occurred. So there is no real change to M&A. As Mary Anne said, look. You know, I know you have not followed the space forever, Sabahat, but if you go back, there is a pattern by multiple companies within the space that tend to go out and put out guidance at the beginning of the year and make all kinds of improvement assumptions in the economy and then come back around in the third quarter or the fourth and back all those off. We do not believe that is a prudent way of providing guidance. We are providing guidance with what is known today assuming it does not improve, and if it does improve, it will be upside. So we just think that is a more conservative approach. Not saying there is anything wrong with the other approach, but this is a very consistent pattern for us, and actually for others in the space taking the approach they have. Mary Anne Whitney: Great. Thanks so much for the color. Operator: Your next question comes from the line of Tami Zakaria with JPMorgan. Your line is open. Please go ahead. Mary Anne Whitney: Hi. Good morning. Thank you so much. I think your pricing is moderating versus last year as some of the cost pressures are also waning. I was curious, could you elaborate on which buckets of expenses you are seeing moderation in and you believe are sustainably trending downward for the next few years? Ronald J. Mittelstaedt: Yeah. Tami, I mean, number one, you are correct. Price is moderating, and that is a good thing. We are happy about that. Remember, we do not always focus on the ultimate amount of the dollar amount or percentage of the price increase. We try to focus on maintaining the spread of, you know, 150 to 200 basis points spread to what we believe our cost is going up. So if you look at our guidance for price, core price of that 5% to 5.5% and say that is 100 basis points down from 2025, it would indicate to you that we believe our cost is down about 100 basis points relative to 2025 on an increased basis, and it is. You know, we began 2025 with labor rates approaching 5% year over year, and we exit Q4 with labor rates up about 3.9% year over year, and trending down towards 3% to 3.5% throughout 2026. We had other costs within the P&L in 2025 that began the year probably closer to 4.5% and moved throughout the year closer to up more in that 2.5% to 3%. So it is just about the spread. We look forward to not having to put as much dollar amount or percentage rate increase on our customers. They are feeling the same effects from the economy as everyone else. But if the spread has maintained the same, or approximately the same, then that is what we focus on. Mary Anne Whitney: Understood. That is very helpful. And I think we love hearing about all the tech and AI investments you are making to improve the efficiency in your business. Any exciting initiatives you want to call out specifically that are due for implementation this year that we can look forward to? Ronald J. Mittelstaedt: Well, yes, there are. And, you know, we are actually excited about them too. Whoever thought in an old-line industrial waste company that, you know, we would understand what AI even was. But this year, we are focused heavily on two incremental initiatives of seven that we have agreed to do between 2025–2027. This year’s two are moving the company into more of a dynamic, real-time customer routing opportunity. We have very good routing today, but it is what I call static. It has no ability to read incoming data. So you run the route sort of the night before or the week before. Where we are moving to is sort of a real-time routing that takes into effect things just like I have said on another call would be like Waze for your car. It takes in road closures. It takes in traffic conditions. It takes in third-party data feeds to allow us to react real time and resequence with the utilization of AI doing the resequencing, not somebody doing it in another way. So that is one. And the second one is we are developing a dramatically more robust mobile connectivity platform and working towards trying to eliminate inbound calls to our customer service groups locally by as much as, you know, 30% to 50% over a multiyear period. You know, we take over 1,500,000 calls from customers per month right now. And our objective is to get that down somewhere between, you know, 700,000 and 1,000,000 over the next couple of years by being able to push out information mobily to customers for the five to six most common things. We know what the five to six most common things customers are asking, and it is mostly because they are not receiving that information in real time, such as, you know, I think your driver did not pick me up today because he usually picks me up between 7 and 8 a.m., and in reality, he is going to pick them up that day, but the road has been closed due to snow. And so we are able to push out. They are able to see when their driver will arrive and where their driver is on their route, much like you do with your Uber if you order an Uber today. You know where they are and how far away they are. Those kinds of things are dramatic changes in efficiency and service quality for us. So those are two things that we are working to bring online in 2026. Mary Anne Whitney: Very exciting. Thank you. Operator: Your next question comes from the line of Noah Duke Kaye with Oppenheimer & Co. Your line is open. Please go ahead. Noah Duke Kaye: Hey. Good morning. Thanks for taking the questions. You know, Ron, in years past on M&A, you have talked about potential for an out year. How do you Ronald J. Mittelstaedt: assess, based on the pipeline, the potential coming into this year? Noah Duke Kaye: And then on Ronald J. Mittelstaedt: the same subject of capital allocation, Noah Duke Kaye: you said you will be opportunistic with the buybacks, but just given where the stock price and the valuation sit today, how opportunistic are you being here to start the year? Ronald J. Mittelstaedt: Well, let us tackle the first part of that, which was your M&A question. Look. As you know, M&A can be lumpy. We have had three very strong years in a row. No reason to expect that 2026 looks any different. There is nothing that has changed in the underlying opportunity basket. Nothing has changed in our appetite to complete deals or our ability to complete deals or our financial flexibility. So, you know, I think it is very fair that you and others, we should expect, you know, another sort of out year. Now how much of an outsized relative to a normal $150,000,000 to $200,000,000 year? You know, the year needs to play out to see that. But I think, hopefully, you look back at the last three years’ track record and we are not seeing something that would make us think that this year looks different. And we certainly have the capacity, as we said in our script, to do both whatever comes along at M&A and as much buyback and, you know, return of capital as we think is prudent based on the fundamentals of our business and what is driving those opportunities in the buyback. So we do not see any limitations on any of those. As far as, you know, every now and then, you pointed out that a larger deal comes along. And, you know, we looked at several things that we did not pursue or were not successful on in 2025, and we had one of those in 2024, had one of those in 2023. I mean, certainly, there is a good chance that happens in 2026. But we do not bank on any of that or forecast any of that, because that just leads to overpaying and pushing to do something that you might not otherwise have done. So we continue to look at everything and be very active. But we are going to continue to be very disciplined in our approach to what we think is a quality asset for, you know, long-term value creation. Noah Duke Kaye: Very helpful. Noah Duke Kaye: We can table the buybacks until we see your results, I guess. I really want to get after, because I think it is just so important for a lot of investors, you know, the underlying free cash flow conversion becoming the headline free cash flow conversion. You know, to be doing 50% underlying is really impressive. So on these moving pieces, the sustainability CapEx, you know, and Chiquita. I guess with sustainability CapEx, you know, is 2026 really kind of the last big slug that you envision and we go from $100,000,000 down to, you know, almost nothing on RNG in 2027? Is that the right way to think about it? And then on Chiquita, you know, I guess just—yeah. Go ahead. I just built the last one on Chiquita is really Ronald J. Mittelstaedt: Go ahead. Ask the Chiquita, and we will answer you both. No problem. Noah Duke Kaye: Thank you for your patience. I think just to help us understand kind of your level of confidence that 2026 is really kind of the last big chunk of spend there. Maybe help us understand a little bit better how it has played out and why that might be the case and, you know, where, pending any, you know, big regulatory change, you could see this kind of winding down to in 2027. Ronald J. Mittelstaedt: Sure. Okay. Well, let us address the—you made a comment about the buyback. First off, look. We do not communicate at any time, whatever the stock price is, what our intentions are. We have, obviously, our view of underlying fundamental value that we are running at all times. And we are going to be active. That is what I can tell you. And so I think that speaks for itself. You saw what we did in the third and the fourth quarters when there was dislocation. On RNG, there is actually a two-point inflection that you need to think about here for this conversion moving back. And you are right. 50% is impressive, but I would remind we have been as high as 53–54% at one point in time. So getting back to 50% for us is actually very average of where we have been. But next year in 2027, you lose the CapEx that has been associated with this RNG, these 12 projects, and you now begin most of the full contribution of the EBITDA and free cash flow. So it is sort of a double whammy for 2027 in that vein. Noah Duke Kaye: Now Ronald J. Mittelstaedt: will there be incremental RNG or sustainability in future years? Well, certainly, there could be. But that would be for new projects that represent incremental cash flow and growth opportunities, not related to the 12 original and the three to four big recycling facilities we have talked about. That piece will be done this year. We expected the outlay for RNG to be done in 2025, but the reality is we do not control all the timing on that outlay because of the permitting and the local utility interconnect that we have to respond to. And I think you are seeing that in everybody’s RNG, that it is taking a little longer to get online than original thoughts. But we are very confident in that $100,000,000, to answer your question, being done in 2026 and then the contribution being there for 2027 in the EBITDA and cash flow. Next to Chiquita. Look. What I would tell you is this. First off, I think you and other investors need to think through this this way. First off, an ETLF is nothing new in this industry. There are 10 to 15 going on right now across the U.S. in many states. Your large public companies have between three and five each going on today, that were going on last year, that were going on the year before. Noah Duke Kaye: The difference is Ronald J. Mittelstaedt: they do not have them in California. If this had happened in 49 other states, you and no one else would have ever known about it, which is why you do not know about the other 10 to 15 occurring. They are not in California. One is by one of our large competitors, but be thankful for them it is not in Los Angeles County. Noah Duke Kaye: It is adjacent. Ronald J. Mittelstaedt: The reason the EPA is involved at our request is because they are having an extremely difficult time understanding the dysfunctionality of California’s inability to resolve its own regulations. That is the issue. Okay? And so what we know is—your question was, is 2026 the last year of outlay for Chiquita and how confident? What we are confident is this is stepping down and continues to step down, and will step down fairly meaningfully in 2026 as the year goes on because of the involvement and the streamlining of what is coming along. Will there be some in 2027? Yes. But it will be quite lower again than 2026. So we should begin to approach those approximate 50% conversion levels as we come through 2027. Okay. So we cannot sit here and tell you will it be exactly that in 2027, without knowing where we will end with things on Chiquita in 2026? No. But all those things are triangulating to that direction. Noah Duke Kaye: Ron, thanks so much for the thoughtful Ronald J. Mittelstaedt: I will turn it over. Operator: Your next question comes from the line of Jerry Revich with Wells Fargo. Your line is open. Please go ahead. Jerry Revich: Yes. Hi. Good morning, everyone. Noah Duke Kaye: Good morning, Jerry. Ron, I am wondering—hi. Ron, I am wondering if you could just give us an update on how the Northeast rail corridor buildout is going. Update us if you do not mind on your expectations on shipments over the course of this year and the densification on the collection side as well. Where do we stand on that initiative? Sure, Jerry. And I think most Ronald J. Mittelstaedt: of you, what you are referring to is where we are in our Arrowhead Landfill in Alabama and our intermodal facilities along the Eastern Seaboard in Massachusetts, Connecticut, and New Jersey, New York. Again, to remind everybody, in August 2023, when we acquired this network, it was doing about 2,300 to 2,500 tons a day through the network into the landfill. We are now doing, you know, 7,500 tons a day sort of at the peak period. We have built out incremental rail, storage, and track capacity in our New York, New Jersey intermodal facility. We have incremental track buildout that we must do at our Arrowhead Landfill, which we are in the process of. We believe as we come through 2026 we will be in the 9,000 to 9,500 tons a day into our Arrowhead Landfill. So we are basically almost—not quite—almost quadrupling what was there two and a half years ago right now. So I would tell you that I think that is going fairly well. As is our continued densification, to use your word, in the Northeast. We did multiple tuck-ins in our New York franchise market area in 2025. We acquired at the end of the year a large transfer station as well in New York in Queens. We acquired a large recycling facility in Hoboken in 2025. So we have, I would say, put a lot of effort into building sort of our leading position, certainly at least in the New York City metro area. So I would tell you overall, Jerry, that continues to be a focus and continues to be opportunity there. But we have made good headway. Mary Anne Whitney: And, Jerry, the only thing I would add to Ron’s remarks would be just to clarify that where you have seen that increase in activity at Arrowhead, as we have talked about throughout 2025, it is really from internal tons as opposed to incremental third-party tons, and we had seen that as an opportunity. So two things. You see that in our internalization rates, which I mentioned in the prepared remarks, which are now up to almost 60%. And secondly, you see it in margin contributions, and you see the outsized margin performance in 2025. Decreased third-party disposal was a component of that. And that is really the impact of Arrowhead. Jerry Revich: Okay. Super. Appreciate the update. And then can we shift gears and talk about—just to expand on the landfill gas part of the conversation? So in terms of the timing getting pushed out, obviously, everybody is working Ronald J. Mittelstaedt: through that, so that is clear. What we are seeing from some others is the initial plant ramp-up and productivity and profitability has generally been lower for a number of operations. Can you just talk about how that is going for your plants that are coming online versus initial expectations in terms of efficiency rates and profitability ramp based on what is the most recent vintage that has come online? Ronald J. Mittelstaedt: Sure. Well, Jerry, I would say that your characterization that others are experiencing are very similar to ours in many ways. Look. These things are taking a little longer to get online due to mostly permitting and startup issues. But they get there. We get them there as a company and as an industry. There is multi-months, if not up to a year, to work out and get the flow accurate and really work through the startup issues of the plant. So you probably start up at somewhere maybe in a 40% to 50% efficiency, and you work up over time to, you know, approaching 100%. You are not at 100% efficiency till, you know, well after a year plus being online and getting your flows increased and everything dialed in. So the ramp is somewhat slow. Of course, profitability is affected by both revenue values. And as you know, RINs have come off a high of, you know, $3.40ish down to, you know, a low of two and now in that $2.40ish range. So, you know, they are down a third, and that certainly has an impact depending on your structure of the RNG ownership. Jerry Revich: Facility. Ronald J. Mittelstaedt: As you know, we and most others have sort of one of three types of a structure: fully owned, to some sort of hybrid, to a royalty arrangement. And it also is affected by inputs on the cost side, such as the cost of electricity. And, of course, that has had some waxing and waning. So I would tell you that the returns, while lower than probably—and certainly when run at $3.00 and $3.25—are still very good, extremely good returns at the, you know, $2.20 to $2.50 range on a RIN value and current electricity costs. Not as great as they were at a higher commodity value, but still very attractive and well worth the investment that we are making. Mary Anne Whitney: And, Jerry, when we look at our full-year outlook, we did not assume that facilities were necessarily contributing. They may have an incremental cost during the course of the year, or that they were going through testing. And as Ron described, at these lower run rates or efficiency rates there would be upside to the extent that moves along more quickly. And then, of course, any improvement in RINs as well would be upside to our guidance. Ronald J. Mittelstaedt: Yeah. And to give you an example, Jerry, a real-life example, I mean, we have one of the largest—we have the largest facility in Canada outside of Montreal that we have owned a long time. It is very effective. We started another one. It was supposed to be online in April 2025. It came online in December 2025, and it only began running at sort of close to full capacity in the last couple of weeks. So, you know, they can take a little longer, but they definitely—the performance is still attractive. Jerry Revich: I appreciate the discussion. Thank you. Operator: Your next question comes from the line of James Joseph Schumm with TD Cowen. Your line is open. Please go ahead. James Joseph Schumm: Hey. Good morning. Thanks for taking the questions. Ronald J. Mittelstaedt: I have a multipart question on Chiquita. Last quarter, you gave daily leachate production figures and how that was dropping. Can you update us there, and is it fair to assume that leachate costs make up, I do not know, 50% to 60% of your total Chiquita spend? And then also, what is the cost per gallon for disposal there? And do you see any opportunity to lower that cost with evaporation or any other potential help from the EPA. So, James, I will give you some high-level stuff on this because a lot of this changes fluidly quite frequently. But at the peak of the reaction, we believe the peak was somewhere between June and August 2024, we were generating as much as 400,000 gallons of leachate per day. As of the end of the fourth quarter, we were generating most days between 200,000 and 225,000 gallons. So that number, as you can see, is at least from the peak, down approaching 50%. We have other things such as wellhead temperatures that are cooling. So we have every reason to believe that the statistics point to that we are on the downward slope or the backside of the curve of the slope of the reaction as it is starting to cool and wane. What the slope of that trajectory line is, obviously, it is too early to tell. But the indicators are that we are over the hump and on the other side. So that is number one. You know, the cost per gallon varies. It can be as low as about $0.50 to $0.60 to as high as $1.50 to $2.50 depending on what treatment facilities are available and what constituents they can take. Some facilities cannot take various things that are within leachate. And so you have to transport further to a more complex treatment facility. And, yes, to answer your question, I would say that the leachate treatment is not 50% to 60%, but I would characterize it more as about 40% to 45% of the cost. Certainly, the large majority. And then lastly, I would tell you that, you know, I am not sure that evaporation is necessarily going to happen. This still resides within the state of California. But it is interesting you bring that up. Had a large one of these going on in Nevada right now, there you can purchase acreage and go out and aerate this in the desert for $0.02 a gallon. So it is quite interesting how one state handles this compared to a state like California. So I doubt we will get to evaporation. But, yes, we do believe that the involvement of the EPA can lead to some streamlining of treatment facility opportunities, and that ultimately leads to a more cost-efficient process. That is great. Thanks for all that detail, Ron. And then maybe just moving to Seneca Meadows. Can you provide an update there? You know, I think you guys had said you are pretty confident that this moves forward, but I do not think we have gotten resolution on that yet. And, you know, I was just curious if that landfill were forced to close, what kind of impact would that have on your EBITDA? Well, first off, two very good questions. Two-part. Hopefully, you know, both things we are going to answer here give you some comfort in this. First off, we absolutely do believe that that expansion will go forward. That is expected to happen here over the course of the next several months. We are in the technical review piece of the expansion with the state. And generally in the state of New York and other states, the technical review is really what the design, the final design, and contours will be relative to whether it is a go or no go. The go or no go is a separate process, and that has effectively been decided in our favor. So we have a very high degree of confidence that Seneca will succeed in its expansion and go forward. Noah Duke Kaye: But Ronald J. Mittelstaedt: in order to have enough airspace to honor our commitments, we have been throttling back volumes consciously at Seneca, our choice, over the last 18 months. And we have taken that to other landfills that we own throughout our network both in New York and Pennsylvania, and some to our Arrowhead network that we mentioned earlier, intermodal. We have also had to push out some third party to do that. And so, you know, we have overcome that as well in our results. But to answer your question, I would tell you that if Seneca were to close, as you said, if that is a worst-case scenario, the impact to us is far less than what we absorbed at Chiquita closing. So without laying it, it is far less, and you have seen us overcome the impact to EBITDA, revenue, and margin of Chiquita, and this would be far less. So it would be something I am not even sure you would Noah Duke Kaye: notice. Ronald J. Mittelstaedt: Okay. That is great color, Ron. Thank you very much for that. Operator: Your next question comes from the line of Adam Bubes with Goldman Sachs. Your line is open. Please go ahead. Adam Bubes: Hi, good morning. I think the outlook implies an improvement in the rate of change of volumes 150 basis points at least on an apples-to-apples basis with how you traditionally report. And it does not sound like that embeds macro improvements. So what are some of the moving pieces driving the rate of change improvement in volumes year over year? Mary Anne Whitney: Sure. As we have talked about volumes historically, the way we have communicated it, you had what we would characterize as that price-volume trade-off, or I would argue there is a piece of mix in there and churn. Also talked about shedding, and then we talked about the underlying economy. That price-volume trade-off, you know, the way we are communicating it, is embodied in the yield calculation just the same way our peers do. And so I would say that has not moved materially, although we look forward to seeing certainly the churn element of that continue to decline as we use better tools. And we have talked about the visibility we have there with our price increases. So then, you know, I would observe that the shedding has decreased. We talked about anniversarying one of those last contracts last year in Q4, so that is behind us. So I would expect that to be more de minimis. And then as we said, we still expect that there is some from those more cyclically driven pieces of the business. That is why we said maybe that is flat to down about half a point. That is essentially what you are seeing there. And, again, that does not mean that things are getting better. It is just that we are anniversarying these low rates and the comps are easier. And as we have said, we have already seen some pickup in special waste, and we are continuing to see our pipeline, our visibility on special waste projects improve. Again, no macro pickup. That is all upside. Adam Bubes: And then, Ron, you talked about the technology initiatives, specifically the real-time routing sounds really interesting. It sounds like you are in the early innings, but to what extent is that rolled out across the fleet today? And what type of initial savings or productivity are you seeing? Ronald J. Mittelstaedt: That is not yet rolled out to the fleet today, Adam, so it would be misleading to tell you that it is, and what we think those savings will be. We have beta-tested what we have done in, you know, probably what would equate to maybe up to 5% of our locations, but not at all of the routes on those 5%. So that is a smaller test. But I do expect that we will have this rolled out fairly broadly by the third and fourth quarter of this year, and then really more fully deployed throughout 2027, but have a good understanding of the potential impact in the second half of this year at some point. Adam Bubes: Great. Thanks so much. Operator: Your next question comes from the line of Christopher Allan Murray with ATB Capital Markets. Your line is open. Please go ahead. Ronald J. Mittelstaedt: Yeah. Thanks, folks. Good morning. Christopher Allan Murray: When we start looking at at least what you are proposing to see in 2026. Maybe turning back to, you know, the margin expansion that you saw in Q4. But, Ron, I mean, you alluded to the fact that a lot of this was Ronald J. Mittelstaedt: you know, attributable to, you know, there is some price-cost spread Christopher Allan Murray: gains, but it was also kind of the underlying Ronald J. Mittelstaedt: improvement in things like turnover and risk Jerry Revich: You know, Ronald J. Mittelstaedt: thinking that that stuff is not going to change, can you just maybe kind of square the circle on why you would not think that those trends would extend a little bit more into the year, and you are kind of looking at a lower year-over-year kind of growth rate? Mary Anne Whitney: Sure. So I guess what you are referring to is that we have guided to 70 basis points at the high end of underlying margin expansion after exiting the year at, you know—which, by the way, is about what we have seen through the course of the year—and then exiting the year at over 100 basis points margin expansion. And I would say that we recognize that the trends are still in the right direction, so there is certainly continued opportunity, and we factored that into our expectations for what we would characterize as an above-average margin expansion. From that price-cost spread, driven in part, as you note, by the employee retention and safety-driven benefits. Just remember, we had talked about about 100 basis points of margin expansion coming from that improvement over a multiyear period, and we are really two years through that multiyear period, and we mentioned that the final piece, the risk, is the largest contributor in the final pieces. So it is just an acknowledgment that as those metrics continue to improve, we look forward to seeing continued opportunity. Obviously, it gets harder the further down you go with improving these numbers and hitting record lows. But we will certainly look forward to continuing to drive those savings. And, Chris, I also think in terms of pricing retention and the improvement in churn that we have already seen from our pricing tools. So I think there is opportunity, which is why we are guiding to 50 to 70 basis points of underlying margin expansion when, as you know, that number would historically or typically be 20 to 40 in February. Jerry Revich: Fair enough. Other quick one just for me. The Canadian government changed its Ronald J. Mittelstaedt: or is introducing new regulations around methane emissions for landfills. Just wondering if you guys have any thoughts on how that could impact Noah Duke Kaye: the Canadian landscape, either creating some opportunities or some costs for you, and how you think that will actually impact the industry over the next few years? Jerry Revich: Yeah. I would tell you Ronald J. Mittelstaedt: Chris, that it is probably too early for us to make any real educated response to that. But I can tell you in speaking with our Canadian leadership team—we were just in Canada this week at our Canadian region office on Monday and Tuesday—and it was not something they were concerned about, based on everything they understood at this point. Mary Anne Whitney: Okay. I will leave it there. Thanks, folks. Operator: Your next question comes from the line of John Trevor Romeo with William Blair. Your line is open. Please go ahead. Ronald J. Mittelstaedt: Good morning. Thanks a lot for taking my questions. Just a couple of quick ones for me. I think first on the E&P business, would love to know, if you could kind of talk about in the quarter, I think you had some M&A deals contributing, but maybe talk about your organic growth you saw in Q4. And then as you think about modeling E&P for 2026, I think, Mary Anne, you said maybe flattish for the year. If you could talk about what you are expecting in U.S. versus Canada, is there anything to call out on a seasonal basis or anything else on that topic? Mary Anne Whitney: Sure. So looking at Q4, I would say we outperformed in Q4. That is the seasonally weakest quarter, and what we saw was some benefits in the U.S. from some remediation work, which, you know, that is episodic or lumpy, and so that was a nice add. And we saw continued outperformance in Canada. So both of those markets, even normalizing for acquisitions, were up year over year, and that is in spite of lower rig count and lower values for crude. So I would say that the business is arguably outperforming sort of the macro environment, and I think that the concerns that have been expressed looking forward, you know, we are certainly mindful, but we have seen no indication of a slowdown. And as I said, you know, we think in terms of how the year plays out at this point, we would say flattish is the right way to think about it and let it be upside, because, again, things like remediation jobs, those do not necessarily repeat every quarter. And so that is kind of the approach to the business. But generally speaking, very pleased that, as we have said before, the thesis on the Canadian business being more production-oriented played out last year, and our expectation is it continues to play out with the steadiness, the projectability of that business, which has not shown any signs of change. John Trevor Romeo: That is great. Thank you. That is it for— Mary Anne Whitney: Sorry. You are cutting out. Ronald J. Mittelstaedt: Cutting out. We could not hear you, Trevor. John Trevor Romeo: Hello? Hi, is this— Mary Anne Whitney: No. It is not better. Ronald J. Mittelstaedt: No. It is not better. John Trevor Romeo: I apologize if you cannot hear me. I guess you missed— Operator: Your next question comes from the line of Bryan Nicholas Burgmeier with BNP. Your line is now open. Please go ahead. Bryan Nicholas Burgmeier: Hi, good morning. Thanks for taking Mary Anne Whitney: the question. Can you hear me okay? Mary Anne Whitney: Yes. Loud and clear. Bryan Nicholas Burgmeier: Okay. Jerry Revich: Oh, great. Ronald J. Mittelstaedt: Just going back to the RNG business. Sorry if I missed it. But is Bryan Nicholas Burgmeier: $100,000,000 of EBITDA still kind of the right way to think about the contribution for 2027 or run rate Ronald J. Mittelstaedt: once that is fully operational? Is that still a good number to talk to? Mary Anne Whitney: Yeah. You know, I think that is a fair way to think about it based on what we know right now, and I would just remind you that there’s, you know, almost half of the projects are online. And so the incremental contribution would be what remains after that. Bryan Nicholas Burgmeier: Sorry. So you mean half the projects are online Bryan Nicholas Burgmeier: today? Bryan Nicholas Burgmeier: And so the Ronald J. Mittelstaedt: year-over-year 2027 versus 2026 will not be $100,000,000? Is that what you are saying? Bryan Nicholas Burgmeier: Correct. Jerry Revich: Yes. Bryan Nicholas Burgmeier: Okay. Okay. Okay. Thank you. Bryan Nicholas Burgmeier: But $100,000,000 in aggregate is the right way to think about Adam Bubes: the return on that overall investment. Mary Anne Whitney: That is right. Maybe a little higher. $100,000,000–$120,000,000, something like that. Bryan Nicholas Burgmeier: Okay. Thanks. Adam Bubes: And then just lastly, I think in prior calls, you called out Florida and Texas as being kind of weak or softer end markets. Is that still the case? Are you seeing—and then kind of related to that, did you see any weather impact in the quarter just broadly around some of the cold snap and stuff like that? Ronald J. Mittelstaedt: In the fourth quarter, are you referring to, or in the quarter we are now sitting in? We really did not see any weather impact in the fourth quarter. I mean, weather was, you know, somewhat mild, but nothing to note. Of course, in the month of January, there was a fairly significant cold snap that affected our business in up to 30 states, and certainly is some impact, but nothing material by any means. Mary Anne Whitney: Yeah. And just on Q4, really was not— you are right. We have mentioned those markets on construction-driven activity. I would say those stayed about the same, and there was a little incremental weakness in the Northeast that may have been some minor weather during Q4. Ronald J. Mittelstaedt: And to your question on Texas and Florida, I think Mary Anne Whitney: you covered it. That was a construction-driven slowdown since you guys were— Bryan Nicholas Burgmeier: Yep. Yep. Adam Bubes: Thanks, guys. I appreciate it. Thank you. Bryan Nicholas Burgmeier: Thank you. Operator: Your next question comes from the line of Shlomo Rosenbaum with Stifel. Your line is now open. Please go ahead. Shlomo Rosenbaum: Hi. Thank you very much Ronald J. Mittelstaedt: for taking my questions. Shlomo Rosenbaum: Ron, I want to go back to some of the things you touched on earlier in the call about the ability to improve your operations with technology, and you are talking about routing and dynamic routing and other things. I want to ask, when you kind of sequenced some of these things that you were looking at, did you go after the biggest opportunities first? And what should we be thinking about for subsequent years of things that you are going to attack? And just, is there a way to use technology that you are seeing that maybe could squeeze more out of the assets, maybe trucks, maybe not have to have so many trucks on reserve, in terms of proactively being able to get them using technology? I am just trying to get other things that might be out there that might be able to squeeze more efficiency out of the system, both operationally and then, frankly, from a capital perspective? Jerry Revich: Yeah. Well, Ronald J. Mittelstaedt: look. When we looked at this, we identified up to 40 areas that we could potentially look at the utilization of AI in some way or another. We prioritized the seven things over a three-year period that we thought had the biggest opportunity for impact to the business positively, whether that be from an operating, a financial, customer service, etcetera, efficiency. So those are the things we attack. Last year, we worked heavily, 2025, on commercial pricing and a couple of other initiatives in AI. This year, as I said, it will be on routing and mobile customer engagement. Without question, these initiatives should and I think will lead to improved efficiency, improved margin performance, and improved asset utilization. No question. You know, dynamic real-time routing allows you to move assets with information that today you do not really have or you have only reactively, not proactively. And therefore, you have to have a little bit higher spare factors in your fleet at locations, those kinds of things. You end up with a little higher overtime because you are reactive versus proactive. So it is not one of these things that moves the dial in one area, you know, 40 or 50 basis points. It is one of these things that moves seven or eight dials 10 to 20 basis points throughout your P&L over time. And so that is what we see and what we are seeing. And, ultimately, look, it provides a better service quality, a more proactive communication with your customer, a greater efficiency for your physical and your human assets, and greater projectability in your business. Those are the things we are expecting and we are seeing. So it just makes it better for all of our, you know, our shareholders, our customers, our employees, and ultimately our shareholders. So, yeah, we are excited about it. I think it is still early innings and not prepared to put a marker out there of what does this mean. But I can tell you that these investments, the payback is very quick. Jerry Revich: The payback is months Ronald J. Mittelstaedt: to maybe a year to year and a half. So these are very solid investments for the business. Shlomo Rosenbaum: Okay. Thank you for that color. And then just more of a tactical perspective. Mary Anne, can you talk a little bit about what a change in commodities prices would do to Shlomo Rosenbaum: revenue and EBITDA in 2026 versus the baseline that you are using right now? Mary Anne Whitney: Yes. So when I look at overall what our commodities sales are of about $250,000,000, that tells you a 10% move is around $25,000,000. And so what we have factored into our outlook is a 15% decline overall year over year, which translates to meaning based on current prices as compared to last year, and that translates to that 20 to 30 basis points of margin drag, which starts off probably a multiple of that in Q1 and drops down over the course of the year. Shlomo Rosenbaum: Very helpful. Operator: Your next question comes from the line of William Grippin with Barclays. Your line is now open. Please go ahead. William Grippin: Good morning. I appreciate you squeezing me in here. Adam Bubes: Just another one here on commodity prices. I know you are not baking in a recovery into the forecast, but just curious if you could maybe elaborate a little bit on what you are seeing in Ronald J. Mittelstaedt: market today and maybe what developments you are watching that could potentially William Grippin: signal or support an improvement in commodities prices off these cyclical lows? Mary Anne Whitney: Sure. So, Will, we saw some incremental weakness early in the fourth quarter, then there was stabilization, and what we saw most recently was a little uptick in OCC, which was encouraging. The reality is, though, that was offset by incremental weakness in plastics. So I would say, overall, the basket really has not moved, which, again, that informs our thinking for how we guide. Then what we are watching for and looking forward to would really be the uptick which is driven by underlying economic activity, which ultimately drives the demand, most importantly for fiber, which, as you will recall, is the majority of the value in a ton of recycled materials. So cardboard—commerce. Demand, consumer confidence, all those things that are the engines of driving consumption, which ultimately is what drives our business and recycled commodity values. Adam Bubes: Appreciate that. And then just coming back to RNG, and obviously the EPA William Grippin: widely expected to release the 2026–2027 biofuels RVO here, hopefully in the first quarter. Anything you are watching there that Ronald J. Mittelstaedt: could cause you to maybe change your approach to RNG offtake William Grippin: or capital deployment for those projects? Mary Anne Whitney: Really, just to be clear, these are terrific projects at a whole range of outcomes for RINs. And we have talked about delayed startup or the whole project development. If it goes to a couple-year payback or four or five years versus two or three, it is still very compelling. And as we remind folks, you know, we have $6,000,000,000 sunk into our landfills. Of course, we are looking to monetize the value as that gas—the waste—breaks down and generates gas. So you should expect us to continue to opportunistically pursue these projects. And, of course, we are completing the projects we have underway, and we look forward to delivering those returns. In terms of what we are watching, we are encouraged. You know, we do not know exactly where the RVOs come out or what RIN values do, but we have recently seen some improvement in the D5 RINs, which are a good indicator for D3 because that can be a substitute. And, again, we have seen stability in RIN values in that kind of $2.40 level. And we are encouraged by what we are seeing out there. So no change in the philosophy. As you know, we have taken a portfolio approach of not having outright risk on all of the RINs through a variety of ownership structures. We will continue to evaluate those opportunities over time and continue to own the most attractive in our network. But, again, no change in the thinking. As we have said, the largest outlays are behind us, getting through 2026 for this large group of facilities. But we will continue to have the one-off facilities over time as, again, as our landfills mature and the opportunities present themselves. Ronald J. Mittelstaedt: And one other thing I would say, William, that I think, you know, we were not going to talk about this, but since you raised the question, look. We have gone out and purposely recruited one of what we believe is the top RNG experts anywhere in the industry. And this person is an executive officer of one of the finest RNG companies. We work with all of them, and we have more regard for this company than anywhere else. And they have built and operated some of our facilities. And we have been laser-focused on figuring out how to have him join us, and he starts Monday morning. And we are very, very excited about that. We are not going to release that name right now because that is not appropriate for him or his company. But that, I think, shows you our commitment to RNG and our acknowledgment that we could continue to get better there. And like any area, just like we are doing in AI and others, if you have to go out and get the talent, we are going to go out and get the best talent we can find to drive what we may not be as good in as we are in some of our core competencies. So I think we will just continue to get better as we go forward in RNG starting Monday morning. William Grippin: Great to hear that. Sounds like a nice win and a great resource. I appreciate the color. Operator: Your next question comes from the line of Konark Gupta with Scotia Capital. Your line is now open. Please go ahead. Konark Gupta: Thanks for squeezing me in. Just maybe on free cash, I wanted to understand, Mary Anne, if besides earnings growth that you expect this year and lesser outlays on RNG and Chiquita, is there anything else in terms of major swing factors embedded in guidance or any wild cards to watch for free cash? Mary Anne Whitney: No. I think, you know, when you think about the free cash flow drivers, you have got that incremental $100,000,000 in EBITDA, the decline in Chiquita. You know, we gave you the CapEx number that steps up a little bit. Cash taxes step up a little bit because they were so suppressed this year. But, no, I would say those are the major moving pieces that you have probably already observed. Konark Gupta: Okay. Thanks. And just a clarification on the margin side of things. I mean, you said 50 bps to 70 bps of underlying expansion before commodities. But are there any headwinds that are embedded in that 50 to 70 bps, like, from Chiquita maybe? Or is there any, you know, tax offset that are swinging in the other direction? Mary Anne Whitney: No. We are talking about EBITDA margin drivers. No. There are no anomalistic headwinds that are out there. As I said, you know, we have lapped some of the outsized improvements that drove even greater underlying margin expansion, and we continue to work on all the same things. So we would look forward to unlocking even more margin expansion, but think this is the right way to guide. Ronald J. Mittelstaedt: Alright. Konark, thanks for taking that question. Thank you. Operator: Your next question comes from the line of Toni Michele Kaplan with Morgan Stanley. Your line is now open. Please go ahead. Yehuda Silverman: Hey. Good morning. This is Yehuda Silverman on for Toni. Thanks for squeezing me in. Just a quick question on Jerry Revich: strategy. Yehuda Silverman: So the comments you made about how Chiquita is being affected by being in Los Angeles and California being the difference between that and other ETLF events. Does that change your strategy at all of where you might want to operate in terms of more politically friendly areas? Is that something that is already factored in, or is this just sort of a one-off situation? Ronald J. Mittelstaedt: Well, it is clear we would rather operate only in jurisdictions that have a more friendly business environment. But, you know, we are obviously in 45 states, so that bet is already decided. I certainly would not pursue owning an additional landfill in California in the next 200 years. But, other than that, no. It does not change anything. Yehuda Silverman: Great. Thank you. Mary Anne Whitney: Your next Operator: question comes from the line of Kevin Chiang with CIBC. Your line is now open. Please go ahead. Kevin Chiang: Thanks for taking my question. Maybe just here on the Eastern region. A lot of good color on what you are doing with Arrowhead. You know, you are rolling out the franchises in New York. Does that change the structural margin profile of the Eastern region? Those seem like they would be tailwinds to profitability. And then just broadly on Arrowhead, does the potential merger of Union Pacific and Norfolk Southern change how you think about the growth opportunities within Arrowhead if you are partnering with a much bigger railroad there? Mary Anne Whitney: I will start with the margin commentary regarding our Eastern region. Certainly around the edges, as I mentioned, increased internalization does help margins. But, more broadly, the Eastern region’s margins are dictated by the high transfer and disposal expenses that are just inherent in that market. So that will never change. You can improve around the edges and look for ways to optimize within that market, and you have seen us do acquisitions that help on that front in terms of optionality. But, no, I would not encourage you to think about a major step change in the margins of the Eastern region beyond that. And then, Ron, I think— Ronald J. Mittelstaedt: Yeah. What I would say, Kevin, no. I do not necessarily believe that the franchise of New York City or the franchising model of the New York City market becomes necessarily a tailwind. What I do think, however, is it becomes a much more stable, less volatile market because it is a very competitive market up till now. And so you have large swings. So I think it becomes a much more stable, projectable, investable market than it has been in the past, where, you know, you can have a swing of a collection margin that goes from 10% to, you know, 6% to 20% in a three-year period. And now I think what you have is you will have a very tight bandwidth of margin performance for the most part at very good margins, at sort of company-average type margins on an integrated basis. Mary Anne Whitney: I think Kevin had also asked about the Norfolk Southern merger. Ronald J. Mittelstaedt: Oh, yeah. And, you know, look. I do not think—I mean, I think it is too early to tell what will happen in the UP–NS merger. You know, I think we are quite a ways away from understanding whether that will happen, and if it will happen, what will be the guardrails put around that. We have a very long-term agreement with Norfolk Southern that the combined company would be honoring, so we are not concerned about it in that way. Could it open up additional opportunity because of the connectivity between those two? Well, that is certainly a possibility, but not something we have yet explored. Kevin Chiang: That is great color. Thank you very much. Operator: Your next question comes from the line of George Bancroft with Gabelli Funds. Your line is now open. Please go ahead. George Bancroft: Good morning. Congratulations on doing great work, Ron and Mary Anne. My question, maybe you could opine a little bit here, Ron, on—you talked about automation and AI, but maybe a little further down the road. Thought of, you know, self-driving. Obviously, your largest part of your cost structure is Jerry Revich: or a very large part is your George Bancroft: labor and all the driver tightness and your focus, the industry’s focus on safety. You have seen, obviously, some recent reports about the improvements in safety in self-driving. Have you ever talked to, ever thought about it, tested, done anything—maybe having either doing like a leasing—self-driving? It seems like it would be a great market for taking people off the truck and more safety. Even if the person stays on the truck and then you just have that added safety and technology there. Just want to get your thoughts on that. Ronald J. Mittelstaedt: Yeah. I mean, you know, Tony, number one, just to say that we have done anything in that arena would be misleading because we have not. Do I think it is something that could potentially occur in the waste industry? Absolutely. I think it is potentially there. As you know, there are mixed views depending on where you are and what you look at on the self-driving vehicles. It is obviously happening in some markets today. So the technology is certainly there. George Bancroft: But, you know, I will tell you, Tony, as you know, I am on the board Ronald J. Mittelstaedt: of a publicly traded airline, and I can tell you that, you know, for the last seven to eight years, you can push a jet back from the jetway to actually do the runway, take off, fly to your destination city, land, open the door, with no one in the cockpit. I am not sure anyone is getting on that plane. But there are still pilots in every day. So there is this theoretical, could this occur, and then the reality of, you know, when a car gets in an accident, that is bad. But when a garbage truck hits something, it is catastrophic. And so, you know, even if it could, I still think you would have professionals in the cab there for those reactionary scenarios that occur if something malfunctions. Exactly the reason airlines have pilots today. It is not because they cannot do it without it. It is because of the one-tenth of 1% that happens that they protect everyone from. And I think garbage truck would be the same way. But certainly something we will look at as the technology evolves. You know, we are always, as are our peers, always looking for ways to improve the safety aspect of the business, the efficiency, the customer improvement. But I think it is quite a ways out, and then, you know, we look forward to the day, if that opportunity arises, where we can improve it, but it is not there today. George Bancroft: Thanks, Ron and Mary Anne. Great job. Ronald J. Mittelstaedt: You bet. Operator: Your next question comes from the line of Tobey Sommer with Truist. Your line is now open. Please go ahead. Bryan Burgmeier: Hi. It is Henry on for Tobey. Thanks for squeezing me in. Great to hear the labor turnover numbers and where those are to start the year. Could you just give us an update on driver academies? What percentage of new driver hires do you expect to pass through those in the coming year and how much of an incremental benefit that could have on labor turnover throughout the year? Jerry Revich: Thanks. Ronald J. Mittelstaedt: Yeah. Thank you for asking that question. So when we opened our academies—one at the start of 2024 and one at the end of 2024—we felt that if we could get to approximately 35% of our driver need per year being internally developed at our academies, we would consider that a tremendous success. We achieved that number in 2025, and for 2026, we are forecasting that 60-plus percent of our driver need will go through one of our two academies. So far exceeding our expectations. Now that is a twofold function. That is because we have reduced turnover quite dramatically, so the need for new drivers is not as high. But the second and more important thing is the retention rate through our academies is almost double the retention rate of those that do not go through our academies. And we also thought that would happen, but we did not think it would be quite as good as it has been, however. So we are getting a double sort of whammy, and that is what has helped decelerate, improve turnover so quickly. Do we ever think that gets to 100%? Probably not. But if it could stay in this above-50% range per year—what we call being internally developed and trained—we would be very happy. And, as I said, we believe that number will be north of 60% this year. So, so far, that—and, you know, again, what is that yielding? We are working through getting the statistics to support this. But we believe that the drivers that go through our academies—number one, the turnover is lower. We know there is direct linkage between turnover and tenure and safety. And so we think as we look out through this year into next year, the linkage will show that those drivers we internally develop tend to have better safety performance statistics as well. So that is sort of where we are there. Jerry Revich: Great. Thanks for Bryan Burgmeier: that. That is great to hear. And then just if we could quickly circle back to core pricing cadence over the course of the year, do you expect a pretty steady step down sequentially during 2026? And how much visibility do you guys have at this point in the year on the full-year guidance of pricing? Thank you. Mary Anne Whitney: Sure. So as is typical, you should expect pricing to step down sequentially. So, obviously, if we have talked about 5% to 5.5%, you would start north of that—maybe 6%—and drop down over the course of the quarters to something less than that to average that number in the middle. And in terms of visibility, as is typical in our model, by the time we report Q1, we will have visibility on 65% or 70% of our price increases. Most of the competitive piece will be done, and then we will have known amounts for our CPI-linked markets. So pretty typical for us in terms of the visibility. You know, we are a company that stops talking about price really after April. Operator: There are no further questions at this time. I will now turn the call back to Ronald J. Mittelstaedt for closing remarks. Jerry Revich: Okay. Ronald J. Mittelstaedt: Well, if there are no further questions, on behalf of our entire management team, we appreciate your listening to and interest in the call today. Mary Anne and Joe Box are available today to answer any direct questions that we did not cover that we are allowed to answer under Regulation FD, Regulation G, and applicable securities laws in Canada. Thank you again. We look forward to seeing you at upcoming investor conferences or on our next earnings call. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: At this time, I would like to welcome everyone to the International Flavors & Fragrances Inc. Fourth Quarter and Full Year 2025 Earnings Conference Call. All participants will be in a listen-only mode until the formal question and answer portion of the call. To ask a question at that time, if you would like to remove your name from the queue, please press 2. Participants will be announced by their name and company. In order to give all participants an opportunity to ask their questions, we request a limit of one question per person. I would now like to introduce Michael Bender, Head of Investor Relations. You may begin. Thank you. Michael Bender: Good morning, good afternoon, and good evening, everyone. Welcome to International Flavors & Fragrances Inc.'s Fourth Quarter and Full Year 2025 Conference Call. Yesterday afternoon, we issued a press release announcing our financial results. A copy of the release can be found on our IR website at ir.iff.com. Please note that this call is being recorded live, and will be available for replay. During the call, we will be making forward-looking statements about the company's performance and business outlook. These statements are based on how we see things today, and contain elements of uncertainty. For additional information concerning the factors that can cause actual results to differ materially, please refer to our cautionary statement risk factors contained in our 10-Ks and press release, both of which can be found on our website. Today's presentation will include non-GAAP financial measures which exclude items that we believe affect comparability. A reconciliation of these non-GAAP financial measures to their respective GAAP measures is set forth in the press release. Also, please note that all sales and EBITDA growth numbers that we will be speaking to on the call are on a comparable currency-neutral basis unless otherwise noted. With me on the call today is our CEO, Jon Erik Fyrwald, and our CFO, Michael Deveau. We will begin with prepared remarks and then take questions at the end. With that, I would now like to turn the call over to Jon Erik Fyrwald. Thanks, Mike, and hello, everyone. Thanks for joining us today. International Flavors & Fragrances Inc.'s fourth quarter and full year 2025 results reflect a continued focus on disciplined execution and improvements across the business to further strengthen our position in the market. I will start today's call by briefly summarizing the progress we continue to make in executing our strategic priorities, followed by a few highlights of how this translated to our 2025 financial results. I will then turn the call over to Michael Deveau, who will provide more details on fourth quarter segment performance and our outlook for 2026. Turning to Slide 6. In 2025, our team focused on strengthening our ability to drive profitable growth while also strengthening our balance sheet. We continue to reinvest in a disciplined way across our high-value core businesses, increasing R&D, commercial capability, and manufacturing capacity, investments that will pay off for years to come. And we did this while we delivered the full-year financial commitments we set out for 2025. And while there is a lot more to do, I am proud of how our global team continues to strengthen our ability to serve our customers with leading innovations and deliver productivity even in a challenging, volatile economic environment. Our strengthened balance sheet reflects our more disciplined capital allocation strategy, with our net debt to credit-adjusted EBITDA down to 2.6. Our increased investments in innovation and commercial capabilities and CapEx and productivity initiatives are delivering today and making us stronger for the future. We have also taken strategic action to sharpen our portfolio so we can focus on high-value, innovation-driven businesses. To recap, we completed the divestitures of Pharma Solutions, nitrocellulose, and René Laurent businesses and also announced an agreement to sell our soy crush concentrates and lecithin businesses to Bunge, which we expect to happen by April. Most recently, we officially launched the sale process for our Food Ingredients business. As we communicated in August, we began exploring strategic options for our Food Ingredients business as part of our portfolio optimization. And following several months of extensive preparation by our team, we formally launched a disciplined and competitive sale process and, as of two weeks ago, are officially in the market. And I am very pleased with the progress we have made and believe this is the right next step for both the Food Ingredients business and for our Taste, Scent, Health, and Bioscience divisions. We are very encouraged by the depth and quality of interest from strategic and financial sponsors and are confident in our ability to execute this process thoughtfully and in the best interest of our shareholders. We will provide additional updates as appropriate. We are confident that the strength of our people, strategy, and execution positions us to deliver on our priorities for 2026 and beyond. We have the right leadership team in place, an engaged and supportive board, and an incredibly talented team of International Flavors & Fragrances Inc. colleagues. Now while macroeconomic uncertainty will continue to persist through 2026, I am pleased how we are entering the year and have strong conviction in our ability to achieve consistent, profitable growth and create long-term value for our shareholders. Turning to Slide 7. We achieved solid sales growth in 2025 against this Jon Erik Fyrwald: strong 6% year-ago comparable in a tough macroeconomic environment. Over the last two years, we delivered average sales growth of 4%. Our 2025 performance was led by Taste, which grew sales by 4% and grew EBITDA by 10%. In Health and Biosciences, sales improved 3% and the team delivered a 7% increase in EBITDA. Scent sales grew 3% against a strong year-ago comparison of 12% and increased EBITDA by 2%. The double-digit sales growth in Fine Fragrance was partially offset by negative growth in Fragrance Ingredients, where we saw double-digit declines in the commodity ingredients sales. In Food Ingredients, the team has done a great job continuing to drive margin improvement. And while sales were down, partly due to soft demand and partly due to the strategic exit of low margin business, we achieved 10% EBITDA growth and 150 basis points of EBITDA margin expansion. And on a consolidated basis, our overall profitability improved in 2025 as we delivered 7% EBITDA growth with 100 basis points of margin expansion through volume and productivity gains as well as favorable net pricing. Now with that, I will pass the call over to Michael to offer a closer look at this quarter's consolidated results. Michael? Michael Bender: Thank you, Erik, and thanks, everyone, for joining. In the fourth quarter, International Flavors & Fragrances Inc. generated revenue of nearly $2,600,000,000 with growth in nearly all divisions. Performance was led by mid-single-digit growth in Health and Biosciences and Scent as well as low-single-digit growth in Taste. Jon Erik Fyrwald: Our sales grew 1% for the quarter, Michael Bender: against the 6% year-ago comparable, and were up approximately 4% on a two-year average basis. EBITDA totaled $437,000,000 for the fourth quarter, a 7% increase, primarily Jon Erik Fyrwald: driven by volume growth and our ongoing productivity initiatives. Our EBITDA margin also increased by 90 basis points to 16.9%. On Slide 9, I will provide a closer look at our performance by Michael Bender: business segment. In Taste, sales increased 2% to $588,000,000 with growth in all regions, including high-single-digit growth in North America driven by new wins. The segment also recorded a very strong quarter of profitability Jon Erik Fyrwald: with EBITDA of $94,000,000, a 17% increase. Michael Bender: Profitability gains driven primarily by favorable net pricing and cost discipline. Food Ingredients sales of $802,000,000 were down 4% as softness in Protein Solutions and Emulsifiers and Sweeteners offset growth in Systems and Inclusions. Michael Deveau: It is worth noting that a part of our top-line decline in the fourth quarter and on a full-year basis for Food Ingredients was driven by a proactive exit of low margin business as well as lost sales due to sanctions in Russia in Emulsifiers. Profitability for Food Ingredients declined 11% in the quarter to $82,000,000 stemming from the volume declines and unfavorable net pricing. Our Health and Biosciences segment achieved sales of $589,000,000, an increase of 5% with growth across nearly all businesses. The standouts in the quarter were Food Biosciences and Animal Nutrition, both growing double digits. Home and Personal Care also continued to be strong, increasing high single digits. As we shared last quarter, Health, while improved sequentially from Q3, was down low single digits. Under new leadership, the team has started to execute their improvement plan. We continue to believe trends will improve over the course of 2026. From a profitability standpoint, Health and Biosciences delivered EBITDA of $155,000,000 in the fourth quarter, an increase of 20% due to volume growth and productivity gains. Lastly, our Scent segment delivered sales of $610,000,000 representing 4% growth. Performance in the fourth quarter was driven by continued strength in Fine Fragrance, which increased 10%, and mid-single-digit growth in Consumer Fragrance. Fragrance Ingredients remained under pressure due to continued market softness and price competition on the commodity portion of our portfolio. EBITDA for this segment increased 1% to $106,000,000 as benefits from volume growth and productivity gains were partially offset by unfavorable net pricing specifically in Fragrance Ingredients. Turning to Slide 10, cash flow from operations totaled $850,000,000 for the full year, and CapEx totaled $594,000,000, or approximately 5.5% of sales. Our free cash flow position for the full year totaled $256,000,000. Included in this number is approximately $300,000,000 of Reg G-related charges primarily driven by our divestiture activities, which accelerated in the second half of the year due to the potential sale of Food Ingredients. Working capital also represented an outflow of approximately $166,000,000, reflecting higher inventory levels in strategic areas along with changes in accounts receivable and accounts payable. We made meaningful progress improving inventory in the second half of the year, and as we look ahead, disciplined execution across all elements of working capital will be a key priority for us in 2026. Year to date, we returned $409,000,000 to our shareholders through dividends, and an additional $38,000,000 through share repurchases, as we started our repurchase program in the fourth quarter. As a reminder, at minimum, we expect to offset annual share dilution of approximately $80,000,000 to $100,000,000 per year. Our cash and cash equivalents finished at $590,000,000 and our gross debt at the end of the year was approximately $6,000,000,000, which is a decrease of nearly $3,000,000,000 compared to 2024. Our trailing twelve-month credit-adjusted EBITDA totaled $2,100,000,000. Our net debt to credit-adjusted EBITDA ended 2025 at 2.6 times, improving from 3.8 times at 2024. Before turning to our outlook for 2026, I would like to briefly reiterate a point Erik made earlier on Food Ingredients. We believe pursuing a sale for the Food Ingredients business remains the right path forward. With our capital structure now strengthened, and improving operational performance, and margin expansion ahead for Food Ingredients, we are under no pressure to sell. The business has a strong operating plan. We are confident we can continue to create value whether a transaction occurs or not. This potential sale is about capturing full value for our shareholders, doing what is right for both Food Ingredients and our broader portfolio. Throughout the process, we remain focused on long-term shareholder value, and taking actions that make the most strategic sense. Now on Slide 11, I would like to share our outlook for 2026. We believe we are well positioned for the year ahead and we are cautiously optimistic that we can deliver growth, margin improvement, and cash flow generation this year. As we navigate the volatile geopolitical landscape and uncertain market conditions, the strength of our pipeline and the benefits of our reinvestment efforts give us confidence moving forward. We believe our outlook reflects the balanced consideration of both current market conditions and the potential for unforeseen opportunities and challenges throughout the year, hence the ranges we are providing. Coming off a solid year we had in 2025, we expect to continue to drive financial performance across the company. For the full year 2026, we expect sales to be in the range of $10,500,000,000 to $10,800,000,000, representing comparable currency-neutral growth of 1% to 4%. We believe Taste, Health and Biosciences, and Scent will continue to drive our top-line growth supported by new wins and our innovation pipeline. We expect that growth will primarily be driven by year-over-year improvements in volume. From a profitability standpoint, we expect to deliver full-year 2026 EBITDA between $2,050,000,000 and $2,150,000,000, representing comparable currency-neutral growth of 3% to 8%. It is important to note that we will also continue to selectively reinvest in the business while maintaining a disciplined focus on near-term profitability. We expect our productivity and efficiency gains will fully fund our ability to reinvest in innovation and commercial capabilities across our highest-value businesses. We believe these investments will continue to enhance performance, strengthen our competitive position, and deliver attractive returns over time. For the full year, we expect FX will have approximately one percentage point positive impact to sales and a negligible impact on EBITDA. From a calendarization perspective, our year-over-year comparisons are strongest in the first half, particularly in Q1, where we have certain favorable one-time items from last year, including the contribution of divested businesses. As a result, we expect sales and EBITDA will be more muted in the first quarter of 2026. More specifically, we expect modest EBITDA growth in the first quarter versus our like-for-like first quarter 2025 base of approximately $55,000,000 adjusting for divestitures. As we move through the year, comparisons will ease, and we expect performance to improve supported by our pipeline and ongoing productivity actions. We expect that this will drive improved leverage across the P&L and year-over-year growth should progressively improve each quarter. As I said earlier, operating cash flow will be a key priority for 2026. We expect overall cash generation will improve year over year excluding Reg G and one-time costs, which will most likely be higher than 2025, as we pursue a potential sale of Food Ingredients. Teams across the businesses are driving working capital improvements across inventory, payables, and receivables, and when combined with profitability growth and lower incentive compensation payouts, we should see a meaningful cash flow improvement versus 2025. CapEx is expected to be around 6% of sales and will be carefully managed, focused on highest-return opportunities, including capacity expansion, network optimization, and innovation to support long-term growth. To further embed disciplined cash management, we have introduced an incentive compensation metric for 2026 tied to operating cash flow conversion, defined as EBITDA minus CapEx minus the change in net working capital. We are also evaluating additional cash flow metrics for our long-term incentive program to strengthen alignment on cash flow generation, particularly for 2027. With that, I would now like to turn the call back over to Erik. Jon Erik Fyrwald: Thanks, Michael. As we look ahead to 2026, I see considerable opportunities for us to continue strengthening International Flavors & Fragrances Inc. with even more competitive, innovative, and customer-focused businesses amid a continued challenging macro environment. Innovation is the key driver for us in 2026. Our investments in enzyme capacity, naturals, health, and new molecules powered by our biotechnology and AI capabilities will increase our ability to compete and win with our customers across key business segments. We also remain focused on enhancing our competitiveness in our Health business by strengthening commercial execution through the steps we discussed before. In Fragrance Ingredients, we continue to shift our portfolio toward higher growth and higher value-added specialties by leveraging R&D, naturals, chemistry, and biotech for new molecule and delivery system development. At the same time, we are committed to continuing to drive significant productivity, furthering our digital transformation, and advancing our AI-enabled operational excellence to fund reinvestment and improve margins. And we will drive cash flow as a priority over the next eighteen months and are committed to a very large reduction in below-the-line or Reg G costs over that time period. Michael Deveau: Lastly, we will continue the sale process for Food Ingredients Jon Erik Fyrwald: and we will ensure the right outcome for this terrific business and be able to achieve our end goal of having three high-value and growth innovation-driven businesses with Taste Operator: Scent, Jon Erik Fyrwald: and Health and Biosciences powered by nature and biotechnology. To close, I want to reiterate that the International Flavors & Fragrances Inc. businesses are strong and performing well. We are doing exactly what we said we would do, and we have a clear path forward that aligns and motivates our people to continuously improve our service to customers and deliver for International Flavors & Fragrances Inc. The progress we have made in strengthening the foundation of our business, balance sheet, and innovation and commercial pipelines is significant and motivates us to do even more. And while I am very proud of what our team has accomplished, there is more we will do as we will be laser focused in 2026 on driving profitable growth, cash flow improvement, and maximizing value creation over time. We are investing for the future, and we have a great team to execute for today. Michael Deveau: Thank you, Jon Erik Fyrwald: we will now open the line for questions. Michael Deveau: Thank you. Operator: 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 name from the queue, please press 2. Again, to ask a question, please press 1. We do ask that you please limit yourself to asking only one question. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking your question. And the first question will go to the line of Kristen Owen with Oppenheimer. Kristen, your line is open. Hi. Good morning. Thank you for the question. So I wanted to ask about your assumptions around price and volume in 2026. And we are hearing from a lot of the CPGs this shift migrates toward a greater emphasis on volume. I am just trying to think about how that might upstream to you all. And just as a related question, can you remind us the incremental margin on volume versus price? Thank you. Michael Deveau: Yes. Thank you, Kristen, for that question. I will take it. Jon Erik Fyrwald: First of all, our expected growth for 2026 is volume driven. Michael Bender: And as you mentioned, CPG companies shift Jon Erik Fyrwald: shifting emphasis to more volume growth, that is a good thing for International Flavors & Fragrances Inc. and the industry as a whole. So we like seeing that trend as you mentioned. And then finally, incremental margins are roughly 30% to 35% on volumes depending on the business segment. Operator: Thank you, Kristen. Our next question will go to the line of Nicola Tang with BNP Paribas. Nicola, your line is open. Hi, everyone. I am sticking with a question on top line. I was wondering if you could provide some color on your assumptions behind the top and bottom end of your 1% to 4% currency-neutral sales outlook. Do you expect all of your divisions to grow within that range? And also, I noted in Q4 that currency-neutral sales came in better than expected in the three core divisions. And I was wondering if we should read this as a signal of improving underlying market trends or whether there were specific drivers to be aware of, I do not know, new wins or timing of orders? Unknown Analyst: Or anything like that? Michael Deveau: Thanks. I will take this one. Nicola, thank you for the question. As I think about 2026, I think we would say we are cautiously optimistic going forward, really driven by a strong pipeline, the reinvestment we made over the last eighteen months. In addition, as Erik just said, a good thing for us as well, we are hearing customers talk more about volumes for 2026, which is positive. So when you think about our 1% to 4% guidance range, it assumes essentially the current market conditions that we see today and as we exited the fourth quarter. For us to achieve the higher end, or the 4% range, I think we would need to see volumes at the end market improve more broadly, kind of return to what I would say is more normalized levels in terms of market growth. And the opposite is probably true on the lower end of the guidance range, or the 1%. To your point on Q4 2025, it was marginally better than we expected from a top-line perspective with good improvements in Taste, Scent, and H&B. This was primarily driven by new wins, which is a positive signal. But it is only one quarter. So as I think about, again, 2026 overall, we do believe that the three businesses will grow in 2026 within the sales guidance range. To a lesser extent overall, but we also do expect Food Ingredients will also grow, maybe just a little bit. Fortunately, we have a very diverse business with balanced region, category, and customer exposure. And that gives us our confidence that we are resilient and that we believe we can grow as we go into 2026. Operator: Thank you, Nicola. Our next question will go to the line of Patrick Cunningham with Citigroup. Michael Bender: Patrick, your line is open. Hi. Good morning. Thank you. In Food Ingredients, could you comment on any early interest in the sale? Were there any inbounds prior to the formal process? And then any details on timing and deployment of proceeds would be greatly appreciated as well. Jon Erik Fyrwald: Sure. Thank you for the question, Patrick. Michael Deveau: As I said on our last call, we Jon Erik Fyrwald: did have early interest from both strategics and private equity firms, and all of those firms continue to show strong interest. And then two weeks ago, we officially launched the sale process and have had additional firms express interest. So I am very optimistic about the process. But as Michael said, Michael Deveau: the Food Ingredients business is performing well, had double-digit Jon Erik Fyrwald: EBITDA growth last year. We continue to see solid earnings growth for this year, so we will only sell the business if it creates value, but I am very optimistic we can make it happen. Now as for proceeds, we will use them to buy back shares to offset as much dilution as possible and we will pay down debt to stay about where we are on debt to EBITDA ratio, ensuring that we stay below the 3.0 target. Operator: Thank you, Patrick. Our next question will go to the line of John Roberts with Mizuho. John, your line is open. Jon Erik Fyrwald: Thank you. Price was down in the Scent segment. Higher-price fragrance outperformed, Fine Fragrance outperformed Consumer Fragrance. You are shifting the Scent Ingredients towards higher-priced products. So I would have thought mix alone would have improved price. What is going on with price there? Michael Deveau: No. Thanks, John. You are correct that the Fine Fragrance business is our highest-margin business, so that was a positive contribution to mix overall. Pricing, actually, in the quarter was flat year over year, and so really, the margin pressure came on the input cost side where, as you know, there is a bit of a lag in terms of overall price. This was primarily related to some of the index pricing agreements that we have, and so similar to previous years, as we move forward, we expect to fully recover this over time. One of your points on just the Fragrance Ingredients business overall, that shift from more commodity to more captive or proprietary ingredients, we started that migration, but it will take some time. And so as we go through 2026, we will make continuous progress. But I do want to just level set to make sure something that will be a theme as we go through 2026 and as we get through the second half, when we will start to see some stuff come online overall. But it is a process that will take somewhat of all of 2026 to make that migration overall. Operator: Thank you, John. Our next question will go to the line of Kevin McCarthy with Vertical Research Partners. Kevin, your line is open. Michael Bender: Yes. Jon Erik Fyrwald: Thank you very much, and good morning. I thought your Health and Biosciences business Michael Bender: finished on a somewhat stronger note. Can you elaborate on what drove the margin uplift there of 160 basis points year over year as the Health business Jon Erik Fyrwald: starting to stabilize and come back at all, and maybe you could comment on the margin outlook for 2026 in that segment, what kind of benefits you might see from volume growth and productivity? Jon Erik Fyrwald: Sure. Thanks for the question, Kevin. First of all, our Health and Biosciences did deliver strong fourth quarter performance. And that was due to both strong volume growth and productivity that enhanced the margins. What I would say is the team is very focused on strengthening our commercial and innovation capabilities and pipelines and delivering those pipelines. And I am very proud of the progress that they are making. More to do, but making progress. As Michael mentioned in the Michael Deveau: beginning comments, Michael Bender: the Health business still has some Jon Erik Fyrwald: decline, less decline than in the third quarter in the fourth quarter. We see that business flattening out in the first half of this year and then starting to grow in the second half of this year. So outside of the Health business, very robust growth. The Health business is starting to turn, and we expect to see positive results from that by the second half. Operator: Thank you, Kevin. Our next question goes to the line of Josh Spector with UBS. Josh, your line is open. Josh Spector: Yeah. Hi. Good morning. I wanted to ask on free cash flow. I think previously, you thought for 2025 you would do a little bit less than $500,000,000. That came in a couple $100,000,000 short. You talked about some investments in inventory. So can you talk about why you did that? Is that structural? Then how do you think free cash flow evolves into 2026? Michael Deveau: Thanks, Josh. Great question. Yes. We expected the free cash flow to be modestly lower than $500,000,000 for the full year. Essentially, the difference of where we ended versus our commentary in the second and third quarter really relate to three things. One, we did see a little bit of an increase in what I would say one-time Reg G-related cost. As we start to move forward with the Food Ingredients potential sale, we have actually seen some step-up in costs associated with that potential transaction. Number two, exactly what you said, working capital came in a bit higher than we expected. Part of this is driven by inventory. Now while the team had a really good effort and progress in terms of where we were in the first half of the year to the second half improving inventory, we are being strategic on some elements where we are taking advantage of supply and potential pricing to making sure we keep adequate inventory that as we grow our business into 2026, we are in the best possible position. And so that was a little bit of a build. But in addition to that, we also had some payables that are really just timing issues. I think as we go through 2026, we will see that come back. Now overall with respect to AP, as I explained in our prepared remarks, cash flow improvement for us in 2026 is a key priority. And while we do expect the Reg G cost will remain high, we are being very disciplined in terms of cash management now. Point I made earlier in my prepared remarks, we even added the compensation metric in there to drive this. So for 2026, I do expect to see a meaningful improvement driven by profitability growth, working capital, lower interest expense, and a lower payout relative to what we had in 2025 with respect to incentive comp overall. And so that meaningful progress will occur. I am going to refrain on giving a specific target at this point, only because I want to get a little bit more clarity on the Food Ingredients potential sale. I think once we have the visibility there, we will come back and we will give more formal guidance on a cash flow number. But I will tell you that what I can confidently say is that we are doing everything we can in our power to making sure we drive cash flow performance in 2026. Jon Erik Fyrwald: Yeah. Let me just add quickly that I am not as proud about the management of inventories. In the first half of the year, we let inventories get higher than we had targeted. Michael had us put a lot of emphasis in the fourth quarter on driving down inventories, which is never a good thing to do quickly at the end of the year. But we did it, and we have put in, Michael has driven with the business unit presidents a much better disciplined process to ensure that we manage inventories well throughout 2026 and for the future. Operator: Thank you, Erik, and thank you, Josh, for your question. The next question will go to the line of David L. Begleiter with Deutsche Bank. David, your line is open. Michael Bender: Thank you. Good morning. Jon Erik Fyrwald: Erik, just on the R&D effort, where do you stand on this journey to reinvigorate the R&D pipeline Josh Spector: and your innovation efforts? And are there any metrics that you are tracking that Jon Erik Fyrwald: you can share with us on this progress? Thank you. Thanks for the question, David, and it gets right to the heart of the key strategy of the company, which is to drive innovation. So as you remember, we invested about $100,000,000 in 2025 into our innovation capabilities and high-growth, high-margin categories across the company. And we have made a lot of progress across Scent, Health and Bioscience, and Taste innovation pipelines. And as I also mentioned earlier, we will start to see the benefits of that in 2026 and more into 2027. And I think we are really pleased with the progress that we are making. I think our customers are very pleased with it. I just came back from ACI, the American Cleaning Institute, where we engaged with many of our large CPG company customers and it was really great to have those engagements and hear about the progress that our teams are making. And it was also a very big honor to get awards from two of the largest CPG companies for our innovation together with them. I think that bodes well for the future. So making good progress, David, and you will see it come to more fruition in terms of real results starting in the second half of this year and then much more into 2027. Thanks. Operator: Thank you, David. Our next question goes to the line of Ghansham Panjabi with Baird. Ghansham, your line is open. Michael Bender: Yeah. Thanks, Operator. Good morning, everybody. Just going back to the Taste segment for the fourth quarter and the performance in North America specifically, I think you called out high-single-digit growth. Can you just give us a bit more color as to what drove that? And then was that the component that drove margins to the degree that it did just from favorable mix specific to North America? Thank you. Michael Deveau: Thanks, Ghansham. This team is doing a really good job overall in terms of their overall performance. Looking at it from a regional perspective, all regions in Q4 grew. Contributions from both volume and price. When we look at the drivers of growth, really what stood out is North America. That is really driven by new wins. So the team has been really, really focused on making sure they grow their pipeline and increase their win rate, and what you are starting to see materialize was some of the success that they had on some of those launches overall. In addition, Latin America was strong. And then when I balance it out, I think about EMEA and Greater Asia. They grew to a little bit of a lesser extent. And so when I think about the margin performance, the largest contributor was really productivity. And so when you actually look across COGS and SG&A, the team did an excellent job of really trying to drive that cost management and making sure we are driving productivity within the system of their business. So that was a big, big success to the overall performance and profitability. In addition, they also did have some positive contribution from favorable net price to input cost. And so when you shape this up between volume growth, plus good productivity, and some favorability with respect to price to input cost, it shaped up to a really nice quarter from a profitability perspective overall. Operator: Thank you, Ghansham. Our next question will go to the line of Lisa De Neve with Morgan Stanley. Lisa, your line is open. Hi. Thank you for taking my question. I had a question on what is International Flavors & Fragrances Inc.'s view on the GLP-1 theme where we have seen a little bit of a resurgence of the theme post the oral dosage approvals. Can you share about what you believe the GLP-1 uptake will mean for International Flavors & Fragrances Inc. solutions demand? And then more broadly, following on from that, across all your divisions, what would you consider to be the key market trends that will drive your growth over the coming years? Thank you. Jon Erik Fyrwald: Thank you for the question, Lisa, and being on the board of Eli Lilly, I have a front row seat to the GLP-1 dynamic. And I am very proud of how our International Flavors & Fragrances Inc. team has responded to this both challenge and opportunity. What I would say is we are creating it into an opportunity. We have had an alliance across our business units putting together how our products can help our customers develop great products for GLP-1 consumers, and we have put together an innovation seminar that was very well received and have many projects with customers around products for GLP-1 users. And as you can see in our Taste and our Food Biosciences performance, they are both growing very nicely, and some of that is due to the GLP-1 Michael Deveau: dynamic, and I will give you an example. Jon Erik Fyrwald: We have a large business today in yogurts. Michael Bender: We have Jon Erik Fyrwald: developed some new yogurt technology both in biosciences and in flavors. Michael Deveau: And Jon Erik Fyrwald: by taking advantage of that, we have been able to grow nicely in the yogurt category, helping our customers grow nicely and address the desire for GLP-1 patients to have really great-tasting foods that are good for them. But it has also gone beyond that in the protein dynamic. And the ability for us to flavor products with high protein and help with the biosciences to enable those products has also been a positive. And then when you talk about ultra-processed foods or reformulation generally, reformulation, when customers reformulate, that is also a good thing for us. So yes, there will be some challenges with reduced caloric intake for a section of the population. We are leaning into it with innovation to make sure that it is not an overall negative for us, that it is a neutral or a positive. Michael Deveau: Thank you, Lisa. Operator: Our next question goes to the line of Fulvio Cazzol with Berenberg. Fulvio, your line is open. Michael Bender: Thank you, and thank you for taking my questions. Fulvio Cazzol: My question is on the cost inflation outlook for 2026. I was just wondering if you can give us a bit of a summary of what you expect both on the input costs, any tariff-related cost inflation, wage inflation, and how you expect to mitigate that. Thank you. Michael Deveau: Thanks, Fulvio. For 2026, we do expect some modest input cost inflation for our divisions. This really includes raw material and costs, which includes the impact of tariffs, plus logistics, energy, and packaging costs. More broadly, as a very high-level macro statement, we are seeing inflation across all those key elements. The team today is collaborating with customers to mitigate this. And in the end, we will recover it through reformulation, productivity, and pricing over time as we go forward. And so when we think about our guidance for 2026, taking a step back, our 1% to 4% is really all driven by volume. We do expect pricing to be slightly down, which is primarily related to the commodity portion of our Fragrance Ingredients, which I mentioned earlier on a different question, and some residual carryover pricing impact in Food Ingredients specifically. But the team is really focused on making sure as we think about our business going forward, we are working with customers so that where there are inflationary pressures, we do offset that from a direct cost perspective. More generally, there is a general increase in terms of overall working costs—so merit increases, inflation. Now we have done a very good job at looking to productivity to make sure that we are fully offsetting that as part of our plan. So that is embedded in our gross productivity plan to make that a net number more favorable as we progress through the year. Operator: Thank you, Fulvio. Our next question will go to the line of Laurence Alexander with Jefferies. Laurence, your line is open. Michael Deveau: Good morning. Just want to circle back to the Laurence Alexander: the outlook, the lower end of the outlook Fulvio Cazzol: range, Laurence Alexander: what are you assuming for destocking risk this year compared to the last couple of years? And then I guess related to that, it looks as if the range is not yet seeing much benefit from the shift in mix and innovation capabilities and sales force reinvigoration. Do you think you should see the bottom end of the range start materially improving? Jon Erik Fyrwald: Thanks for the question, Laurence. Of course, the 1% to 4% Michael Deveau: does include Food Ingredients. Jon Erik Fyrwald: And while we expect Food Ingredients to return to positive growth on top line this year, Michael Deveau: it will be modest. And as Michael mentioned, it is still a tough Jon Erik Fyrwald: macroeconomic environment, especially in the first half with difficult comparisons. But we expect the second half to be better as our innovation further kicks in and builds to 2027. And hopefully, market dynamics improve. What I would say is we cannot predict geopolitics and market dynamics at the end of the year. So any potential destocking at a reasonable level to the end of the year is built into our guidance, and we expect to achieve somewhere in the range of 1% to 4%. Of course, we are driving for as best as we can, but that is the range that we are confident we can deliver. Operator: Thank you, Laurence. Our next question will go to the line of Salvator Tiano with Bank of America. Salvator, your line is open. Jon Erik Fyrwald: Thank you very much. Laurence Alexander: You know, Fulvio Cazzol: you mentioned a lot of things about, you know, essentially Harris Fine: product inflation being offset by productivity and etcetera. And generally mitigating a lot of the headwinds that you may face, say, on the cost side, I am just wondering, though, when we look at 2025 on your incremental margin, you have 2% organic growth and 7% like-for-like EBITDA growth. This year, the guidance is calling for quite high organic growth, and the range is not—you know, the midpoint of EBITDA growth is much lower, say 5% to 6%. So based on all this, what is actually driving lower incremental margins this year versus 2025? Laurence Alexander: Sal, great question. Erik, I will take this one. Michael Deveau: Yeah. This is, again, real specific on just the incremental margins. As we think about the guidance range, take a step back. I always think that the quality of this business is that as you grow your business, you do have nice leverage within the P&L. And so when I think about falling from sales to EBITDA, it is usually around two times. So if I grow 4, I can get 8 in terms of leverage within my P&L. Obviously, the higher we grow—we start moving towards the 4, 3, 4, or 5 range over time—that is when we will see the best leverage within the P&L overall. When you are at the lower end of that, then it becomes a game of how do we actually continue to drive productivity to making sure we are supplementing some of the lack of what I would say is volume fixed cost absorption overall. And so as we think about the range for next year, the 1% to 4%, obviously, if we are at the lower end of that range, really we need to think about stepping up the productivity even more so, making sure we get that leverage to fit within the portfolio, and we do have opportunities to do that. Then as we get to the higher end of the range, then I think we have a little bit more flexibility. What is built into the guidance range, very candidly, are two things. One, it is a bit of reinvestment we are funding through productivity overall, which normally some of that productivity could help support and drive bottom line. But we are being conscious, and we are being smart about how we want to continue to reinvest in the business as we make the migration towards 2026 and then into 2027. So that is a little bit of what I would say is the offset when you think about the flow-through from the incremental margin piece. It is really the volume growth that is critical. Productivity is driving and supporting depending on if you are at the lower end of the range or at the upper end of the range. And then the third point is really around how do we take a step back and make sure the reinvestment is balanced to how our performance is overall. So those are the three levers that we are managing. Harris Fine: For 2025. Michael Deveau: And then the one thing I would just add to that is that one of the reasons for our Jon Erik Fyrwald: heavy focus on innovation is that as that innovation pipeline comes through, we do expect margin benefits from that. So that is a really important part of it as well. Michael Deveau: Thank you, Salvator. Operator: Our next question comes to the line of Lauren Rae Lieberman with Barclays. Lauren, your line is open. Lauren Rae Lieberman: Great. Thanks. Hi, everyone. Thanks so much. I wanted to talk a little bit about reformulation opportunities in particular and just what you are seeing in the marketplace in terms of customer demand specifically around reformulation to be more ingredient-profile, health and wellness concerns, etcetera. And then also, how equipped your portfolio is today to meet those demands should they be there, and then how much that is also fitting into your innovation and R&D plan. Thanks. Michael Deveau: Thanks for the question, Lauren. First of all, we are seeing continued Jon Erik Fyrwald: reformulation happening, but it has not picked up as much as some people have talked about—the importance of ultra-processed foods and some of the dynamics that you are hearing about. But as it does, or if it does, I think that is all positive upside to what we have been talking about. Because every time Josh Spector: customers reformulate, Jon Erik Fyrwald: whether it is for lower sugar, lower salt, lower fat, cleaner label, Michael Bender: whatever it is, Jon Erik Fyrwald: that is the opportunity for International Flavors & Fragrances Inc. So we welcome that and hope to see it increase from here. But as of now, it is out there. It is happening. We are working with customers to create healthier products, great-tasting products, more sustainable products. I think you will see some really sustainable products coming out with some of the CPG companies we have been working with—outside of food, but also in food. So I think there is still a dynamic everywhere of wanting more innovation to bring consumers what they want, whether it is great-tasting food or laundry products that clean the clothes really well with room temperature water and less water and less plastic and many of the dynamics that you hear about out there Michael Bender: that Michael Deveau: consumers Jon Erik Fyrwald: desire, and CPG companies are trying to drive innovation to meet those desires to profitably grow their business. We are there to help. Harris Fine: Thank you, Lauren. Operator: Our next question will go to the line of Michael Sison with Wells Fargo. Michael Deveau: Mike, your line is open. Josh Spector: Hey. Good morning, guys. I guess with the sale of Food Ingredients pending, how do you pivot the company to more of a growth mode? Historically, International Flavors & Fragrances Inc. has slightly underperformed to F&F peers, but if you think about the portfolio going forward, Health and Biosciences and Scent and Taste, how do you get that growth rate to match the peer group or maybe even outperform the peer group? Jon Erik Fyrwald: Thanks for the question, Mike. Harris Fine: Very excited about the future of International Flavors & Fragrances Inc. Jon Erik Fyrwald: I think as we finalize our portfolio optimization and focus all of our efforts on Scent, Taste, and Health and Biosciences—very R&D heavy, very Harris Fine: innovation Michael Deveau: heavy. Michael Bender: Really attractive businesses. Jon Erik Fyrwald: That have a major impact on consumer goods whether it is food or others—home and personal care, etcetera—and represent a small part of the cost but a big part of the superiority. And so as we focus all of our energy on that and have finished the work on portfolio optimization, I think we will go from strong to stronger. Michael Deveau: And I am absolutely convinced that Jon Erik Fyrwald: we have got the right team in place, that they are strengthening our capabilities. You can see it in our performance. We are doing what we say we are doing. We see the commercial pipelines increasing. We see the innovation pipelines increasing. We see the quality of the projects with our customers improving. And that is why we are very confident in the future. And also, the other element here that is really exciting is we have got a very healthy Health and Biosciences business with really strong capabilities in biotechnology. That is important for all the segments that we play in Health and Biosciences. It is also starting to impact beneficially technology in our Scent business and our Taste business. So I will just give you a couple of quick examples. In 2025, we launched EnviroCAPS. It is a biodegradable encapsulation technology for our Scent business. It is commercial now. Several very big customers have been using it and say that it is working extremely well, and they are very pleased with it, and that is growing. We have other Scent technologies that are using biotechnology that are now in the pipeline and are coming. We have a number of Taste products that we have developed with our biotechnology capabilities. And more in the pipeline. I will give you one example of one that is commercialized now. It is called Super Carrot, where you take the residue of carrot production and you ferment it with our enzymes, and you create an umami flavor that is healthy and replaces umami flavorings with something that food companies and consumers really like. And so we will see more of that. So I just fundamentally believe as we get to be a focused, high-value, R&D, innovation-driven company with a stable portfolio that we are investing in, you will see us accelerate our growth. Operator: Thank you, Mike. Our next question will go to the line of Jeffrey John Zekauskas with JPMorgan. Jeff, your line is open. Jon Erik Fyrwald: Thanks very much. Your Food Ingredients Michael Bender: EBITDA and operating income Jon Erik Fyrwald: dropped off pretty sharply in the fourth quarter. And I think you said that the price trends are negative. So Michael Bender: given a slow volume growth environment, is it the case that operating income and EBITDA for that business next year is Jon Erik Fyrwald: higher or lower? And can you speak generally to the tax basis of that asset? Michael Deveau: So I will start, and then Michael can add Jon Erik Fyrwald: the tax basis. The fourth quarter was not a great quarter for our Food Ingredients business. They did not deliver what they expected to deliver. There are a number of reasons for that. All I can say is the first quarter looks like it is off to a solid start. Andy and his team, Andy Muller and his team, are highly confident that they can get back to top-line growth—although it will be low single digit, it will be top-line growth—and continue significant earnings growth. They have got the projects to do that. There is a lot of excitement with some launches that they have made recently and some exciting areas. So what I would say there is that the fourth quarter was not what we expected, was not what they expected. But the full year was still very solid with, although it was negative revenue growth, double-digit EBITDA growth. And we expect to get back to positive revenue growth and continued strong EBITDA growth in 2026. Operator: Thank you, Jeff. Our last question will go to the line of Chris Parkin—oh, go ahead. Laurence Alexander: Sorry, Megan. Michael Deveau: Just, I think, Jeff, you had a question on the tax base if we had a potential deal for Food Ingredients. And we are still, obviously, working through that process. So we have got to kind of see where we are landing, where we are heading from that perspective. Fortunately, we are in a good position with respect to tax attributes that could be leveraged to minimize some of the tax leakage that we have now. And so the team is fully focused on making sure the net cash number maximizes its value for shareholders. And so that is what the team is focused on overall. But more to come as we progress from here. Operator: Thank you. Our last question will go to the line of Christopher S. Parkinson with Wolfe Research. Chris, your line is open. Michael Bender: Great. Thank you so much. Just circling back as a corollary to a couple Josh Spector: questions on the H&B segment. You clearly had solid results across volumes in the Biosciences segment as well as a better margin. When we take a step back and look at some of the Health and probiotics, I think you are alluding to it before. Last year, we were talking a lot about, obviously, market share, investments in the business that were necessary overall for the intermediate to long term. Is it safe to say that you are still investing in that business? And then you already mentioned the half-on-half trends, which I appreciate. But can you just talk about how much we should think about spending in that business in the context of the productivity gains you are gaining? And then also, if you still believe you are going to gain share in the second half of 2026, 2027, 2028. So any updates there in terms of moving parts would be particularly helpful. Thank you. Jon Erik Fyrwald: Sure. Thanks for the question, Chris. First of all, overall, Health and Biosciences business is doing very well. Leticia Goncalves has been in the job almost a year now, and she and the team have a great team with a great strategy and are executing it well. Health is the only area that has not delivered strong growth in 2025. Interestingly, outside of North America, growth was solid. It was inside North America where the challenges were. There are a number of reasons for it. But what I can tell you is Leticia has brought in new leadership. The team is strong. We believe in the business. We have got great capability. We have got a very attractive pipeline coming that I believe, with the capability that we now have, will start to deliver growth again in 2027. But I firmly believe in this business. I just think it is a really important thing for the world, and we have got the capability to succeed. We took our eye off the ball for a while in North America. We have got our eye back on the ball, and you will see the results come. Like everywhere where we have seen challenges, we get the right leadership in place, the right teamwork, the right support, and we get it on the right track, and that is going to happen in Health as well. Michael Deveau: Thank you, Chris. Operator: That will conclude our question and answer session. I will now turn it back over to you, Erik, for closing remarks. Jon Erik Fyrwald: Well, thank you all for joining today's call. We are working hard to unleash the great potential of this company. As we have talked a lot about, we have done a lot of portfolio optimization following the Frutarom and the DuPont Nutrition and Biosciences deal. We are getting closer to exactly where we want to be. I think we will make really good progress on that in 2026. And then we will still deliver strong results in 2026, I believe, firmly. But we will be very, very well set up for 2027 and beyond as we move through this finalization of the portfolio optimization and really drive the innovation aggressively across Scent, Taste, and Health and Biosciences. We have got a terrific team. We have got a clear direction, and we are going to make it happen. Thank you. Operator: That concludes today's call. Thank you for your participation, and enjoy the rest of your day.
Operator: Greetings, and welcome to the Piedmont Office Realty Trust, Inc. Fourth Quarter 2025 Earnings Conference Call. At this time, all participants are on a listen-only mode, and a question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please note this conference is being recorded. I will now turn the conference over to your host, Ms. Laura Moon, Chief Accounting Officer for Piedmont Office Realty Trust, Inc. The floor is yours. Laura Moon: Thank you, Operator, and good morning, everyone. We appreciate you joining us today for Piedmont Office Realty Trust, Inc.'s fourth quarter 2025 earnings conference call. Last night, we filed an 8-K that includes our earnings release and unaudited supplemental information for the fourth quarter 2025 that is available for your review on our website at piedmontreit.com under the Investor Relations section. During this call, you will hear from senior officers at Piedmont Office Realty Trust, Inc. Their prepared remarks followed by answers to your questions will contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements address matters which are subject to risks and uncertainties, and therefore, actual results may differ from those we anticipate and discuss today. The risks and uncertainties of these forward-looking statements are discussed in our supplemental information as well as our SEC filings. We encourage everyone to review the more detailed discussion related to risks associated with forward-looking statements in our SEC filings. Examples of forward-looking statements include those related to Piedmont Office Realty Trust, Inc.'s future revenues and operating income, dividends and financial guidance, future financing, leasing and investment activity, and the impacts of this activity on the company's financial and operational results. You should not place any undue reliance on any of these forward-looking statements, and these statements are based upon the information and estimates we have reviewed as of the date the statements are made. Also on today's call, representatives of the company may refer to certain non-GAAP financial measures such as FFO, Core FFO, AFFO, and same-store NOI. The definitions and reconciliations of these non-GAAP measures are contained in the supplemental financial information which was filed last night. At this time, our President and Chief Executive Officer, Christopher Brent Smith, will provide some opening comments regarding fourth quarter and annual 2025 operating results. Brent? Christopher Brent Smith: Thanks, Laura. Good morning. Brent Smith: And thank you for joining us today as we review our fourth quarter and annual 2025 results. In addition to Laura, on the line with me this morning are George M. Wells and Alex Valende, our Chief Operating Officers, Christopher A. Kollme, our EVP of Investments and Sherry L. Rexroad, our Chief Financial Officer. We also have the usual full complement of our management team available to answer your questions. Before I jump into the quarter, I just wanted to take a minute to reflect on 2025 and Piedmont Office Realty Trust, Inc.'s leasing accomplishments this past year. Momentum in the national office market clearly shifted in the latter part of 2025 to the point where several independent research reports state we have seen peak vacancy for this cycle. Rising office mandates and attendance have brought large space consumers back into expansion mode with a hyper focus on best-in-class assets. The number of Fortune 100 companies that require a five-day work week in the office has soared to about 55% compared with 5% reported two years ago, according to the latest JLL survey. Piedmont Office Realty Trust, Inc. has experienced this large user phenomenon as well, having completed 28 full-floor larger transactions in 2025, compared to an average of nine for the previous four years. Demand also appears to be spreading geographically. According to Cushman & Wakefield, absorption was positive for the year in 50 markets. That is up from 33 markets in 2024 and the highest number of markets with positive absorption for a full year since 2019. On the supply side, sublet availability has declined from its peak in early 2024 and just 4,000,000 square feet of new office space was delivered in the fourth quarter, the lowest since 2012. In fact, CBRE noted that 2025 was the first year that inventory removals, that being demolitions or conversion, outpaced new completions since they began tracking the market in 1988. So there is virtually no construction underway in our markets. Demand continues to be robust, and true trophy assets have little space available. This reduction in supply is beginning to rebalance markets. CBRE noted that even though 2025 net absorption was still meaningfully below the 30-year average, the steep drop-off in new supply more than compensated to drive the first year-over-year decline in vacancy in over five years. These tailwinds translated into a record amount of total leasing volume for Piedmont Office Realty Trust, Inc. in 2025. We leased 2,500,000 square feet or approximately 16% of the portfolio, the most leasing we have completed in over a decade, and 1,000,000 square feet ahead of our original 2025 leasing guidance. In fact, over the last five years, we have leased approximately 75% of the portfolio or about 11,600,000 square feet. An incredible accomplishment by the team and a testament to the fact that our Piedmont place-making strategy is working. Furthermore, over those five years, the portfolio has generated positive cash same-store NOI growth each and every year. That is an incredible operational achievement given the challenging office sector. And in 2026, this metric will accelerate as our historic leasing success translates into meaningful same-store NOI growth, driven by a material increase in commenced occupancy, which Sherry will cover in a moment. Our portfolio of recently renovated, well-located amenity-rich properties combined with our hospitality-infused service model, has also allowed us to materially increase rental rates across our portfolio. And with asking rents still ranging from 25% to 40% below rates required for new construction, Piedmont Office Realty Trust, Inc. is well positioned for sustainable earnings growth in 2026 and beyond. Turning to fourth quarter results, we completed approximately 679,000 square feet of leases, almost 70% of which related to new tenants, and contributing to a year-end lease percentage of 89.6%, an increase of 120 basis points over the course of 2025. Additionally, our out-of-service portfolio comprised of two projects in Minneapolis and one in Orlando was 62% leased as of the end of the year. A phenomenal accomplishment by the team as these projects were essentially vacant at year-end 2024. The majority of leases for these projects will commence during 2026, contributing meaningfully to FFO, and we anticipate that they will reach stabilization and rejoin the normal operating portfolio by the end of 2026 or very early 2027. Rates also continued their upward trajectory during the fourth quarter, with rental rates on leases executed during the quarter for space that has been vacant less than a year, increasing approximately 12% and 21% on a cash and accrual basis, respectively. Our backlog of uncommenced leases remains strong, with almost 2,000,000 square feet of leases representing $68,000,000 of future annualized cash rents. Substantially all of those leases will commence by the end of 2026. As George will touch on, leasing momentum remains strong, including over 200,000 square feet of leases already signed in 2026, and a robust pipeline with over 600,000 square feet currently in the legal stage. Sherry will introduce our 2026 guidance in a moment, but big picture, it is clear that the occupancy trough of Piedmont Office Realty Trust, Inc.'s portfolio occurred in 2025, and we believe the broader macro factors that I discussed along with our successful portfolio repositioning and elevated service model will drive mid-single-digit organic FFO growth in 2026 and 2027. Last point before I turn it over to George is we announced last week Alex Valente has been promoted to Co-Chief Operating Officer and will be working alongside George to lead new operations initiatives across the firm as well as oversee almost all of our Eastern portfolio. I believe most of you have met Alex at some point during his 20-year career with Piedmont Office Realty Trust, Inc., and I share my enthusiasm and congratulations for his new role. With that, I will now hand the call over to George, who will go into more details on the leasing pipeline and fourth quarter operational results. Thanks, Brent. Durable demand for Piedmont Office Realty Trust, Inc.'s modern highly amenitized workplace environments generated exceptional operating results for the fourth quarter. Leasing velocity continued at a vigorous pace with 60 transactions completed for nearly 700,000 square feet and very close to record levels which we have experienced over the past two quarters. New deal activity was the dominant theme again, accounting for 69% of total volume with 54% of that activity filling current vacancy. As Brent mentioned, large users are driving new deal activity to record-breaking levels with 10 full-floor or larger transactions executed this quarter and another six either executed or in the late stage. Nearly 90% of new leases signed will begin recognizing GAAP rent in 2026. It is also gratifying to see food and beverage operators appreciate the vibrancy and foot traffic around our well-located assets and within our hospitality-inspired common areas which this quarter attracted two more F&B deals further strengthening and differentiating our offerings. Our weighted average lease term for new deal activity was approximately nine years, and consistent with previous quarters. Longer lease terms are essential for justifying the capital investment in upgrading to today’s office suite environment. As we have experienced now for six straight quarters, expansions exceeded contractions largely to accommodate customers' organic growth. Our retention rate remained high at 63%, a positive testament to Piedmont Office Realty Trust, Inc.'s brand. Impressively, our team retained four large subtenants on a direct basis for nearly 100,000 square feet with strong NERs and a significant increase in sublet-to-direct rents of approximately 35%. Once again, Atlanta and Dallas were the driving forces behind strong lease economics as the portfolio as a whole posted a 12% and 21% roll-up or increase in rents for the quarter on a cash and accrual basis, respectively. Notably, our average accrual-based roll-up over the past eight quarters is an impressive 17%. Our overall weighted average starting cash rent of $42 per square foot was essentially unchanged from the previous quarter. We do anticipate more rental growth as our portfolio crosses into the low 90s lease percentage. Leasing capital spend was $6.12 per square foot, down $0.46 per square foot from our trailing twelve months. Net effective rents came in at around $21 a foot, in line with the previous quarter. Atlanta was our most productive market by far during the fourth quarter, closing on 23 deals for 336,000 square feet or half of the company's overall volume with new leasing transactions accounting for over half of that amount. At Galleria on the Park, our local team landed a corporate headquarter relocation requirement for 48,000 square feet and ten years of term. A new run-rate high was achieved on this transaction and along with limited vacancy at this project, served as a catalyst to push asking rents to $48 per square foot up from $40 per square foot twelve months ago. Also noteworthy was backfilling another floor, the Eversheds lease at 999 Peachtree that expires in 2026. I would like to point out that over the course of the past year, 999 has captured nine new deals for 130,000 square feet, consistently achieving some of the highest economics in our portfolio and is now 93% leased. We remain highly optimistic in addressing the last few Eversheds floors given the level of interest we are seeing. Orlando also stood out this quarter, capturing 10 deals for 125,000 square feet or 18% of company volume. Three more floors were leased at our 222 Orange redevelopment, boosting lease percentage up from 46% to 77%. Asking rates are now at $40.20 per square foot versus $37 per square foot from twelve months ago. One of those deals completed there was a headquarters relocation from the Midwest and the other, a regional office for a global construction company that moved from the suburbs. Both clients highlighted our vibrant environment as the key differentiating factor in their final decisions. Piedmont Office Realty Trust, Inc.'s other redevelopment projects both located in Minneapolis are also attracting a number of additional new clients. Our out-of-service portfolio, which is 62% leased at year end, is nearly 80% leased inclusive of legal-stage transactions with a substantial majority commencing by year end. I would also like to touch on our two largest 2026 expirations. In Dallas, we are making good progress on retaining the Epsilon and attracting new clients for almost half of that expiration. Epsilon currently leases the entirety of one in our three-building Las Colinas Connection project, which is currently 99% leased. The project is very visible and accessible at the crossroads of two major highways, much like the excellent locational qualities of our Galleria Towers. Although we do not intend to take this asset out of service in order to convert it to a multitenant environment, we intend to apply the same proven Piedmont Office Realty Trust, Inc. renovation strategy that has worked so well in our other markets. Once construction begins, we typically see a spike in interest and demand. With virtually no large, high-quality blocks of competitive space available, we are excited about our near-term leasing prospects and achieving new rental highs in that submarket. At 60 Broad, we are excited to announce that we have recently affirmed deal terms with the new administration for the City of New York lease. A deal of this size will require other internal city reviews and a public hearing process before the transaction can be fully executed, but we are encouraged by this important split and expect we will have an executed lease by later this year. The Piedmont Office Realty Trust, Inc. formula of attracting and retaining clients worked extremely well in 2025, and we are confident of continued success in 2026. Our leasing pipeline remains robust even after three straight quarters of record new leasing activity and is now nearly 600,000 square feet in the legal stage including six single-floor or larger new deals. That said, with very few large blocks of space available, outstanding proposals have declined moderately in total at a combined 1,800,000 square feet for operating and redevelopment portfolios. Though demand is strong, the course of 2026 quarterly net space is dependent on the amount and timing of scheduled expirations. Our supplemental report shows approximately 9% of the portfolio rolling in 2026. The vast majority of the roll relates to the Eversheds, Epsilon, and New York City leases that I just reviewed, with the second quarter the most impacted. Aside from these three leases, there are negligible expirations remaining for 2026. That said, we are still projecting positive net absorption overall, ending the year around 90% for our total portfolio, including both our in-service and our currently out-of-service redevelopment portfolio. I will now turn the call over to Christopher A. Kollme for his comments on investment activity. Laura Moon: Chris? Christopher Brent Smith: Thank you, George. 2025 was a pretty quiet year for Christopher A. Kollme: Piedmont Office Realty Trust, Inc. on the transactions front. The team did close on a small disposition outside of Boston, removing an older, slow-growth, and capital-intensive asset from the portfolio. We will continue to seek ways to optimize and elevate our holdings throughout 2026. As I have mentioned, we have two land parcels under contract and both are going through very time-consuming rezoning processes, so the timing is somewhat at the mercy of the city and county officials. We are expecting to close one in the middle part of this year and the other at the end of 2026 or possibly in the first quarter 2027. If both were to close, they would generate a little over $30,000,000 in gross proceeds and will ultimately provide additional retail amenities for our adjacent office projects. We continue to actively evaluate and underwrite potential acquisition opportunities. We are optimistic that we will return to a more active capital recycling program in 2026. With that, I will pass it over to Sherry to cover our financial results. Laura Moon: Thank you, Chris. While we will be discussing some of this quarter's financial highlights today, Sherry L. Rexroad: please review the earnings release and accompanying supplemental financial information which were filed yesterday for more complete details. Core FFO per diluted share for 2025 was $0.35 versus $0.37 per diluted share for 2024, with the decrease attributable to the sale of two projects during the year ended 12/31/2025 and higher net interest expense as a result of refinancing activity during that same period. These decreases were partially offset by growth in operations due to higher economic occupancy and rental rate growth. AFFO generated during 2025 was approximately $18,700,000. Turning to the balance sheet, we completed some very important refinancing activity during the fourth quarter. We issued $400,000,000 in aggregate principal amount of new bonds and used the net proceeds to repurchase approximately $245,000,000 in principal amount of our 9.25% 2028 bonds. The remaining proceeds from the new issuance were used to pay down the outstanding balance on our revolver. Refinancing activity, combined with the open market purchases of some of our higher coupon bonds that we completed earlier in the year, will save us approximately $0.04 a year on an annual basis. As a result of this activity, we had approximately $550,000,000 of capacity on the revolver as of year end. And as we have highlighted previously, we currently have no final debt maturities until 2028. We continue to think creatively as we evaluate balance sheet management options to extend and smooth our maturity ladder and continue reducing our interest costs. Based on the current forward yield curve, we expect all of our unsecured debt maturing for the remainder of this decade could be refinanced at lower interest rates and thus be a tailwind to FFO per share growth. At this time, I would like to introduce our 2026 annual Core FFO guidance in the range of $1.47 to $1.53 per diluted share, an increase of $0.08 per share at the midpoint over 2025 results. To summarize, the guidance reflects an increase in property NOI in the range of $0.08 to $0.13 a share, decreased interest expense of $0.01 to $0.02 a share. Note that the $0.04 of interest savings due to the bond refinancing that I previously mentioned is partially offset by the reduction in capitalized interest as our out-of-service portfolio comes online. In addition, the guidance includes a $0.01 decrease in NOI due to 2025 dispositions, and slightly higher G&A and share count. We expect another strong year of leasing activity in the 1,700,000 to 2,000,000 square foot range, including, as Brent mentioned, stabilization of our out-of-service portfolio by year end and resulting in a year-end lease percentage of approximately 89.5% to 90.5% for the entire portfolio, and mid-single-digit same-store NOI growth on both the cash and accrual basis. It is worth noting that our projected commenced/occupied percentage will increase approximately 400 basis points from 81% at year end 2025 to 85% at year end 2026, fueling our earnings growth. Please note that this guidance does not include any acquisitions, dispositions, or refinancing activity. We will adjust guidance if and when those types of transactions occur. We have included an annual FFO roll-forward and outlined our assumptions in the earnings release section of the supplemental to assist with your modeling and analysis. And with that, I will turn the call over to Brent for closing comments. Brent Smith: Thank you, George, Chris, and Sherry. I am proud of the many accomplishments by the Piedmont Office Realty Trust, Inc. team during 2025, and I am excited to see the hard work of so many start to contribute to FFO growth in 2026. With quality space becoming harder to find and the cost of new development at all-time highs, we believe that our portfolio of recently renovated, well-located, hospitality-inspired Piedmont places provides a desirable cost-efficient alternative to new construction and will continue to drive leasing volume and rental rate increases in 2026. With that, I will now ask the Operator to provide our listeners with instructions on how they can submit their questions. Operator? Operator: Thank you. Ladies and gentlemen, at this time, we will be conducting our question-and-answer session. To ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue, and you may press 2 if you wish to remove your question from the queue. It may be necessary to pick up your handset before pressing the star key. One moment, please, while we poll for questions. Laura Moon: Thank you. Operator: Our first question is coming from Nicholas Patrick Thillman with Baird. Your line is live. Brent Smith: Hey. Good morning, and congratulations, Alex. Maybe just digging a little bit more on just leasing overall Nicholas Patrick Thillman: on the 1,700,000 to 2,000,000 square feet that is in there. I guess what is embedded in that on renewal, new leasing, obviously, the chunkier deals in there, it seems like from a retention standpoint, you are somewhere in between 25%–80% retention. So maybe thoughts on retention and then overall what is embedded there on the new lease assumption as well? Brent Smith: Good morning, Nick. George here. Thank you for joining us. I mean, the quick answer is it is roughly 50-50 between new activity and renewal activity. I think in regard—sorry. This is Brent. Good morning, Nick. In regards to retention, as we have noted before, we are going to be retaining New York City for substantially all the space. Eversheds is a vacate. And Epsilon will renew, and we have some additional tenancy to roughly mean we will get about half the space back. Think about our overall expiries for 2026, it is about 9.5% of the portfolio. And those three make up, call it, almost 6% of that. So really what we are left with is, quote unquote, unknowns. We feel very good about renewal probabilities. I would say, you know, we have been trending to, over the last year, call it, 60%–65% of retention would be expected for that remaining portion of the portfolio. To give you some perspective around that? Nicholas Patrick Thillman: That is very helpful. And then I guess if I look—good momentum overall on the leasing front. Is there somewhat of a cap you guys can do from a lease percentage? I look at some of where the vacancies—so it seems that there is a little bit more structural vacancy. I look at, like, your DC portfolio, for example, is around 25% of your vacancy in your operating portfolio. How should we think about how a lease percentage can move given there is still some select pockets that they could see and then some of your weaker markets overall? Brent Smith: Nick, yeah. That is a great question and something that we get asked frequently. We have created really unique environments that we believe we can continue to lease up what will be historically challenging space, lower in the building, maybe a few above the parking garage, etcetera. But in our, for instance, our Galleria project, the environment is so unique that we continue to feel that we are going to be able to lease those projects up beyond 95% leased, well into the high 90s. But you do point out that we do have some challenging vacant deals for the portfolio. We have a building in Boston that has been a little bit slower for absorption at 25 Mall. And DC continues to be a challenge in the district. But we are seeing more green shoots in Northern Virginia, with good activity there that we think will be an absorption opportunity. And then, of course, our out-of-service portfolio, as we have alluded to, continues to be very well received in the marketplace and will continue to drive absorption there. So if we take that aggregate perspective, we are guiding 89.5% to 90.5% leased this year. George and I see no reason why we cannot take the entire portfolio upwards of 91%, 92% leased, which is where we were prior to the pandemic. And frankly, I am of the belief that if we continue to see the momentum, we could even drive beyond that 92% level in the years ahead. It will take us some time to get there. Brent Smith: But our product is uniquely positioned, been amenitized, well located, and its price point is very compelling. And that continues to drive both large and small users to our project. Nicholas Patrick Thillman: Well, I appreciate the commentary, Brent. And then maybe just the final one for Chris on just overall transaction activity. What you guys are targeting for disposition of what type of product you would like exit in 2026 and maybe how the bidder pool on select assets has changed over the last couple of months. Brent Smith: Nick, yeah, this is Brent. Chris is a little bit under the weather, so I am going to pinch hit here on this one. As you know, we do have and have had land parcels in the market that are under contract. Those are continuing to progress well. Other than—on the disposition bucket, we did note we had a building in DC that we took and brought into the market. I would say receptivity was not strong, just because I think the challenges of that overall market as a whole. So we are going to continue to hold on to that for the near term. We do consider our Houston assets noncore, and we will continue to look to monetize those, as well as if we conclude the New York City lease—60 Broad—that would be a candidate to monetize a part of that asset here towards the back half of the year as well. Again, our guidance does not contemplate any of those potential dispositions, land sales or otherwise, and we will update accordingly. But we do see that opportunity to rotate some capital in the second half of the year. Nicholas Patrick Thillman: Very helpful. That is it for me. Thank you all. Operator: Thank you. Our next question is coming from Dylan Robert Burzinski with Green Street. Your line is live. Hi, guys. Thanks for taking the question. Maybe just touching on the demand environment. Obviously, it is very robust across your portfolio. Can you kind of talk about some of the things driving that activity? Just thinking about the job market, things still seem to be a little bit shaky. So just sort of curious what you think is causing this very robust demand environment across your portfolio? Christopher A. Kollme: Today? Brent Smith: Good morning, Dylan. George here. Look. I think some of the characteristics that we have seen for the past—I would say—two years is certainly intensifying for us in our portfolio. The decision for a lot of these users to come back and upgrade their overall office experience, that seems to be the one that is driving our large deal flow. Also, the conviction around the workplace strategy. Right? I think we have heard it earlier that the number of Fortune 500 companies that are coming back with higher mandates or actually supporting those mandates is causing additional organic growth in our respective submarket. I would say that, you know, when you look at our existing portfolio, the portfolio is quite dynamic. You have a lot of users that continue to expand from a business plan perspective. As I mentioned earlier in this conversation, we had 11 expansions per three contractions, and we are seeing it from a financial services perspective as well as insurance, accountants, and law firms just across the board. I would add, too, to that, I think as we have talked about, our portfolio is uniquely positioned in that it has been renovated, amenitized, and is in a very effective price point for a lot of businesses. So I feel like our addressable market is much wider than those that are just looking for trophy-quality space. And that trophy-quality space is very full, almost no vacancy. As we alluded to in our prepared remarks, no development—really, we will not see any new assets until the end of the decade. So we are right in the sweet spot of a lot of demand from both small and big users from across industries. And again, our buildings are also not designed heavily for tech. We have never relied on tech as an incremental lessor to provide a portion of our portfolio, and right now, given the softness in tech expansion and growth, we are not inhibited by that. And we continue to see all those industries mature to grow and need quality office space, and that is going to help us push rental rates again this year meaningfully across the portfolio, but particularly in our Sunbelt markets. Operator: I guess that is a good segue to my next question. I mean, how much do you think Christopher A. Kollme: rents can grow across the Summit portfolio over the next, call it, one, two years? Are we talking Nicholas Patrick Thillman: you know, upwards of Christopher A. Kollme: essentially 20% rent growth on a cumulative basis? Just sort of curious how we should be thinking about that, given that backdrop you just described. Brent Smith: Yeah. No. And I think, you know, I would highlight a couple of points around our growth. One, as we alluded to, we have still a lot of lease-up and commencement activity in our portfolio to drive earnings growth. We have also got a pretty incredible mark-to-market. Yes, we have continued to push rental rates, in some cases, 20% in 2025 alone. But all of those leases we did in 2023 and 2024, which was approaching almost 4,500,000 square feet, are at rates that are now 20%–25% below current signed rents in our projects, so we think there is a meaningful mark-to-market in that Sunbelt, particularly at 20% to 40%. And then just where we see rents going today with new construction costs—rents at $70–$80 gross in many of our markets now—and in-place rents in our projects anywhere from $45 to $60 gross, we think there is still a meaningful 25% movement in our own rental rates here over the next year, given it is very tight at the trophy level and new development continues to increase in cost. So we think those three legs really do provide us a unique path for growth between now and the end of the decade, from just lease-up, organic mark-to-market, and then pushing our own rental rates. Operator: That is helpful. Ditto. Thanks so much, Brent. Laura Moon: Thank you. Operator: As we have no further questions in the queue at this time, I would like to turn the call back over to Mr. Christopher Brent Smith for any closing remarks. Nicholas Patrick Thillman: I want to thank Brent Smith: everyone who joined us today on the call. But I also particularly want to thank my fellow Piedmont Office Realty Trust, Inc. employees for an outstanding 2025 execution and really over the last five years to reposition, rebrand, and reinvent Piedmont Office Realty Trust, Inc. into the machine, the road machine that it is today. It sets us up for 2026 and beyond. For those investors who would like to meet with us and talk with management, we will be at the Citigroup Conference in Hollywood, Florida, March 2 through 4. And I want to wish everyone a Happy Valentine’s Day. Actually, Valentine’s Day is the week we have the most engagement on portfolio. We will show our clients the love, if you will. I hope everyone has an enjoyable week ahead. Thank you, and have a good day. Operator: Thank you, ladies and gentlemen. This does conclude today's conference. You may disconnect your lines at this time, and we thank you for your participation.
Operator: Good morning, and welcome to the Fourth Quarter and Fiscal Year 2025 Pilgrim's Pride Corporation Earnings Conference Call and Webcast. All participants will be in listen-only mode. Please note that the slides referenced during today's call are available for download from the Investors section of the company's website at www.pilgrims.com. After today's presentation, there will be an opportunity to ask questions. I would now like to turn the conference call over to Andrew Rojeski, Head of Strategy, Investor Relations and Sustainability for Pilgrim's Pride Corporation. Good morning and thank you for joining us today as we review our operating financial results for the fourth quarter and fiscal year ended 12/28/2025. Yesterday afternoon, we issued a press release providing an overview of our financial performance for the quarter and the year including a reconciliation of any non-GAAP measures we may discuss. A copy of the release is available on our website at ir.pilgrims.com along with slides for reference. These items have also been filed as Form 8-Ks and are available online at sec.gov. Fabio Sandri, President and Chief Executive Officer, and Matthew R. Galvanoni, Chief Financial Officer, present on today's call. Before we begin our prepared remarks, I would like to remind everyone of our Safe Harbor disclaimer. Today's call may contain certain forward-looking statements that represent our outlook and current expectations as of the day of this release. Other additional factors not anticipated by management may cause actual results to differ materially from those projected in these forward-looking statements. Further information concerning these factors has been provided in yesterday's press release, our Form 10-Ks and our regular filings with the SEC. I would now like to turn the call over to Fabio Sandri. Thank you, Andrew. Good morning, everyone, and thank you for joining us today. Fabio Sandri: So for the fiscal year 2025, we established new financial milestones, as net revenues reached $18,500,000,000 and adjusted EBITDA rose to $2,300,000,000. Our adjusted EBITDA margin was 12.3%. In the U.S., consistent execution of our strategies, along with strong chicken demand, bolstered our demand. Demand from our key customers grew significantly over the category average for the year. Our brand building accelerated as the combined retail sales of Just BARE across fresh and prepared reached $1,000,000,000, further diversifying our portfolio and resonating with consumers. Operational excellence efforts improved efficiencies in processing and live operations in Big Bird, mitigating commodity cutout volatility throughout the year. Given these efforts, the U.S. grew both in top line and bottom line. Europe completed several projects to enhance the efficiency of its manufacturing footprint, consolidated back-office support and optimized mix and innovation. Key customer partnerships strengthened as sales and volume both increased compared to last year. Our portfolio of key brands continued to grow, further diversifying our portfolio. Based on these efforts, margins and overall adjusted EBITDA continued to improve. Mexico grew sales through increased sales volumes of branded offerings across fresh and prepared, and growth with key customers despite commodity pricing volatility. Equally important, we initiated a series of investments in both fresh and prepared to drive profitable growth while reducing the volatility of our business. For 2025, we reported net revenues of BRL4.5 billion. We have adjusted EBITDA of BRL450 million and our adjusted EBITDA margin was 9.2%. Our Q4 results reflect the robust nature of our strategies to drive strong margins during changing market conditions. In the U.S., Fresh increased market share through continued focus on quality, service and innovation. Our fresh business improved efficiencies both in plant and live operations. Prepared foods continued to drive category-leading growth across retail and foodservice, further diversifying our portfolio. Investments to grow our presence in key customers, increase capacity value-added and enhance operational efficiency continue to progress as planned. In Europe, we increased overall adjusted EBITDA compared to the same quarter prior year. Our fresh operations drove the majority of the gains through improved productivity and enhanced mix. Key customer demand was stable, while our portfolio of key brands continued to grow. Mexico faced difficult circumstances given increased imports of animal-based proteins and unbalanced fundamentals in the live market. Our diversified efforts continue to gain traction as branded fresh and prepared offerings both rose compared to last year. Turning to supply, the USDA indicated that ready-to-cook production for the U.S. rose 2.1% year over year in 2025, driven by increased headcount, improved live performance and higher average live weights. Eggs were higher than 2024, giving a more productive layer flock and record hatchery utilization. Hatchability improved sequentially in Q4, with seasonality and a younger flock, but is still below the five-year average. Chick placements were higher throughout the entire quarter compared to last year. After peaking in Q3, live weights declined and ended the fourth quarter consistent with prior year levels. Looking forward, USDA reports a 1.9% year over year decline in the layer flock in January 2026, alongside the 3.1% drop in pullet placements compared to 2024. Given these factors, along with other considerations, the most recent USDA estimates suggest moderate production growth of 1% in 2026 compared to last year. As for overall protein availability, USDA projects growth of 1.5% in 2026, with challenges in the beef production partially compensated by higher beef imports. From a demand standpoint, consumer sentiment remains low given continued economic uncertainty. Inflation for food at home and away from home continues to impact consumers' available income. Nonetheless, chicken's affordability was exceptionally appealing across channels and categories. In retail, consumers continue to stretch their budgets through more frequent trips with smaller basket sizes. Within the channel, the meat department continues to lead performance as it remains a key priority for consumers. Chicken experienced volume growth across all cuts versus prior quarter. Boneless skinless breast prices decreased 1% compared to last quarter, while prices of other proteins rose, especially ground beef that is setting new all-time highs. As a matter of fact, when compared to two years ago, prices of boneless at retail were reduced by 1.7% while prices of ground beef have increased 22%. As a result, record pricing spreads emerged further strengthening demand for chicken. Similar to boneless breast, dark meat from boneless thighs also continued to experience significant growth. Deli increased slightly versus last year as velocity more than offset changes in mix distribution and pricing. Consumers also look for convenience, and in the frozen chicken category, we saw significant growth with continued strength in velocity. In foodservice, rising costs associated with dining out continued to pressure overall restaurant traffic, particularly in the full-service formats. However, growth in QSRs and non-commercial channels compensated for these declines, supported by operators' continued strategic focus on chicken through value offerings, limited time promotions and menu innovation. Chicken-centric QSRs are leveraging the protein's affordability to drive traffic and engagement, outperforming the broader dining sector. Within foodservice, boneless dark meat volumes are growing at double-digit rates across all segments. Wings are gaining momentum and tenders continue to deliver steady consistent growth. In exports, industry volumes accelerated during Q4. Within Pilgrim's demand was primarily driven from Southeast Asia and Mexico. Pricing remained high relative to historical levels and continues to be elevated in 2026. While trade disruptions have impacted certain markets given the HPAI outbreak, the overall effect has been relatively muted on both pricing and volumes as most U.S. trading partners quickly limit restrictions to either the county or specific zones. As a result, trade simply shifts from other locations outside the impacted area during the restriction period. Moving forward, we expect exports to remain strong and well diversified across markets. Turning to feed inputs, corn moved marginally higher in Q4 compared to previous quarter. However, prices moderated in January as the U.S. corn realized new records in harvest area, yield and total supply. While record demand currently exists, corn ending stocks are still expected to increase to 2,200,000,000, creating the highest stock-to-use ratio since 2019. Soybeans and soybean meal rallied in Q4 given the resumption of U.S. soybean sales to China, strong domestic interest and export demand for soybean meal. Potential upside appears limited given favorable weather in South America for soybean production and a relatively slow pace of U.S. soybean exports. Since shipments are below average, the USDA anticipates ending stocks will rise by 3,000,000 bushels, up 7% versus prior year. Global soybean stocks and processing capacity are also expected to increase, generating ample supplies of meal. Global wheat stocks continue to be well supplied and production increased by 41 metric tons versus prior year. Every major producer experienced above-average crops, reducing the risk of physical disruption in shipments. Additional tailwind may emerge from increased wheat acreage planted in the UK. Fabio Sandri: Within the U.S., our diversified fresh portfolio increased volume compared to the same period last year as consumers continue to seek affordability offerings for their meal occasions across retail and foodservice. Our higher attribute differentiated offerings in case-ready accelerated its marketplace presence. Volumes to key customers increased nearly two times the category. Sales and profitability rose compared to last year from sustained growth. Small bird also realized similar success, as volumes to QSR remain robust despite its low market for bone-in chicken and whole birds. Given continued market shift to boneless cuts, extensive key customer partnerships and growth aspirations, we will evaluate and adjust our portfolio to match demand accordingly. In Big Bird, commodity cutout values fell nearly 20% compared to last year. Nonetheless, the business was able to improve its efficiencies in live operations and in production. Equally important, we further leveraged our position as the leading supplier of NAE meat to support our robust growth of value-added offerings. To that end, Big Bird will continue to increase supplies to our internal prepared foods, reducing volatility and enhancing margins for our portfolio. During the quarter and the beginning of 2026, our team also undertook a variety of projects to strengthen our key customer partnerships and enhance operational excellence, including investments within Big Bird to increase our portioning capacity and differentiated cuts. Through these efforts, our team managed through planned downtime and adjusted production across locations accordingly to ensure sufficient availability, maintain quality and uphold service levels. Prepared foods sales grew 18% compared to the same period last year, given branded growth across retail and foodservice. Just BARE momentum continues to accelerate market share in retail; it rose nearly 300 basis points compared to the same period last year. Equally important, it has the highest velocity of any brand within frozen chicken. Further growth opportunities exist through increased distribution. Our innovation and approach to both flavors under the Pilgrim's brand also continues to receive accolades, as People’s Food Awards recognized our Cheesy Jalapeño Nugget line as a category winner. In foodservice, we continue to build our presence, giving continued growth with national accounts and schools. Investment in the new prepared facility in Georgia to meet demand for our fully cooked offerings remains on schedule. Turning to Europe, consumer sentiment continues to be relatively subdued. Nonetheless, we improved our profitability and maintained stable demand compared to the same period last year, given consistent execution of our strategies. Within retail, chill meals and fresh offerings were among the fastest growing categories. As such, our chicken business drove profitable growth, led by our differentiated Pro 3 offerings at select customers. Our added value business remains steady. Bareo’s pork experienced challenges from excess supply and animal health issues emerging in Spain, triggering export restrictions in the EU. Despite these challenges, our team maintained volume and increased profitability compared to last year. Our diversification efforts through key brands continue to progress, as overall sales and volumes rose compared to last year. Operator: UK. Fabio Sandri: Fridge increased share yet again given the effectiveness of recent changes to pricing and packaging. The momentum for the Rollover continues to accelerate from additional distribution with new customers. The Richmond brand was challenged by low-cost private label offerings, but recent investments in promotional and innovation activity have been beneficial in resuming our growth trajectory. We continue to develop our innovation pipeline in close collaboration with our key customers. To that end, we have created a variety of new platforms in chill meals, focused on diet health and ethnic offerings. To date, market acceptance has been promising given incremental distribution awards and consumer interest. In foodservice, visits fell at QSRs given concern regarding affordability. As a result, our volumes were impacted, especially during the late half of Q4. To reverse this trend, several of our QSR customers reignited promotional activity during 2026. In Mexico, challenging market circumstances arose in Q4 given increased imports of animal-based protein. As a result, the short-term supply of meat and poultry in Mexico increased to levels not previously experienced. These conditions were further amplified by weakened market fundamentals in the live commodity market, as improved growing conditions increased supply. Nonetheless, we continue to drive our strategies, growing volume in retail, QSR and foodservice channels compared to last year. We also increased volumes by double digit in our fresh branded portfolio versus 2024. Just BARE continues to be extremely well received as sales have grown more than two times compared to last year. Similarly, prepared sales volumes increased by 8% versus last year, led by key customers in foodservice and QSR. Based on these efforts, we continue to diversify our portfolio and reduce the volatility for our business. Despite these short-term challenges, we continue to have growth ambitions in Mexico given its long-term growth potential, status as a net importer of animal protein and effectiveness of our strategies. Our growth plans will further mitigate the volatility of our portfolio resulting in a higher, more resilient earnings profile. We have already begun implementation of our plans. In fresh, our efforts to build domestic supply, create national distribution capabilities and diversify our geographical presence remain on schedule, with growth in the South Region in Veracruz and in the Peninsula Region in Mérida. In prepared, we are doubling our capacity of fully cooked products through the expansion of our facility in Porvenir. We anticipate our increased capacity coming online during the second quarter, further enabling growth for the second half of the year. Our growth intentions in Mexico are not isolated, and overall prospects for chicken remain strong globally given relative affordability, emerging trends and consumer preferences and healthy attributes. As such, our growth investments previously announced in the U.S. can further capitalize on these trends, reinforce our strategies and strengthen our competitive advantage. Given this environment, our portfolio will also continue to evolve. To support key customer growth in fresh, we are converting one of our commodity Big Bird plants to a case-ready plant. We expect this conversion to become operational during 2026. To support the expansion of prepared foods, we will install equipment upgrades and modify our plant layouts in Big Bird, leveraging our internal supply of differentiated NAE portion raw materials. Regardless of these investments, we fully expect to remain consistent in our quality and service levels, given our extensive network of facilities and overall supply chain capabilities. More importantly, we will have fortified our key customer partnerships and improved operational efficiencies, which will reduce volatility, enhance margins and drive profitable growth. In sustainability, our journey continues. We have made significant headway in the reduction of our carbon-based direct and indirect emission intensity used for processing compared to last year. External agencies continue to recognize progress in environmental and social matters as our scores improved compared to last year. Improvements in team member development continue to be exceptionally well received as over 2,300 team members or their dependents have signed up for our Better Futures program, of which 780 have begun their selected academic pathway. With that, I would like to ask our CFO, Matthew R. Galvanoni, to discuss our financial results. Thank you, Fabio. Good morning, everyone. Matthew R. Galvanoni: For 2025, net revenues were $4,520,000,000 versus $4,370,000,000 a year ago, with adjusted EBITDA of $415,100,000 and a margin of 9.2% compared to $525,700,000 and a 12% margin in Q4 last year. For fiscal year 2025, net revenues were $18,500,000,000 versus $17,900,000,000 in fiscal 2024, growth of 3.5%, while increasing adjusted EBITDA by 2.5% from $2,210,000,000 in fiscal 2024 to $2,270,000,000 this year—back-to-back years with adjusted EBITDA margins greater than 12%. Adjusted EBITDA in the U.S. Q4 came in at $174,200,000 with adjusted EBITDA margins at 10.6%. Our U.S. business continued its momentum in the quarter in fresh retail and with QSR key customers, driving above-category growth in these categories. Big Bird achieved further operational improvements; however, we faced year-over-year commodity market pricing headwinds negatively impacting profitability. Our prepared foods business continued its momentum of branded product sales growth with both retail and foodservice customers, driving year-over-year profitability improvement in the quarter. For the fiscal year, U.S. net revenues were $11,000,000,000 versus $10,600,000,000 in fiscal 2024, with adjusted EBITDA of $1,630,000,000 and a 14.8% margin compared to $1,560,000,000 and a 14.7% margin last year. The U.S. business maintained its margin profile through increasing sales volumes and delivering operational efficiency. In Europe, adjusted EBITDA in Q4 was $131,400,000 versus $117,100,000 in 2024, a 12.2% increase. For the full year, Europe's adjusted EBITDA improved 11.4% to $453,100,000 in 2025, from $406,900,000 in 2024. Europe drove improved profitability with growth in poultry sales and through the impacts of the series of operating efficiencies implemented over the last few years. Our European business’s streamlined organizational structure and focus on innovative offerings has positioned it to partner more efficiently with our key customers in the region. We recognized approximately $31,000,000 of restructuring charges during the year, down from $93,000,000 in 2024. While we continue to pursue efficiency measures, we anticipate the majority of these programs are behind us. Mexico made $9,500,000 in adjusted EBITDA in Q4, compared to $36,900,000 last year. When considering the full year, Mexico made $186,700,000 in adjusted EBITDA or an 8.8% margin, falling short of last year's 11.8% margin. Mexico experienced lower market pricing in the fourth quarter driven by higher availability of imported animal-based protein. Although we did record $77,000,000 in litigation-related settlement charges, our GAAP SG&A expenses in the fourth quarter were lower than last year, primarily due to a decrease in legal settlement expenses and cost efficiencies realized in Europe. For the full year, SG&A expenses were flat to last year, with slightly lower legal settlement costs being offset by higher brand marketing investment. Net interest expense for the year was $110,000,000. Currently, we forecast our 2026 net interest expense to be between $115,000,000 and $125,000,000. Our full year 2025 effective tax rate was 27.9%. We recorded a discrete tax item in the fourth quarter related to a catch-up for U.S. state unitary taxes, which will not reoccur next year. As such, for 2026, we anticipate our effective tax rate to approximate 25%. We have a strong balance sheet and will continue to emphasize cash flows from operating activities, management of working capital and disciplined investment in high-return projects. As of the end of the year, our net debt totaled approximately $2,450,000,000 with a leverage ratio of less than 1.1 times our last twelve months adjusted EBITDA. Our liquidity position remains very strong. At the end of the fiscal year, we had over $1,800,000,000 in total cash and available credit. We have no short-term immediate cash requirements with our bonds maturing between 2031 and 2034 and our U.S. credit facilities not expiring until 2028. We finished the year spending $711,000,000 of CapEx. Included in our 2025 capital spending were the growth projects in Mexico, the Big Bird plant conversion to support a key retail customer, early progress in our new prepared foods facility in Walker County, Georgia to support our Just BARE brand growth plan and other projects that Fabio previously mentioned. The Big Bird plant conversion and the Mexican projects are on track to be completed by April. Currently, we forecast 2026 CapEx spending to be between $900,000,000 and $950,000,000 as we progress through these and the other projects to support prepared foods growth previously noted by Fabio. As mentioned in the past, our sustaining capital spend approximates $400,000,000 per year. We will continue to follow our disciplined approach to capital allocations as we look to profitably grow the company. We will continue to align investment priorities with our overall strategies: portfolio diversification, focus on key customers, operational excellence and commitment to team member health and safety. Operator, this concludes our prepared remarks. Please open the call for questions. Operator: We will now open for questions. In the interest of allowing equal access, your first question today comes from Benjamin M. Theurer with Barclays. Please go ahead. Benjamin M. Theurer: Yes, good morning and thanks for taking my question, Fabio and Matt. Two quick ones. So number one, maybe just on the current growing conditions and you have laid it out in your prepared remarks. What are the cutout levels and pricing compared to historic levels and particularly versus the last two years? So as we look into the first quarter and with hatchability coming down, how much of that would you say is related to just the genetic issue coming back up? Or is it more of the weather-related, just given the cold weather we had over the last couple of weeks, even in areas where chickens are grown? So just about the market dynamics right now and how we should think about the supply side for Q1. Yes. Thank you, Ben. Good morning. Fabio Sandri: Yes, when I look at the supply—and we always start with the breeding flock—and when you see the size of the breeding flock, we are with a total number that is down 1.9% year over year. So we have fewer breeders. But I think in terms of age, they are younger, which will generate more eggs and help on the hatchability. But nonetheless, it is a smaller number. Given that input and some other factors like the weather and the seasonality, I think USDA is projecting the growth of supply in chicken for the Q1 at only 1.2%. In total for the year, there will be only 1%. I think the hatchability issue is part of this breed that we have, and there are a lot of questions about breed. And I think the important thing for us is that we look at the overall profitability of the bird, not only one trait or another. So when we look at the profitability of the bird, we look at, of course, hatchability, but we look at conversions and we look at yields. And as of today, this bird, despite having hatchability that is below the five-year or below previous years, still has the better yield and the better performance in terms of feed conversion than other birds. So I do not expect any significant changes in the breed. Of course, there are always new breeds coming online, but it takes time for the new breeds to roll out. Okay, perfect. And then my second question just around capital allocation. Obviously CapEx—you have mentioned the $900,000,000 to $950,000,000—that is a good $200,000,000 increase versus last year and kind of brings us to the $0.5 billion investment for the year versus sustaining. So as you kind of laid the land in terms of these projects, the Big Bird conversion, things in Mexico, prepared foods, what else is in the pipeline? I know you have made some announcements in Mexico a couple of weeks ago. So just help us understand framing that CapEx for now and also how much of that CapEx carries then potentially into 2027 as you roll out more projects, just to think about the path of CapEx beyond 2026? Fabio Sandri: Oh, great point. And I think we are always looking for the trends in the market and how we can support our key customers, and we can improve our portfolio. So in that regard, we are always looking to grow our prepared foods, and I think we mentioned how outstanding we have results, especially because of the Just BARE brand. So we are building that new facility in Georgia, and that will take investments that started last year; it is going to take 2026 and will roll out to 2027. In Mexico, as we mentioned, we are also diversifying our geography. We are growing in regions where we are not in. Typically, in Mexico, we are in the Northern Region and in the Central Region. We were not present in the South Region and in the Peninsula, and we are increasing our investments in those two regions. And that is smaller and it is every year as we want to grow steady in those regions. So we will have some investments in 2027. On the conversion to increase our support to a key customer, it is going to be all done during this year. And the changes on the internal supply of meat from our Big Bird to our prepared foods will be all done this year. I think the only thing that we can have for 2027, as we mentioned, we are seeing this trend of change of bone-in small birds to more boneless—I think we all discussed about the sandwich wars many quarters ago, I have been discussing that—and we are seeing that trend. We may convert one small bird plant to a more deboning plant rather than a bone-in plant. Operator: Okay. Perfect. Thanks, Fabio. And your next question comes from Peter Thomas Galbo with Bank of America. Please go ahead. Matthew R. Galvanoni: Hey, Fabio. Good morning. And Matt, thanks for taking the question. Fabio, maybe just to pick up on Ben's question on the—I guess, the rally we have seen to start January in commodity prices. Just trying to think about the—and I know it is a hard crystal ball—but the sustainability of that given some of it is the tailwinds to category and other competing proteins being lower versus kind of the storm impact and maybe that is having an upward pressure on prices. Just how do you think about maybe the sustainability of some of the price move we have seen into what is going to be historically and even seasonally a stronger period. Fabio Sandri: Yes. Thank you, Peter, and good morning. We are seeing several trends supporting the demand for chicken. Starting with overall, we are seeing these macroeconomic indicators that show that the consumers have been watching their spending closely and have growing concerns about the inflation. So as the inflation in food away from home is outpacing the food at home, consumers are looking for ways to save and they are moving to retail. So when we go to the retail, we see that they have more frequent trips and lower baskets. And chicken demand has increased overall because, as we mentioned on the prepared remarks, compared to last quarter, prices in retail for boneless breast have gone down 1%, while we see all the other competing protein prices going up. I think that created, as we mentioned, the highest spread on record. If you look at the prices of chicken compared to the prices of beef, we have a spread of close to $2 per pound. And that is increasing the demand for chicken in retail. When you go to the foodservice, despite this lower food traffic, I think the foodservice operators are trying to attract consumers with promotional activity. I just mentioned the sandwich wars, and we are seeing the menu penetration of chicken going up in the foodservice. So we saw also a growth in the foodservice in the range of 2% to 3%. So I do not think that we are going to see a change in those big trends during 2026. And as I mentioned in terms of supply, USDA, because of the size of the breeding flock and the state where we are in terms of hatchability and the high utilization on the hatcheries, we are seeing the supply growing only 1%. So I think that the trends are very positive, especially for the grilling season. Operator: Great. Peter Thomas Galbo: Okay. Thanks for that. And Matt, maybe just a couple of cleanups. If you could help us, I think you gave the interest, tax and CapEx, but maybe anything on D&A for the year and then how you are just thinking about the SG&A levels, which continue to be pretty impressive—how we might think about that for '26. Thanks very much, guys. Matthew R. Galvanoni: Yes, no problem, Peter. Yes, good morning. So from a D&A perspective—depreciation and amortization—we are looking to track to about $520,000,000 for the year for 2026. 2025 was about $460,000,000. And then SG&A, what I would tell you is kind of think about it, sort of $140,000,000 a quarter. I think that will help get you guys pretty close, maybe just a little north of that for the full year using that $140,000,000 a quarter. Peter Thomas Galbo: Awesome. Thanks, guys. Operator: And your next question today comes from Andrew Strelzik with BMO Capital Markets. Please go ahead. Matthew R. Galvanoni: Hi, good morning. This is Ben covering for Andrew. So I will start with Mexico. Just if you could dig a little deeper on what happened there during the quarter, and then we are wondering maybe what happens moving forward in 2026. Is the supply-demand situation cleaned up there or should we expect some lingering pressure? Just trying to understand the potential cadence there. Thanks. Matt Galvanoni: Yeah. Sure. Good morning. And as we have been— Fabio Sandri: Saying, Mexico can be very volatile quarter over quarter. But on the year, we have always seen growth and very positive results there. In Q4, I think we had a series of events. Q4 typically is a good quarter for Mexico, but during this quarter, we saw some shifts in the exports market, and Mexico was the most attractive market for especially breast meat from Brazil and other locations. And we saw a significant increase in the exports to Mexico on the breast meat. We also saw a significant increase in pork exports to Mexico, which increased a lot the supply of meat. That impacted more the North Region. At the same time, in the Central Region, that includes Mexico City, we saw the growing conditions very favorable for chicken. And after a strong first semester, we saw the supply of chicken increasing in that region. So we had the two regions affected by different aspects. So we saw this increase in supply in the center impact the live market prices. And because of that, we saw the weaker Q4 than anticipated. That is why we are creating the portfolio there, creating—and we are talking about growing to different regions. So growing in the South Region, in Veracruz, and growing in the Peninsula because these areas are more insulated from the North and from the Central microdynamics. On the lingering effects, I think we are seeing now the market more into the normal seasonal patterns. We are seeing a slowdown in the growing conditions in the center. And we always mention that there are small players. When the profitability is very high in that region, they come to the market, and when the profitability starts going down, they exit that market, and we are seeing that. So we are seeing a more stable supply and demand. And in the North, as well, we are seeing that all the freezers are completely full in the North Region. So I do not think that there will be any more increase in the exports to that region. So we see the volatility in Mexico and that is why we are evolving to be a more resilient earnings— Matthew R. Galvanoni: Got it. Thank you for that color. That is very helpful. And then my last question will be about the EU, UK business. Matthew R. Galvanoni: Very strong performance during the fourth quarter there. Matthew R. Galvanoni: Over well over 6% operating margin. Matthew R. Galvanoni: Was that—how much of that was seasonally driven, I guess, is the first part of the question. And then you pointed out in the 10-K, in particular, strength in domestic demand for fresh products. So if you could kind of tie that into the volume strength and profitability strength in the EU and UK and just thinking about starting 2026—I mean, if it was not seasonally driven in the fourth quarter, would we expect 6% plus margin to sustain there? So that is my last question. Thanks. Fabio Sandri: Yeah. Thank you. Yeah, there is always seasonality in the UK, especially in the pork operation. But what we are seeing in Europe—and it is no different than other places of the earth—is the strength of the chicken business. So we are seeing the affordability, the availability and also our strategies, and we are resonating with the key customers and consumers with the differentiated offerings. So we are seeing a strengthening in the chicken business in the region. But I think there is seasonality in Q4. It is typically stronger in Europe than other quarters. I think we will see significant improvements quarter over quarter within this seasonality. So I think we will have a better quarter in Q1 than we had the same year ago in Q1. Although we are seeing some weakness in QSR that started during Q4 because of, again, the prices of especially beef, our business in the region on the QSRs was a little bit impacted on the traffic. But we are seeing some promotional activity on those QSRs. We expect an improvement during this Q1. Matthew R. Galvanoni: Thank you. Operator: And your next question comes from Pooran Sharma with Stephens. Please go ahead. Hey, this is Adam on for Pooran. Thanks very much for the question. Fabio Sandri: So obviously— Matthew R. Galvanoni: The beef environment continues to be a tailwind for chicken. In our eyes, there are two big moving pieces there. One, Mexican cattle imports and two, the pace of heifer retention. Just wanted to get your opinion on how those two factors on the two extremes—slow versus aggressive heifer retention and the resumption or lack of cattle imports—could impact chicken demand and therefore broiler margins? Thanks. Fabio Sandri: Yeah. I think when we look at the retail—and I mentioned that we saw the spreads at the highest number ever—and I think this is something that has been growing over time. And I think 2025 and 2026 have been exacerbated by the effects that you just mentioned on the price of the live animals here in the U.S. and some capacity reductions in the beef industry. I think it is very difficult to look at the sensitivity on how much that delta needs to be to trigger trade-downs, but I think what we are seeing is that the consumer is really impacted in the inflation, especially on the food away from home. And we are seeing all this demand for chicken in retail. And I think it is the same in the foodservice, as I mentioned. It is a matter of availability because when you look at the USDA for 2026 for the production of beef going down, it would depend a lot more on the imports and what type of cuts will come from these imports from South America and other regions. So we do not expect the prices of beef to reduce significantly during 2026, as you mentioned, because of the retention that has started. So I think that could be something that we will see in 2027. But I think overall, we are seeing a very strong demand for chicken both in retail and foodservice. Pooran Sharma: Thank you. That is helpful. And my follow-up, I was wondering—I think you touched on it briefly in your prepared remarks—but if you could just give a brief state of the union of the disease pressure you are seeing like in Spain. I know we have seen somewhere between a hundred to a hundred and fifty positive cases of ASF in Spain. But anything else you can add there would be great. Fabio Sandri: Yeah, of course. Our European business has been impacted before because of that. I think what we are seeing is the ASF in Spain. Spain is one of the largest producers in the world of pork. And because of the ASF, they have been banned from exporting to China. Because those exports do not go to China, they end up in the European region, typically in the UK. And that is generating a lot of supply, especially in the sausage business. And that is creating some impact in our business because our Richmond brand—it is a well-established brand in the UK—when it is competing with this external meat and all this private-label sausage, it ends up impacting prices. And that is why we mentioned that the Richmond brand was facing some challenges during Q4, but we expect some promotional activity, and the resilience of that brand is amazing. We have been growing year over year. We expect that impact to reduce. Now how long that is going to continue in Spain, and how that is going to impact long term the UK, I do not think that is something that we can foresee. But I do not believe that it is going to be a long-term impact as we are seeing the herd being reduced throughout Europe. Pooran Sharma: Okay, great. Thank you very much. Operator: And your next question comes from Leah Jordan with Goldman Sachs. Please go ahead. Matt Galvanoni: Thank you. Good morning. Wanted to go back to your comments about foodservice in the U.S. You talked about the consumer shifting to retail, which is a headwind for the channel, but you continue to grow nicely. So if you could provide more detail on the demand you are seeing there. Any nuance between QSR versus others? And how much can new business wins continue to offset any broader industry slowdown there? Or how do you think about lapping the strength that you have had over the past year in innovation and LTOs? Fabio Sandri: Yeah. Thank you, Leah. When—again, like I mentioned—the foodservice traffic is a challenge and has been challenged over the last year, and the foodservice operators are looking for promotional activity to drive traffic. When you drill down into the segments, what we are seeing is a slowdown in the full-service restaurants compensated by increases in the non-commercial, especially hospitality, schools, and growth in the national accounts. When you look at the promotional activity, even the non-chicken QSRs are doing a lot of promotions with chicken. And we saw the increase in the overall industry close to 3%. So we do not expect that to change during 2026 for the factors that we already mentioned on the availability of lean beef on the burgers, and the availability of other proteins and the affordability and versatility of chicken. Leah Jordan: Okay, great. Thank you. And then just for my second question, just wanted to ask about Just BARE a little bit more. You have shown some nice acceleration across prepared foods overall, but Just BARE has been really strong for you with the share gains that it has had. I know we are still waiting on that new plant to open. But how do you think about growth for that brand over the coming year, considering distribution and velocity? And then ultimately, longer term, do you think about continuing to increase brand awareness or household penetration there? Fabio Sandri: Thank you. It is a great point. And I think the brand awareness is still not at the levels of national expansion that we expected, but we are seeing that Just BARE is the number one in terms of velocity where we are. I think that is very important for the retailers. As we are discussing with our key customers on the distribution side, if you have Just BARE in your shelves, you can see that the shelf is turning faster than with any other segment. I think it is innovation which is going to play for us to continue to grow. I think we have a very strong core. Products we can innovate and stretch that brand to some other, different—being chopped and formed—because it is a whole muscle today, but there are a lot of opportunities in chopped and formed. And the Just BARE brand promise is exactly what the consumer is looking for today, which is a clean label, no additions of antibiotics or any other items that the consumer is looking at today at the labels and comparing. And that is why that is resonating so well with the consumer. So it is gains in distribution, because we are still not very national. We went from 1% to 13% market share in a matter of five years, but still have a lot of distribution to gain. And the velocity will continue because of how that brand and the brand promise is resonating with our consumers. Leah Jordan: Great. Thank you. Operator: And your next question comes from Thomas Henry with Heather Lynn Jones Research. Please go ahead. Matt Galvanoni: Good morning, guys. Thank you for taking the question. On Europe, could you elaborate on any trends besides the seasonality driving that strong volume performance? And any expectations of these continuing into '26? Thank you. Fabio Sandri: Yeah, I think it is a normal seasonality. We see the end of the year, a lot of promotional activity in terms of hams and bacon and other cuts. But as a long-term trend, what we are seeing throughout the year is the growth of chicken. That is more important than the seasonality. I think the consumer is facing the same challenges in Europe that they are facing in the United States on the inflation. And when you look at the breakdown of the growth in total grocery, grocery is growing 4%, but chicken is growing 8% to 10%. So there is the seasonal effects, and we saw some growth in the fresh pork, close to 5% this quarter. But the long-term trend is more growth in the chicken side. And of course, with the innovations that we are doing, the partnership that we are doing in Europe on the meals, are also creating some new lines that are generating great results. The meals are a very affordable way for a family to have their needs. So I think it is something that we are investing together with key customers on differentiating, creating better experiences for our end consumer and differentiating in terms of the ethnicity for the consumers. Operator: And your next question comes from Guilherme Palhares with Santander. Please go ahead. Matt Galvanoni: Good morning, everyone. Thank you for taking my questions. Just two quick ones. First is, where do you see today the capacity of grandparents of shipping in the U.S.? And the second one, if you could talk a bit about the new trade permit of the EU towards the Brazilian chicken, and whether this could have any impact on the business there? Fabio Sandri: Thank you. Yes, thank you. On the grandparents, the information we have is the USDA information. When we talk about the size of the breeding flock, it includes the grandparents. And when we look at the number, it is down 1.9%. And that includes the processors and includes the grandparents. So I do not see any—or we do not have any—information about significant increase in the grandparents’ size. On the impact of the Mercosur agreement, or the UK-Europe and Brazil, what we are seeing is the normal continuation of a long-term export from Brazil, which is one of the largest chicken exporters, to Europe. I think Brazil typically exports breast meat, and that breast meat goes to the foodservice. When you look at the UK consumer, they give great value to the provenance, and our chicken business and our pork business in Europe are mainly on the retail side because we are local producers. Because the standards of producing in the UK, both chicken and pork, are higher than everywhere else in the world, the consumer pays a premium and they have this important trait of provenance. So when we look at the impacts of these agreements, more on the foodservice area, we have a strong foodservice there that can benefit from cheaper raw material—being from Thailand, being from Poland or being from Brazil. I think it is a good tailwind for our foodservice production in the UK. But it does not have a big impact on the retail side. Thank you, Fabio. Operator: And your next question comes from Priya Joy Ohri-Gupta with Barclays. Please go ahead. Hi, good morning. Thank you for taking the question. Leah Jordan: Matt, for the last two years, the operating cash flow before looking at changes in working capital has been pretty consistent around $1,600,000,000 or so. Is there any reason that we should think about '26 looking different from that? And then secondly, just as we think about the working capital piece, what are some of the trends that we should keep in mind as to whether that will be a positive or negative to the cash from operations? Thanks. Matthew R. Galvanoni: Thanks, Priya. Good talking to you. Generally, I do not see a major change relative to your first question. Of course, we are increasing our CapEx spend intentions here for 2026 versus 2025 by, call it, almost $200,000,000. So that, of course, will come into play. But relative to working capital, I think when you look back to 2024, we had a lot of tailwinds for us with the large grain cost decrease in 2024 versus 2023. Of course, things flattened out more in 2025. We really saw there in the inventory side more purposeful increases in finished goods because we were able to procure some cheaper breast meat at opportune times, which increased some of our inventory levels. AR—some of that headwind was really more just higher sales pricing. So overall, I would say I do not see the repeat on the negative side on the inventory that we saw in 2025. Of course, we will have to watch and see what grain does, but kind of where grain sits today, we feel it should be more flattish. And then we will just watch and monitor AR. Hopefully, that helps. Priya Joy Ohri-Gupta: Yes, that is really helpful. And then just one follow-up on the CapEx piece. There is a headline just talking about $1,300,000,000 in investments in Mexico through 2030. So as we think going forward—and I know you gave us a little bit of context into '27—but how should we think about that $1,300,000,000 specifically related to Mexico over '26 to '30, if you could give us some directional sense? Fabio Sandri: Yeah. Thank you. I think that is a long-term vision that we have, just like I mentioned, to grow in regions where we are not and grow our prepared foods. So that includes significant growth in the South Region and in the Mérida region, as well as the duplication of our prepared foods facilities. And in that investment is included also some investments done by growers to support that growth. So it is not totally from us, but it is because of our projects, and that will help close the gap in Mexico. Mexico is a big importer of meat, and we believe that with our growth in Mexico, we can reduce the need of the imports by 35%, which helps a lot in the food security for the region. Priya Joy Ohri-Gupta: That is helpful. Thank you. Operator: This concludes the question and answer session. I would like to turn the conference back over to Fabio Sandri for any closing remarks. Fabio Sandri: Yes. Thank you, everyone, for attending today's call. Throughout 2025, we accelerated our performance through a leadership mindset, living our values and driving our methods. Given our teamwork, we delivered yet another strong year. 2026 started with several weather events that impacted many regions where we operate, and I would like to thank our team members and extend my deepest appreciation for their efforts every day and their dedication to our company and our community. Moving forward, we must continue to drive our efforts with an unwavering focus on team member safety and well-being, product quality and sustainability. When combined with our strategy and approach, we can achieve our vision to be the best and most respected company in our industry, creating an opportunity for a better future for our team members and their families. Equally important, we initiated the next chapter in our growth journey through investments across all regions. Based on these efforts, we can further drive profitable growth, reduce volatility and enhance margins throughout our entire portfolio. To that end, I look forward to strengthening our legacy in 2026 and beyond. Thank you all. Operator: The conference call has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Thank you for standing by, and welcome to the Intercorp Financial Services Inc. Fourth Quarter 2025 Conference Call. The conference will begin in a few minutes. Pardon me. Good morning, and welcome to the Intercorp Financial Services Inc. Fourth Quarter 2025 Conference Call. All lines have been placed on mute to prevent any background noise. Please be advised that today's conference call is being recorded. After the presentation, we will open the floor for questions, and at that time, instructions will be given as to the procedure to follow if you would like to ask a question. Also, you can submit online questions at any time today using the window on the webcast, and they will be answered after the presentation during the question-and-answer session. Simply type your question in the box and click submit. It is now my pleasure to turn the call over to Mr. Ivan Peill, from Inspire Group. Sir, you may begin. Thank you, and good morning, everyone. Ivan Peill: On today's call, Intercorp Financial Services Inc. will discuss its fourth quarter 2025 earnings. We are pleased to have with us Mr. Luis Felipe Castellanos, Chief Executive Officer, Intercorp Financial Services Inc.; Ms. Michela Casassa, Chief Financial Officer, Intercorp Financial Services Inc.; Mr. Carlos Tori, Executive Officer, Interbank; Mr. Gonzalo Basadre, Chief Executive Officer, Interseguro; and Mr. Bruno Ferreccio, Chief Executive Officer, Inteligo. They will be discussing the results that were distributed by the company yesterday. There is also a webcast video presentation to accompany the discussion during this call. If you did not receive a copy of the presentation or the earnings report, they are now available on the company's website ifs.com.pe. Otherwise, if you need any assistance today, please call Inspire Group in New York at (646) 940-8843. I would like to remind you that today's call is for investors and analysts only. Therefore, questions from the media will not be taken. Please be advised that forward-looking statements made during this conference call Operator: these do not Ivan Peill: account for future economic circumstances, industry conditions, the company's future performance, or financial results. As such, statements made are based on several assumptions and factors that could change, causing actual results to materially differ from the current expectations. For a complete note on forward-looking statements, please refer to the earnings presentation and report issued yesterday. It is now my pleasure to turn the call over to Mr. Luis Felipe Castellanos, Chief Executive Officer of Intercorp Financial Services Inc. for his opening remarks. Mr. Castellanos, please go ahead, sir. Luis Felipe Castellanos: Thank you. Luis Felipe Castellanos: Good morning and thank you all for joining our fourth quarter 2025 earnings call. Thank you for your interest in Intercorp Financial Services Inc. We appreciate your continued support. I am going to start with the macrofront. We continue to observe a macroeconomic and political environment in Peru, marked by a positive mood. The Peruvian economy maintains its growth momentum, with expected growth of 3.3% for 2025, mainly driven by dynamic consumption-related sectors, sustained private investment, and the favorable performance of commodity prices, which continues to support the country's external accounts. Although we maintain a prudent perspective amid the international context and the election period, exchange rate strength and low country risk reflect market confidence in Peru. The sol has appreciated by approximately 10% in the year, and inflation remains stable, positioning Peru as one of the most dynamic economies in the region. Looking ahead to the political transition this year, we do not expect major changes in financial stability. Sound monetary management and strong institutions related to economic resilience and prudence allow us to have a base case scenario of sustained growth, supported by the resilience of the local market and investor confidence. This provides a solid foundation for long-term decision-making, prudent risk management, and sustained investments in innovation. Moving into Intercorp Financial Services Inc. results for 2025, we delivered record net income of 1,900,000,000.0, with recovering core results and solid profitability, with our ROE of around 70% even after considering the impact of the Ruta de Lima impairment. These results confirm our ability to adapt quickly and keep generating value despite some headwinds, in a disciplined and sustained way, aligned with our long-term strategy and reaffirming our commitment to long-term profitability and sustainability. Interbank achieved a record year with 1,400,000,000.0 in net income. This was supported by a decrease in cost of risk and increasing risk-adjusted NIM. Our consumer segment is showing signs of recovery even in the face of pension funds withdrawals, although we recognize that there is still progress to be made to reach our targets. Overall, Interbank has consolidated as the third largest bank in the system, reflecting our strong performance and disciplined approach to risk and profitability management. Yape and Interbank continue to capture joint business opportunities, reinforcing our payments ecosystem, while Plin deepens user engagement, fostering more primary banking relationships and driving growth. Interseguro, our insurance company, continues to grow its core business with solid performance in private annuities and life insurance. In addition, Interseguro continues to leverage synergies with Inteligo to expand private annuity sales and to collaborate with Interbank to advance integrated bancassurance solutions that deliver greater value for our customers. It maintains leadership in regulated annuities and has achieved the leading position in private annuities. Inteligo, our wealth management segment, continues to grow double-digit, achieving a new record high in assets under management, thanks to our clients' trust and consistent engagement. In all, Intercorp Financial Services Inc. remains committed to our focus on profitable growth strategy, always placing our customers at the center of every decision we make. We continue to reinforce this approach by prioritizing digital excellence and deepening primary customer relationships through comprehensive data-driven services and differentiated experiences. Investments in technology, GenAI, and innovation are key to maintaining our competitive advantage by enabling more personalized, efficient, and secure experiences, while strengthening productivity and delivering greater value to our customers. Looking ahead, we remain optimistic about Intercorp Financial Services Inc.'s outlook. Our platform has demonstrated resilience in downturns and is well positioned to continue executing its growth strategy, maintaining profitability and reinforcing our leadership in the dynamic Peruvian market. I will now turn the call over to Michela for further explanation of this quarter's results. Thank you. Thank you, Luis Felipe. Michela Casassa: Good morning, everyone, and welcome to Intercorp Financial Services Inc. Fourth Quarter Results. We would like to start with our key messages for the year. In 2025, we delivered a solid performance across all segments. Net income reached a record 1,900,000,000.0, marking a 49% increase compared to the prior year. Our return on equity was also strong, standing at 16.8%. The second key message, higher-yielding loans continue the positive trend Operator: And Ms. Michela, we can hear you. You may proceed. Michela Casassa: Okay. Thank you very much. Sorry again, everyone, for the interruption. I am going to start again from the key messages. So in 2025, we delivered a solid performance across all segments. Net income reached a record 1,900,000,000.0, marking a 49% increase compared to the prior year. Our return on equity was also strong, standing at 16.8%. Second key message, higher-yielding loans continue the positive trend, showing an 8% growth on a year-over-year basis. Third, risk-adjusted NIM increased 50 basis points over the year, reaching 4% in the last quarter, while we maintained a low cost of risk at 2.1% and cost of funds near 3%. Fourth, we continue to strengthen primary banking relationships, and as a result, our retail primary banking customers grew 11% last year. Fifth, our insurance business continues to deliver solid double-digit growth, with written premiums growing by 661% year over year, mainly due to the growth in private annuities. And sixth, our Wealth Management business delivered double-digit growth in our core business with assets under management at new record highs. Let's start with our first key message. Let me share an overview of the macroeconomic environment. The Central Bank has raised its GDP estimate for Peru in 2025 to 3.3%, driven by stronger-than-expected performance in primary sectors such as agriculture and mining, followed by primary manufacturing, construction, and commerce. Looking ahead to 2026, Central Bank's projections have been revised up to 3%, driven by stronger private spending. Macroeconomic fundamentals remain stable, with inflation contained around 0.5% for 2025. The Peruvian sol has strengthened more than 10% this year, and the reference rate remains low at 4.25, maintaining favorable financial conditions for ongoing growth. Overall, Peru is establishing itself as one of the growing economies in the region, supported by solid domestic momentum, despite internal and external challenges. Additionally, the Peruvian economy holds positive prospects for the coming years, as it is well positioned to meet the global demand for commodities. Nevertheless, we remain cautious due to the political cycle and global market volatility. On slide five, driven by a favorable macroeconomic environment, private investment continues to expand at solid levels, growing almost 10% in the first nine months of the year and projected to reach 9.5% in the full year. This momentum is sustained primarily by the rebound in mining investment as well as the strong performance of the non-mining sectors. For 2025, we expect internal demand to expand by 5.4%, with private consumption rising to 3.6%. Looking ahead to 2026, internal demand is expected to moderate to 3.5%, with private consumption stabilizing at 3% and private investment reaching 5%. These upward adjustments reflect a resilient domestic market and continued optimism among both businesses and consumers. Business expectations remain in optimistic ranges and consumer confidence is stable, supporting domestic demand and employment generation. Private employment and wages are both increasing, fueling consumption. Additionally, a strong pipeline of mining and infrastructure projects is planned for the coming years, further supporting growth. In this context, retail lending continues to lead system-wide loan growth. Ivan Peill: On slide six, Michela Casassa: it is noteworthy that our accumulated earnings for the year have reached an all-time high, marking a relevant increase of 49%. This is reflected in our 2025 ROE of close to 17%, demonstrating strong profitability across all business lines. If we exclude the Ruta de Lima impairment, ROE would have been 18.5% for the year. This year, our three key business segments delivered exceptional growth. The bank achieved record earnings of 1,500,000,000.0, driven by a combination of lower cost of risk, reduced funding cost, increased fee income, among other factors. Inteligo reported a strong 68% increase in revenues and an outstanding ROE of 21.5%. This performance was driven by growth in core operations and solid results from the investment portfolio. Finally, Interseguro grew by 36% despite the Ruta de Lima effect, due to ongoing core business growth and higher investment results, which highlights the company's strength and resilience. Regarding Ruta de Lima, in the year, we have made 2,000,000 impairment, leaving the residual value at million or around $22,000,000. At this point, and with the information we have, we do not expect any further material impairment. On slide seven, during the last quarter of the year, we achieved an additional 11% quarter-over-quarter increase in earnings, reaching an ROE of around 15%. However, this ROE was impacted by the additional provisions for Ruta de Lima, as BRL 129,000,000 was recognized by Interseguro. Excluding this impact, Intercorp Financial Services Inc. ROE for the quarter would have reached 19.1%. Furthermore, if we set aside the effect of Ruta de Lima overall, net income would have increased by 11% quarter over quarter. On the banking side, the performance is driven not only by a lower cost of risk, but also by an improved net interest margin supported by better funding cost and robust growth in fee income. Particularly when excluding the impact of the provision reversal from Integratel ex Telefonica in the third quarter, net income has increased 6% compared to the previous quarter. The bank's ROE remains stable at 16%. Both Interseguro and Inteligo's core businesses continued to deliver double-digit growth. Interseguro achieved an ROE of 32.5%, in line with higher real estate valuations. Meanwhile, Inteligo's results this quarter were impacted by a lower return from the investment portfolio. On slide eight, we would like to highlight the positive trend of our earnings and ROE throughout the year. As mentioned before, for the full year 2025, our ROE stands at 16.8%. However, if we exclude the Ruta de Lima effect, ROE would have reached 18.5%. Overall, this has been a solid quarter and year across all Intercorp Financial Services Inc. business lines, with our core operations serving as the primary driver of profitability. Let's turn now to slide nine, where we take a closer look at Intercorp Financial Services Inc. revenues, which grew 13% year over year. At the bank level, top-line growth has increased by 6% this year. We are beginning to see a recovery in our net interest margin, which reached 5.3% in the last quarter. This improvement is mainly driven by accelerated growth in higher-yielding loans and continued optimization of our cost of funds, together with stronger fee generation and improved FX results, fully aligned with our strategy to deepen customer relationships. This year, Interseguro has demonstrated robust revenue growth of 33%, supported by an increase in insurance results of life annuities, but also by favorable investment results. Meanwhile, Inteligo grew top line 29%, thanks to a steady growth of fee income, aligned with the positive trend in assets under management. The investment portfolio has delivered a strong twelve-month return of 13.4%, marking a very good year overall. On slide 10, Intercorp Financial Services Inc. expenses increased by 11% in 2025 as we continue to make strategic investments to support our long-term growth ambition. This includes accelerated investments in technology to strengthen resilience, enhance user experience, improve cybersecurity, expand our capacity, and develop GenAI capabilities, alongside ongoing efforts to strengthen leadership within key teams, reflecting a recognition of the pivotal role talent plays in delivering our strategy. Consequently, the cost-to-income ratio stands at 36.8% at Intercorp Financial Services Inc. Now let's move to our second key message. On slide 12, we see increasing dynamism in higher-yielding loans. Our total loan portfolio expanded by 4% year over year, which would have been 6.5% excluding the FX effect. This positive momentum was driven by the acceleration in higher-yielding loans, which grew 8% over the past year. Robust macroeconomic activity is reflected in increased disbursements by 23% in cash loans and by 60% in small businesses. Overall, in retail banking, the mass market segment has grown steadily through the year, positively impacting the average yield, recovering around 20 basis points in the last six months. It is also worth highlighting our mortgage portfolio, which has expanded by more than 8% over the past year, surpassing market growth. As a result, we gained 10 basis points in market share, now exceeding 16%, firmly establishing ourselves as the third largest player in the system. On the commercial banking side, performance was strong across all segments, corporate, mid-sized, and small businesses. Notably, the small business segment stood out, achieving a solid 25% growth over the year, which means we have not only replaced all of the Impulso MyPeru maturities, but also expanded more than threefold beyond that, increasing the average yield by more than 200 basis points over the past year. Excluding FX effects, overall commercial growth reached 6%. On slide 13, we wanted to double-click on the consumer portfolio, which accelerated in the last quarter. Credit card activity continued to strengthen, supported by higher transaction volumes that reflect improved customer engagement and growing consumption trends. Overall spending increased by 8% quarter over quarter and 13% year over year, driven by more personalized communication efforts and the effective execution of targeted campaigns across key spending categories such as grocery stores, retail e-commerce, and cross border. Personal loans delivered solid balance growth alongside an improvement in profitability in the fourth quarter. Total balances accelerated in the last quarter at 2.3% despite excess liquidity in the market due to pension fund withdrawals, severance deposit releases, and the December seasonality. On a year-over-year basis, balances grew 5%, highlighting resilient demand and strong commercial execution. Looking ahead, we remain optimistic about our growth prospects. Following with the third message, we see improvement in risk-adjusted NIM. On slide 15, there is some good news to highlight in terms of this indicator. Over the past year, we achieved a substantial improvement in our risk-adjusted NIM, which rose by 50 basis points to 4% in the last quarter and accumulated 3.7% for the full year. This marks an increase of 80 basis points compared to last year's 2.9%. Notably, the last quarter contributed a 20 basis points uplift driven by lower cost of risk. On the funding side, we have positive news to share as the cost of funds further declined by 10 basis points over the past quarter. While the average yield slightly decreased this past quarter, retail rates improved by 15 basis points, supported by both mass market and affluent segments. These segments continue to build momentum and make meaningful contributions to our overall performance. Furthermore, within higher-yielding loans, we observed an increase of more than 40 basis points in the average yield during the quarter. As a direct result, our NIM increased by 10 basis points quarter over quarter. On slide 16, let me share a quick update on asset quality. Our quarterly cost of risk continues the trend to lower levels at 1.8% in the quarter, reaching the lowest level in four years, with a full-year cost of risk of 2.3%. Still, current loan mix supports a low cost of risk. On the retail segment, the cost of risk continues to decrease, now standing below 4%, representing a decline of 150 basis points compared to the prior year, still below our risk appetite. Our consumer lending portfolio is performing well, with cost of risk dropping from around 9% to below 7% year over year, supported by healthier customers, while new loans are showing a good performance in the new vintages. On the commercial side, asset quality remains strong, with performance holding steady throughout the year. On top of this, the adjustment of forward-looking parameters has enabled us to release some provisions. Overall, our nonperforming loans ratio continued to be healthy and our coverage levels remained solid at approximately 140%. Looking ahead, as our consumer and small business portfolios keep expanding, now representing 22% of our total loan portfolio, we should expect the cost of risk to gradually increase. All in all, these results underscore an improving operating environment and demonstrate that our prudent approach to portfolio management is enabling us to deliver sustainable growth. On slide 17, I would like to highlight some positive developments regarding our funding structure. Luis Felipe Castellanos: Deposits Michela Casassa: remain a key component, accounting for approximately 81% of our total funding. Over the past year, total deposits increased by 5% and by 9% when excluding the impact of FX. Retail deposits continue their positive momentum, outpacing the overall system, particularly in savings and transactional accounts, in line with the pension fund release. On the commercial side, deposit growth has been further supported by the expansion of our payment ecosystem, resulting in a 15.5% increase in efficient commercial deposits. As a result of these trends, our cost of funds declined by 20 basis points year over year and by an additional 10 basis points in the last quarter, driven by increased deposit flows that were in line with pension funds withdrawal. The cost of deposits has shown a consistent improvement with a 30 basis points reduction throughout the year. Importantly, there remains further potential for reduction as the share of efficient Luis Felipe Castellanos: funding. Michela Casassa: now at 40%, continues to grow with a positive impact on the fourth quarter of the additional liquidity coming from the market. Our loan-to-deposit ratio stands at 92%, which is in line with the industry average. Moving on to our digital strategy. Our payment ecosystem on slide 19, with Plin and Yape, is driving our growth in low-cost funding. We have continued working to generate further synergies as we drive the growth of our payment ecosystem, focusing on increasing transactional volumes, offering value-added services, and leveraging Yape as both a distribution network for Interbank products and as a source to increase growth. In particular, the commercial teams from both Yape and the bank are collaborating more efficiently, allowing us to deliver integrated solutions and maximize the value we bring to our clients. Yape continues to show strong momentum in the small business segment, with flows from Yape up 60% over the past year. This growth has contributed to the 26% in deposits, which now account for 11% of wholesale deposits or 33% of wholesale Luis Felipe Castellanos: low-cost deposits. Michela Casassa: The flow from Plin expanded by 35% in the same period, as Interbank share of Plin flows is around 40%. Over the past year, Plin transactions increased by 48% and our digital retail customer base now stands at 84%. In 2025, we further enhanced our offering by launching Plin Corredores, Plin WhatsApp, and Plin eCommerce, reflecting our ongoing commitment to continuously introduce new features that add value to our customers. We continue to drive meaningful value and strengthen primary banking relationships throughout our digital initiatives, particularly with Plin. Over the past year, on slide 20, we have grown our retail primary banking customer base by 11%, now representing more than 35% of our total retail clients. Monthly active Plin users reached 2,600,000, each completing 33% more transactions versus last year. P2M payments remain a core driver of engagement, now accounting for 60% of all transactions. Additionally, we see good trends in our digital indicators compared to last year. We remain focused on developing solutions that meet our customers' evolving needs. As a result, we have seen steady growth in digital adoption, as our retail digital customer base increased from 81% to 84%, while commercial digital clients now stand at 74%. While the latest NPS reading was 51 for retail customers and 68 for commercial clients. Advancements include the fully redesigned payments area, the launch of customizable QR codes, and the dynamic CVV for Visa credit and debit cards, as well as the integration of investment management. Additionally, the ability to perform sales directly within the app further streamlines customer interaction. These initiatives reflect our commitment to security, convenience, and innovative financial solutions, underscoring our role as a leader in shaping the future of financial services. On slide 21, in insurance, we continue to focus on enhancing the digital experience for our clients and expanding our sales from digital channels. The development of internal capabilities has allowed us to increase digital sales-service to 71% and the digital premiums to grow 25% in the last year. In wealth management, we are committed to continually improving our Interfondos app, aiming to transform it from a simple transactional tool into a comprehensive digital adviser for our mutual fund clients. This has led to a steady rise in app engagement, with the number of digital users increasing by seven points year over year. Additionally, digital transactions now represent 55% of all activity on the platform. Luis Felipe Castellanos: Moving on Michela Casassa: to the fifth message with double-digit growth in insurance. On slide 23, we continue to see an increased stock of the contractual service margin, which grew 22% year over year, mainly driven by Individual Life, which grew 23% in the last year, supported by strong new business generation that more than offset the monthly amortization of the CSM. Individual Life remains a key focus for us given its low market penetration. Although traditional channels keep growing at high rates, we have been also diversifying our distribution strategy to include new channels and adjust the product to reach new segments and keep supporting growth. Additionally, short-term insurance premiums grew by over twofold, driven by disability and survivorship premiums acquired through a two-year bidding process from the Peruvian private pension system. On the investment side, as mentioned before, solid results were impacted by additional impairment from Ruta de Lima. Despite this impact, the return on the investment portfolio reached 5.3% for the whole year and would have been 6.6% without this effect. Finally, Wealth Management continues to deliver double-digit growth. On slide 25, we highlight the strong performance of our Wealth Management business this year. Inteligo continues to show solid momentum. Assets under management have grown at a double-digit Luis Felipe Castellanos: pace Michela Casassa: reaching new highs and now totaling $9,100,000,000 including deposits. Fee income continues to improve, up 15% year over year, which would have been 18% excluding the FX effect, adding to the positive trend in results. Now let me move to the final part of the presentation, where we provide some takeaways. On slide 27, before we move on to our operating trends, we would like to summarize where we are focusing our growth efforts. In commercial banking, we have seen important growth in small businesses, which increased loans by 25% year over year. We continue to see a strong potential in this business given our current small market share. The commercial portfolio as a whole grew eight year over year when adjusted by FX, gaining 10 additional basis points of market share. This strong performance is supported by our strategy to deepen with key midsized company clients, unlocking additional cross-sell opportunities and leveraging synergies with Yape to enhance our value proposition, especially in the small business segment, where our digital and payment capabilities Ivan Peill: set us apart. Michela Casassa: The consumer portfolio has had three consecutive quarters showing growth. At the same time, the mortgage segment continued its positive trajectory, achieving a market share above 16%. Luis Felipe Castellanos: In insurance, we are maintaining our focus on long-term products Michela Casassa: as Individual Life has shown encouraging growth this year. Finally, in Wealth Management, assets under management continued to grow at a healthy pace, up 16% year over year, reaching new record levels, a reflection of both market performance and continued client engagement. On slide 28, let me give you a review of the operating trends of 2025. Capital ratios remained at sound levels, with a total capital ratio of 16% and core equity Tier 1 ratio at 12.5%. Our ROE for the year was 16.8%, surpassing our guidance for the year. For loan growth, we grew 3.7% at 6.5% if we adjust for the FX appreciation. NIM had a slight recovery over the last quarter, with a full-year ratio of 5.2%. Finally, we continue to focus on efficiency at Intercorp Financial Services Inc., as our cost-to-income ratio was around Luis Felipe Castellanos: 33–37%, sorry. Michela Casassa: On slide 29, let's go through our expectations for 2026. For 2026, we expect our ROE to be around 17%, an improvement with respect to the full year 2025 and closer to our 18% midterm target. For loan growth, we expect a high single-digit growth above 2025 growth, driven by both commercial banking and the recovery of the consumer portfolio. We expect this to be above the system, with the aim to continue gaining market share in key businesses. Finally, we will continue to focus on efficiency at Intercorp Financial Services Inc., and we expect to maintain a cost-income ratio of around 37%. Let me finalize the presentation with some key takeaways. First of all, we saw solid performance across all businesses and our core operations. Second, our higher-yielding loans continue with a positive trend in both consumer and small business financing. Third, we continue to see improvement in the risk-adjusted NIM helping profitability. Fourth, we are strengthening primary banking relationships with our retail clients. Fifth, our insurance business keeps delivering solid double-digit growth. And finally, our Wealth Management business continues to deliver double-digit growth as well. Thank you very much, and now we welcome any questions you may have. Operator: Our apologies for the technical difficulties experienced earlier on today's call. We thank you for your patience and understanding. At this time, we will open the floor for your questions. First, we will take the questions from the conference call and then the webcast questions. Key on your touchtone phone. Questions will be taken in the order in which they are received. If at any time you would like to remove yourself from the questioning queue, please press star then 2. Again, to ask a question, please press star then 1 now. And for the webcast viewers, simply type your question in the box and click submit question. We will pause momentarily to compile our questioners. Our first question will come from Ernesto Gabilondo with Bank of America. Please go ahead. Thank you. Hi. Good morning, Mr. Luis Felipe, Carlos, Luis Felipe Castellanos: Michela. Good morning to all your team, and congrats on the results. First question will be on Ruta de Lima. Just wondering if we should continue to see further impact in 2026, or is this almost done? Second question will be on loan growth and asset quality. So as you said in the presentation, the results, you have started to see more credit appetite towards credit cards and personal loans. So can you give us some color on what is the type of growth you are expecting for each segment, and how should that be translated into asset quality, NPLs, and cost of risk this year? Then I have a question on expenses. 2025, you have like a high single-digit growth. You have been putting efforts in terms of technology, personnel, marketing, so how should we think about OpEx growth this year? And my last question is on your sustainable ROE. I believe in the past, your ROE used to be at the same level of Credicorp, which now is targeting to be around 20%. I believe you are targeting a midterm ROE of 18%. So I was wondering if there is an opportunity to get your ROE more close to your peers at some point, or is something that you are not considering. And also, this 18% expecting it to be achieved probably likely in 2028. That will be all for me. Thank you. Luis Felipe Castellanos: Okay. Ernesto, thank you very much. And again, also, from our side, apologies for the technical difficulties. We are looking into what happened, but going back to your question on those things, thanks again. I am going to go briefly with a summary, and then we will pass it on to the team members so they can make more specific comments. On Ruta de Lima, based on the info that we have, I think this is, again, we have done close to 80% in provision or impairment. Right now, with the information we have, where the legal proceedings are, what we expect is going to happen going forward, we feel comfortable that this should be the effect, and 2026, we should not see anything else. There might be some positive developments that change this in the medium term, but for the short term, I think we feel pretty confident that this is the impact that will go through our books related to this name. In terms of loan growth, I think it is encouraging what we have seen in the last quarter. Again, especially higher-yielding loans are starting to pick up. We do expect this trend to continue through next year, and overall, if those loans start picking up as we hope, then obviously, the cost of risk related to those high-yielding loans will come with that portfolio. In terms of expenses, I think we will continue to invest. So overall, in the three businesses, we keep strengthening our teams, we keep investing in technology, and we are seeing more volume overall. So probably the trend is going to be very similar to this year. And lastly, in terms of the ROE, our midterm view is, again, 18% plus. We are not getting married to any specific number. Obviously, if the Peruvian system evolves the way we expect, we should see similar numbers to pre-pandemic, but we are taking it slowly because, again, the nature of volatility that has impacted the system because of Luis Felipe Castellanos: some Luis Felipe Castellanos: political issues has made the nature of growth in Peru not as strong as we had before. While that continues to unveil, we get kind of an optimistic conservative approach towards growth. But, obviously, if 20% ROE is achievable, we do think we have a platform that could take advantage of that. Now let me stop and I am going to pass it on specifically for your question one and two to Gonzalo, and Carlos afterwards to see if there is anything that they want to complement. First, Gonzalo, anything more that you would like to say on Ruta de Lima? You are mute, I think, Gonzalo. Ivan Peill: Yes. Hi, everybody. Gonzalo Basadre: During our last call, we mentioned that after the closing of the tolls, we will do an additional charge on Ruta de Lima in the fourth quarter, and we reviewed, and we think we have a very conservative value in what is left on investment. It is around 20%. With the information we have now, we think that there will not be any additional charges on that investment. Luis Felipe Castellanos: Okay. So that is good. Now, Carlos, can you help us with a little bit more detail in terms of loan growth and asset quality as asked by Ernesto. Gonzalo Basadre: Yeah. Thank you. Absolutely. Hello, Ernesto. Thanks for your question. Ivan Peill: So regarding Luis Felipe Castellanos: loan growth, particularly higher-yielding loan growth, which is credit cards and Carlos Tori: personal loans and SMEs. Gonzalo Basadre: We have started growing that Carlos Tori: 2025, I would say, more on the 2025. However, the market is mixed because of the AFPs' withdrawals. So a lot of the growth that we had was amortized by the clients towards November and December. That was an effect that curtailed our growth. But we still grew in personal loans and credit cards around 2.3%, 2.5% in the last quarter. We expect that to continue and accelerate in 2026, based on the things that we are doing and our risk appetite, but also on the fact that this is liquidity that Michela mentioned from the AFPs. What this will do is it would probably increase cost of risk slightly, not because we want to increase cost of risk per se, obviously, but because it is a more efficient frontier in terms of profitability and risk. So we will probably go closer. Last quarter was below 2%, our cost of risk, and we will probably get closer to 2.5 or something around historic environment. So I think that answers the question. I do not know, Ernesto, if you have any follow-up questions on that. Luis Felipe Castellanos: No. No. Yes, sir. Excellent. So cost of risk around 2.5% for this year. And in terms of loan growth, you were saying more gradual increase in these high-yield loans. What about corporate loans? I believe maybe after the election, they can start to pick up. So just wondering how you are seeing that segment. Ivan Peill: All right. Just to be clear, the cost of risk is not a target. Carlos Tori: It is probably a trend that will happen as you get higher-yielding loans. Corporate loans, as you know, we have good relationships with our main clients in Peru. We work closely with them in short term and long term. Corporate growth will depend on mainly two things: the amount of CapEx that goes on, and probably there has been good CapEx in 2025. It will probably slow a little bit until we have more vision on the elections. But there is a lot of things coming in. And then bond offerings. As long as there are more bond offerings, the bank, we foresee some growth, the banks kind of shrink, just because the economy will grow and there will be investment, but it will not be necessarily our leading portfolio. Luis Felipe Castellanos: Perfect. No. Thank you very much. Just a follow-up in terms of the ROE because the talking about the ROE was stopped, the audio, so can you repeat again how you see the evolution of the ROE and if you think at some point the 20% could be reachable? Luis Felipe Castellanos: Yes. Thank you, Ernesto. So again, the ROE, if you see the way we look at ROE, Inteligo and Interseguro are already operating at ROEs north of 20%. The one that is growing and recovering is the bank, and that pace of recovery will depend on how fast we can Operator: rebuild Luis Felipe Castellanos: more relevance of the consumer and higher-yielding book. So again, we do see an 18% plus ROE in the medium term as this book continues to evolve. And as we continue gaining efficiency and scale, the 20% plus is achievable as long as the Peruvian economy continues to perform well. And so, yes, we are not saying it is not achievable. However, in the medium term, we do need to see the higher-yielding book recover so the ROE of the bank improves, to be able to push towards north of 18% ROEs. Luis Felipe Castellanos: Perfect. Very helpful. Thank you very much. Luis Felipe Castellanos: Thank you, Ernesto. Operator: The next question will come from Daniela Miranda with Santander. Please go ahead. Luis Felipe Castellanos: Good morning. Thanks for taking my question. Two very quick ones from my side. Unknown Analyst: The first one is we noticed there was no formal guidance provided on NIM. Could you share some additional color on how you are thinking about NIM in 2026? And also, we continue to see volatility in the results of Interseguro and Inteligo in terms of running P&L due to the investment portfolio. What is your medium-term profitability outlook for these businesses? And are there any specific initiatives underway to help mitigate this earnings volatility? Gonzalo Basadre: Thank you. Okay. Thank you. I am going to start by Luis Felipe Castellanos: your question number two. Again, our medium term and our structural profitability for both businesses is 20%. Obviously, especially Interseguro is investment-related. So whatever happens with the market will have an influence in the results. That is why you see a little bit more volatility. Same happens especially with the prop book of Inteligo. We have a mixed strategy there. As you know, we do have a nice fee business growing and very stable, but then our book brings in some volatility that is dependent on the evolution of market in terms of investment results. But we do see 20% ROEs for those businesses year in, year out, and going forward, and that is the structural view that we have on it. In terms of NIM, again, I am going to let Michela go over that answer, but as long as the higher-yielding book continues to get more relevance, NIM should continue to improve. So that is what we are expecting for next year, but maybe Michela can help us with a little bit more detail on that. Michela Casassa: Yeah. Just to add that, as the higher-yielding loan portfolio grows, that should positively impact yield on loans, and we also expect an additional improvement of cost of funds, not as big as we have seen in 2025 because I guess a portion of that was also related to decreasing rates. But we still see potential for further decreasing cost of funds as we continue to improve the mix of the efficient funding, with all the things that we are doing both in retail banking but also with the payment ecosystem with Yape and commercial banking. So NIM should slightly increase during 2026. Now we saw it already in the last quarter, 10 basis points. So we should see a further improvement in NIM and in risk-adjusted NIM throughout 2026. Luis Felipe Castellanos: Thank you, Michela. Very clear. Thank you. Operator: The next question will come from Yuri Fernandes with JPMorgan. Please go ahead. Luis Felipe Castellanos: Thank you. Good morning and congrats Yuri Fernandes: for the quarter or for the year. I have a question regarding your deposits. For you to deliver a high single-digit loan growth, how do you imagine your funding also growing? And this year, deposits are growing less. They are growing, I do not know, five above loans, but I think this is not enough for a nine. Just checking here in the figures, I guess there was a good improvement in funding cost, like more expensive funding lines were reduced, you were growing your more retail deposits. So basically, you were focusing on cheaper lines. And I read the message from Michela from the past answer was that margins will expand on the asset side, on the mix. So just checking the liabilities, should we see maybe, for you to deliver the funding growth you need, a higher funding cost for you into 2026? And then just a follow-up on Ernesto's many questions just on the ROE. This was a reported 16.8% ROE. If you adjust for Ruta de Lima, that hopefully is getting over given the amount of exposure you have, why not more than 17% ROE for the next year? If insurance and the other businesses are running already at 20%, it is a better year, why not a higher ROE for this? Thank you. Luis Felipe Castellanos: Okay. Thank you, Yuri, for your questions. And let me go over the last one again. Again, it will depend on, if you see, the bank is around to continue to recover. The ROE of Interbank is the one that, obviously, Inteligo had a soft ROE quarter, very strong year. But, again, it will depend on the pace of recovery of the higher-yielding book of the bank. Carlos Tori: So Luis Felipe Castellanos: more than 17% that is achievable. It is achievable, but it depends on many situations. So that is why we are guiding at around 17%. It is an electoral year. So the pace of recovery is still to be seen. Again, we have seen that we have had releases of pension funds that is curtailing our ability to grow as strong as we want. So we are probably on the conservative side in terms of what will happen. If the opportunities for growth are there in the book, we will take advantage of that, and that should have a positive impact in ROE as well and in NIM for the bank. But, again, we feel more comfortable in looking at a smooth recovery, not an aggressive recovery. And then in terms of deposits, yeah, we are focusing very much on low-cost deposits. Our retail banking platform allows us to continue growing there, and also the strategy that we are deploying with Yape is key for that. So we do expect this to continue growing in the next year and having an impact in our cost of funds base. But let me pass it on to Carlos so he can connect this with the strategy that we are deploying so you can have a more ample picture. Carlos Tori: Yeah. Thank you, Mr. Luis Felipe and Yuri. Yes. A little more detail on what we said, but as you can see our loan-to-deposit ratio is low. The fourth quarter was 92%. We have been growing deposits, but more than focusing on overall deposits, we have been focusing on low funding or low-cost deposits, and that has grown more this year than the last. And that, as we mentioned, comes in two ways. Plin continued to grow Operator: well Carlos Tori: across the years, really. And 2025 was not an exception. Obviously, at the end of the year, helped by the pension fund, but we also get some of that in January and February. So we will continue getting that. And the other source of Yuri Fernandes: funding Carlos Tori: is the payments ecosystem. It is Plin. It is the funds that come from Yape to the accounts at the bank. Expect that to continue. So we will continue to grow low-cost funding. Maybe the overall size of deposits will continue to grow, but we are more focused on the mix. And that is what would help cost of funding and NIM. So that is the strategy. Yuri Fernandes: No. Thank you very much, Carlos and Luis Felipe, for the answers. Luis Felipe Castellanos: Thank you, Yuri. Operator: The next question will come from Carlos Gomez with HSBC. Please go ahead. Yuri Fernandes: Good morning. Congratulations and thank you for taking my questions. The first one is actually another way of asking the same thing everybody has asked too. Nicolas Riva: We are obviously in an upswing for retail and for demand. And I guess my question is, to what extent do you think this is temporary because of releases from the pension funds or other factors, or it is a permanent upturn? Essentially, how long do you think that the good times are going to last? You probably do not have an answer, but I would like to know what your best case is. Second, referring to Plin, I was trying to find some numbers, but I do not see them in the presentation. What would you say the market share of Plin is today? And what is your market share within Plin? Thank you. Okay. Luis Felipe Castellanos: We hope that good times last for many months or years. Go ahead. But, Carlos, what we think is, let us see. Again, the pension fund releases and the severance deposit releases actually are a stopper to loan growth. Because people use those funds, obviously, for some consumption and for debt activity, but also to repay debt or not get into more personal loans. So when that dries up, and we do expect that to happen starting the second quarter of this year, we are probably going to see a stronger demand for personal loans in the portfolio and in the system as a whole. So it is a little bit cumbersome, but the releases of funds actually stop a little bit the growth profile of the portfolio. Now we are seeing good macro numbers in Peru. The sentiment is positive. The confidence indexes are at high levels. The labor numbers are looking good. The consumption indexes are also stronger. So there is a structural improvement in Peru's macro front that is having a positive impact in terms of growth as well. We do expect that to continue during this year. Hopefully, it will flow through to 2027 and moving forward. Again, the big question mark is, is Peru going to have noise on the elections of April? Is this going to be something similar to what we had before? We do not think so. Our base case is that that is not going to be the situation. But, again, we know Peru, and we cannot discard that the volatility from the political situation will be there, and let us see how elections at the end evolve. There is some noise right now actually in the political front. Peru has become a surprise in terms of political instability Carlos Tori: that Luis Felipe Castellanos: is not affecting economic numbers, but obviously, given that it is an electoral year, there could be some investments being delayed, investor confidence coming down, consumer sentiment changing routes because of this potential noise. So that is the only question mark that we have, but we do see that the structural improvement of the macro front, coupled with the strong commodity prices, position Peru to continue having a strong currency, low inflation, and accelerated growth. In that backdrop, the financial system and Intercorp Financial Services Inc. and Interbank itself should continue to benefit from that environment. And then regarding Plin, let me pass it to Carlos, who has a little bit more detail on that. Carlos? Carlos Tori: Excellent. Yeah. The reason we do not disclose market shares in Plin and Yape is because there is no official source for market shares. We build an estimation based on what our competitors say in the market. So we believe Plin currently has about 15% of the P2P and P2M market. So P2P is person to person, and then also using Plin to pay at a merchant. We believe Plin is somewhere around 15%. And Interbank is a little bit over half of that. That is our estimation. I think it is well founded, but there is no definite source on it. We do see growth above 40%, 50% per year. We continue to see very healthy growth in terms of users and in terms of transactions per user. So it has been growing and it is contributing to our ecosystem. So, I think that is as much as I can share. I do not think I can share more, but that should give you a sense Yuri Fernandes: of where we are at. Nicolas Riva: Could you remind us, I mean, no other piece of information, but as far as we know, there are two of you and you have your numbers. So as long as Yape gives theirs, you should have a full picture, or are we missing somebody? Are we missing some other operator? And over time, is the market share of Plin increasing or decreasing? How do you see this market evolving? Carlos Tori: Okay. So yes, there are a few, like, there are other banks that are not part of Plin or Yape. That is one. And they go through the CCE and we are all interconnected. So that is one part. It is a small part. The main area is sampling. What I do not get to see, and I only get to see on the reports, is when Yape sends to another Yape user. We do not see that. We only see when Yape sends to Plin and when Plin sends to Yape. That is the reason we do not see the exact share. So there is a mix of the players that are not Plin or Yape, and then there are on-us or on-them transactions. And then, in terms of share, yes, we are growing. It is still small, so we think there is a lot more potential to grow faster and to continue to grow. But, yeah, we are growing. Yes. And I think that something very positive is that we do see that our Luis Felipe Castellanos: customers that use Plin have much more activity with us, more principality, now we become a principal bank, NPS is higher, and obviously churn is smaller. So the numbers are adding up nicely in terms of building up on the strategy that the bank is deploying. Nicolas Riva: Absolutely. Thank you. Carlos Tori: Thank you. Luis Felipe Castellanos: Thank you, Carlos. Operator: The next question will come from Alonso Aramburu with BTG. Please go ahead. Nicolas Riva: Yes. Hi. Good morning, and thank you for the call. I wanted to maybe double-click on the performance on consumer loans. Dynamics clearly are better than in the last couple of quarters. Yuri Fernandes: If you look at your market share, you have been losing market share, Nicolas Riva: roughly one point in the last twelve months. So maybe you can comment on the competitive dynamics. What are you seeing? Who is gaining share? Is it related to payroll loans where you have seen negative growth over the past twelve months? And have you seen any change in this trend for 2026? Thank you. Luis Felipe Castellanos: Yeah. Thank you. Thank you, Alonso. Yeah. I think payroll-deductible loans to public sector employees, that is a market that for us is not growing that much. You have identified it well. And it obviously has an impact. And then I think that we have been digesting what happened in 2023/2024. So we are coming back to market probably a little bit later than some of the competitors, but again, we have been in this business for many years. We know how cyclicality can be, and we have been working in making sure that the equation adds up. And so we are returning with a little bit more of risk appetite, but, obviously, we have been strengthening our underwriting standards and working through our models in order to make sure that we do not face any issues in the near term or medium term. That is probably, adding all up, you will see the results that we have seen, especially in the first half of the year. But as Carlos mentioned, we have seen acceleration in the third and especially in fourth quarter in terms of velocity of growth. But I am going to pass it to Carlos so he can complement a little bit more on that specific competitive dynamics that we are seeing. Carlos? Oh, absolutely. I think there are two different Carlos Tori: so convenience, not payroll loans. They have their own environment. We are the leaders there. Obviously, it is a good market, but it grows slower than the rest of the market. As the leader, we are looking at keeping the relationship with our clients, the economics, and that has a much different performance compared to loans and credit cards. So where we stopped in 2023/2024 was loans and credit cards. And as Luis Felipe mentioned, we started to grow again and increase our risk appetite in 2025. We will continue to do that, but we want to do it in a very responsible way. As you know, in the consumer book, big spikes in growth never end up well. So we have been doing it well. We have been growing. You would have seen a lot more growth if it was not for the AFP withdrawals. I think that is something that set us back a little bit in terms of growth, but not in terms of usage of our credit card, usage of our payment solutions. We continue to see growth and engagement there. So we are very positive that over the next couple of months, we will have growth and recuperate some market share. As we mentioned earlier, we are at the beginning of this cycle. It is early, and we know how to do this, and we feel comfortable that the engagement and our value proposition is working well. And it is a matter of increasing the risk in the portfolio slightly, and you will see the growth. So that is the way we are looking at it. The convenience portfolio has a whole different environment that should be more stable. The other portfolio that is growing is SMEs. And that is higher-yielding as well. And that kind of, at the end of the day, brings in a little bit of the yield that is not growing with the payroll loans portfolio. Nicolas Riva: Great. Thank you for the color. Luis Felipe Castellanos: The next question Operator: The next question will come from Daniel Mora with Credicorp Capital. Please go ahead. Hi, good morning and thank you for the presentation. I have just Yuri Fernandes: one follow-up question. Luis Felipe Castellanos: The normalized ROE in 2025 was Yuri Fernandes: close to 18.5%. So I am wondering now, or I would just like to clarify, what is stopping Intercorp Financial Services Inc. from reaching a similar figure and achieving an 18% ROE besides the Ruta de Lima, in which we do not expect more additional impairment. What will be those factors that you expect will not repeat this year and that favored 2025 results? And thus, what will be the ROE expectations for each company in the 17% ROE scenario for this year? Thank you so much. Luis Felipe Castellanos: Thank you, Daniel. Yeah. Well, I am going to go again. So it was a very strong year for some of our investments, especially Inteligo, and also some investments we have at a holding company level that is closer with the SCTR. So that was very positive. And, again, the more stable, sustainable higher ROE will have to come from the continued recovery of the bank. While the consumer and higher-yielding loans book recover in stance, if you see that last quarter ROE for Interbank itself was around 16%. So that needs to continue into a more positive way. And that will come again as a result of a higher-yielding loans building up in our portfolio, and that is a process that Carlos just explained. So that is what is holding us back a little bit in terms of how fast we can achieve that medium-term objective. So I hope that answers your question. Ivan Peill: Yeah. Perfect. Thank you so much. Very good. Thank you. Operator: At this time, we will take webcast questions. I will now turn the call over to Mr. Ivan Peill from Inspire Group. Ivan Peill: Thank you, operator. The first question comes from Shane Matthews of White Oak Investors. Hello, congratulations on the results. As you increase the share of higher risk loans, do you expect to maintain the same level of coverage of 2025? Luis Felipe Castellanos: Okay. Thanks for your question. I am going to pass it on to Michela. I am assuming, yes, the coverage comes in line with higher provisions due to the cost of risk increasing because of those loans. But that mathematics in terms of coverage, Michela, maybe can help me. Michela Casassa: No. Yes. Not much to add, actually. Yes. As Carlos mentioned before, as we are increasing the high-yielding loan portfolio, we should see an increasing cost of risk. And the levels of coverage, we should remain very similar to the ones that you see in 2025. Luis Felipe Castellanos: Okay. Ivan Peill: The next question comes from Anand Bavnani, also of White Oak Investors. Given it is an election year, what are the key risks that you would watch out for? Luis Felipe Castellanos: Okay. Thanks very much for that question. I guess I am going to put it in two fronts. Yes, it is an election year. Again, we do not see big disruptions coming into the market. Our base case is of continued stability, true growth. What we have seen in previous elections is some candidates that are not market-friendly start to rise up in terms of the polls. And then people start losing confidence and investments start getting delayed. So that is a risk that we see to growth in the coming months. That something changes in terms of the political environment, and some radical proposal or not market-friendly type of disruption becomes a risk in the political scenario. So that is the election period itself. And people will delay and companies will delay some decisions because of this. And then the second front is what actually happens. Who gets elected? And, again, the risk is for someone that is not market-friendly being elected, trying to change certain things that support growth, stability, the currency being stable, or issues that will come with inflation. So basically, that is the reason. It is a political risk of somebody changing the rules of the game. The probability is not high, but, again, we are in Peru and we have gone through some volatility because of this before. So that is the way we see it. So we need to see what happens in elections and what happens with the actual candidate being elected as president. Now, again, our base case is of continued stability, continued growth, continued strength. I guess Peru has proven that their economic-related institutions are very solid, very well respected. They do their work pretty well even under the previous election, and when President Castillo was elected, that was not touched. That was not changed. So we feel very, very confident on that continuing to work it out. Strong Superintendency, strong Central Bank, strong Ministry of Economy and Finance. But, again, those are the political risks that we are looking at. So I hope that answered your question on that front. Ivan Peill: We have a follow-up question from Anand Operator: Bavnani. Ivan Peill: of White Oak Investors. Given the boom in copper and lower price of oil, do you anticipate GDP growth to have upside risk and inflation to have downside potential, both of which could be a tailwind to help you do better? Luis Felipe Castellanos: Yes. Obviously, those are positive factors that could influence stronger performance of the Peruvian economy. Obviously, that would help the currency to continue in its strength. It is a strong pattern. As Michela mentioned, the Peruvian sol has appreciated 10% this year. We do not foresee, if the commodity prices continue to be strong, probably the sol will continue to follow that path. Inflation will continue under control. And having good export results and low cost of energy would help improve some productivity, and that should have positive winds towards our economic performance as a whole. The Peruvian financial system should be a multiplier of that, and again, Interbank and Interseguro and Inteligo, we have a platform that can definitely look at the opportunities that that positive situation approaches. So there is an upside risk on that front that we are prepared to take advantage of, and we are looking very carefully at those opportunities. Now again, the big question mark can be the political situation, but that is going to clear up in a couple of months. So we will have a more clear picture probably for the next quarter. Ivan Peill: At this time, there are no further questions. I would like to turn the call over to the operator. Operator: Thank you. And we are not showing any audio questions as well. I would like to turn the floor back to Ms. Casassa for any closing remarks. Michela Casassa: Okay. Thank you very much, everyone, for being with us today. Sorry again for the inconvenience, and we hope to see you all on the next quarterly conference call. Thanks again. Nicolas Riva: Bye, everybody. Operator: This concludes today's conference call. You may now disconnect.
Operator: My name is Bella, and I will be your conference operator today. At this time, I would like to welcome everyone to Independence Realty Trust, Inc. Q4 and Full Year 2025 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. We do request for today's session that you please limit to one question and one follow-up. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. To withdraw your question, press star then one again. I would now like to turn the conference over to Stephanie Krewson-Kelly, Head of Investor Relations. You may begin. Good morning, and thank you for joining us to review Independence Realty Trust, Inc. fourth quarter and full year 2025 financial results. On the call with me today are Scott Schaeffer, Chief Executive Officer; James J. Sebra, President and Chief Financial Officer; Janice Richards, Executive Vice President of Operations; and Jason Lynch, Senior Vice President of Investments. Today's call is being recorded and webcast through the Investors section of our website at irtliving.com, and a replay will be available shortly after this call ends. Stephanie Krewson-Kelly: Before we begin our prepared remarks, I will remind everyone we may make forward-looking statements based on current expectations and beliefs as to future events and financial performance. These statements are not guarantees of future performance and involve risks and uncertainties that could cause actual results to differ materially. Such statements are made in good faith pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and Independence Realty Trust, Inc. does not undertake to update them except as may be required by law. Please refer to Independence Realty Trust, Inc.'s press release, supplemental information, and filings with the SEC for further information about these risks. A copy of Independence Realty Trust, Inc.'s earnings press release and supplemental information is attached to Independence Realty Trust, Inc.'s current report on Form 8-K that is available in the Investors section of our website. They contain reconciliations of non-GAAP financial measures referenced on this call to the most direct comparable GAAP financial measure. With that, it is my pleasure to turn the call over to Scott Schaeffer. Thanks, Stephanie, and thank you all for joining us this morning. 2025 was a solid year for Independence Realty Trust, Inc. Scott Schaeffer: During another year of challenging market fundamentals, we delivered same-store NOI growth that exceeded our initial guidance. We also adopted new technologies that will drive operating efficiencies and cost savings for years to come. Some of the most impactful initiatives included implementing our AI leasing agent to support the time and talents of our property teams, fine-tuning how we manage bad debt, and reducing the turn time on our value-add renovations to an average of just 25 days. We also successfully rolled out our Wi-Fi initiative and will be expanding it to 63 communities covering 19,000 units as part of our 2026 plan. On the capital front, last year, we sold two older communities and redeployed the proceeds into three newer communities with higher rental rates and lower CapEx profiles. We profitably exited two joint ventures, and invested into new joint ventures. Lastly, we purchased 1,900,000 of our shares, taking advantage of market dislocation. Because of these and other initiatives, our company is stronger than ever and ready to capitalize on the growth opportunities ahead. So before I say anything else, I want to thank the entire Independence Realty Trust, Inc. team for last year's extraordinary efforts and successes. Regarding capital allocation, we continue to view investments in our value-add program as our best use of capital. In 2025, we renovated 2,003 units, achieving an average unlevered return on investment of 15.3%. In 2026, we expect to renovate between 4,500 units at ROIs that are consistent with our historical results and have added six new communities to the value-add program. We expect market fundamentals to continue to improve across our portfolio of well-located communities in desirable submarkets. In 2026, CoStar forecasts inventory will increase by 2.1% across our markets, weighted by our NOI exposure. This increase is significantly lower than the 3.7% increase in 2025, the 5.9% increase in 2024, and the 3.2% long-term average prior to 2024. Drivers of apartment demand in our markets remain solid. Job growth, population growth, and household formation rates within our markets are expected to outpace the national average for 2026. For example, according to CoStar, job growth across our markets is forecasted to average 60 basis points, double the national average of 30 basis points. Our major markets like Atlanta, Dallas, Indianapolis, and Raleigh are forecasted to achieve 50 to 80 basis points of job growth. This shows that people will continue migrating to our markets for employment opportunities and a better quality of life. As evidenced in the 2025 U-Haul Growth Index, nearly 70% of our NOI is generated from communities located in seven of the ten highest in-migration states. And the high cost of homeownership will continue to support apartment fundamentals. Against this backdrop of improving supply and demand, we see the majority of our markets recovering this year. With that, I will now turn the call over to James J. Sebra. James J. Sebra: Thank you, Scott, and good morning, everyone. Core FFO per share during the fourth quarter and the full year of 2025 was $0.32 and $1.17, respectively, in line with our guidance. Same-store NOI grew 1.8% in the quarter, driven by a 2% increase in same-store revenue and a 2.4% increase in operating expenses over the prior year. For the year, same-store NOI increased 2.4% based on 1.7% growth in revenues and a 50 basis point increase in operating expenses. We are pleased with our performance this year amidst a difficult environment and ultimately delivering better same-store NOI growth than we originally anticipated. As compared to the prior year period, fourth quarter same-store revenue growth was led by a 124 basis point improvement in bad debt over 2024, a 60 basis point increase in average effective monthly rents, and partially offset by a 10 basis point decrease in average occupancy. The year-over-year increase in fourth quarter same-store operating expense was due to higher repairs and maintenance related to a greater volume of turns, timing of certain projects, and increased contract services related primarily to ancillary services offered to residents that were offset by other income. These cost increases were mitigated by overall lower real estate taxes and insurance costs. For the full year, 2025 same-store revenue growth was led by an 80 basis point increase in average effective monthly rents, a 30 basis point increase in average occupancy, and a 70 basis point improvement in bad debt year over year. Same-store operating expenses in 2025 were modestly higher than in 2024 due to higher advertising and contract service costs largely offset by lower insurance and real estate taxes. Sequential point-to-point occupancy during the fourth quarter in our same-store portfolio was stable at 95.6%. Our strategy of having higher year-end occupancy is supporting the solid start to 2026 leasing, which I will address momentarily. Rental rate growth in the quarter was in line with our expectations. New lease trade-outs in the seasonally slower fourth quarter were negative 3.7%, 20 basis points lower sequentially from the third quarter. Renewal rates increased 30 basis points to 2.9% in the quarter and resident retention increased another 100 basis points to 61.4%. Regarding leasing so far in 2026, asking rents in our same-store portfolio have increased 73 basis points since December 31, and new lease trade-outs remain consistent with the fourth quarter. Renewal lease trade-outs in January were 20 basis points higher than in Q4. We are making good progress on our February and March renewals and expect to achieve approximately 3.5% trade-outs for those months. This leasing activity to date is in line with the trajectory of our 1.7% blended effective rental rate growth assumed in our 2026 full year guidance, which I will discuss momentarily. Regarding transactions, during the quarter, we sold the 356-unit community that we had held for sale in Louisville for $15,000,000, reflecting an economic cap rate of 5.2%. Also during the quarter, we entered into a new joint venture in Indianapolis to develop a 318-unit community that is slated for completion during 2027. Subsequent to the quarter, we purchased a 140-unit community in Columbus for $30,000,000, which represented an economic cap rate of 5.6%. The community is located two miles from existing Independence Realty Trust, Inc. communities. We also acquired our JV partner's 10% interest in the Tisdale at Lakeline Station in Austin, Texas, and began consolidating this $115,000,000 asset on our balance sheet. The property is fully developed and currently in lease-up. We have been busy on the capital markets front as well. During the quarter, we allocated $30,000,000 to buy back 1,900,000 of our common shares at an average price of $16 per share. Additionally, we entered into a new $350,000,000 four-year unsecured term loan and used the proceeds to repay our $200,000,000 term loan and mortgages that mature later this year. Our balance sheet remains flexible with strong liquidity. As of December 31, our net debt to adjusted EBITDA ratio was 5.7x, and we intend to continue improving this ratio to the mid to low 5x. Adjusting our full-year stats for the term loan activity I just discussed, we have zero debt maturities between now and 2028. Turning to our outlook for 2026, our markets are in various stages of recovery driven by receding supply pressures and demand fueled by job growth, continued population, and migration into our markets. In this improving leasing environment, we expect to drive NOI growth by capturing recovery market rents and maintaining our focus on operating efficiencies to keep costs low, while providing a well-maintained, safe environment for our residents and their families. We are establishing full-year EPS guidance of between $0.21 and $0.28 per share and core FFO guidance in the range of $1.12 to $1.16 per share. The bridge from our $1.17 starting point of core FFO in 2025 to the $1.14 midpoint of our 2026 guidance includes the following components: a $0.01 increase from same-store NOI growth and a $0.01 increase in non-same-store NOI growth. These two are offset by $0.01 from lower preferred income from our joint ventures during the year, $0.03 of higher interest expense caused primarily by lower levels of capitalized interest, incremental interest expense from recent acquisitions, and the expiration of our 2026 SOFR swap, and $0.01 associated with higher corporate costs reflective of inflationary pressures and increased training and development costs for our community teams. Our 2026 guidance assumes same-store NOI increases 80 basis points at the midpoint driven by 1.7% same-store revenue growth and a 5.1% increase in controllable operating expenses, and a 50 basis point increase in noncontrollable operating expenses, resulting in overall a 3.4% increase in total same-store operating expenses for the year. The midpoint of our same-store rental revenue growth of 1.7% is based on the following assumptions: average occupancy of 95.5%, an average increase of 20 basis points from 2025; bad debt of 90 basis points of revenue, which is approximately 20 basis points lower than 2025; a 5.4% increase in other income, primarily comprised of the incremental revenue from our Wi-Fi program of $5,500,000, which is expected to commence in July 2026; and lastly, a blended effective rent growth of 1.7%. Operator: Our blended rental rate growth assumption James J. Sebra: is comprised of new lease trade-outs of negative 75 basis points and a renewal trade-out of 3.25%, along with a resident retention rate of 60%. As part of our rental rate expectation, we are expecting that market rents will increase approximately 1.5% to 2%. Operating expenses are expected to grow 3.4% at the midpoint, driven by a 5.1% increase in controllable operating expenses and a 50 basis point increase in property tax and insurance expense. The 5.1% increase in controllable operating expenses includes $1,900,000 of Wi-Fi contract costs in our contract services line item. Excluding the Wi-Fi costs, our controllable expenses are increasing 3.5%. The 50 basis point increase in noncontrollable costs is comprised of a 2.6% increase in real estate taxes and an 11.5% decrease in property insurance costs. Our non-same-store portfolio to start 2026 consists of eight communities aggregating 2,541 units. Two of these communities are currently held for sale and are expected to be sold by midyear. The remaining six communities include two communities that are in lease-up: our legacy development deal in Bloomfield, Colorado, and our most recent JV acquisition in Austin, Texas. Both of these deals are leasing up, albeit at a slower pace than anticipated and with larger concessions than we previously modeled. We expect both these communities will reach their targeted NOI just later than expected, as rent growth will come once the communities hit a stabilized occupancy. Overall, for 2026, the midpoint of our guidance assumes non-same-store NOI of between $25,000,000 to $26,000,000. G&A and property management expense guidance for the full year is $56,000,000, reflecting standard inflationary growth and incremental costs associated with expanded training and development of our community teams. We forecast an $8,000,000 increase in interest expense driven primarily by $3,000,000 of higher interest expenses associated with our net acquisitions last year and our two acquisitions earlier this year, $3,900,000 of lower expected capitalized interest on development projects, and $1,000,000 associated with hedges burning off. Scott, back to you. Scott Schaeffer: Thanks, Jim. The outlook for 2026 is meaningfully better than 2025. Some headwinds remain in a few markets where supply is still being absorbed, but in all cases, market fundamentals are improving. Demand in our submarkets continues to be driven by population and job growth that exceed the national average. People continue to migrate to the Sun Belt and Midwest for jobs and quality of life. And the lower cost of renting favors apartment demand. We will maintain our focus on operational stability and efficiency to maximize the flow of revenue growth to the bottom line, and we will remain nimble and disciplined in allocating capital to the highest and best uses to create value for shareholders. We thank you for joining us today. Operator, you can now open the call for questions. Operator: At this time, I would like to remind everyone in order to ask a question, press star then the number one on your telephone keypad. We do request for today's session that you please limit to one question and one follow-up. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Austin Todd Wurschmidt with KeyBanc Capital Markets. Your line is now open. Please go ahead. James J. Sebra: Hey. Good morning, guys. Jim, just curious how the new lease rate growth assumption, 75 basis point decrease this year, does that fully incorporate that you capture the 1% to 2% market rent growth? And then can you break out how that 75 basis points is comprised for the first half of the year and then the back half of the year? Yeah. Great question. Thank you for, Austin, obviously, the insight. The 75 basis points of new lease obviously starts negative in January, like I kind of mentioned, very consistent with fourth quarter, and continues to get better throughout the year. The new lease growth that we have got baked into guidance for the first half of the year is down about 2.25%. And then the second half of the year, it is up roughly 75 basis points, such that for the year, new lease growth is about—sorry—negative 75 basis points for the year. And that does assume that you capture—I do not know the exact, I cannot remember the exact percentage—but a vast majority of that market rent growth. That is helpful. And then just on the non-same-store pool, I mean, can you talk a little bit about how that stacks up, I guess, versus the same-store pool? It sounds like you have a little bit of slower growth there from some of the drag on the lease-up. But is there any conservatism in that figure based on what you have experienced more recently? And just trying to think about, you know, kind of the brackets on upside downside risk for that pool of assets. Stephanie Krewson-Kelly: Thanks. James J. Sebra: Yes. Great question. I will break it into two components. Janice Richards: Obviously, the same-store properties that we bought last—I'm sorry—the non-same-store that we bought last year are very much performing kind of in line with our expectations. The two deals that are in development are behind where we want them to be from a lease perspective and from, obviously, as I mentioned, a little bit higher concessionary environment. They are both—the guidance numbers assume some conservatism in the buildup of that NOI throughout the year. Specifically, the deal we bought in Austin—the JV we took over in Austin—our expectation is that we will probably end up selling that asset maybe later this year and really begin to kind of cut off some of that drag. But, again, for guidance purposes, it is assumed that we own it for the full year. Stephanie Krewson-Kelly: Understood. James J. Sebra: For the time. Operator: Your next question comes from the line of James Colin Feldman with Wells Fargo. Please go ahead. James J. Sebra: Great. Thanks for taking the question and good morning. Can you talk about the impact of concessions burning off and what you think that will do to help your rent growth projections? And if you could provide any more color on just your confidence in going from the minus two and a quarter to the plus 75, that would be helpful too. Janice Richards: Yeah. No. Great. I will start with the last one. The new lease trend is obviously very much a function of just asking rent trends throughout the year and then, obviously, the expiring rents in each month. As I mentioned in the prepared remarks, our asking rents in January are up 75 basis points from where they were at December 31. As I mentioned earlier, the market rent growth assumption is about 1.5%. We are halfway there. And, obviously, the year has to continue to play out. But we are quite excited to see the strength in the asking rent growth so far this year. When you look at where the asking rents are today versus the expiring rents out month by month throughout the year, you pretty much hit that kind of breakeven point June/July time frame, you turn positive on new lease trade-outs in the back half of the year. From a concession standpoint, we do assume lower concessions in the back half of the year. I do not have the exact improvement at my fingertips, so I will get back to you on that one. But I think, ultimately, it does produce better comps for us in terms of the ability to grow that rental rate, specifically on renewals in the back half of the year. But I just want to be clear. There has been some conservatism baked into what those renewals are just because we want to make sure we had James Colin Feldman: Okay. And then I guess just turning to the markets, James J. Sebra: I think you said most of your markets will be in recovery this year. Can you just talk about some that are the standouts on both the best markets that are kind of surprising you to the upside and where you think the drags will be? And then maybe focus specifically on the Midwest markets where you have unique exposure. Stephanie Krewson-Kelly: Absolutely. So the Midwest—Columbus, Indiana, Kentucky—delivered consistent performance throughout 2025. Operator: Anticipate this to continue in 2026, and all signs and starting point indicate that. And all throughout 2026. Stephanie Krewson-Kelly: Consistent performance, yeah. Operator: Some of our emerging markets, as we would say, is Atlanta showing strong fundamentals Stephanie Krewson-Kelly: delivering a 100 basis points improvement in occupancy and 490 basis point expansion in blended growth from January 2025 to December 2025. James Colin Feldman: So we are positioned to continue this growth Stephanie Krewson-Kelly: and momentum in 2026. Operator: Nashville has maintained stable occupancy through 2025. It created the ability to have pricing power in the second half of the year. Delivered a 280 basis point expansion in blended growth from January 2025 to December 2025. Dallas occupancy remained stable as well through 2025, providing consistent foundation. Stephanie Krewson-Kelly: Blended rent growth is showing momentum. As alluded to, we are excited about the asking rent momentum we are seeing through the start of 2026. So there are clear signs that the market inflection is on its way, and we are anticipating the comparison in the second half of 2026. Operator: Raleigh blended rent growth momentum is building here. Net absorption is projected to be positive in 2026. Stephanie Krewson-Kelly: And so we anticipate seeing that inflection point in 2026 as well. Some of the markets that are weaker are Operator: Memphis. Memphis is facing a slower macro growth environment in 2026, with jobs and population. However, we are going to remain focused on protecting that occupancy while we wait for gradual improvement in the fundamentals Stephanie Krewson-Kelly: and fundamentals start to recover. Operator: New supply is elevated in Denver and in our submarkets. Lease-ups are taking a little longer to stabilize, as we mentioned with Flatiron. And concessions are remaining above normalized levels. Stephanie Krewson-Kelly: We believe primarily this is due to timing of delivery—sorry. Our focus in 2026 is disciplined occupancy management as the market works through the supply, and we position ourselves for 2027. James Colin Feldman: Okay. Great. Thanks for all that color. Janice Richards: Yeah. Jamie, just a quick follow-up. Obviously, the market performance and the new lease performance go, obviously, hand in hand. But when you look at 2024 to 2025 and our thinking about 2026 guidance, there is acceleration in new lease trade-outs in eight of our ten top markets, just to put a finer point on how excited we are about what we see coming and the acceleration of asking rents and the burn-off of—or I should say where the expiring rents are relative to those asking rents. James Colin Feldman: Alright. Thank you. Your next question comes from the line of Eric Jon Wolfe with Citi. Operator: Please go ahead. James J. Sebra: Hi. Thanks. You mentioned that market rent growth was up 75 basis points in January from December. Is that a relatively normal increase from December? Just trying to put it into context with what you normally see at this time of year and maybe what you have Janice Richards: seen over the last couple of months? Eric Jon Wolfe: So Janice Richards: it is probably a little bit faster pace than what we would normally see in the seasonally slower period of January. It is slower, though, than what we saw in January last year. So it gives us confidence that we are back to—while it is a little bit faster pace, it is not as fast or as extreme as it was in January last year. So it gives us confidence that the asking rent growth could firm up in this area. Eric Jon Wolfe: Got it. And then could you talk about how you set your bad debt guidance? Maybe how it trended fourth quarter, where you ended the year, and what you are expecting in 2026 relative to 2025. Janice Richards: Yeah. Great question. For the year of last year, we ended at 110 basis points of revenue. The fourth quarter alone ended at 72 basis points of revenue. For purposes of setting guidance for 2026, we assumed 90 basis points of revenue, starting a little higher in the first quarter—so call it somewhere in the 100 basis point range—and then stepping down to the 80–70 basis point range in 2026. Eric Jon Wolfe: Got it. Eric Jon Wolfe: Thank you. Operator: Next question comes from the line of Bradley Barrett Heffern with RBC Capital Markets. Please go ahead. Eric Jon Wolfe: Yeah. Hey. Good morning, everyone. This is a follow-on to the last question. You said last January had stronger growth than this January did. Obviously, last year, that proved to be kind of a head fake. So I guess what gives you confidence that we are not in a similar situation this time? Janice Richards: Yeah. Well, the asking rent growth in early January of last year was probably three times as high as it is today. We also see just a little more stability around the demand picture. We do not see the ebb and flow that we saw in January and February last year. Eric Jon Wolfe: Okay. Got it. Then you have a couple of assets designated for sale. Do you have a likely use of those proceeds at this point? Janice Richards: We do not have a use of proceeds. We obviously assumed in guidance that they are sold in the middle of the year. And we will use the capital to either acquire something else, delever, or buy back stock. Eric Jon Wolfe: Okay. Thanks. Operator: Your next question comes from the line of Ami Probandt with UBS. Please go ahead. Thanks. I was hoping that you could break down the blended spread forecast into a Sun Belt and Midwest buckets. And then if you could comment on what impact value-add has on the blends, that would be great. Thank you. Janice Richards: Value-add impact on the blends, I will start with that one first. We have a bunch of properties in the value-add program. They do get a nice premium over comps. It is supporting the blend by roughly 70 basis points on the individual units, but for the overall blends, about 20 to 30 basis points of support. In terms of the blended rental rate growth trajectory throughout the year, we expect it to be about 1% in the first half of the year, about 2.5% in the second half of the year. In terms of looking at the individual market growth between the Sun Belt markets, the Midwest markets, and Denver, we expect negative overall blended rent growth in Denver throughout the year simply because, as I mentioned, the overall supply pressures and what it is expected to do on new lease growth. In terms of the Midwest, we expect the blends for the full year to be right around 2.5% to 3%, really supporting it. And then the Sun Belt, you are just under 2%. Operator: Thanks for that. And then how does the lower supply environment impact your decisions around capital allocation for redevelopment? And do you typically see higher returns on redevelopment in the lower supply environment? James J. Sebra: Yes. Of course. Because the Scott Schaeffer: redeveloped units are competing directly with the newer product. With less newer product, we will have better pricing power on our renovated units. Operator: Are you able to provide any context how much higher the returns could be? Scott Schaeffer: Well, last year, the return on investment was about 15.3%. And in years prior to all of this supply hitting, we were in the high teens, 18%–19%, and then in a couple of years, even north of 20%. Stephanie Krewson-Kelly: Correct. Operator: Great. Thank you. Your next question comes from the line of Omotayo Tejumade Okusanya with Bank. Please go ahead. Stephanie Krewson-Kelly: Yes. Good morning, everyone. Was wondering if you could talk James J. Sebra: was wondering if you could talk a little bit about the same-store OpEx guide for 2026. Omotayo Tejumade Okusanya: I think, again, the controllable expenses—you did talk a little bit about the Wi-Fi program having some impact on it. But even ex the Wi-Fi, still about 3.5%, which is kind of higher than where you trended recently. So just kind of curious what else is trending up within those controllable expenses? Janice Richards: Yeah. No. Great question. I think if you look at the rest of the controllable expenses, the increases are primarily heavier increases that I would say above inflationary, primarily in payroll and utilities. They are the other drivers. But, again, even as I mentioned in the prepared remarks, if you remove the cost of the Wi-Fi program, your controllable expenses are only growing about 3.5%. But it is really the payroll and the utilities pushing up a little bit. Omotayo Tejumade Okusanya: And then payroll is because you are hiring more people or you are paying to compete with the market? Just kind of curious what is happening there. Janice Richards: So it is a variety of things. It is primarily inflationary increases for the team members. It is also increased incentive compensation to drive results. Those are the key drivers. There is also a little bit of—there were some benefits in healthcare savings in 2025 that are not expected to repeat in 2026. But I think the overall increase in payroll is in the 6% to 7% range, which is almost entirely driven by some of that savings on benefit programs in 2025. Omotayo Tejumade Okusanya: Okay. That is helpful. And then development spend and guidance as well. I mean, you only have one development project left. It is pretty much almost complete. You are already in lease-up mode on that project. I think you were still forecasting a meaningful amount of development spend in 2026. I am kind of curious what that pertains to. Janice Richards: We were not forecasting development spend in 2026. But you are right. We did have one final on-balance-sheet development called Flatirons. That one was completed, and all of that development spend has been incurred. So there is not really an expected increased development spend this year. We obviously continue to expect to spend redevelopment money on value-add programs, but not development money. Stephanie Krewson-Kelly: Gotcha. Okay. That is helpful. Omotayo Tejumade Okusanya: And then, sticking with the redevs, for the 2026 guidance, again, good to see the amount of units that are going to probably be up versus 2025, but curious what kind of yields are being assumed, again, just given some of the yield pressure that we have seen in this past year or so. Janice Richards: So I apologize. We will have to make this your last question so we can get to some other analysts. But, ultimately, on the redev, we did about 2,000 units in 2025. We are planning to do somewhere in the 2,000 to 2,500 units in 2026. The ROIs that we assumed on the six new properties that we are adding to the redevelopment program were very consistent with historical trends of that 15%–16%. As Scott mentioned earlier, as the market cycles come back and the supply pressures wane, we should be able to see more pricing power in our redevelopment program and, therefore, be able to compete more directly with some of the Class A stuff and even generate higher returns. Omotayo Tejumade Okusanya: Thank you. Stephanie Krewson-Kelly: Thanks. Your next question comes from the line of John Kim Operator: with BMO Capital Markets. Please go ahead. Janice Richards: Thank you. Just James J. Sebra: going to your Flatiron development, it is expected to be a drag this year as you lease up the asset and you are expensing the interest. John Kim: But where do you see occupancy stabilizing in terms of timing? Then maybe if you could just comment on why it has taken longer to lease up the asset. Sure. I will Janice Richards: the occupancy forecast—the guidance assumes that we hit occupancy at about 90% in the month of June. That is about a quarter behind expectations and certainly not fully stabilized yet, but at 90%, we would want to see 93%–95%. But I think the other component of just the drag on earnings is lower actual rents we are signing and having higher concessions. Janice, if you want to add anything, feel free. Operator: I think we are seeing the submarket as a whole in Broomfield. Stephanie Krewson-Kelly: Obviously, there has been an onslaught of supply in that market that kind of all Operator: came Stephanie Krewson-Kelly: to fruition at the same time. And so we are really just working through that fundamental. We are seeing high conversion of the leads that are coming through the door. Tours are strong. And so with that Operator: continued momentum, we see that we are going to hit that stabilized marker. John Kim: And then just going back to your blended guidance, you are expecting, I guess, a pickup in the second half of the year. And that goes against what you have experienced the last few years where blended rents have kind of peaked in the first half. I understand there are the easier comps and concessions, but what other assumptions do you have in terms of the dynamics and getting that improvement later in this year? Janice Richards: I think it is primarily obviously better comps in the back half of the year. Just like I mentioned before, a little bit lower concessionary expectations. We also think, generally speaking, the market rent growth is going to be better in the second half of the year simply because supply pressures are less, and then all the lease-up deliveries that have happened should be leased up by then, really further enhancing the opportunity for pricing power. James Colin Feldman: Okay. Thank you. Operator: Your next question comes from the line of John Pawlowski with Green Street. Please go ahead. Eric Jon Wolfe: Thanks. Good morning. Jim, it would be helpful to hear what kind of balance between fixed and floating rate debt you are going to target in the next James J. Sebra: about two to three years. Do you have a significant amount of swaps or collars expiring, as well as just the duration of debt with maturities in 2028–2029? Would love to hear your strategy in the next couple of years. Janice Richards: Great question. Obviously, we just did this $350,000,000 bank term loan—we thank all of our banking partners for participating in that. The expectation we had this year was that when all the debt that was returning this year, we would be hitting the investment grade market, which is why we got the rating a few years ago. Obviously, the investment grade costs are much more expensive today than where a floating-rate environment is, and we actually are okay being a little more floating rate in today's environment than trying to fix everything. We want to be able to enjoy some of that expected—either where SOFR is today relative to Treasuries or a potentially declining SOFR curve over the next few months and quarters, again, depending on what the Fed decides to do. For the 2028 maturities, our goal is to be in the investment grade market for some or all of those expirations. When we hit it and how fast we hit it or how sizable the individual bond issuance is will depend. But the goal is to—many of those maturities are going to start happening in 2028—are mortgages. That will improve the unencumbered pool and potentially allow us to further enhance our rating profile and maybe even secure a better rating. Eric Jon Wolfe: Okay. That helps. James J. Sebra: So we should assume, I think— John Pawlowski: maybe you already took this swap out or it rolled—but James J. Sebra: about $250,000,000 in swaps maturing this year. We should expect you guys just roll to floating rate debt. Janice Richards: So there are two swaps maturing this year. There is one that is maturing in March 2026. That was a one-year swap we put in place last year simply because of where we saw the interest rate curve for one year and wanting to protect our interest expense during 2025 versus where we saw maybe the interest curve may not be as steep. The actual cuts were not going to happen as planned, and we thankfully won on that swap from a cash flow perspective. We are not anticipating redoing that swap. We are going to stay floating. And we will enjoy about a 30 basis point improvement on the underlying SOFR from the 3.9% that we were swapped at to the 3.6% that SOFR is today. For the June swap that is maturing of $150,000,000, we have already put a forward-starting swap in place. That swap that is maturing is 2.2%, and we have put a new swap in place that is swapping at 3.25% SOFR. Eric Jon Wolfe: Okay. Janice Richards: Thanks for all the color. We are not, at this point, anticipating putting any other swaps in place. That being said, we are watching the interest rate markets like a hawk, and we will continue to protect as best we can the interest rate expense going forward. Eric Jon Wolfe: Okay. Thanks. Operator: Your last question comes from the line of Mason Guell with Baird. Please go ahead. John Kim: Hey. Good morning, everyone. James J. Sebra: For your Mustang joint venture property in Dallas, is the call option period open? What are your thoughts on exercising the call, and what is the forward NOI yield? So, yes, the call option is open. When we look at where that property would trade today, or be valued today, it is still at a cap rate that is not our best use of capital to buy it. So I would anticipate that property being sold this year because we can use that capital in better ways, again, as Jim said, through deleveraging and/or buying back our shares. Janice Richards: Better ways relative to owning that asset. James J. Sebra: To owning that asset. Correct. John Kim: Great. And then, kind of following on that, you have repurchased Michael Gorman: some shares in the quarter. Kind of talk about your thought process for doing so? Janice Richards: Sure. Obviously, like a lot of our peers, there is a fundamental disconnect between implied cap rates and market cap rates. We looked at that as a good opportunity to take capital or earnings from non-EBITDA generating sources and use that capital to buy back stock. If you sell an asset, you lose the EBITDA and the earnings. We are very much focused on the long term. Ever since our start, we have always said we are going to be patient and disciplined, and we are going to continue to be that way. That being said, we did have a lot of capital that came in last year from the sale of one of our joint venture assets as well as the embedded gain that existed in the forward contracts. We took those proceeds and used that to buy back stock in a positive and accretive way for shareholders. Great. Thank you. Operator: There are no questions at this time. I would now like to turn the call back over to Scott Schaeffer, CEO, for closing remarks. James J. Sebra: Well, thank you all for joining us this morning. I just want to reiterate how excited we are about 2026 and the forward trajectory that we see for our portfolio. Thanks for joining us, and we look forward to speaking with you next quarter. Operator: Ladies and gentlemen, that does conclude our conference call for today. Thank you all for joining, and you may now disconnect. Everyone, have a great day.
Aki Vesikallio: Welcome to Hiab's Full Year 2025 Results Call. My name is Aki Vesikallio. I'm from Investor Relations. Today's results will be presented by CEO, Scott Phillips; and CFO, Mikko Puolakka. As a reminder, please pay attention to the disclaimer in the presentation as we will be making forward-looking statements. Before handing over to Scott and Mikko, let's take a quick look at the highlights of the year. Market environment was characterized by increased trade tensions and uncertainties and our orders received remained at past 2 years level. Sales declined by 6%, but we increased our comparable operating profit margin and achieved a new record of 13.7%. Also, our Services business had a record year. Strong cash generation continued, and we acquired ING Cranes, significantly expanding our presence in Brazil. Let's then view today's agenda. First, Scott will present the group level topics and strategic development. Mikko will go through the reporting segments, financials in more detail and the outlook. After Mikko, Scott will join the stage for key takeaways before the Q&A session. With that, over to you, Scott. Scott Phillips: Thank you, Aki. And good morning, everyone, from my side. So starting first with the demand environment. I'd characterize the full year situation as our orders remaining on a similar level to the prior 2 years. As you can see visually on the left-hand side of the slide, the last 3 years were quite on a similar level, and we've talked about the demand environment that's led to that. Drawing your attention a bit more to the right-hand side of the slide, going into the numbers. First, starting with comparing quarter versus quarter. Orders received for the quarter last year were EUR 375 million -- or in 2025, EUR 375 million versus prior year of EUR 414 million for a 9% change in actual exchange rates, 6% change in constant currencies. And for the full year, orders received were EUR 1.48 billion versus prior year EUR 1.509 billion or a 2% change in actual exchange rates and essentially flat in constant currencies. As a consequence, our order book has decreased to EUR 534 million ending 2025 versus EUR 648 million in 2024, so a decrease of EUR 114 million or 18%. So summarizing the overall environment, relatively stable and on a similar level in constant currencies. The decrease was primarily from our delivery equipment orders in the U.S. in 2025, somewhat offset by increases in our lifting equipment in Europe and APAC and other parts of the Americas and an increase overall in our Services business. So in summary, our overall order book decreased only in Equipment and not in Services business. So looking in more detail within the regional perspective, starting on the left-hand side of the slide, our orders received for last year for 2025 were 54% in EMEA, 39% in the Americas and 8% in APAC. On a quarterly basis, looking into the numbers, that translated into EUR 208 million in fourth quarter in EMEA versus EUR 218 million in the comparable period or a 5% decline. However, for the full year, EMEA order intake was EUR 794 million versus 2024, EUR 736 million or an 8% increase. In the Americas, however, we saw a decline in fourth quarter to EUR 137 million versus prior year of EUR 164 million or a 16% decline, a bit more acute in the U.S., and I'll provide a bit more color on that in a second. For the full year, total order intake was EUR 572 million in the Americas versus prior year EUR 668 million or 14% decline. In Asia Pacific, we saw a slight decline in the comparison period on a quarterly basis at EUR 30 million versus EUR 32 million in the prior year, a 5% decline. However, for the full year, we saw a 10% increase to EUR 114 million versus EUR 104 million in the comparison period. Now summarizing the operating environment. We saw a gradual recovery, if you look at it on a full year basis, in both EMEA and APAC. However, in the U.S., we continue to see soft demand, however, on a relatively stable level if you think about the last 3 quarters. Now why is that? The first -- the main reason, of course, are the trade tensions that elevated the level of uncertainty in the demand environment, in particular in the U.S. that led to our customers being quite cautious and especially shows up in our results as we are a short-cycle business in both our Equipment and Services. Now looking into our sales for the full year. As you see on the left-hand side of the slide, we had a decline sequentially from 2024 to EUR 1.556 billion or 6% decline in actual exchange rates, 4% decline in constant currencies. Looking into the quarter, our sales was EUR 396 million versus EUR 412 million or a 4% decline in actual exchange rates, relatively flat in terms of constant currencies. And our share of services in the quarter was 29%, the same level that it was the prior year. However, for the full year, our services as a percent of sales was 30%, so up 2 percentage points versus the comparison period. Now in summarizing the overall revenue environment, clearly, our sales in the second half were lower than the first half by 9%. Currencies had an impact on the results by 2 percentage points in the negative direction on a full year basis. And as I mentioned earlier, our share of services sales increased from 28% to 30%. Now looking more deeply on a regional basis in terms of the sales environment for 2025. EMEA represented 50% of our overall sales; the Americas, 44%; APAC, 7%. And on a quarterly basis, EMEA was EUR 212 million, up 3% in the comparison -- versus comparison period. In the Americas, however, we were down 14% versus comparison period at EUR 154 million. And in APAC, we were up slightly or by 8%, EUR 30 million versus EUR 28 million in the comparison period. And really pleased to report that our Eco portfolio sales as a percentage and in absolute terms increased nicely year-over-year to EUR 135 million or 34% of sales. And then on a full year basis, on a -- looking at -- starting with the EMEA region. Full year sales were down slightly 2%, EUR 785 million versus EUR 804 million. In the Americas, we were down 10% in revenue, EUR 662 million versus EUR 735 million and in APAC, EUR 110 million versus EUR 108 million or up 1%. Eco portfolio sales for the full year in absolute terms, up to EUR 572 million versus EUR 476 million or 20% positive variance. And on a percentage basis, increased from 29% to 37%. So summarizing the regional environment. Our Americas sales decline came wholly from the U.S., somewhat offset by growth in other regions or other markets within the region. In EMEA, our sales declined slightly in the full year, but grew towards the end of the year. We started to convert the uptick in the order intake from the first half of the year as we moved into the end of the year last year. Our Asia Pacific sales increased nicely. And then as I mentioned earlier, our Eco portfolio sales increased in our circular solutions, decreased somewhat in our climate solutions. Now looking into how our sales translated into profitability. As you can see on the visual on the left-hand side of the slide, the slope continues to be nicely positive in the prior 3-year period of time. And that's, of course, despite the fact that we have a lower sales level year-over-year from '24 to '25. Looking at it into more detail, starting with the quarterly view, our comparable operating profit was EUR 47 million versus the comparison period of EUR 41 million. Mikko will go into more details in terms of what that variance means, but it's a 15% positive variance quarter-over-quarter. On a full year basis, our comparable operating profit was EUR 213 million versus 2024 EUR 217 million, so a 2% negative variance. But in relative terms, we had a nice 50 basis points improvement from '25 to '24 to 13.7% versus 13.2%, which translated nicely into an improvement in our return on capital employed, looking at it on a last 12-month basis at 30.8% versus 28.2% in the prior year. So our full year profitability in quarter 4 was burdened significantly by lower U.S. equipment sales. However, it was somewhat offset by looking at it on a total basis, a nice 100 basis points improvement in our gross profit margin. So a nice example of executing on our strategy. At the same time, as we had communicated previously, we were targeting lower SG&A costs, so that somewhat offset the decline in the top line, all of which translated nicely into improving our return on capital employed, largely driven by a nice reduction in our net working capital that we continue to execute. Now speaking of how the strategy is developing, I thought I'd transition a bit into how are we doing relative to what we talked about in our Capital Markets Day in 2024. I'll start first with the next step in our evolution of our operating model. As we've stated earlier, we are quite adamant about driving radical transparency and accountability and operating our business such that we have decision-making and ability to act on behalf of our customers at the point that's closest to impact to our customers. So the next step in our operating model to drive further transparency, accountability and empowerment is a change that we're making into our organizational structure at the Hiab leadership team level. So we're streamlining our business from 6 to 5 global functions, which we show here. And similarly, we will then evolve our business operations, organizational design to 3 business areas is what we're proposing, all of which should be effective as of April 1st, pending the outcome of our labor negotiations. And if we're able to move forward on executing this plan, then the way that the organization will look will be organized into 3 business areas, 2 equipment business areas, Lifting Solutions and Delivery Solutions, one led by Magdalena Wojtowicz, our Delivery Solutions led by Hermanni Lyyski. And then Michael Bruninx will continue to lead our Services business as a business area. Now we're doing this, as I mentioned earlier, as a logical next step, both to simplify our organizational design and enable us to more effectively add additional business units, divisions in the future. At the same time, it's key to our success in order to shrink the levels of organization from our colleagues within Hiab that impact our customer outcomes on a day-to-day basis, with those that are located in our product management, sales support, R&D organizations to bring those constituents closer together so that we can act and react more effectively on behalf of our customers, either addressing day-to-day problems and opportunities or allowing seamless communication, being able to understand more deeply our customers' applications and translating those insights into the next-generation solutions. By aligning our sales end-to-end with our business areas, we think that will significantly drive further accountability to the overall result in terms of customer experience, financial outcomes and our own employee experience. And as I mentioned earlier, we think this organizational design will allow us to be much more agile and adapt to changes in our business in the future. So we think this is a key enabler to continue to drive the successful execution of our strategy and ensure long-term success. Now just to give you a bit of color on the cost savings program that we announced previously with our Q3 results. As previously communicated, we target approximately EUR 20 million of cost savings within the year, coming primarily from 2 vectors. On the one hand, the most significant piece of the cost savings that we are targeting will be personnel-related costs. Unfortunately, as a consequence, that could result in as many as 480 roles reduction globally. And then at the same time, we have a number of nonpersonnel-related activities that we plan to undertake, that will also deliver cost savings according to our plan. All told, we estimate that our planned one-off cost would be approximately EUR 30 million. This will be reflected in items affecting comparability and of course, certainly subject to change as we complete the negotiation and the planning process and move into implementation. Concurrent with this action is a next step in executing on our supply chain strategy. So we announced that we would plan to change our -- the ZEPRO tail lift assembly. The change would involve reducing and closing the operation in Bispgarden, Sweden, transferring the work to our facility in Stargard, Poland. And the rationale here is pretty straightforward. We hope that we can improve efficiency, better leverage the facility that we have in Stargard, help ensure and secure competitiveness of the brand by reducing our bill of material cost, which should be a key enabler to driving future growth within this important brand within our overall Hiab portfolio. So we think these are necessary actions, both in terms of executing the strategy as well as reacting to the declining order book, as we previously communicated the rationale, to continue to reinforce and build our credibility on delivering a good track record of results and continue to focus on value creation despite the level of -- despite the top line development. Now looking further into a few additional insights on how our strategy execution is going. I'll start first with on the left-hand side. Really proud to announce that we've recently signed 2 new dealers in the U.S. in line with our strategy we communicated in '24. So recently, we announced that we had closed and signed agreements with MGX, a subsidiary of Manitowoc as well as Custom Truck One Source. Now this brings us up to 16 new dealers that we've signed since we first announced this piece of the strategy in terms of growth in North America. And this brings us quite close to having now full coverage in the U.S., especially for our Hiab loader crane business, and we're inching closer in getting full coverage as well in our critical delivery solution businesses as well. So really pleased with this development, proud of the work that the team has done on behalf of achieving this critical objective in our strategy, both in the U.S. as well as here in Europe. The second piece that I'd like -- I'm very proud to report is that we now have achieved a critical milestone. We're over 25,000 service contracts. As you'll recall, in 2024, we communicated we were targeting to be above 50,000 by the end of 2028. So we're nicely on track. And this is a critical element for us in order to ensure that we can continue to drive improvements in terms of our capture rates. And that's critical to our parts and other recurring revenue business within our Services business area to be. At the same time, we also talked about another key data point. We were targeting to be above 90,000 units connected by the end of 2028, and we're now on a level of 56,000 units connected. So well on track on those 2 critical elements of the service growth strategy. And then finally, on this particular slide, I'll end on highlighting that we did complete a strategic acquisition of ING in Brazil. This is critical to our growth in the Americas strategy as well as giving us increased coverage and penetration in one of our key segments that we called out as part of the strategy as well, and that was our Construction segment. So the combination of ING and ARGOS, we think, positions us quite nicely as complementary portfolios and will enable and catalyze significant growth in that part of the world. So a big warm welcome to all of our new colleagues from ING to Hiab. Now just closing and recapping on our strategy. Proud of the work that the team is doing in terms of executing on the strategy. We remain keenly focused on our step-by-step approach to ensure that we are in leading niche attractive end market segments that are quite nicely aligned to essential industries that we learned about during the time of COVID. We seek to be #1 or 2 in each of those exposures in order that we can set the tone in terms of technological superiority and deliver through that and backed up with a second to none service offering, then we know that's critical to delivering the best customer experience in the industry. We talked about how we intended to grow faster than the market. There were 3 critical pieces to the strategy. One was we had 4 targeted segments that we seek to grow in, and we're progressing nicely in 2 or arguably 3 out of the 4 segments. We've yet to see the tailwind coming through in construction, but we continue to take steps in order to expand our share into the Construction segment. We talked about growing in North America, in particular, through increasing our coverage geographically. And so as I mentioned earlier, we're now up to 16 new dealers that we've onboarded towards that end. And of course, critical to our success as well as our customers' success is growing our Services business. Now at the same time, we also talked about how we would improve profitability, which you see coming through in the results of improved profitability versus declining top line. And so we've talked quite a lot about improving our efficiency through higher business excellence and ensuring that we continue to execute through our decentralized operating model for the reasons that I gave earlier. And then finally, it's important to note that all of which is designed to help enable that we have sustainable industry-leading value creation across the business cycles. And the team is progressing quite nicely according to that plan. Now what does that look like in terms of the numbers? We are behind in terms of our progress on delivering 7% across the cycle as we're at 5.5% now after the latest quarter. We're right on schedule or slightly ahead even in terms of delivering 16% at 13.7% in the last 12 months. Similarly, we remain nicely ahead of schedule in terms of our return on capital employed as we remain above 25% as we have at last 12 months of 30.8%. So with that, I'll turn it over to Mikko. Mikko Puolakka: Thank you, Scott, and good morning, ladies and gentlemen, also from my side. Let's first have a look on the Equipment segment's performance in quarter 4. Equipment segment's financial performance was quite uneven between the lifting and delivery equipment in quarter 4. Order intake totaled EUR 258 million. This was minus 13% year-on-year. But if we clean the currency impact, so 10% down in constant currencies. Delivery equipment orders declined, especially in Americas, while then the lifting equipment orders were actually flat year-on-year. So actually quite nice development there, very much also supported by the European market area. On a full year basis, the orders decline came solely from Americas. We start in equipment business the year 2022 -- 2026 with EUR 140 million lower order book. And to compensate this, we plan to reduce cost by EUR 20 million this year, as Scott described earlier. Equipment sales was EUR 280 million in quarter 4. This is a decline of 5% from previous year or again, minus 2% in constant currencies if we clean the -- especially the U.S. dollar weakening. In quarter 4 and on a full year basis, the Equipment segment comparable operating profit was negatively impacted by the lower sales, especially in the short-cycle delivery equipment and as mentioned earlier, especially in the U.S. market. Sales in the U.S. was EUR 25 million lower in quarter 4 than in the comparison period. And this had roughly a EUR 10 million negative impact in the Equipment segment profitability in quarter 4. We had some nonrecurring costs in the operative results, EUR 3 million in quarter 4 and EUR 10 million for full year. And without this, the comparable operating profit would be 13.4% in quarter 4 and 13.8% for full year. Equipment segment's profitability, as I mentioned earlier, was negatively impacted by the lower sales in the U.S., and this was partially offset by fixed cost reductions based on that cost savings program which we announced 1 year ago. Lower volumes impacted also the gross profit margin as certain factory overheads do not scale 100% with the volumes. We had a EUR 1 million negative impact from FX translation effects mainly due to weaker U.S. dollar, also as mentioned earlier. And then we had a positive impact coming from basically 2 elements. Firstly, in quarter 4 2024, we had EUR 15 million costs, mainly related to the restructuring of our Italian operations. And then secondly, our SG&A costs were lower in the Equipment segment due to the cost savings program, which has been -- which has started in 2024. So on like-to-like basis, without the previously mentioned nonrecurring costs in quarter 4 2025, the comparable operating profit was 13.4%, so on the same level as in 2024 despite a 5% decline in sales. Then on Services. So Services continued to grow, very much supported by growing the number of connected equipment and service contracts, like Scott highlighted earlier. The weaker U.S. dollar had a significant impact on our Services top line. In constant currencies, Services quarter 4 orders would have been EUR 122 million, so up by 4%. And on full year basis, the orders would have been in constant currencies EUR 479 million, up by 7%. We have seen good growth in recurring services like spare parts and maintenance services, while then the installation services declined due to the lower new equipment sales, as you have been -- have seen in the previous pages. Services quarter 4 profitability was impacted by low installation services volumes and a EUR 1 million booking, kind of nonrecurring booking to cover the deficit in our self-funded healthcare system in the U.S. On a full year basis, there has been a good development in services profitability, mainly supported by the recurring services growth. And on full year basis, Services delivered a record high EUR 109 million comparable operating profit, and this is 23.2% margin. So nice progress in Services. When we look at the Services profitability bridge, sales in constant currencies contributed positively to profitability. So kind of service volumes were developing well. As mentioned earlier, the recurring services had a positive impact on the growth, while installation services declined. Lower installation services had also a negative impact on gross profit margin because, for example, rents for the installation workshops are fixed. FX translation had a negative impact on Services profitability and as mentioned earlier, stemming very much from the weaker U.S. dollar. And as mentioned earlier, we booked EUR 1 million to cover the U.S. healthcare deficit program. And here, basically in the picture, it's illustrated in the other bar on the right side of the bridge. So without this EUR 1 million, Services profitability would have been 22% in quarter 4. Next, let's have a look on Hiab's total financials. So Hiab's quarter 4 comparable operating profit improved EUR 6 million from the comparison period despite the 4% decline in sales. Main contribution came from not having similar kind of EUR 15 million nonrecurring costs, which they were in quarter 4 2024. Here, those nonrecurring costs are pictured in the other bar on the right-hand side of the bridge. We have had a negative gross profit impact coming from the lower sales in the U.S., as mentioned earlier. And luckily, this has been partially also offset by growing revenues in EMEA and APAC, as also illustrated earlier. Our quarter 4 operating profit included EUR 5 million items affecting comparability, and these are mainly related to the planning of the EUR 20 million restructuring program for this year. The tax rate for the full year was developing favorably. It was 25% versus 27% in 2024. And our net profit was EUR 33 million for quarter 4 and then EUR 151 million for full year. Our cash generation continued on a good level also in quarter 4, amounting to EUR 56 million. EBITA contributed EUR 53 million to cash flow. And then we released EUR 27 million from inventory in quarter 4, while on the other hand, the accounts receivables increased from quarter 3 due to higher invoicing in the latter part of the year. Full year cash flow from operations was EUR 308 million. So really strong performance from the whole organization. Hiab has a very, very strong balance sheet to support the strategic priorities like organic and inorganic growth. Our net cash declined from quarter 3. Here, basically, the main driver is the EUR 100 million additional dividend, which was paid in October 2025. ING acquisition did not impact the net cash position as the transaction was closed in January 2026. On the debt side, we have basically one major bond, EUR 150 million, that's maturing in November 2026. And basically, the rest of our interest-bearing liabilities are mostly IFRS 16 lease liabilities. Hiab's Board of Directors is proposing a 50% dividend payout for the Annual General Meeting in March according basically to the maximum of our dividend policy. This dividend proposal would be EUR 1.17 per B share and the total dividend payout would be EUR 75 million. Dividend payment date would be April 2, 2026. We have provided an outlook for 2026, and this outlook is basically based on few key assumptions. And let me elaborate some of those. As Scott indicated earlier, there has been gradual recovery in EMEA and in APAC. However, the U.S. demand is still uncertain. That has remained stable during the last 3 quarters. Trade tensions are still expected to cause uncertainty around customers' investment decisions. Our last 12 months rolling order intake has been on EUR 1.5 billion level, and we start the year 2026 with EUR 114 million lower order book compared to 2025. Our outlook incorporates the planned earlier mentioned EUR 20 million cost savings for 2026. This would be visible mainly in the reporting segments and then mostly visible in the second half of 2026. For group administration also from -- for the outlook purposes, full year 2025 is a good base level for modeling. In addition, we are doing certain system development to simplify our processes and further improve our cost efficiency. And this will increase the group administration cost level by roughly EUR 5 million in 2026, mainly skewed towards the second half. So based on these assumptions, we estimate that the 2026 comparable operating profit margin exceeds 13%. And as in previous years, this is the floor level. And then, I would like to hand the presentation back to Scott for the summary and final remarks. Scott Phillips: Thank you, Mikko. All right. Managed to get this to go the right direction one more time. So thank you very much, Mikko, again, and I'd like to leave you with 5 key takeaways. One, thinking through the demand environment, we have seen a gradual recovery if we look at broadly the full year 2025 in both EMEA and APAC, especially positively impacting our lifting equipment business. However, we do see a continued tough environment in the U.S. for our delivery equipment. And as I mentioned earlier, we've seen it quite stable in the prior 3 quarters. So we'd like to think that, that's at a trough level. Number two, despite the decline in sales, we reached a record high comparable operating profit margin. So a nice example of the impact that we're creating through executing on the strategy. Similarly, key takeaway number three is that we're targeting to lower our cost level by approximately EUR 20 million in 2026 compared to 2025, which Mikko just elaborated. Number four, we continue to execute on the strategy, as I've mentioned a few times previously, with a focus on both growth opportunities, but at the same time how we increase our relative value creation potential and all of which should lead to our aim to continue to have an extremely strong balance sheet with excellent cash flow. So with that, I think I'll turn it over to you, Aki. Aki Vesikallio: Thank you, Scott. Thank you, Mikko. With that, operator, we are ready for the Q&A session. Operator: [Operator Instructions] The next question comes from Antti Kansanen from SEB. Antti Kansanen: It's Antti from SEB. A couple of questions from me. I'll start with the comments on the U.S. demand, which you are talking about an uncertain environment, but at the same time, not expecting any incremental weakness anymore. So could you maybe open up a little bit on those comments in a sense that have you seen something start of, let's say, '26 in the first couple of months that would indicate that your own business has stabilized? Is this more comment on what you are looking at the leading indicators and the overall macroenvironment on -- especially on the U.S. delivery side? Scott Phillips: Yes. How about I start with that. Thank you, Antti. In terms of the U.S. side, to elaborate more broadly, we really see that the same factors that have led to the demand environment, especially that we saw in the latter part of Q1 last year and then, of course, through Q2, 3 and 4 should continue into 2026. So we aren't at this point seeing any variables that would lead us to believe that the environment gets more, let's say, unstable or an imminent additional risk. So we feel like we have pretty good visibility in terms of the risk. The environment, at least at this point, continues to be quite similar as it was in '25 and also somewhat similar to the prior year period as well in terms of we still see more robust demand from our larger key account customers. So a good portion of the business is still driven by bigger, more lumpy key account orders, which accounts for a bit of the negative variance if you think about Q4 '25 versus Q4 of '24. So on the other hand, we still see pretty significant pressure on our small and medium-sized customers who are, to the extent possible, delaying decision-making with the environment at hand that it's hard to understand the level of cost out into the future that they'll actually experience relative to the environment that they'll experience when they take possession of the equipment. So we do still continue to see with small and medium-sized customers softer demand through delayed decision-making. Antti Kansanen: Yes. Just maybe a reminder on how the start of '25, let's say, Q1, Q2 and especially on the smaller clients in the U.S. Is this kind of a tough comparison if we think about the run rate that you're now entering this year versus what it was 1 year ago? Scott Phillips: Yes. I'll answer it this way, and hopefully, I hit the point you're getting to, Antti. If you think about the Q4 '24, we had a rather large key account order that hit our order intake in Q4 that we didn't match in the comparison period in '25 and Q4. We had a couple of nice sized key account orders in '25, but not at the magnitude that we had in '24, which accounted for primarily the variance, especially in the U.S. market that you're mentioning. Now if you think about the beginning of '25, the demand environment from the U.S. did give early indications that it might uptick if -- as we examine more closely the development sequentially throughout the year of order intake and particularly in the U.S. But of course, once the trade tensions manifested themselves, then, of course, we've seen a pretty consistent level of demand as a consequence from that point forward. And we still see that carrying forward into '26 at this point. Antti Kansanen: All right. And then a couple of more, let's say, housekeeping related profitability questions. First is on the service profitability and understand the EUR 1 million negative impact that you point out. But the margin trend is still a little bit different than what we saw on second and third quarter on the top line, that's not really that much different. So is there something more in play? Just trying to get my estimates right for this year. Is that kind of the '24, '25 margin level a bit too challenging for current environment? Or how should we think about that? Mikko Puolakka: Yes. Thanks for the question. So basically, quarter 4 service profitability without this EUR 1 million, U.S. healthcare deficit coverage was 22%. And this is lower than, for example, as you indicated, lower than quarter 1, 2 or 3. And here, basically, the other underlying reason is the lower installation volumes what we have had in Services throughout 2025. And this is due to the fact that the Equipment order book has declined and the equipment volumes have been lower. So there has been less installation volumes during quarter 4. There are certain kind of fixed costs like rents for the installation workshops, and this has lowered the services profitability. That's basically the -- those are the underlying reasons. Antti Kansanen: So the installation volumes that impact service profitability dropped in Q4 versus the previous 2 quarters? Mikko Puolakka: Yes. And also compared to quarter 4 2024. Antti Kansanen: Okay. And then the last one was on something that you said on the group admin side, I mean, EUR 11 million for the quarter, if I remember now, a bit higher than what it has been. Is this a number that then you will further increase by, what was it, EUR 5 million annually going into this year? Mikko Puolakka: There are certain fluctuations, quarterly fluctuations in the group admin costs. So that should not necessarily be used as a run rate. But if you think the full year 2025 and what I indicated in the outlook that on top of that we anticipate to have roughly EUR 5 million related to the systems development, which is then expected to generate cost savings in the later -- kind of in the later years once the system landscape has been simplified. Operator: The next question comes from Panu Laitinmaki from Danske Bank. Panu Laitinmaki: I have a few. I will start with the U.S. market outlook, going back to the previous discussion. What do you think is the underlying reason causing the uncertainty? Is it that your product prices have increased and the customers are kind of -- they need to digest that? Or is it just the uncertainty around like what happens with the tariffs next? Scott Phillips: Yes, thanks for the question. Just to clarify a bit, we still see the hangover from a couple of years prior where we still have a bit of the inflationary environment that we inherited from the COVID situation, followed by the increase in interest rates. Then, of course, the new variable that entered the equation last year was then the changing trade environment as a result of changes in tariff regime. So where we see a slight difference that I hadn't articulated earlier is we do see that more acutely impacting our, let's say, retail last mile type customers. So broadly speaking, we see it impacting still similarly in our building construction supplies, waste and recycling, construction logistics. But where we do see a difference here is in our retail last mile customers, if you're looking for a bit of what changed kind of sequentially through the year in 2025 and certainly more so in the second half of the year. Now that both impacted the top line and as Mikko articulated earlier, also created a situation where we weren't quite able to keep up with cost out relative to the change in the top line. So we had a bit of trapped or under-absorbed costs that we'll attend to throughout this year, if you will, as part of our cost savings. But that mainly are the underlying factors there. So you still have the inflationary environment, the additional variable trade tensions, where we do see a bit of change in behavior who, based on the changes in demand was most impacted were the retail last mile customers. Panu Laitinmaki: Okay. Then on the market outlook in Europe, could you talk about like what are you seeing there? And how are the different segments performing, especially interested on defense and construction? Scott Phillips: Yes. Yes, we certainly saw in Europe a nice or, let's say, a steady pickup in our Logistics segment, which shows up in part of our lifting solutions. We still see a relatively stable construction environment. So we're yet to see real evidence of, let's say, a sustained uptick in the demand curve, but we have seen some green shoots there where we've perhaps -- well, we picked up our sales. Whether it's an issue of gaining market share or not, we're not sure. I'd say more broadly, in some geographies we're up, some down. So on balance, we're saying we're relatively stable in terms of the overall market shares in that segment. At the same time, of course, we're seeing a pickup in defense logistics. However, it's important to note that, that's one area of our business where you'll tend to see a large spread in from taking the order or having order received versus the revenue recognition. Often, those contracts are multiyear contracts to be delivered over a longer time series. So then the time between order received and rev rec might be long-ish. So there'll be a bit of a spread between our order intake development versus seeing that in revenue side, keep that in mind, and some of which will be dependent upon our partners in the transaction and how they choose to fulfill the orders that they have to the various military organizations that they provide those solutions to. And then in terms of services, similar story more broadly speaking, we continue to see a nice steady uptick in both order intake as well as services, primarily -- or in revenue rather, and then primarily driven by the execution of the strategy, as I had mentioned earlier in the presentation. We see the nice uptick in our ProCare contract coverage. It's working nicely for both our dealers as well as executing in terms of the direct sales. And we have more to come there. Similarly, we see a nice uptick in connected units that are turned on, and now we're able to engage more meaningfully with our customers on an ongoing basis relative to how the installed base is performing. But then at the same time, it also gives us a unique opportunity to engage with them in terms of the actual cost and productivity and safety outcomes that they're experiencing. And that's translating into better services revenue uptake as well. Panu Laitinmaki: All right. Then my final question is on the guidance, or actually 2 things around the guidance. First one is that can you comment if the more than 13% margin is a guidance for each of the quarters this year? So will it be higher than 13% every quarter? And then more importantly, what are the kind of swing factors in the guidance? You said that it's a floor, and I get that it's quite early in the year, so it's probably conservative. But what are the kind of positives that could drive margin higher than the floor level? And any comments around those? Mikko Puolakka: Yes. Thanks for the excellent question. As I mentioned in the kind of background of the outlook, we have incorporated the EUR 20 million cost savings in that outlook. And based on the labor union or labor works council negotiations, we anticipate that the new organization could come into force in quarter 2. So that means that mostly those savings would be visible in the second half of 2026. So from that point of view, I would say that one can't say that it's every quarter above 13%. This is a full year outlook, and we aim at being above that 13%. Operator: The next question comes from Andreas Koski from BNP Paribas. Andreas Koski: A number of questions from me as well. So if I can start with the backlog development. You now have a backlog that is 18% lower compared to 1 year ago. And I wonder how will this impact sales in 2026 compared to 2025, i.e., is there a lower absolute amount from the backlog that will be delivered in '26 compared to what we saw in '25? Scott Phillips: Yes. I'd say that -- Andreas, thanks for the question. So I'd say the right way to think about the backlog and then how we are thinking about the sales realization in '26 is as follows. So on the one hand, if I come back to the prior question from Panu, the lower order book by EUR 114 million means that we have been that much less visibility to our revenue curve into '26. So that's an influencing factor in terms of where we set the floor. Having said that, we've set the floor 100 basis points higher than we did in each of the prior 2 years. On the other hand, then what I would say is the right way to think about the revenue recognition for '26 is a bit more a factor of looking at the trailing last 12 months order intake. And then as we've indicated, we're at or about the EUR 1.5 billion range. So that's for us the right starting point of how we think about the potential for this year and then how it relates into setting the outlook for '26. But at this point, we don't give the outlook relative to the top line development, primarily because we have -- we're a short-cycle business, so we have this 4 to 5 months' worth of visibility into our revenue curve with where our order book stands, which is quite at a normal level now. Andreas Koski: Understood. And is it fair to say that, it sounds like you expect the recovery to continue in EMEA and APAC, and you are now saying that the U.S. market is at trough. So in total, it sounds like you expect total orders to move upwards from the stable level that we have now seen for a number of years? Is that the correct reading of what you're saying? Scott Phillips: Well, what we're saying is that we are -- if you look at the trends throughout '25, we see a nice recovery in EMEA and APAC. But of course, if you think back to Q4, for example, so Q4 compared to the comparison period, we had a negative variance, whereas we had positive variance for the entire year. So there is still a bit of variability, which is also part of why we're at this point not providing guidance on order intake or revenue for the year. And at the same time, we see that if the environment in the U.S. continues as it was in '25, then we would expect for the demand environment to look similar to what it did in '25 at this point. Andreas Koski: Okay. Understood. And then on the 16 new dealers that you have signed since the beginning of 2024, are most of them at full speed now? And do you see that you are performing better than the market because of these new dealer agreements? Scott Phillips: Yes. Excellent question. And I would say, broadly speaking, not yet. Many of the dealers that we've onboarded have been into the latter half of '24 and then throughout '25. So we're, let's say, sequencing the onboarding of the dealers, which, of course, is quite a nice and involved process in terms of getting them up to speed on our offering, getting the systems behind the support and then at the same time, getting everyone in both the dealers as well as on our side up and mobilized in order to help ensure and secure that our dealers are able to deliver on behalf of today's and tomorrow's customers. So we're at varying stages of mobilizing the dealers. So I would say, broadly speaking, no, all 16 dealers aren't at full speed yet, but some of which are and we're over time getting all of the dealers up to speed. And then we would anticipate to continue to add additional dealers as we progress through '26. Andreas Koski: Understood. And then quickly on the balance sheet. Is the Board considering any more extraordinary dividends in the years to come? Or is the priority now to do acquisitions and grow organically? Scott Phillips: Well, I'd say that we have a full mandate to leverage the balance sheet to catalyze growth, both organically and inorganically and continue to explore ways in which we would successfully deliver value creation back to our shareholders. Operator: The next question comes from Tom Skogman from DNB Carnegie. [Audio Gap] [Operator Instructions] The next question comes from Mikael Doepel from Nordea. Mikael Doepel: This is Mikael Doepel from Nordea. So a couple of questions from my side. First of all, how big part of your total revenues or orders was the defense business in 2025? Scott Phillips: Yes. On an order basis, our defense for full year '25 is approximately 7%, so a little bit up from 24%. Mikael Doepel: Okay. That's very clear. And then secondly, if you look at 2026, I mean, I understand that you have your cost [indiscernible]. But if you look at the underlying trends in costs, how do you see that developing in terms of material costs, in terms of labor costs? And also, are you still adjusting pricing upward [ or downwards ]? Just a bit on the price-cost equation? Scott Phillips: Yes. So in terms of material cost, there -- we still have in our execution plans specific actions that are both process related as well as design related that we think on balance are going to provide favorable variance in terms of our bill of material cost. Labor cost, of course, we have the statutory increases that we assume will come. We don't yet have visibility in terms of what the magnitude of that impact will be, which we're taking into consideration relative to our cost savings program. And then in terms of our pricing environment, as always, we -- there are certain products that we surely are seeking additional pricing for, which we've already announced, both in terms of equipment as well as the services side of the business. And there may be a number of SKUs where we go into this year with flat pricing. It all depends on the market list pricing, which is the nature of the environment in which we compete in. Mikael Doepel: Okay. No, that is clear. And then just related to pricing, just a brief follow-up. So do you see -- I mean, in terms of tariffs, would you say that you are still fully able to compensate on that? Or is that having -- or do you expect that to have some sort of impact on your margin in 2026? Scott Phillips: Yes. Broadly speaking, the answer is yes. And of course, there are always -- there's always variance around timing, Mikael. But broadly speaking, so far, yes. Mikko Puolakka: All in all, as discussed earlier, basically, our principle has been to treat the tariff as a cost element. So we pass that cost to our customers. We don't put the profit margin on the tariff. And basically, in last year the tariffs had roughly EUR 20 million impact kind of tailwind to our order intake and then roughly EUR 15 million in sales. Aki Vesikallio: Related to pricing we have also one question from the webcast. So our customers pushing back more on pricing compared to prior periods now? Scott Phillips: I'd say, as always, our customers are seeking for the best possible price. So -- and we have great customers, so we have tough negotiators. But I wouldn't say that it's a different level of environment as compared to what we're normally seeing. So it's our obligation to offer the best possible price. Operator: The next question comes from Antti Kansanen from SEB. Antti Kansanen: Maybe you already answered on the previous one, but I was just wanting to ask how much of that kind of 0% organic order growth in '25 was pricing? I mean you said that tariffs had a EUR 20 million impact, but how about price increases otherwise? Mikko Puolakka: Yes. In -- I would say that in our Equipment business globally without the tariffs and in Europe and in Americas, I would say that the pricing has been fairly flat in 2025 compared to 2024. In Services we have done certain low single-digit price increases, mainly to reflect, for example, topics like labor inflation. And then as mentioned earlier, we have implemented in the U.S. since the inflection of the tariffs then the tariff surcharge. But it's not in the price list, but it's a separate kind of cost item in the customer invoice. Antti Kansanen: And this is kind of positive or neutral versus kind of cost increases that you have accrued? Mikko Puolakka: I would say neutral. Yes. Antti Kansanen: Okay. And then, I mean, I understand that there's no sales guidance, but I'll try anyways, because you mentioned that kind of the 12-month rolling order intake, a good starting point, around EUR 1.5 billion, that's also the Q4 run rate we are right now. Then you'll add EUR 50 million plus from the Brazilian acquisition and then you are kind of seeing European market recovering, U.S. market not coming down. So if I then add that scenario, that would be a growing top line and maybe together with the savings also growing earnings. Is there something that I'm misunderstanding here or being too optimistic? Mikko Puolakka: So one topic to consider is that we had still in -- if you look at the run rate for the revenues, we had more than EUR 400 million revenues in the first and second quarter of 2025. And that was still coming from the -- a bit higher kind of order intake run rate from 2024 and the backlog as well. So perhaps looking the kind of second half -- well, like I said, the rolling 12 months is the indicator what we are using for kind of sizing our costs and planning the operational activities. Antti Kansanen: Sure. And then the ING acquisition, is there anything you want to point out on how much margin dilutive that would be on the Equipment business, if anything? Or is there some kind of cost saving synergies that would already impact this year's numbers? Mikko Puolakka: There is a certain PPA impact. I would say that on an EBITA level, it would be fairly stable as an Equipment business. But then on an EBIT level, there is a certain PPA element, which we will then open as we proceed in 2026 reporting. Operator: The next question comes from Tom Skogman from DNB Carnegie. Tomas Skogman: I would just like to start by asking, do you have expectations for larger defense orders in '26? I guess these are projects that are discussed for a long time. What do you know? Scott Phillips: Yes, I'll start there and please chip in, Mikko, if I miss something here. But the backlog is pretty robust and exactly as you described, Tom, we've pretty fairly well known and understood. As we have discussed maybe since late '24, however, we have seen a number of, let's say, shorter cycle opportunities that have popped up. And that's maybe one of the key differences that we've seen in the demand environment with defense logistics. So whilst we have a view today in terms of what the value of the backlog is and what each individual opportunity is, it could easily be so that there are new opportunities that present themselves throughout the year that we didn't foresee as we speak right now. So that's probably the one change. In terms of the expectation of how we'll convert that this year, extremely hard to call as those orders are frustrating at best to dial in as part of a forecast. I'll put it that way. Mikko Puolakka: But overall, I would say that the funnel looks good for the defense business. Scott Phillips: Yes. Mikko Puolakka: But the timing is... Scott Phillips: Timing is really difficult to call. Yes. Tomas Skogman: Okay. And then on your Service business, how large share of sales in 2025 related to installation of new equipment? Scott Phillips: Yes, you can think of it this way. Our nonrecurring revenue for 2025 was around 24%, 25%, which is linked to our new equipment sales. Installation specifically slightly down probably from the last time that I think we had this conversation, so between 10% and 15%. Tomas Skogman: Okay. And then what about the utilization rates of your equipment? I didn't see any slide on that when you have your sensors. Is it still the situation in the U.S. that equipment is used a lot, but they don't order? Scott Phillips: Yes. We've seen a lot of change in variability in the utilization. Some periods have been up, some down, also changes as it relates to equipment in Europe versus equipment in the Americas. So on balance, fairly stable as it related to the prior year period. But to your point, Tom, it's -- we're still in this environment where our customers are sweating the assets. That's no question about that. Tomas Skogman: And then when you get new distributors, is it so that they start by building up an inventory? Or do you need to ship kind of things just to display to them? Or how does it usually work now when you get this kind of larger new distribution contracts? Scott Phillips: It depends on the nature of the equipment. Some equipment is advantageous for the distributors to have inventory of other equipment. It's not necessary based on our lead times. So it all depends on the focus of the particular dealer. Not so insightful if I make a broad statement of some dealers will build up a bit of inventory because they're going to focus more on longer cycle business or longer lead time businesses versus others that will have, let's say, relatively short-cycle equipment. Having said that, an example where that's a bit counterintuitive is the tail lifts would be a great example where we have distributors in Europe that do maintain a level of inventory because of the need for less than 1 day fulfillment, both in terms of the tail lift as well as the parts that are associated with the tail lift. So it all depends. Tomas Skogman: Yes. But the U.S. distributors do not really have inventories of cranes for it? Scott Phillips: Correct. Tomas Skogman: And then the EUR 10 million cost saving, how is it split between OpEx and SG&A cost? Mikko Puolakka: Part of the -- Part of these cost savings come -- we have not specified how much comes to the SG&A cost. Part of that will be visible also above gross profit. But overall EUR 20 million savings in '26 versus the 2025 cost level. Yes. Scott Phillips: Yes. And just a bit more color. If you think about it compared to '25, then we anticipate a bit more shift towards the below gross profit level cost savings. But at this point, too early to say as we need to complete the labor negotiations process first. Then we can provide a bit more color on that as we progress through the year, Tom. Tomas Skogman: And then finally, with the current FX rates and especially the dollar rate, how big impact do you expect it to have on EBIT after all hedges and everything basically? Mikko Puolakka: Well, I would say that if we would take, say, 10% weakening of the U.S. dollar from the, let's say, average second half of U.S.-euro rate, that would -- that 10% would mean roughly EUR 8 million decline in comparable operating profit. Operator: There are no more questions at this time. So I hand the conference back to the speakers. Aki Vesikallio: Okay. Thank you for the good questions and for the presentation and answer for Mikko and Scott. We will be back on 24th of April with our first quarter results, 2026. Thank you. Scott Phillips: Thank you, everybody.
Operator: Good morning, and welcome to the NetSol Technologies, Inc. Second Quarter and Six Months Ended December 31, 2025 Earnings Conference Call. On the call today are Founder and Chief Executive Officer of NetSol Technologies, Inc., Najeeb Ghauri, Co-Founder and President, Naeem Ghauri, Chief Financial Officer, Sadar Abubakar, and Senior Vice President, Legal and Corporate Affairs, General Counsel, and Corporate Secretary, Patti McGlasson. I will now hand the call over to Patti, who will provide the necessary disclaimers regarding forward-looking statements made during today's call. Patti, please go ahead. Good morning, everyone, and thank you for joining us today. After we review the company's business highlights and financial results for the second quarter and six months ending December 31, 2025, we will open the call for questions. Before we begin, I would like to remind you that our remarks today may include forward-looking statements within the meaning of the federal securities laws, including the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements reflect management's current expectations and are subject to risks and uncertainties, and actual results may differ materially from those expressed or implied. We encourage you to review the cautionary statements and risk factors contained in NetSol Technologies, Inc.’s press release issued earlier today, as well as in our filings with the Securities and Exchange Commission, including our most recent Form 10-Ks and quarterly reports on Form 10-Q. I would also like to note that today's discussion will include certain non-GAAP financial measures. A reconciliation of these measures to their most direct comparable GAAP figures can be found in the press release issued earlier today. Lastly, please remember that this call is being recorded and will be available for replay on our website at netsoltech.com and through a link included in today's press release. At this time, all participants are in listen-only mode. Following their prepared remarks, we will open the call for a Q&A session. I will now hand the call over to our Founder and CEO, Najeeb Ghauri. Najeeb? Najeeb Ghauri: Thank you, Patti. Good morning, everyone, and thank you for joining NetSol Technologies, Inc.’s call to review our results for the second quarter and six months ended December 31, 2025. We delivered a strong 2026. Total net revenues increased 21% year over year to $18,500,000, driven by higher services revenues and growth in our recurring subscription and support revenues. Services revenue grew 41% primarily from new implementations from major customers. As these implementations move through go-live and expansion phases, we believe they can support recurring subscription and support revenues over time. I am pleased with a strong balance sheet. Our current ratio of 2.3 reflects strong liquidity, giving us substantial flexibility for growth initiatives. I would like to highlight the strategic progress we made during the quarter across product innovation, customer momentum, and leadership. Firstly, on product and innovation, we launched our loan origination platform, our Check, our AI-enabled credit decisioning engine. Check is designed to modernize Operator: credit Najeeb Ghauri: underwriting by combining deep reasoning, intelligent automation, and agentic workflows to support faster, smarter, and more consistent credit decisions. It is an important extension of our Transcend platform and reflects our focus on building high-margin products that expand long-term revenue opportunities. Second, on customer momentum. We strengthened a key relationship with a $50,000,000 four-year contract extension with a tier-one global auto captive and longstanding partner. This extension reinforces customer trust, provides meaningful revenue visibility, and validates the scalability of our platform. In addition, Transcend Retail continued to gain traction in the U.S. market, with new dealer groups and franchised dealerships signing on during the quarter. Demand for digital automotive retail solutions remains strong, and these wins support our strategy to expand recurring revenue while increasing our footprint in a high-potential growth market. Finally, we continue to strengthen our leadership team to support our next phase of growth. During the quarter, we appointed Sadar Abubakar as Chief Financial Officer, with Roger Almond transitioning to serve as Chief Accounting Officer. Together they bring deep financial expertise and will help maintain strong governance, discipline, and transparency as we continue to scale globally. Overall, these milestones reflect solid execution across innovation, customer expansion, and leadership. We remain focused on sustainable growth, deepening customer partnerships, and advancing our position as a trusted technology partner helping OEMs, dealerships, and financial institutions sell, finance, lease, Operator: and manage Najeeb Ghauri: assets end to end. Looking ahead, our pipeline, multiyear contracts, and recurring revenue base provide visibility into near and long-term performance. We remain focused on disciplined execution and continued progress on growth and profitability. I will now turn the call over to our President, Naeem Ghauri, who will share an update on NetSol Technologies, Inc.’s journey and latest developments with AI and how we are leveraging this transformative technology in both our products and across our operations. Operator: Naeem, Najeeb. Naeem Ghauri: And good morning, everyone. I would like to share a brief update on our AI strategy and progress. Over the past year, our focus has been to embed AI into the Transcend platform and our internal operations horizontally, not as a stand-alone feature, but as workflow capabilities that drive measurable outcomes for our customers. We have built a shared AI layer with reusable components and governance built in, so we can deploy AI consistently across products while maintaining reliability, auditability, and human oversight. Our teams work closely with customers to integrate AI into real-world workloads, so we can adapt general models into domain-specific capabilities tied to ROI and operational Operator: impact. Naeem Ghauri: AI at NetSol Technologies, Inc. is now integrated into our product development lifecycle, supported by dedicated teams, shared tooling, and an integrated roadmap that helps us scale AI in a repeatable way, with evaluation and monitoring designed in from the start. A good example, as Najeeb mentioned, Operator: is Check. Naeem Ghauri: Our AI-enabled credit decisioning capability within our loan origination product. It combines reasoning, automation, and agentic workflows to help underwriting teams move faster with greater precision while keeping humans in the loop. In parallel, we are applying AI internally, horizontally, to streamline delivery and improve productivity. We are also exploring value-based pricing approaches for select AI-enabled capabilities. Overall, we believe this strengthens differentiation, supports operating leverage, and positions us to scale AI value responsibly across our business. With that, I will turn the call over to our CFO, Sadar Abubakar, to review the financial results. Abu? Thanks. Thank you, Naeem, and good morning, everyone. I will begin with our financial results for 2026, followed by results for the six months ended December 31, 2025. For 2026, total net revenues increased 21.1% to $18,800,000 compared with $15,500,000 in the prior-year period, driven primarily by higher services revenues and higher subscription and support revenues. On a constant currency basis, total net revenues were also $18,800,000. Subscription and support revenues increased approximately 5.1% to $9,100,000 compared with $8,600,000 in the prior-year period. On a constant currency basis, subscription and support revenues were $9,200,000. Service revenues increased 40.9% to $9,600,000 compared with $6,800,000 in the prior-year period. Total service revenues on a constant currency basis were $9,600,000. Gross profit was $9,000,000, or 48% of net revenues. On a constant currency basis, gross profit was $9,000,000, or 47.8% of net revenues. Cost of sales was $9,800,000, or 52% of net revenues, compared with $8,600,000, or 55.5% of net revenues in 2025. On a constant currency basis, cost of sales was $9,800,000, or 52.2% of net revenues. The increase primarily reflected increased salaries and travel costs, even though the margin has improved. Income from operations was $1,300,000 compared with a loss from operations of $500,000 in 2025. On a constant currency basis, income from operations was $1,300,000. Operator: Dollars. Foreign currency movements contributed a gain Sadar Abubakar: of $50,000 in the quarter, compared with a $700,000 loss for the prior-year period. Moving to non-GAAP, EBITDA for the quarter was $1,700,000 compared with a loss of $800,000 in 2025. Eric Wagner: Overall, the quarter reflected strong top-line growth driven by implementation activity, along with continued subscription and support performance. We also delivered meaningful profitability improvement versus the prior year, supported by gross margin expansion and improved operating leverage. Turning now to the six months ended December 31, 2025, total net revenues were $33,800,000 compared with $30,100,000 in the prior-year period. On a constant currency basis, total net revenues were $33,500,000. Recurring subscription and support revenues increased 7.2% to $18,000,000 compared with $16,800,000 in the prior-year period. On a constant currency basis, recurring subscription and support revenues were $17,900,000. Service revenues increased 17.9% to $15,600,000 compared with $13,200,000 in the prior-year period. On a constant currency basis, services revenues were $15,500,000. Gross profit was $14,900,000, or 44.2% of net revenues, compared with $13,500,000, or 44.8% of net revenues in the prior-year period. On a constant currency basis, gross profit was $14,600,000, or 43.5% of net revenues. Cost of sales was $18,900,000, or 55.8% of net revenues, compared with $16,700,000, or 55.3% of net revenues in the prior-year period. On a constant currency basis, cost of sales was $18,900,000, or 56.5% of net revenues. GAAP net loss attributable to NetSol Technologies, Inc. for the six months totaled $2,100,000, or $0.18 per diluted share, compared with a GAAP net loss of $1,100,000, or $0.09 per diluted share in the prior-year period. On a constant currency basis, GAAP net loss attributable to NetSol Technologies, Inc. was $2,500,000, or $0.21 per diluted share. Non-GAAP EBITDA for the six months ended December 31, 2025, was a loss of $100,000 compared with a non-GAAP EBITDA loss of $500,000 for the prior-year period. Turning to the balance sheet, cash and cash equivalents were $18,100,000 at December 31, 2025, compared with $17,400,000 at June 30, 2025. Working capital was $26,400,000 compared with $26,600,000, and NetSol Technologies, Inc. stockholders' equity was $35,900,000, or $3.04 per share. For 2026, we delivered continued revenue growth across both recurring and services businesses while maintaining a solid balance sheet and liquidity position. I will now hand over the call back to Najeeb. Najeeb Ghauri: Thank you, Abubakar. Looking ahead, we remain confident in our ability to capitalize on opportunities across our markets. We will continue investing in our product portfolio, including AI-enabled capabilities across the Transcend platform, while expanding our global footprint and enhancing our solutions to meet evolving client needs. Our focus on long-term customer relationships, supported by a strong pipeline of recurring and services engagements, positions us well for continued progress. With that context, we have increased our full-year fiscal 2026 revenue growth guidance to nearly $73,000,000 or better, supported by our current pipeline and continued investment in go-to-market initiatives and our unified AI-enabled Transcend platform. While macroeconomic and currency dynamics remain a consideration, our diversified business model, execution discipline, and resilient customer base provide a solid foundation for the remainder of the fiscal year. Overall, our first-half performance reinforces our view that NetSol Technologies, Inc. is well positioned to achieve our full-year objectives and continue creating value for our customers and shareholders. With that, operator, please open the line for question and answer. Thank you. We will now be conducting a question and answer Operator: session. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. One moment, please, while we poll for questions. Thank you. Our first question comes from the line of Todd Felte with Stonex Group. Please proceed with your question. Najeeb Ghauri: Hey, congratulations on a great quarter. I think the $18,800,000 may be an all-time record for quarterly revenues, so Todd Felte: that is great to see. I wanted to ask about your margins. You had some recent hires and some travel expenses. But as those new hires get up to speed, do you expect continued margin improvement, and where do you think your margins will stabilize? Najeeb Ghauri: Thank you, Todd. Absolutely. We are anticipating improving margins in the coming quarters and the next fiscal year. As you said rightly, we are continuously investing in our growth strategy. It means travel, new employees, building new platforms, and so forth. So I think the gross margin will improve, absolutely. And I think I can have your name, and Naeem will jump in to add further. Yeah. I will just add a little bit more color. So, essentially, the new hirings are primarily in the AI teams at heart, and we see that continuing for a period. We are also incurring some expense on cross training. What we have is a very aggressive plan to cross train our existing workforce. Eric Wagner: Across horizontally in every department from HR to Najeeb Ghauri: software engineering and testing, accounting, and admin. So, literally, we are touching every single business segment. So, internally, we are very, very confident that within the next six months, we will have a major transformation, phase one, completed. We will go on to more advanced training as we go forward in the rest of the calendar year. That will help? Operator: Yep. Yeah. If I could just add that Todd Felte: yeah. While I have you, I was also wanting to ask about the noncontrolling interest and how that is computed. I know that took a big chunk out of our earnings per share this quarter. Najeeb Ghauri: You want to answer about just talking about the Pakistan subsidiary, right? Minorities Todd Felte: just yeah. Najeeb Ghauri: Yeah. Yeah. Sure. So if I could, Todd, just go back to your previous question Eric Wagner: first, and then we will come back to this one, just to add some color. So to take on what Najeeb and Naeem said, we will continue to invest in the right areas that will propel our future growth. But margin improvement, both at a gross and at a net level, is going to be important for our profitability story and our journey going forward. You probably will see just very quickly that our GP percentage of revenues this quarter versus the preceding quarter was up 48% as compared to 44.5%. Cost of sales was down. Similarly, this quarter is 55.5% compared to the equivalent quarter of 52%. And then EBITDA, which is an important metric, of course, clocked at about a 9% margin compared to a loss in the equivalent quarter last period. I think what gives me confidence, Todd, in addition to that, is that our liquidity position is solid. The current ratio, but also our debt to equity, gives us an opportunity to continue to invest in exciting growth markets. And I think we are at the intersection of both software, financial services, and mobility. Now, coming to your second question on minority interest, noncontrolling. If I understood that question, you were saying how is that computed? That is correct. Just mention that again. Yeah. Yeah. Yeah. Just how is it computed? I know that there was a nice Todd Felte: profit for the Pakistani subsidiary. I saw you took a $715,000 loss on that noncontrolling interest. Eric Wagner: Yeah. We follow the standard definitions applied in GAAP for noncontrolling interest. So the Pakistani subsidiary is owned majority, but there is a 30% minority interest, and we follow the standard definitions as per calculation for GAAP. Roger, if you want to add to that, you can feel free to add if I have missed anything. Todd Felte: No. I think you have that correct. So, Todd, if you look at our Pakistani entity there, we own Roger Almond: almost 70%. Thirty percent is held by noncontrolling interests. So as they have, you know, recorded a very nice profit for the quarter, or for the six months, then 30% of their profit would then get allocated to the noncontrolling interest piece. Based on the consolidation, all of their revenues would be included up in our revenues and costs into our costs, etc. And then the noncontrolling interest is then calculated down at one number in the bottom. So that is, and we follow the GAAP process as Abu had mentioned. Todd Felte: Okay. That is helpful. So, basically, the better that the subsidiary does, it will add to your revenues, but if it is really profitable, you know, a third of that will have to be written off in the noncontrolling interest Roger Almond: Correct. Eric Wagner: So, Todd, yes. So as a subsidiary and not an affiliate, we will consolidate all revenues and costs, but from the profit share, you are right. Any earnings are split on a 70/30 basis between the parent and minority interests. Todd Felte: Okay. That is helpful. And then finally, to allude to your comments about the strong financial position the company is in. As a shareholder, we see the stock still, you know, trading just barely above book value. Have you thought about allocating some of that $18,000,000 in cash, you know, a small amount to either a stock buyback or maybe a small dividend? Roger Almond: I think, Todd, thank you for—go ahead. Go ahead. Sorry. Najeeb Ghauri: Todd, thank you for asking the question. We did that a couple of years ago, and we are always open to the same approach. But as soon as we can decide within the board, we will get back to you accordingly. Roger Almond: Yeah. I mean, we would definitely like to see some of the ops. Operator: Yeah. Najeeb Ghauri: But, Todd, I want to thank you especially for taking time to visit us a few months ago. It shows your commitment and belief in our company. So thank you very much for your long-term view. Todd Felte: Yeah. It was great to visit you, and I will jump back in the queue. Thank you so much. Najeeb Ghauri: Thanks, Todd. Operator: As a reminder, if you would like to ask a question, press 1 on your telephone keypad. One moment, please, while we re-poll for any additional questions. We have no further questions at this time. Mr. Ghauri, I would like to turn the floor back over to you for closing comments. Najeeb Ghauri: Thank you for joining today’s call. Sorry. Todd, do you want to come back? Yeah. Todd wanted to come back. He is going back in the queue. Is he in the queue, Alberto? Operator: Todd, if you want to hit star one again. Najeeb Ghauri: No. I think it is okay. It is fine. Okay. Yep. Operator: Well, thank you for us back today. No. I am sorry. He did jump back in. Najeeb Ghauri: Let me get—okay. Todd, your line is live. Todd Felte: Okay. I am good with that. Again, congratulations on a great quarter, and I look forward to future success. Najeeb Ghauri: And do come back again to Encino, California, Todd. Thank you for joining us today and for your ongoing interest in NetSol Technologies, Inc. We look forward to updating you on our continued progress in the coming quarters. Have a nice day. Roger Almond: Ladies and gentlemen, this does conclude today’s Operator: teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day. Najeeb Ghauri: Thank you, operator.
Operator: Thank you for your continued patience. Your meeting will begin shortly. If you need assistance at any time, please press 0, and a member of our team will be happy to assist you. Hello, and welcome everyone joining today’s Onity Group Inc.’s Full Year and Fourth Quarter Earnings and Business Update Conference Call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question-and-answer session. To register to ask a question at any time, please follow the operator’s instructions. Please note this call is being recorded. We are standing by if you should need any assistance. It is now my pleasure to turn the meeting over to Valerie C. Haertel, Vice President of Investor Relations. Please go ahead. Good morning, and welcome to Onity Group Inc.’s full year and fourth quarter 2025 earnings call. Please note that our earnings release and presentation are available on our website at onitygroup.com. Speaking on the call will be Chair, President and Chief Executive Officer Glen A. Messina and Chief Financial Officer, Sean Bradley O’Neil. As a reminder, our comments today may contain forward-looking statements made pursuant to the safe harbor provisions of the federal securities laws. These statements may be identified by reference to a future period or by use of forward-looking terminology and address matters that are uncertain. Forward-looking statements speak only as of the date they are made, and involve assumptions, risks, and uncertainties, including those described in our SEC filings. In the past, actual results have differed materially from those suggested by forward-looking statements and this may happen again. In addition, the presentation and our comments contain references to non-GAAP financial measures such as adjusted pretax income. We believe these non-GAAP measures provide a useful supplement to discussions and analysis of our financial condition because they are measures that management uses to assess the performance of our operations and allocate resources. Non-GAAP measures should be viewed in addition to and not as an alternative for the company’s reported GAAP results. A reconciliation of these non-GAAP measures to their most directly comparable GAAP measures and management’s reasons for including them may be found in the press release and the appendix to the investor presentation. Now I will turn the call over to Glen A. Messina. Glen A. Messina: Thanks, Valerie. Good morning, everyone. And thank you for joining our call. We are looking forward to sharing our results for the fourth quarter and full year as well as reviewing our strategy and financial objectives to deliver long-term value for our shareholders. Let’s get started on slide three. Our fourth quarter and full year results again demonstrate the effectiveness of our strategy and the strength of our execution. We delivered record earnings through sustained growth and profitability that enabled a significant partial release of our deferred tax valuation allowance. Our balanced business and MSR hedging strategy performed effectively as rates move lower in 2025 with higher origination earnings offsetting lower servicing earnings. Our fourth quarter results were impacted by $14,000,000 of incremental MSR runoff due to higher delinquencies driven by the changes to the FHA loan modification rules and the government shutdown. We believe this will stabilize in 2026. Sean will talk more about this later. Finally, we executed a strategic partnership with Finance of America Reverse to reposition our participation in the reverse mortgage market to simplify the business, which we believe will drive future earnings growth and improve shareholder returns. Glen A. Messina: Overall, we had a great 2025. And I am proud of our team and what they accomplished. Considering the macroeconomic environment, our liquidity position, and our continuing investment in talent and technology, we are excited about the potential for our business in 2026. Let’s turn to slide four to review a few key financial trends. Over the last three years, we have delivered continued growth in adjusted revenue through steady growth in total servicing additions, servicing UPB, and dynamic asset management. The combination of revenue growth and focus on continuous process reengineering has driven steady improvement in operating efficiency. This has resulted in solid double-digit adjusted ROE over the past several years, notwithstanding the adverse impact of the FHA rule changes and government shutdown which was roughly a three percentage point impact in 2025. Our sustained and growing profitability has driven continued growth in book value per share which was accelerated this year through the deferred tax valuation allowance release made possible by our actions to transform our business. Let’s turn to slide five for more about the capability of our balanced business. There is no better proof of the effectiveness of our balanced business model than our results in 2025. You can see on the left the contrast in how originations and servicing contribute to the company’s financial performance as interest rates change throughout the year. With higher rates in the first half, both servicing and originations were profitable, and servicing was the primary earnings driver. In the second half of the year with falling rates, originations took over as the primary earnings driver. We believe our balanced business is performing as intended and our scale in both servicing and originations enables us to perform well with high or low interest rates. Let’s turn to slide six for more about our growth actions and focus. In 2025, our originations team delivered 44% year-over-year volume growth, versus 18% for the overall industry. In business-to-business, our enterprise sales approach, product breadth, and client service delivery model have been highly effective growth enablers. Consumer Direct is demonstrating strong growth, driven by declining rates in 2025 and improved execution. We continue to deliver industry top-tier recapture performance versus the industry averages and our target peers. We are launching new and upgraded products and services to expand our addressable market, access higher-margin market segments, and manage operating capacity for surges in refinancing activity. We have continuously invested in technology and process optimization to enhance the customer experience, reduce cost, and improve scalability and competitiveness in both business-to-business and Consumer Direct. To highlight how far we have come, our fourth quarter funded volume was the highest we have ever originated. Now please turn to slide seven for an example of how our technology is continuing to enhance refinance recapture performance. We have been investing across four categories of AI—robotics, natural language processing, vision, and machine learning—to improve business performance and competitiveness on several dimensions. While not exhaustive, this slide illustrates the approach we follow in deploying AI to improve recapture performance. As we look across the refinance customer journey and improved customer experience, we are aligning AI efforts with key points along the journey that contribute to an improved refinance recapture rate. Our biggest performance gains have come from using machine learning to bring together internal and external data about our customers, their loan, and our processes. This has helped us enhance communications, manage capacity more dynamically, and better inform decisions and actions across the borrower journey. We use machine learning to identify customer and loan-level characteristics that we believe are predictive to total MSR return, including expected loan performance and recapture propensity. This helps shape our MSR investment and asset management decisions. Other elements of our AI strategy include large language models and robotic process automation that are targeted to improve the human–machine interface and operations capacity, streamline processes, and reduce cost. Ultimately, all these investments resulted in improved borrower experience. Let’s turn to slide eight to see what we have accomplished in subservicing. We continue to see a high level of interest amongst prospective clients to explore servicing options and alternatives. Our second half subservicing additions of $33,000,000,000 were over two and a half times the first half level, driven by new relationships, our existing clients, and synthetic subservicing with our MSR capital partners. And we expect that momentum to continue into 2026, with projected subservicing additions of $28,000,000,000 from these clients. We expect to board eight new clients in 2026 and have another eight new agreements under negotiation. We continue to see attractive growth opportunities in small balance commercial, where subservicing UPB is up 31% year-over-year. While the requirements are more complex than performing residential servicing, we believe the returns are better. We have the expertise and we are investing to drive continued growth in 2026. Overall, we are excited about the growth potential in subservicing, and we continue to invest in our sales and operating capabilities to pursue a robust opportunity pipeline. Regarding our subservicing relationship with Rithm, we expect the transition to begin in 2026. As a reminder, the Rithm subservicing is one of our least profitable portfolios before and after corporate allocations. We expect to adjust our cost structure and replace the earnings contribution from the Rithm portfolio with more profitable business that is better aligned with our current growth focus. We do not expect the removal of these loans to have a material financial impact for the full year 2026. Let’s turn to slide nine to talk more about how we have grown our servicing portfolio. We have increased our owned MSR portfolio, with our objectives to grow earnings and book value, as well as reload our portfolio for recapture opportunities. Owned MSR UPB is up 15% year-over-year, versus total industry servicing growth of 2% for the same period. Our servicing UPB at the end of 2025 is up 9% over the prior year, with $49,000,000,000 in servicing additions net of runoff more than offsetting planned transfers to Rithm and other client deboardings. MSR demand is keeping prices elevated. Several of our clients have taken the opportunity to monetize their MSRs and are replenishing their portfolio as industry originations volume increases. Our ability to grow our servicing portfolio while our clients execute opportunistic MSR sales highlights the power of our originations capability and the success of our growth strategy. Let’s turn to slide 10 to discuss our servicing platform. We have built a strong servicing platform that delivers top-tier performance on multiple dimensions. We service 1,400,000 loans on behalf of more than 3,000 investors and over 100 subservicing clients, including forward, reverse, and business purpose residential mortgages. We have been recognized by Fannie Mae, Freddie Mac, and HUD for industry-leading servicing performance. And our automation center of excellence has also been recognized by SSON as best in class. Based on the MBA 2025 servicing cost study, our fully loaded servicing operating expenses are materially lower than the large nonbank servicer average for both performing and nonperforming loans. Our continuous focus on improving the customer experience is evidenced with high satisfaction ratings from our borrowers and subservicing clients on key dimensions of our performance. While we are not the largest servicer in the industry, we deliver top-tier performance for customers and investors and are positioned to fiercely compete with anyone regardless of size. Let’s turn to slide 11 to discuss our industry environment for 2026. We believe the macro environment is largely favorable for housing and housing finance. MBA and Fannie Mae are projecting 15% year-over-year growth in total industry origination volume, driven by strong double-digit growth in refinance volume. The current administration has identified housing affordability as a priority which could be a catalyst for growth in both refinance and purchase originations. We believe GSE privatization can be beneficial for the industry to restore competition and foster innovation amongst the GSEs, create opportunities for nonagency product expansion, and attract capital to the industry. MSRs continue to be in high demand, driving strong pricing and values, and M&A activity continues, especially in servicing. We are equally mindful of potential headwinds that could impact the industry in 2026. We believe the FHA modification rule changes will continue to adversely impact delinquencies and MSR runoff, before normalizing through the second quarter, at levels slightly below year-end 2025. This assumes no further program changes or general credit quality deterioration. Unfortunately, we are seeing an increased willingness to tolerate frequent and sometimes protracted government shutdowns over budget disputes. We are also seeing increased competition in forward residential subservicing. There is evidence in discussions of an evolving K-shaped economy which may give rise to increased delinquencies and defaults in certain portfolio segments. Finally, housing supply continues to be one of the biggest constraints to housing affordability, limiting purchase origination volume. On balance, based on what we know today, we expect the environment to be net favorable and we believe our balanced business is well positioned and an attractive option for investors interested in the mortgage sector. Let’s turn to slide 12 to review our priorities for 2026. This year, we remain focused on executing our proven strategy, following through on our simplification actions, and investing to drive profitable growth. We remain committed to driving organic growth enabled by our enterprise sales approach, value delivery model, and new product development. We will evaluate opportunistic bulk acquisitions and M&A if the economics are compelling and we believe it contributes to maximizing value for shareholders. Investing in technology remains a key priority to drive recapture, service excellence, and reduce cost using our previously described technology investment prioritization framework. In servicing, we are committed to transitioning out of the legacy Rithm subservicing and focusing our participation in the reverse mortgage market as a subservicer. Finally, we expect to deploy capital to grow high-yielding MSRs and other investments and support our capital structure objectives. For 2026, we are targeting an adjusted ROE range of 13% to 15%, which is the equivalent to 16% to 18% before the increase in our equity from the deferred tax valuation allowance release. Now I will turn it over to Sean to discuss our results in more detail. Sean Bradley O’Neil: Thanks, Glen. Let’s turn to slide 13 for a recap of key financial measures by quarter. Revenue continued the strong growth trend exhibited in 2025, up 25% in the fourth quarter year-over-year and 6% sequentially. I would note that typically the fourth quarter is a seasonally weaker period for originations across the industry, but as you will see, originations at Onity Group Inc. continued to grow revenue and pretax income. Our adjusted return on equity was 7% for the quarter, and 17% when adjusted for the material impact of the governmental actions that Glen referred to. We have shown the magnitude of these actions on our results on every slide with adjusted ROE. As a result of our ongoing profitable operations in servicing and originations, and the release of $120,000,000 of our existing valuation allowance in the fourth quarter, our book value per share increased more than $11 quarter-over-quarter and $17 year-over-year. Now let’s turn to slide 14 for the pretax income results of our origination segment. Originations adjusted pretax income was significantly higher both year-over-year and sequentially, reflecting an improvement above the already strong third quarter performance we saw recently. This performance was driven by record levels of origination volume in both our Direct and B2B channels. The volume was also supported by an increase in Ginnie Mae volume as well as new product volume from closed-end seconds and our newly launched non-QM product suite. Please turn to slide 15 for details on the originations volume. B2B volume continued to top a record third quarter with higher volume and improved margins versus the prior year and quarter. This increased volume and margin was supported by a strong enterprise sales force, the breadth of our product offering, and our ability to deliver a positive customer service experience. Consumer Direct volume was up sharply, reflecting the continued strong performance. Importantly, we improved Consumer Direct’s revenue per loan and average loan versus the prior quarter. Please turn to slide 16 for our servicing segment performance. Servicing was profitable but impacted by higher-than-expected MSR runoff expense. While both UPB and revenue continued to improve in the fourth quarter, higher MSR runoff more than offset that improvement. Besides interest-rate prepayment-driven runoff, the remainder of the runoff was driven by two distinct government actions. The more impactful being the change FHA made to loan modifications that took effect on 01/2025 and the second being the six-week government shutdown from October to November. The combined impact was higher delinquencies and delayed cures, with fewer borrowers moving from delinquent to current status. This impacted November and December runoff expense by approximately $14,000,000 which is represented on the slide by the dotted box. Please turn to slide 17 for details on government actions in Q4 impacting servicing profitability. An FHA program change that was announced earlier in 2025 took effect on October 1, and replaced some COVID-era programs with more normative loan modification policies. Some of those included removing the ability to go into a loan modification without a three-month trial period. This trial period usually has some percentage of the loans falling out as they fail the trial. Also, the ability to modify was limited to once for 24 months, and some other loss mitigation structures that had existed since COVID were ended. The effect on the entire industry was a higher overall delinquency rate for FHA borrowers of about 80 basis points in the fourth quarter versus the third quarter. These FHA program changes may accelerate some loans into foreclosure status in the near term that may have benefited from the prior HUD rule. The FHA modification impact was exacerbated by the longest government shutdown to date, which occurred at the same time, ceasing the delivery of needed paychecks for borrowers over that period, which also contributed to higher delinquencies. Overall, based on our experience, analytics, and available industry data, we expect delinquencies to continue to trend higher in the near term and stabilize by 2026, down from Q4 levels but still elevated. Please turn to slide 18 for an assessment of our continued strong hedging performance. Once again, our MSR hedge strategy continued to perform well and as intended in the fourth quarter. As a reminder, our strategy is designed to mitigate interest rate risk and our hedge has been effective as you can see on the graph. Prior to 2024, we increased our hedge coverage ratio such that by 2024, we were seeking to hedge the majority of our interest rate risk. When we compare our results with information in the public domain, we believe we provide an effective MSR hedge at an efficient cost relative to our peers who also hedge a significant portion of their book. Given that an MSR hedge is dependent on the interest rate and related derivatives markets, we frequently review and assess our hedge strategy to manage risk and optimize liquidity and total returns. Please turn to slide 19 for an overview of the valuation allowance. On 12/31/25, we released a valuation allowance that was offsetting our net deferred tax asset. This action was part of our ongoing quarterly review per ASC 740, which considered, among other factors, our consistent profitability over the last several years to enable the release. In addition to immediately improving net income in the fourth quarter, which also contributed to our strong improvement in book value per share, the positive impact on our equity improved our DE ratio considerably, moving us to 2.6x. We will continue to assess the remaining valuation allowance of $26,000,000 which is predominantly offsetting state tax NOLs. Currently, we do not expect any material changes to the valuation allowance in the near future. The increase in equity will bring adjusted ROE down by about 300 basis points such that our guidance for full year 2026 goes to 13% to 15% versus the 16% to 18% it would be absent the valuation allowance release. Overall, the release of the substantial majority of our existing valuation allowance is another indicator of our recent improvements in profitability and affirmation of our strategy and execution. Please turn to slide 20 for observations on liquidity. To start with, at year-end 2025, our liquidity was $2.5 billion, of which $181,000,000 was unrestricted cash and the remainder was MSRs that were pledged but undrawn on a bank line. Then in late January, we opportunistically conducted an add-on high-yield offering where we issued $200,000,000 of notes identical to our Q4 2024 high-yield issuance but at an effective yield of 8.5%, which is about 140 basis points better than our 2024 issuance. We have not yet closed our Finance of America Reverse MSR transaction, which is awaiting Ginnie Mae approval, but when that closes, we will recognize roughly $100,000,000 in proceeds as disclosed in previous 8-Ks and press releases. Our approach to deploying excess capital is to immediately de-risk our balance sheet by replacing mark-to-market MSR bank financing with longer-term non-mark-to-market high-yield proceeds. We then consider other uses for the capital, such as increased participation in MSR bulk purchases and higher volumes in the B2B originations channel with retained MSRs. In addition, we have received board approval to launch a $10,000,000 share buyback program, which we can fund with liquidity as of year-end 2025, or M&A opportunities. We think these various transactions provide ample capital to pursue various growth strategies in 2026. On slide 21, we provide guidance for full year 2026. As Glen mentioned earlier, we expect to deliver an adjusted ROE of 13% to 15%, which includes the impact of the valuation allowance release on increased equity. For modeling purposes, I would indicate our effective tax rate in 2026 is projected to be modestly higher than the federal and state levels due to some permanent expense disallowances, and we presently anticipate an effective tax rate of 28% to 30%. Furthermore, the combined impact of the Rithm-related restructuring and Finance of America indemnifications and restructuring costs are expected to be in the range of $19,000,000 to $20,000,000. Those indemnifications and restructuring will impact GAAP net income but not our adjusted ROE. We anticipate a 5% to 15% increase in servicing book UPB growth and this includes the nonrenewal of the Rithm contract, which had roughly $32,000,000,000 of UPB at the end of 2025. We expect to continue to maintain a high hedge effectiveness to protect the value of the MSR and continue to control expense growth to be commensurate with revenue growth. Overall, I am pleased to report a record quarter for net income that substantially increased book value per share for our shareholders. Back to you, Glen. Glen A. Messina: Thanks, Sean. Let’s turn to slide 22 for a few comments before we open up the call for questions. We remain committed to accelerating profitable growth and creating value for all stakeholders. I am proud of the team’s relentless focus on delivering on our commitments. Our strong 2025 results, led by record originations volume, validate our balanced business and its ability to perform through market cycles. We have built a technology-enabled, award-winning servicing platform that is efficient, delivers differentiated performance, and service excellence. We are delivering profitability comparable to our peers at a more attractive valuation, underscoring our commitment to strong shareholder returns. All of this comes together to suggest a share price that we believe has significant upside. And we intend to continue to take the necessary actions and maintain agility in a dynamic market to harvest that value for the benefit of all shareholders. Overall, we could not be more optimistic about the potential for our business. With that, operator, let’s open up the call for questions. Operator: Thank you. If you would like to ask a question, please press star then one. Once again, that is star one to ask a question. We will take our first question from Bose Thomas George with KBW. Your line is open. Bose Thomas George: Hey, everyone. Good morning. Just on the FHA impact on the MSR that you noted. So it is $14,000,000 in the fourth quarter. You noted there will be some impact in the first quarter and the second quarter. Can you help quantify that as well? Glen A. Messina: Bose, good morning, and thanks for your question. Look, you know, we certainly have quantified the impact for the fourth quarter because we go through a very intense analysis looking at every attribute of the MSR portfolio to see what impacted runoff, whether it is scheduled payments, unscheduled payments, escrow balances, delinquencies. Hard to predict right now on a go-forward basis how customers are going to perform throughout the course of the year. We have done a fair amount of modeling to support our estimation that we would expect this to stabilize by the second quarter. We think that is enough time for it to set a new norm, so to speak. And once your delinquency is at a new norm level, if you think about it, even if it is higher than it was previously—I will just pick some numbers. If it was 8% in one quarter and went up to 10%, that is a 200 basis point increase. That is an adverse impact to MSR valuation, and that is similar to what we saw in the fourth quarter. If it stays at 10% versus 10%, there is really nothing that flows through the MSR runoff line for delinquency because there was no incremental delinquency and no incremental change. So, right now, we are monitoring it closely. We are keeping an eye on how consumers are behaving. But with some of the new rule changes, and in particular, Bose, this requirement for consumers who are seeking a modification to do an attestation to say that they have the financial resources to complete the modification and go through, it is consumer behavior. It is hard to predict. We are keeping an eye on it to see how consumers are reacting to that. So, yeah, we would love to be able to give you a number. It is X in that quarter, Y in that quarter, but right now, it is just a little difficult to see. Bose Thomas George: Okay. Yeah. That makes a lot of sense. And then just on the origination side, with the government shutdown, was there an impact in terms of making it harder to recapture some of those FHA loans as well, or was the origination cycle alright even during the shutdown? Glen A. Messina: You know, interestingly enough, from a refi perspective, we did not see a material impact as a result of the government shutdown. I mean, it was just a tremendous quarter for us, a record-setting quarter from a refinance perspective. And, with lower rates as we can see from the MBA refi application index, continuing to chug along quite nicely. So, the refi expectations for the industry, at least coming out of the gate, seem to be reasonable and appropriate. So did not see any impact there. Excited about how our recapture platform is performing, and looking forward to working with our team to maximize performance of our recapture platform. Bose Thomas George: Okay. Great. Actually, just one more for me. The 13% to 15% guidance number, is that a post-tax number? So is that after that 28% to 30%? Glen A. Messina: No. Adjusted ROE is always on a pretax basis, Bose. It is a pretax income look. Yeah. It is pretax. Again, it does take into consideration the $120,000,000 increase to the equity base for our earnings for 2025, which is net-net a good thing. But we are conscious of making sure we can generate competitive return on equity on both a pretax and after-tax basis, and we will be mindful of our return on investment hurdles over the course of 2026 to make sure that we can deliver competitive returns. Bose Thomas George: Okay. Great. Thanks. Operator: Once again, if you would like to ask a question, please press star then one. We will take our next question from Eric Hagen with BTIG. Your line is open. Sean Bradley O’Neil: Hi. This is Brendan on for Eric. Do you think that there is an ideal interest rate environment for the subservicing business? And are there any catalysts you see to add a lot of scale in the subservicing business in the near term, or is that really a long-term growth opportunity? Glen A. Messina: Good morning, Brendan. Thanks for your question. Look, we have seen steady opportunity in subservicing. Quite frankly, it is not necessarily a function of interest rates, although in particular for the independent mortgage bankers, the privately owned independent mortgage bankers, when people are going through a refinancing wave, there is a tendency for privately owned independent mortgage bankers to hold more MSRs on their balance sheet for tax planning and tax management strategy. And because originations, retail originations in particular, tend to be cash flow positive during refinancing cycles, it provides more cash for the privately owned independent mortgage bankers to hold MSRs on their balance sheet. So during the last two years, we have seen a cycle where, I will use the term IMBs, independent mortgage bankers, IMBs were selling MSRs to harvest cash because origination margins were really quite thin. You know, I think it is an opportunity now with rates coming down for them to reload their portfolio. And we would expect to see growth there. Over the past couple of years, the big catalyst for subservicing has been, quite frankly, the amount of subservicing platforms that have changed hands. There were probably five platforms in the last two to two and a half years that have changed hands. And anytime you have that kind of disruption in the marketplace, it creates opportunities. It is an opportunity for subservicing clients to rethink and explore their options and alternatives. More recently, just yesterday, we saw the announcement of PennyMac’s acquisition of Cenlar. First off, my congratulations to David Spector and Jim Daras. I have a lot of respect for both those people. It looks like it was a good transaction for them. But, look, I would expect, as we have seen previously, it will create an opportunity for clients to rethink: What do I want to do? Do I want to stay here? Do I want to go? Whatever. It does create more people coming into the market to consider their alternatives. We love that. Quite frankly, as you have seen, we have grown our subservicing business quite nicely this year, $48,000,000,000 total subservicing additions this year. We have got another $28,000,000,000 in the hopper that we expect to board in the first half. Eight new clients signed up that are going to be boarding in the first half. Eight new contracts under negotiation. Love the momentum we have there. I think the subservicing business has always been fiercely competitive. Cenlar has been a competitor in the marketplace for years. And they are formidable, expecting to continue to be a formidable competitor. But I think this creates net-net opportunity to grow. Bottom line. Operator: Thank you. Sean Bradley O’Neil: And how much capital do you think will become available once the Rithm portfolio is fully transferred? Glen A. Messina: In terms of capital availability with the transfer of the Rithm portfolio, subservicing generally does not free up capital because we do not have an investment in that portfolio. So that in and of itself will not free up capital. Closing the sale of the reverse mortgage business, the MSRs, to Finance of America Reverse, we expect that will free up roughly $100,000,000 of capital, and convert that all to subservicing. And we are just tremendously excited to be partnering with Brian Libman and his team over at Finance of America. Operator: Thank you very much. And this does conclude the Q&A portion of today’s call. I would now like to hand the call back to Glen for any additional or closing remarks. Glen A. Messina: Thank you, operator. I would really like to thank our shareholders and key business partners for their ongoing support of Onity Group Inc. I also want to thank and recognize our board of directors and our global business team for their hard work and commitment to our success in delivering a terrific 2025. And I look forward to updating you on our progress in our next earnings call. Thank you so much for joining. Operator: Thank you. This brings us to the end of today’s meeting. We appreciate your time and participation. You may now disconnect.
Operator: Hello, everyone, and thank you for joining the Kimco Realty Corporation fourth quarter earnings call. My name is Claire, and I will be coordinating your call today. During the presentation, you can register a question by pressing star followed by 1 on your telephone keypad. If you change your mind, please press star followed by 2 on your telephone keypad. I will now hand over to David F. Bujnicki, Senior Vice President of Investor Relations and Strategy for Kimco Realty Corporation. Please go ahead. Good morning. David F. Bujnicki: Thank you for joining Kimco Realty Corporation’s quarterly earnings call. The Kimco Realty Corporation management team participating on the call today include Conor C. Flynn, Kimco Realty Corporation’s CEO; Ross Cooper, President and Chief Investment Officer; Glenn Gary Cohen, our CFO; David Jamieson, Kimco Realty Corporation’s Chief Operating Officer; as well as other members of our executive team that are also available to answer questions during the call. As a reminder, statements made during the course of this call may be deemed forward-looking, and it is important to note that the company’s actual results could differ materially from those projected in such forward-looking statements due to a variety of risks, uncertainties, and other factors. Please refer to the company’s SEC filings that address such factors. During this presentation, management may make reference to certain non-GAAP financial measures that we believe help investors better understand Kimco Realty Corporation’s operating results. Reconciliations of these non-GAAP financial measures can be found in our quarterly supplemental financial information on the Kimco Investor Relations website. Also, in the event our call was to incur technical difficulties, we will try to resolve as quickly as possible and if the need arises, we will post additional information to our IR website. Good morning. Thanks for joining us today. We appreciate your interest in Kimco Realty Corporation. Today, I will highlight what we delivered in 2025 and how we are positioned to drive value in 2026. David Jamieson will provide additional color on our leasing activity. We will also then discuss the transaction market, and Glenn will wrap up with a review of our key financial metrics and guidance. 2025 was another banner year for Kimco Realty Corporation. We delivered NAREIT FFO per share growth of 6.7%, making us one of the only shopping center REITs to achieve over 5% FFO growth in 2024 and over 6% in 2025. We also earned a credit rating upgrade, A-, from Moody’s during the fourth quarter, reflecting our disciplined approach to the balance sheet. Kimco Realty Corporation is now one of only 13 REITs, the entire REIT industry, with multiple A-/A3 ratings from the three rating agencies. A notable milestone in our transformation into one of the lower levered REITs while still accelerating earnings growth. This is a rare accomplishment in the REIT world, and it speaks to the strength of our team, our portfolio, and our execution. Operationally, our performance was equally strong, achieving a number of record milestones, including overall portfolio occupancy of 96.4% matching our all-time high, our highest quarterly new leasing volume in more than a decade, with 1,200,000 square feet leased, a 90 basis point sequential increase in anchor occupancy, our strongest quarterly gain on record, a new all-time high in small shop occupancy, of 92.7%, a signed but not open pipeline reaching a record 390 basis points, representing $73,000,000 of future annual base rent, enhancing our portfolio quality by expanding our annual base rent from grocery-anchored centers by converting nine nongrocery sites to new grocery-anchored locations in 2025. In terms of same-site NOI growth, we delivered 3% for the full year. These achievements highlight one of Kimco Realty Corporation’s key advantages: our ability to create value through our platform, not only through capital allocation, but through consistent hands-on execution at the asset level. A great case study is the portfolio we acquired from RPT. At acquisition, the occupancy gap between RPT and Kimco Realty Corporation legacy portfolio was 120 basis points. Since then, we have increased RPT occupancy to 96.2% at the 2025 year-end, narrowing the gap to a mere 20 basis points, or approximately 30,000 additional square feet to match Kimco Realty Corporation’s occupancy level. The key driver has been small shop leasing. Our RPT small shop occupancy improved 370 basis points since the merger to 92.1%. Further, our operating momentum translated into real cash generation. We produced over $165,000,000 of free cash flow after the payment of all dividends and leasing costs in 2025, strengthening our ability to self-fund growth while supporting a well-covered and growing dividend. We also paired that performance with a disciplined capital allocation, repurchasing shares when our valuation reached a meaningful discount to net asset value. Our portfolio and balance sheet are cycle-tested and we are positioned to keep executing through any environment. As we enter 2026, we are encouraged by the continued fundamental strength of the shopping center sector. Importantly, there is almost no supply coming online, which combined with the resilient consumer, and a robust pipeline of deals driven by healthy tenant demand, gives us confidence we could push occupancy and same-site NOI higher. This is why we believe Kimco Realty Corporation offers investors a compelling opportunity: solid, robust operating fundamentals, a well-covered dividend, durable earnings growth, and one of the strongest balance sheets in the REIT sector with a very attractive valuation based on our current multiple. As Ross will touch on, our high-quality open-air retail continues to attract capital. While public REIT sentiment has been uneven, private market pricing remains constructive, and that disconnect is creating opportunity. In 2026, we are focused on closing the value gap between Kimco Realty Corporation’s public market valuation and private market price. Our strategy for 2026 is built around the following priorities. First, we intend to be proactive and aggressive in recycling capital that is both accretive and enhances the overall long-term growth profile. We plan to take individual assets and portfolios to market and sell at attractive private market cap rates, redeploying the proceeds into our highest return opportunities, including further potential share repurchases that currently offer roughly a 9% FFO yield. Recent transactions show shopping center REITs go private at cap rates in the mid-5s to low-6s range, and demand for high-quality assets like ours remains strong. Based on what we are seeing, we believe we can sell assets across our portfolio at a blended cap rate in the 5% to 6% range which compares favorably to our implied cap rate in the low- to mid-7% range, representing a clear value creation opportunity. Where appropriate, we will continue to utilize 1031 exchanges to mitigate the tax impact from these sales. To the extent gains cannot be fully deferred, it is quite possible that we may have to distribute a special dividend at year-end. Second, we are flattening our organization and modernizing our operating platform to move faster and operate more efficiently, driving higher cash flow, improving margins, and unlocking the full advantage of our scale through better coordination, clear ownership, and faster execution. At the midpoint, our plan removes $3,000,000 of G&A expense this year while still investing in our people and platform to keep raising the level of execution. Our priorities position us well for 2026. We are entering the year with strong operating momentum, the largest signed but not open pipeline in Kimco Realty Corporation’s history, providing clear visibility into future rent commitments and embedded NOI growth, and a balance sheet designed for flexibility. Our focus is on disciplined execution, and we are energized by the opportunity ahead. With the strength of our team, the quality of our portfolio, and the financial capacity to act decisively, we are confident in our ability to outperform and unlock even greater long-term value. David Jamieson? Thank you, Conor. I will start by touching on our fourth quarter leasing highlights, followed by sharing some additional perspective on 2026. In the fourth quarter, as Conor shared, we achieved a number of record leasing milestones, punctuated by 1,200,000 square feet of new leasing volume. Other notable accomplishments included the signing of 30 anchor leases, which are the most we have ever completed. We also saw the lowest volume of vacates in over six years, including only three anchor leases vacating. This performance reflects the robust and deep demand that exists with activity spanning grocery, off-price retailers, fitness, furniture, and general merchandise sectors, and also showcasing that retailers, when given the chance to relocate, are choosing to remain at well-located high-traffic, open-air centers at market rents to further support their business strategies. The impressive deal volume has helped grow the SNO pipeline to a record 390 basis points, representing $73,000,000 of annual base rent. This is an increase of $17,000,000, or 30% higher than the prior year’s level. Our construction and tenant coordination teams prioritize cash flow growth and are committed to accelerating rent commencements by working closely with retail partners and municipalities to streamline workflows and address challenges early, ensuring timely openings. This effort enabled us to recognize $31,000,000 in rent commencements during 2025, a figure that exceeded our initial budget by 15%. Our success in 2025 was also driven by new approaches to our targeted leasing strategy, which is best exemplified by the package deals. During the year, we completed 10 package deals totaling nearly 60 leases and over 20% of the total GLA for all new leases signed in 2025. The most recent example of this is in the fourth quarter package deal with Ross Dress for Less in which we signed six leases that were completed within 30 days from approval to execution. Both sides were motivated by a shared goal to efficiently expand the partnership, work collaboratively, with residual benefit that would expedite the store opening strategy for Ross while allowing us to increase our economic occupancy over time. A key initiative in 2026 is to further expand these efforts and fully optimize our advantages of scale. This includes shifting away from the regional organizational framework to a functionally aligned operating model, enabling us to drive further operating efficiencies. Most importantly, this change will not result in any incremental cost and is expected to drive additional savings over time. Nearly six weeks into 2026, we continue to see last year’s momentum carry forward, supported by steady demand and limited new supply. Our tenant credit profile is as strong as it has been in several years, and while we budget for the usual first quarter seasonal softness, we do not anticipate it will materially impact performance in 2026. In terms of our expiring annual base rent, we have resolved or have a deal on the work for 87% of the expiring ABR in 2026, which gives us confidence that a retention rate should remain around that 90% level. In addition, of the 47 naked anchor leases, which are those that are expiring without any renewal options in 2026, 98% of our budgeted assumptions are resolved with mark-to-market spreads around 30%. Importantly, most of our budgeted minimum rent for 2026 is in place with 90% already cash flowing, and another 8% driven by rent commencements from the SNO pipeline and budgeted renewals and options. All told, this leaves only 2% of the budget as speculative, which is inclusive of new leases, additional renewals, and options. Provided there is no major bankruptcy activity in early 2026, and no significant macro disruptions, we are confident in our budget and see the potential to outperform based on our historical success with the SNO deliveries and retention levels. And while we do not provide a guidance for occupancy, we are optimistic that we can drive it higher than the 2025 year-end level. The same holds true for our SNO pipeline. Given the elevated pace of leasing, we project it to grow further before beginning to compress through the end of the year and into 2027. This bodes well for the cash flow growth over the coming years. I will now turn it over to Ross. Thank you, David. I will begin with a brief recap of fourth quarter capital allocation, then turn to our 2026 expectations. The fourth quarter was active as we continued to execute on our strategy and capital plan. This was highlighted by the conversion of another structured investment with the acquisition of a common member’s interest in Shops at 82nd Street in Jackson Heights, Queens, New York. Shops at 82nd is located in an exceptionally dense infill market and is a grocery-anchored center with a strong tenant roster, including Target, Chick-fil-A, Chipotle, Starbucks, and Northwell Medical. Having initially invested preferred equity in this asset in 2021, we exercised our right of first offer/right of first refusal, which culminated in buying our partner’s interest and retaining the property in Kimco Realty Corporation’s long-term portfolio. We utilized this property to complete a 1031 exchange, deferring tax gains from the continued sale of long-term flat ground leases from the portfolio. This dovetailed well with our capital recycling strategy that we laid out last year, selling lower-growth assets at compelling private market cap rates and reinvesting into higher-growth, better-yielding investments. We made meaningful progress on that initiative during 2025. As we enter 2026, competition for open-air retail has become increasingly intense, making our ability to source acquisition opportunities from our existing JV platform and structured investment program a meaningful differentiator for Kimco Realty Corporation. This is critically important as we continue to see new entrants into this asset with investors and operators trying to find ways to position themselves to win marketed deals. This is leading to tighter return hurdles and forcing us to be more selective to achieve acceptable yields. Our strategy and having our foot in the door on deal flow allows us to avoid a crowded bidding tent and find unique opportunities where we can invest at a more favorable spread. We are excited by our ability to continue recycling capital accretively and build on the momentum that started to ramp in 2025. To that point, we have identified a disposition pipeline of $300,000,000 to $500,000,000, primarily consisting of flat ground leases, lower growth multitenant centers, and non-income producing land and entitlements. We are also further evaluating components of our multifamily program as potential opportunities to further monetize assets at low cap rates and crystallize value. We expect the blended cap rates from sales to be between 5% to 6%. Utilizing this low-cost source of capital, we anticipate acquiring a similar amount of shopping centers at cap rates roughly 100 basis points higher at the midpoint. Importantly, these acquisitions not only provide higher going-in yields, we also expect on average approximately 200 basis points of incremental compounded annual growth, creating a higher-growing portfolio that should enhance same-site NOI and FFO growth as we recycle capital over time. As we did last year, we plan to utilize 1031 exchanges and other tax strategies to help defer gains from asset sales. The other component of our investment strategy is a modest expansion of the structured investment book, with net growth of approximately $100,000,000 at the midpoint with a blended average yield around 9%. This is a capital allocation strategy that we are confident we can achieve in 2026 and, importantly, build out as a recurring strategy to enhance the composition of the portfolio while reinvesting in higher growth and quality. We are off to a great start to the year, with several dispositions already closed as well as a few structured investment deals funded in January. The pipeline is active and building, and the team is excited and motivated. Now I will pass it off to Glenn for the full year results and our 2026 financial outlook and expectations. Thanks, Ross, and good morning. As the team has shared, Kimco Realty Corporation delivered a strong finish to 2025, driven by continued cash flow growth, disciplined capital allocation, and the strength of our open-air grocery-anchored portfolio in a supply-constrained environment. Starting with the fourth quarter, funds from operations, or FFO, was $294,300,000, or $0.44 per diluted share, representing a 4.8% increase versus the prior year period. This performance was driven by higher pro rata NOI, primarily reflecting greater minimum rents. For the full year, FFO was approximately $1,200,000,000, or $1.76 per diluted share, representing a 6.7% per share increase compared to 2024, driven by the embedded growth characteristics of our portfolio, highlighted by an increase of 4.9% from pro rata NOI. We also delivered same-property NOI growth of 3% for both the quarter and the full year, supported by sustained demand for our space and consistent rent growth. Credit loss was 74 basis points for the full year, at the low end of our range, underscoring the solid tenant credit profile across the portfolio. Turning to the balance sheet. We ended the year with strong liquidity and significant financial flexibility. This is demonstrated by over $2,200,000,000 of immediate liquidity, including $213,000,000 of cash and full availability on our $2,000,000,000 unsecured revolving credit facility. We also maintained our solid balance sheet with consolidated net debt to EBITDA of 5.4 times and on a look-through basis, including pro rata JV debt and preferred stock outstanding, at 5.7 times. During the quarter, as Conor mentioned, we received an A3 unsecured debt rating from Moody’s, which places Kimco Realty Corporation in a select group of REITs with A- level ratings across the three major rating agencies. This milestone reflects the strength of our portfolio, a conservative leverage profile, consistent execution, and significant financial capacity and flexibility. We also added another option to our funding toolkit by a commercial paper program, which we expect to use opportunistically as part of our overall financing strategy. In terms of capital allocation, we repurchased 3,100,000 common shares during the fourth quarter at a weighted average price of $19.96 per share. For the full year 2025, we repurchased 6,100,000 common shares at an average price of $19.79. We view buybacks as an important lever when our valuation reflects a meaningful discount to the value of our real estate and our internal growth profile. Looking ahead, Kimco Realty Corporation enters 2026 with considerable momentum and a foundation for continued strong performance. Our 2026 outlook reflects another year of healthy earnings progression. Our initial 2026 FFO per share range is $1.80 to $1.84, representing a 2.3% to 4.5% growth over 2025. This outlook reflects our expectation for continued demand across the portfolio supported by same-property NOI growth of 2.5% to 3.5%. With respect to same-property NOI growth, we expect the first quarter to mark the low point for 2026 as we lap prior year rental income from tenants such as Joann’s, Party City, Rite Aid, and Big Lots. Importantly, we see a clear and accelerating growth profile emerging thereafter, with each successive quarter benefiting from a rising pace of rent commencement from our SNO pipeline, providing strong visibility through the balance of the year. As David Jamieson noted, our tenant credit profile is as strong as it has been in many years, and we do not expect that to change materially in 2026. That said, we believe it is prudent to begin the year with a credit loss assumption of 75 to 100 basis points, which is consistent with historic norms and aligned with our approach over the last several years. Other financial assumptions in the outlook include lease termination income between $7,000,000 to $15,000,000, noncash GAAP revenue inclusive of straight-line rent and above- and below-market rent amortization of $45,000,000 to $50,000,000, and net mortgage and financing income, which continues to be an important contributor to our earnings profile, of $45,000,000 to $55,000,000. On the expense side, we are projecting consolidated G&A between $128,000,000 to $132,000,000, reflecting ongoing cost discipline, and consolidated interest expense plus preferred dividends of $370,000,000 to $377,000,000. With respect to capital deployment, we will continue to prioritize high-return opportunities that enhance long-term growth. For 2026, we anticipate total development and redevelopment investment between $100,000,000 to $150,000,000, capitalized lease-related and maintenance spending of $275,000,000 to $300,000,000 to support strong occupancy growth and tenancy momentum, net new structured investment activity between $75,000,000 to $125,000,000 with going-in yields in the 8% to 10% range, and net neutral acquisition and disposition activity with a positive spread on reinvestment of proceeds. In terms of the balance sheet, we have over $800,000,000 of consolidated maturities at an average effective rate of approximately 2.65% in 2026. While these low coupon maturities represent a known headwind, we view them as manageable and we are confident in our ability to address them proactively and opportunistically, supported by our A- level ratings and balance sheet strength. In summary, Kimco Realty Corporation enters 2026 with confidence and a positive outlook. Our portfolio continues to generate growing cash flow supported by embedded rent commencements, ongoing occupancy upside, and robust leasing activity. Coupled with a fortified balance sheet, prudent capital allocation, and multiple levers for value creation, we believe we are well positioned to deliver another year of sustainable growth and profitability while continuing to provide an attractive dividend yield. Before we move on to Q&A, I want to recognize Paul Westbrook, Kimco Realty Corporation’s Chief Accounting Officer, who plans to retire at March. For the past 23 years, Paul has been a tremendous partner and leader; we are deeply grateful for his many years of service and contributions to the organization. At the same time, Kathleen Thayer will step into the role of Executive Vice President, Treasurer, and Chief Accounting Officer on April 1. With nearly two decades at Kimco Realty Corporation, and deep institutional and technical expertise, Kathleen’s appointment reflects the depth of our team, and makes for a seamless transition. And with that, we will open the call for questions. Operator: Thank you. To ask a question, if you change your mind, please press star followed by 2. For questions, you can rejoin the questions queue. When preparing to ask your question, we request that you ask one question, and if you have any follow-up, please ensure your device is unmuted locally. Our first question comes from Greg Michael McGinniss from Scotia, from Alexander David Goldfarb from Piper Sandler. Please go ahead. Alexander David Goldfarb: Hey. Good morning. I guess I would say I am here with Greg Michael McGinniss. But so question for you. You spoke about the potential for a special dividend depending on the level of dispositions and recycling potential. But also, Conor, you have been pretty clear that you want the company to be a top quartile earnings grower. And certainly, I would think special dividend would imply that you are losing earnings relative to investing. So can you just walk more through that and how you are balancing the desire to have Kimco Realty Corporation be a top earners grower versus the clear disconnect between where the stock is and the underlying asset value? We are happy to. It is a good question, Alex. I think when you look at where our taxable income is and where our dividend level is, you know, we need to be mindful of the fact that as we really work to close the gap between where our public valuation is currently versus where the private valuation is. We think there are multisteps we can do to do that. And one of the biggest ones is to really take assets to market, as I mentioned earlier, and really showcase the disconnect between our implied cap rate and where those assets are trading in the market today. As you probably are aware, we do not really have assets that have embedded losses, and when we look across the portfolio, most of our basis is quite low on our assets. So that will trigger a quite sizable taxable gain on any assets we sell. So we are very focused on 1031 exchanges to shield that taxable gain. We have been successful in doing that thus far. That being said, with the sizable disposition program that Ross outlined, we do want to, we thought it was important to showcase that if we are not able to shield those gains, it will trigger a special dividend. But our mission and our focus is obviously to do 1031 exchanges to shield those tax gains. Operator: Thank you. Our next question comes from Michael Goldsmith from UBS. Your line is now open. Please go ahead. Michael Goldsmith: Good morning. Thanks for taking my question. My question is on capital allocation. You clearly have no shortage of options on how you choose to allocate capital with you repurchase shares, you are acquiring assets, you have the preferred lending book, you redevelopment, redevelopment. The same time you have identified a pipeline of funding sources such as ground leases and multifamily. So I guess how should we think about what are the most accretive opportunities, you know, where is the greatest upside or accretion? And then, I guess, why not accelerate some of these actions and take advantage of taking advantage of these things. Conor C. Flynn: Sure. It is a good question, Michael. So the final point of why not accelerate it. We are accelerating it year over year. I think Ross made that point that we are taking more to market this year than we did last year. A number of items restrict in terms of how big of a program we can take to market at any given time. The ground leases need to be separately parceled and make sure that they are on a separate tax parcel so we can sell them into the triple-net or 1031 exchange market to get the best pricing. The other piece of it is, I think when you look at where our capital allocation priorities are, we still start with leasing as number one. That is really obviously where you see the best returns. We are continuing to showcase that there is accelerating demand for our product. We are taking market share as we are reaching out and using our platform as well as our relationships to really take, I would say, the majority of deals that are being done in the open market and making sure that the retailer thinks of Kimco first as really the partner of choice when they look to roll out new store opening plans. Second to that, you know, we look at the redevelopment opportunity set that we have. You know, we did grow it year over year. So we are scaling it. We continue to see that those return on cost blend to double digits. And we continue to think that is a great use of capital because, typically, not only are you getting a double-digit return on that redevelopment, but you are getting also a halo effect on the rest of the shopping center because, in essence, you are bringing something new and vibrant to an asset that has a halo effect on the residual shops that may be vacant or may have opportunity for mark to markets. Ross has outlined, obviously, the other potential growth of the structured investment book. Again, we really like that opportunity set. We think it is a nice tool in the toolbox to get our foot in the door with ROFO and ROFRs on assets we want to acquire. As we showcased in 2025, that is really the mission of that book is getting paid to wait, and those are averaging double digits. And then you look at, obviously, on the core acquisition piece, you know, that is where we are match funding accretively. Our flat ground leases that we can sell in the mid- to low-5s. Looking at the multifamily opportunity set that we have as well, which would trade in the mid- to low-5s. And grocery-anchored shopping centers with good growth, we think we can find, you know, our fair share of those with, as Ross outlined, you know, potentially with the 6 cap handle with some really strong comp annual growth. So that is really the capital allocation menu that we have and where we are prioritizing. We are coming into 2026 in really good shape. I think we have got a lot of momentum. We are very, very focused on showcasing what a compelling investment Kimco Realty Corporation is today. Ross Cooper: Yeah. I think that was a great overview. I would just quickly add, I mean, there is a bit of a push and pull to every component of the capital allocation strategy. So we really do look at, you know, our investment strategy somewhat holistically as a blend. And we feel really good about the guide and the baseline that we put out to start the year in terms of blending together the amount of acquisitions, dispositions, redevelopment, structured. And so at its core, at the end of the day, when we blend it together, we feel good about the accretion that we can obtain. Again, we are thinking about multiple different objectives through every one of these strategies: enhancing growth, both same-site and FFO, enhancing our grocery component of exposure, looking at the impact on watch list tenancy. So we are taking into consideration all of these factors, in addition to, of course, the tax considerations, which Conor identified earlier. Conor C. Flynn: And the final piece is obviously the share buyback. Ross Cooper: Opportunity. I think we have showcased in 2025 that we can make it a meaningful piece of our capital allocation strategy Conor C. Flynn: and use it opportunistically. And when Kimco Realty Corporation is selling at values that we think are extraordinarily compelling, we have the balance sheet, the free cash flow, the Ross Cooper: that could take advantage of that. We continue to focus and think 2026 is going to be a year where we will continue to focus on that opportunity. Operator: Thank you. Our next question comes from Cooper R. Clark from Wells Fargo. Ross Cooper: Great. Thanks for taking the question. On the acquisitions guidance, I know you mentioned earlier about opportunities coming from your JV and structured investments. But historically, you have also had success buying larger portfolios and integrating them into your platform. Just curious how the opportunity set looks like today in terms of larger portfolio deals rather than one-off transactions. And any considerations we should be thinking about with respect to pricing between portfolio sales and one-off deals? Sure. And that is always going to be part of our acquisition strategy. As we indicated earlier, it is a bit challenging given where our cost of capital is compared to the private markets. And with financing readily available at pretty attractive rates, it has brought in a whole host of private investors and competition. That being said, we do believe that we have thrived on some larger M&A and portfolio acquisitions in the past, and that will always be part of the playbook and the consideration. For the moment, we feel really good about, as I mentioned, some of the foot in the door that we have within the structured program and within the joint venture program. Actually, when you look at 2025, all of our acquisitions for the year were made within investments where we already had a piece and/or a right of first offer or right of first refusal. So we will continue to lean into that while we keep the door open for other larger transactions should the opportunity arise. Conor C. Flynn: Thank you. Operator: Our next question comes from Ronald Kamdem from Morgan Stanley. Your line is now open. Please go ahead. Hi, this is Caroline on for Ron. Thanks for taking the question. I was wondering if you could speak a little bit on what you are seeing in terms of tenant health so far and just how it is trending. And are there any names that we need to look out for or categories that are doing better or worse than last year? Ross Cooper: Yeah. Thanks for the question. So as I mentioned in my prepared remarks, sorry, the credit quality, I think, of our portfolio today is better than it has been in a number of years, especially coming out of COVID. A few notable Conor C. Flynn: retailers that were on the watch list previously, one of which is now off, say, is Michaels, where they have really been opportunistic in trying to restructure their capital stack. They had a Ross Cooper: great year last year, in terms of repositioning their value proposition, their customer base, leveraging their brick-and-mortar fleet to really drive sales. So we continue to see that as an Conor C. Flynn: encouraging move forward. 24 Hour Fitness obviously has their CEO from the past now come in, wanting to retake the reins and reposition that portfolio. Although our exposure is low to them, it is another good indication that Ross Cooper: retailers are really taking bold and important steps Conor C. Flynn: to reposition Ross Cooper: their value proposition to ensure that they are offering the customer what is in demand today. When you look at our the tenant strength of our existing fleet, I sort of look at Conor C. Flynn: 2026 and how much we have already resolved that I mentioned in my prepared remarks, and to get another indication when you have, you know, 47 anchor leases that are coming due with no options, and we have resolved Ross Cooper: 98% of them. Again, it is an indication either through renewals, new lease opportunities, that the demand is high, and people are continuing to see opportunities within our Conor C. Flynn: sector and, more specifically, within our portfolio, which, again, is also reflective of the retention levels that we are already seeing in 2026. Ross Cooper: So we have not seen anything Conor C. Flynn: concerning. We continue to see consumer growth being strong on the discretionary side within our sector. Within our shopping centers, retailers are really looking at Ross Cooper: 2027 now, even into 2028, to ensure that they are continuing their momentum to hit their open-to-buy mandates and make sure that they continue to grab the market share when it becomes available. Operator: Thank you. Our next question comes from Greg Michael McGinniss from Scotiabank. Michael Goldsmith: Hey. Good morning. Glenn, could you just help Conor C. Flynn: us better understand the underlying components of the same-store NOI guidance of around 3%? Especially considering the significant sign on occupied pipeline and comping versus, you know, last year’s bankruptcies. Michael Goldsmith: Sure. You know, again, Ross Cooper: we put out 2.5% to 3.5% as the range. We know, as I mentioned in my prepared remarks, that the beginning, the first quarter, is going to be the most challenging in terms of where we are based on the comp and us lapping the bankrupt tenants. But overall, we see the SNO pipeline coming online the way David Jamieson talked about, and we feel comfortable that, you know, the range is the right level, and it tied into the, you know, the entire guidance to get us to the $1.80, $1.84. But as a major Michael Goldsmith: component of it. Operator: Our next question comes from Juan Carlos Sanabria from BMO Capital. Your line is now open. Please go ahead. Michael Goldsmith: Hi. Good morning. Hoping you could talk a little bit about the realignment to a national leadership on terms of the asset management and kind of what drove that? What changes day to day in terms of leasing decisions and streamlining of those procedures? Kind of the savings as well. Seems like the G&A is coming down a bit. Ross Cooper: Sure, Juan. Yeah. Thanks for the question. It was a, as you may know, Kimco Realty Corporation for decades had operated as a regional structure where we had multiple regions overseen by regional presidents. And it served the company very well for decades. And when we look forward in terms of what we are looking to in terms of our efficiency of scale, wanting to move quickly, wanting to adapt and evolve as the market and the environment continues to change very quickly as well, we came to appreciate that if we streamlined our operating model, so replaced the regional structure with two functional teams, one for national leasing and one for asset management, Conor C. Flynn: that will ensure alignment and consistency across our platform Ross Cooper: end to end, coast to coast, and that will enable us to accelerate all the workflows that we have in process, to ensure that we are fully taking advantage of our scale Conor C. Flynn: and be able to grow with that as the market environment comes as well as Ross Cooper: able to better utilize all the technology and the investing that we are doing on that side, both from a new investment as well as just streamlining our business Michael Goldsmith: workflows. Conor C. Flynn: And so we felt it was prudent that we took that step now. We started to test it when you really take a look back in the last year, as I was mentioning these package deals. Ross Cooper: That was a good example of how we started to consolidate our efforts, streamline it, and have one accountable party go and execute. We could do this much, much quicker. The fact that we got Ross’s deals done in 30 days from approved REC to lease execution was phenomenal, and that was really Conor C. Flynn: a direct reflection of streamlining that process. On the asset management side, it is ensuring consistency and continuity across the portfolio. Tom Simmons, previously running the Ross Cooper: Southern Region as President, has a depth of experience in mixed-use activity, repositionings, redevelopments, is a great strategist. And so we will be able to expand that expertise across the entire country, Conor C. Flynn: with consistency. So we felt it was prudent at this time to take that step forward. And then as it relates to savings, Ross Cooper: we are early days on the restructuring strategy. We have obviously made the, and we intend similar to what we have done with the Weingarten integration and the RPT integration. We view this very much as a similar effort, and that we will be very thoughtful in terms of using the first several months to go through the restructuring, Conor C. Flynn: rebuild the team, identify and introduce new operating roles. With a full rollout towards the ’3. Within that exercise, we will start to identify more of the savings that will come through the organization. Will Teichman: And just to add to that, this is Will Teichman. Just to add a bit more about Ross Cooper: how we are approaching this project as a whole. Conor mentioned on our last earnings call that we have formed an Office of Innovation and Transformation to guide a lot of these operational improvement efforts for the company, and in conjunction with this operational restructuring, our Office of Innovation and Transformation is helping David and his team to quarterback and coordinate this overall planning Conor C. Flynn: process. In addition to that, in the past quarter since launching the new office, we have really been focusing in on Ross Cooper: a number of digital transformation efforts that we believe will help us to unlock additional efficiencies within the business. Conor C. Flynn: I want to just quickly touch on three of those. The first is around automation, Ross Cooper: where we are bringing together many of our early pilots around robotic process automation and agentic AI under a single governance structure that will allow us to more rapidly build the Conor C. Flynn: deploy, and drive adoption of these tools. The second is a proprietary data visualization tool that we have constructed Ross Cooper: and launched last quarter. It is allowing us to gain better visibility into market- and property-specific insights through some interactive maps and site plans and other tools that we have created. And then finally, we completed work on an internal natural language chatbot which pairs our property and lease data with the power of OpenAI’s latest GPT models and puts that into the hands of our associates. I think we are really excited overall about how things are coming together and about the opportunity to leverage a lot of these digital transformation efforts together with organizational changes to drive further efficiencies in the business. Operator: Our next question comes from Craig Mailman from Citi. Michael Goldsmith: Hey, good morning. Maybe just circle back on capital recycling here a bit. I know you guys mentioned 100 basis points of redeployment accretion here, but I am just kind of curious, that seems to be on a nominal basis. As you guys look on sort of an economic cap rate basis, which more directly impacts AFFO, like selling ground leases with zero CapEx to redeploy into high-quality shopping centers. Like, what ends up being the AFFO contribution relative to that 100 basis points as kind of the CapEx differential plays into it. Ross Cooper: Yeah. It is a good question. You know, the way that we think about it is on a number of levels. You know, as mentioned, first of all, it is the going-in spread on the cap rate that is sort of your day one. More importantly, when we are looking at the CAGR of that, you know, plus or minus 200 basis point spread, that does factor in sort of the net effective rent impact of the new deals that we are signing at elevated rents, as well as the cost of, or the capital that is being incurred, both on the CapEx and the leasing side. So we are looking at it both from an FFO and AFFO standpoint, understanding that some of the investments that we make on multitenant shopping centers compared to flat ground leases are going to have additional capital needs. But the rent increases and what we are able to achieve from a growth standpoint and a leasing spread standpoint far outweighs that. So the AFFO should continue to be positive and growing, in addition to the FFO level on its surface. Operator: Thank you. Our next question comes from Samir Upadhyay Khanal from Bank of America. Please go ahead. Conor C. Flynn: Glenn, just Michael Goldsmith: sticking to guidance maybe a little bit here. Conor C. Flynn: The term fees, at the midpoint, Michael Goldsmith: maybe expand on that. I know you had Conor C. Flynn: you are kind of assuming $11,000,000 for the year. I have gotten some questions this morning and kind of how much of this is sort of speculative versus known at this point? Anything you can talk around, that would be great. Thanks. Michael Goldsmith: Sure. You know, look. Lease terminations are just a part of the business generally. Ross Cooper: If you look at what we did last year, we had about $10,000,000 in total. Again, they are episodic. It depends on which leases you get back and what you are working on. I would say today, we have visibility into about $5,000,000 to $7,000,000 of it. But, again, it is early in the year, and, you know, it is fluid. So we baked into the full guidance range, again, the $7,000,000 to $15,000,000 range. To your point, at the midpoint, you are around $11,000,000. It is around the same level as we had last year. So it is not a driver of growth, but it is another component of just operating the business day to day. Operator: Thank you. Our next question comes from Haendel St. Juste from Mizuho. Please go ahead. Conor C. Flynn: Hi. Good morning. This is Ravi Vedi on the line for Haendel. I hope you guys are doing well. I wanted to ask about the ground lease portfolio. How large is this segment within the overall portfolio? And what is the appetite, cadence, and forecast for dispositions within this category going forward? Ross Cooper: Thank you. Yeah. So we are still right around 9% of our ABR that comes from these long-term flat ground leases. So last year, we were able to dispose just over $100,000,000, which was in line with our expectations for last year. We do intend to accelerate that pace for this year. So part of that $300,000,000 to $500,000,000 that we have outlined is, a big component of that is going to be the ground leases. We will continue to be very opportunistic about where and when we sell those assets. We are off to a good start so far this year. We have seen a really increased demand from private investors for this, in addition to the retailers themselves, I think, have gotten more active and aggressive in buying back some of their own real estate. We have a high level of conviction in our ability to hit the targets from a cap rate perspective. And that will be somewhat ratable over the course of the year. But we very much believe that we will see a number of dispositions that is substantially higher than what we achieved in ’25. I think the nice part about the program is that it is Conor C. Flynn: recurring, and we are able to backfill that pipeline going forward because Ross Cooper: when you think about Conor C. Flynn: the 9% that Ross outlined, we are actually still doing deals with Walmart, with Home Depot, with Lowe’s, with Target, across the portfolio, in similar structures where we set it up as a long-term ground lease, are separately parceling off that off. So in essence, the shopping center has many different components to it. Some are growthier pieces than others. And this is a component that we see in the market today as being one that is priced very aggressively but does not really drive Ross Cooper: any enhancement to our same-site NOI. Conor C. Flynn: And if we recycle it correctly, we think it can enhance FFO as well as same-store NOI. So it is a nice recurring program. We have got our development team working on separately parceling all of them out. Ross Cooper: We have the whole pipeline of opportunities. Conor C. Flynn: And as I mentioned earlier, the cadence is really of when they are ripe for disposition, meaning, like, we have built the right tenor in terms of length, the lease term, as well as separately parceled so that it hits the sweet spot of where the investors are looking for Ross Cooper: that credit investment. Operator: Thank you. Our next question comes from Floris van Dijkum from Ladenburg. Conor C. Flynn: Appreciate the color on your capital recycling from your ground rent. Let me ask you a question sort of following up on that. I think you have 3,700 apartment units that are entitled or, you know, essentially, you know, shovel-ready almost. What is your appetite in pursuing those yourself versus monetizing them, selling them completely versus Ross Cooper: JVing? How do you, how should we think about how those Conor C. Flynn: those units will get built and whose capital will be used for that. Ross Cooper: Yes. It is a great question, Floris, and it is another important component of the overall opportunity set. As you pointed out, we have a number of open operating and stabilized multifamily projects. We continue to have a tremendous amount of entitlement opportunity and additional land for development in the future. So with the continued sort of disparity between our public market pricing and where the private market is still valuing these really strong multifamily projects, it is another opportunity for us to consider crystallizing value, monetizing, and recycling. So within those different components, we are evaluating our existing fleet of multifamily as well as some of the future. We look at each and every opportunity on sort of a one-off basis and then identify what is the best way to monetize and/or activate that project. So even as we are considering monetization of some of the existing and future projects via the entitlements, we are also continuing to activate new projects that will be the future opportunity to continue to recycle, and so on and so forth. So we are getting closer later this year to stabilizing our Coulter Avenue, which is our Suburban Square asset. We will consider at that point in time what the best strategy is for monetization and recycling of Michael Goldsmith: capital. Ross Cooper: At the same time, we have recently broken ground up in Daly City in Westlake in California, which is sort of bringing one project online, stabilizing it, and then looking at the next. We have been, I think, very selective in how we activate these projects, some of which will continue to be long-term ground leases that are the most CapEx-light way for us to activate, as well as the joint venture structure where we have contributed our land into a joint venture with a multifamily developer where our land contribution sits in sort of a preferred equity component of the capital stack. So we are extremely focused on recycling capital, crystallizing value, and then when we are activating new projects, how do we do it in the most efficient way, whether it be the CapEx-light ground leases or in our contribution into a joint venture where we are able to generate FFO during the development stage and then figure and determine the exit strategy upon completion. Conor C. Flynn: Yeah. Floris, the only thing I would add is this is a big differentiator between Ross Cooper: Kimco Realty Corporation and our peers. Conor C. Flynn: Our focus on our strategy of First Ring Suburbs we believe is sort of the unique retail plus opportunity set that Kimco Realty Corporation brings that others do not. We entitled over 650 units just this past quarter. We have activated, as you have said, a number of projects, but the retail plus the apartments we think is really the opportunity set that differentiates Kimco Realty Corporation. Because in a way, we have a number of different ways to unlock that embedded value. And, again, that first ring suburb strategy is where we think that opportunity set is robust to unlock future value from the asset because in essence, like, the retail is underutilizing the FAR of the asset, and the parking lots that we have today, you know, driverless cars are being utilized across the country. Parking ratio requirements are coming down across the country. We believe that this strategy of unlocking value for our shareholders is really in the early innings because of the opportunity set that we see across the entire portfolio that, again, sits in these first ring suburbs where density continues to go up around us and the Kimco Realty Corporation asset, in a lot of ways, is the hole in the donut where everything has gone vertical around us and gives us the opportunity set to really add debt in the future. Operator: Our next question comes from Michael Anderson Griffin from ISI. Michael Anderson Griffin: Great. Thanks. Ross Cooper: David, I want to go back to your comments just on leasing and particularly as it relates to leased occupancy. I think you might have mentioned that you are optimistic to get that number up year over year at the end Conor C. Flynn: ’26 relative to ’25. But maybe can you give us a sense, are we almost reaching sort of structural vacancy within the portfolio at Ross Cooper: the mid-96% range? Like, could this really get into 97%, 97.5%? And I imagine that would be driven more by the small shop leasing. Do you think we could be in a world where small shop occupancy gets to 94%, 95%? Then as you kind of think about that SNO delta over the longer term, what is a good spread for that that we should think about? Yeah. Thanks for the question. So I will never say never. Obviously, the goal would love to get to 94%, 95% on the small shop side. But I tend to look at, Conor C. Flynn: you know, the history to try to forecast the future a little bit. So when I Ross Cooper: look at the overall occupancy at 96.4%, Conor C. Flynn: obviously, comprised of anchors and small shops. As you know, small shops were at a record high at 92.7%. Ross Cooper: And on anchors, though, we are just about 110 basis points off our all-time high, which actually happened in, I believe, Q4 2019, pre-COVID. And so when you think about that extra 110 basis points that is still left Conor C. Flynn: to be occupied, there is still room to run Ross Cooper: in terms of total occupancy, which is a great contributor. And tying that to SNO, that in itself could represent another, you know, $12,000,000 to $15,000,000 of value that could be contributed to SNO over time. When I think of the small shops, we continue to see momentum not only through just straight organic leasing activity, but as you have seen, we have expanded our repositioning, redevelopment activity significantly over the last couple of years. And as Conor mentioned, halo effect, you will start to see that benefit as we have already seen in terms of occupying the residual small shop space and driving rent increases for those locations. And so that is a big contributor. And as these anchor space and these repositionings start to come online, we will continue to see that forward momentum, which I think could help propel small shop occupancy. In addition to that, you know, we look at the retailer strategies, and they do vary in terms of expanding or contracting square footage. And there are a number of opportunities where we can actually expand into a small shop space and give that retailer the optimized footprint, so building them a better mousetrap within the market and just staying within our center. So that could be an opportunity as well. And then when you look at the repositioning of what we view as sort of our chronic vacancies, so we put an initiative in place just over a year ago of spaces that had not been leased in over three years. And just that renewed focus of really targeting those areas Michael Anderson Griffin: looking at Conor C. Flynn: opportunities to start repositioning those individual units have yielded great outcomes, and that has helped drive small shop activity. So I think when you roll it all together, there is definitely room to run there, and that will continue to be a Ross Cooper: contributor to the SNO in the near term and then occupancy growth over time. When we look at our normalized SNO levels way back when, it is around 180 basis points of spread in the SNO. So Conor C. Flynn: as we mentioned in our prepared remarks, you could see a further expansion, primarily because you are growing the physical occupancy as economic occupancy Ross Cooper: continues to come online through the balance of the year. If we continue to grow physical occupancy at the top side, you will see some SNO expansion, continued contribution of cash flow Conor C. Flynn: potential for the future, Michael Anderson Griffin: but as Ross Cooper: those spaces start to come online, you will start to see that compression through ’27. But that bodes well for our cash flow growth, ’27 into ’28. Operator: Thank you. Our next question comes from Richard Allen Hightower from Barclays. Your line is now open. Please go ahead. Conor C. Flynn: Obviously, covered a lot of ground Michael Goldsmith: so far, but I want to go back to maybe some action you are seeing in the private market. And I guess on some other calls, even not necessarily in retail, you know, we are hearing that new buyers are sort of coming to the market in various property types, maybe in reaction to the new tax laws and accelerated depreciation and some elements like that. So maybe dig into, if you do not mind, dig into some of the motivations you are seeing behind some of that activity, especially as cap rates, you know, potentially continue to compress from here? Just give us a sense of what that looks like. Ross Cooper: Yeah. No. It is absolutely a very compelling time to be an investor in open-air retail. I think you have heard from us and from other peers the group, the fundamentals that are approaching all-time highs in multiple different metrics. Investors, generalist investors, real estate, are taking notice. And even with cap rates continuing to compress, the financing has gotten much improved in terms of available liquidity and spreads. And so you can still see in many instances situations where there is positive leverage, which is a bit of a differentiator for retail versus some other asset classes. So we really have gone supercharged from what we were talking about 12 months ago in the retail curious to investors that are retail active. And while that makes it more competitive in the open market when we are trying to acquire assets and bidding tents are getting, you know, more and more full, it is a very healthy indication of the interest level and the fundamentals that we see in our business. And with the supply-demand dynamics not realistically going to change anytime in the near to medium term, we think that this is going to continue to be compelling for investors to put capital to work while the fundamentals are going to continue to be extremely strong for the foreseeable future. Conor C. Flynn: Great. Thank you. Operator: Thank you. Our next question comes from Caitlin Burrows from Goldman Sachs. Your line is now open. Hi, everyone. Maybe a quick question on the structured investments. I see the guidance is a net number. Can you give some more details on what visibility you have to existing investments being repaid in ’26? And then your confidence in being able to backfill those? Ross Cooper: Sure. As you saw in 2025, you know, we did a number of new deals. But we did have several very large repayments. You know, in particular, we had our largest individual relationship and our largest individual asset that achieved its business plan. Everything was successfully repaid, so it was a positive outcome for everybody involved. As we look into 2026, we do not anticipate any significant or meaningful sort of single repayments. There will always be some churn within this program. But what we have seen thus far, with closing a couple deals that we funded here in the early stages of January and a pipeline that has some additional assets and investments that are already lined up, we are very confident in our ability to go back to growth for this book in 2026 and beyond. So there will be a little bit of repayment activity throughout 2026, but on the net, as we put in our guide, we are highly confident that we will see some growth here. Operator: Thank you. Our next question comes from Wesley Golladay from Baird. I just want to go back to the 47 anchors that have the Conor C. Flynn: the large mark to market. Those are some nice spreads, but are you looking to replace any of those tenants, bring in a better tenant that drives more traffic? And does, do any of these unlock any redevelopments? Ross Cooper: Yeah. That is a great question. So when I do say it in terms of resolve, that is either continuing to renew the tenant in place or reposition the box itself for either redevelopment or a higher-quality credit tenant. So in one example, we are replacing one of the boxes with Sprouts in South Miami and repositioning the entirety of the asset. So that is a redevelopment that is underway. That is going to create significant upside for the remainder of Conor C. Flynn: small shop activity and completely transform the site, which we are extremely excited about. Ross Cooper: And then in terms of a repositioning, we took what was a watch list tenant at natural expiration and backfilled that with Total Wine, which is Conor C. Flynn: another great example, which there is huge mark-to-market opportunity there. And repositioning more complementary to what the remainder of that asset was really showcasing in terms of its direction. So we look at all of the Ross Cooper: available options, and then make sure that we are making the best, obviously, economic deal, one, but two, choosing the best quality credit that will have the greatest impact long term for the asset. Conor C. Flynn: In several of these cases, it is really transitioning, transforming the asset from what it was to what it could be going forward. Operator: Our next question comes from Michael William Mueller from JPMorgan. Please go ahead. Conor C. Flynn: Yes. Hi. Just a quick one. You are guiding to higher acquisition and disposition volumes. And while I get it that they are net neutral, Michael Goldsmith: each of the components is higher than what you have guided to recently. Conor C. Flynn: Is this more of a function of the specific near-term pipelines you are seeing today? Or is it just kind of a Michael Goldsmith: broader confidence that the transaction markets have opened up more? Yes. It is really an Ross Cooper: strategy of accretive capital recycling that we are undertaking, acknowledging that we have some components within the portfolio that are very valuable and attractive to the private markets that we are not necessarily getting credit for in our public market valuation. On top of that, you know, pun intended, what we are selling are truly anchors to the growth profile of the organization and of our portfolio. So when you think about the impact of selling off some of these long-term ground leases in the 5% cap rate range that have a CAGR of sub 1% and being able to recycle that into acquisitions that are higher year one, but also compounding at a significantly higher growth rate of, on average, 200 basis points, this is an inactive strategy that we are employing to generate additional growth and to improve the portfolio and the long-term perspective of the growth opportunity within the organization. So the market is clearly open and conducive to it. We are fortunate that we have a lot of opportunity to recycle that capital from even within the portfolio, as we mentioned from within our joint venture program, where there is going to be some recycling opportunities, as well as our structured program where we have proven the ability to exercise on these rights that we have to acquire. We closed on two of those opportunities in 2025 and are hopeful that there will be more in 2026. So we just think that the landscape really shapes up really well for the strategy that we have outlined, and that is just our baseline. And, hopefully, we can even outperform that, and anything that we do will just be incremental to that. Operator: Our next question comes from Linda Tsai from Jefferies. In terms of driving further efficiencies in the business with digital transformation, Sydney McEntee: do you expect the immediate beneficial impact to flow through soonest? Would it be in boosting the top line, reducing operating expenses, or G&A? Will Teichman: Thanks for the question. I think Ross Cooper: really, on the expense side is where we are seeing impacts initially. And I think that is consistent as you look outside the real estate industry as well with what you are seeing in other large corporates. There was a study that was published by MIT last year about the relative lack of success that many large companies are having in deploying AI, and one of the big takeaways from that was the degree to which companies are overly prioritizing top line opportunities over back-office and expense reduction opportunities. So it is not to say that there are not opportunities in both areas. Sydney McEntee: But Ross Cooper: as we look at our strategy and where we have already been able to take costs out of the business, I would say it has largely been around G&A to start with. Conor C. Flynn: To drill down on that just a little bit further, I think Ross Cooper: obviously, there is a lot of conversation around Sydney McEntee: the cost of human capital. Ross Cooper: But I think it cannot be underestimated that there are other G&A efficiencies to be taken out of the operation. So as you think about our announcement to form, for example, our Office of Innovation and Transformation, one of the areas that that team is already having a significant impact out of the gate is in reducing our need for professional services vendors, to bring those vendors in to perform software and other kind of organizational transformation work. We are also having quite a bit of success around vendor consolidation, which is part of the playbook that we have developed through our M&A transactions over the past couple of years. So those are just a couple examples of what we are seeing. We are optimistic about some of the early efforts that we are seeing around automation and agentic AI. And I think one of the things that I would just say about Kimco Realty Corporation’s approach and how it differentiates us from other companies Conor C. Flynn: is that many other companies seem today to be stuck in the pilot phase, Ross Cooper: buying off-the-shelf products and testing one-off use cases within individual functional areas. Our approach is different in that we are really building an engine to integrate technology and talent across the enterprise. Operator: Thank you. We currently have no further questions, and I would like to hand back to David F. Bujnicki for any closing remarks. David F. Bujnicki: Thanks so much. We are really excited about our opportunities set for 2026. Continue building the momentum from 2025. Thanks, everybody, who joined the call today. If you have any follow-up questions, please contact us. Thank you so much. Operator: Thank you. This now concludes today’s call. Thank you all for joining. You may now disconnect your lines.
Operator: Greetings, and welcome to the Cognex Corporation Fourth Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone requires operator assistance during the conference, a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Greer Aviv, Head of Investor Relations. Thank you. You may begin. Thank you, operator. Good morning, everyone, and thank you for joining us. Our earnings release was published yesterday after market close and our annual report on Form 10-K for 2025 was filed this morning. The earnings materials are available on our Investor Relations website. I am joined here today by Matt Moschner, our CEO, and Dennis Fehr, our CFO. In addition to our usual operational update, we will provide a strategic update highlighting the completed strategic portfolio review, our ongoing operating model transformation, and an update to our financial framework. After prepared remarks, we will open the lines for Q&A. Both our published materials and the call today will reference non-GAAP measures. You can find a reconciliation of certain items from GAAP to non-GAAP in our press release and earnings presentation. Today’s earnings materials will contain forward-looking statements, including statements regarding our expectations. Our actual results may differ from our projections due to the risks and uncertainties that are described in our SEC filings including our most recent Form 10-K. With that, I will turn the call over to Matt. Thanks, Greer. Good morning, everyone, and thank you for joining us today. Matt Moschner: 2025 marked a return to profitable growth for Cognex Corporation. With constant currency revenue growth of 8% year over year, and adjusted EPS growth of 38%. We built momentum throughout the year advancing our strategic objectives while staying focused on long-term value creation. Logistics continued to deliver steady growth, along with strong year-end spending across many of our factory automation end markets. Let us start with an update on our strategy. Turning to page four of our earnings presentation. We made great progress in 2025 against each of our three primary strategic objectives. First, we remain committed to leading in AI for industrial machine vision. With nearly a decade of experience in this area, we are building cutting-edge tools that unlock new applications and dramatically simplify the user experience. With our talent and proven track record of delivering breakthrough technology, we are uniquely positioned to win in the AI era. During 2025, we introduced several transformative capabilities that strengthen our AI technology leadership. In January, we introduced the DataMan 290, helping us win share in the competitive ID factory automation market with new AI-enabled auto-setup and advanced code filtering. In March, we launched our In-Sight 8,900, which brings the power of embedded AI to OEM customers. In June, we announced OneVision, bringing deep learning and edge learning together on a single cloud platform and creating new models deployable to embedded systems at the edge. And in October, we introduced SLX, our new solutions experience product line that brings our latest AI vision tools to logistics customers. These product launches strengthen our position within $3.2 billion of our $7.0 billion served market, using cutting-edge AI capabilities to deliver greater value for customers and, in the process, gain market share. Second, we remain focused on delivering the best customer experience in our industry. Our commitment spans the full customer life cycle, from initial engagement through post-sales support. Examples of investments in this area include new AI-powered chat assistance on our website, which can answer questions faster, centralizing customer support materials to enable self-service, standardizing the user interface design across more of our vision products, and offering enhanced 24/7 technical support. Third, we aim to double our customer base within five years. We expect to achieve this by continuing to advance our Salesforce transformation alongside investments in improved lead generation tools, such as a new cognex.com website, I will discuss in more detail momentarily. This multipronged approach is already yielding strong results as we acquired approximately 9,000 new customer accounts in 2025, three times the rate of new accounts added in 2024. This momentum provides a strong foundation for achieving our five-year target. A key element of our go-to-market and customer service transformation is the launch of our new cognex.com website, which went live in late January. More than a refresh, it fully reimagines how we deliver on our promise of advanced machine vision made easy. This newly designed site is packed with our latest product information, links to technical support, new setup videos, hundreds of knowledge articles which engage customers more deeply at all stages of their journey with Cognex Corporation. It also has more advanced, automated tools that allow us to convert customer engagement on the site to high-quality leads for our sales engineers. Now let us turn to Page five. In the fourth quarter, we completed a comprehensive review of our portfolio and have started the process of exiting product lines that generate approximately $22 million of no-growth or low-margin revenue. This includes the divestment of a Japan-focused trading business that was acquired with Moritex, and discontinuing our mobile SDK, Edge Intelligence, and other noncore product lines. We are also taking further actions to drive improvements in our operating model, and in partnership with external consultants, have identified an additional $35 million to $40 million in annualized cost reductions by year-end 2026. As part of this process, we completed a holistic review of our entire cost structure. We remain focused on increasing productivity in key areas such as sales and marketing using new digital tools, software development using AI-assisted code generation, and automating back-office processes while leveraging global value locations for scale and cost advantage. These changes help to simplify our organizational structure and empower Cognoids to do their best work with less overhead. These steps will allow us to sharpen our focus on the core business to support growth, while further expanding margins. Dennis will provide more detail on what this means for our financial framework. Turning to page six, our ongoing Salesforce transformation is a great example of how we are upgrading the operating model of Cognex Corporation. The previous emerging customer initiative emphasized adding headcount and deploying easy-to-use products through a stand-alone sales organization. In contrast, our current Salesforce transformation prioritizes making our existing sellers more productive with better CRM tools, a streamlined product portfolio, and a much simpler organizational structure. This transformation began in January, when we integrated our sales activities into one organization with three distinct selling styles. We have launched new marketing tools to enhance top-of-funnel lead generation and new management practices which improve lead-to-opportunity conversion rates. Our comprehensive product ecosystem makes learning Cognex Corporation products easier, and shortens the sales cycle overall. And finally, we are collaborating more intentionally with a global network of systems integrators, machine builders, and service partners to find and fulfill new business more effectively. One year in, we are seeing both customer growth and sales productivity accelerate, which is very encouraging. More broadly, the announced portfolio optimization and operating model transformation are key drivers of further margin expansion. Taken together, these efforts enable growth and create durable operating leverage across the P&L, which Dennis will now discuss. Greer Aviv: Dennis? Matt Moschner: Thanks, Matt. Dennis Fehr: Let me start with walking through the adjusted EBITDA margin progression in 2025 before I discuss where we go from here. Turning to page seven of the earnings presentation. The margin progression from 2024 to 2025. We ended 2025 with an adjusted EBITDA margin of 20.7%, excluding the onetime benefit from the commercial partnership. We achieved our first milestone, reaching greater than 20%, a full year ahead of plan, driven by focused execution and strong cost discipline. As we shared at Investor Day last June, our largest lever for driving bottom-line profitability is OpEx efficiency, which is where I want to begin. Over the past year, we have been laser-focused on driving organizational efficiencies throughout Cognex Corporation. We achieved $33 million of gross cost reduction, which was partially offset by $11 million of incentive comp dollars, $4 million of FX headwinds, and $10 million of wage adjustments, resulting in a net reduction of $8 million. Regarding COGS productivity and pricing, we saw 2024 pricing headwinds, especially in China, are fully reflected in the 2025 P&L and are partially offset by favorable volume change. Organic mix was favorable for the year. However, we do not anticipate the full extent of this favorability to recur in 2026. Taken together, we are pleased with the progress made this year on adjusted EBITDA margin expansion. And as Matt mentioned, we will execute additional initiatives in 2026 as we work toward our next milestone. Moving to page eight. Building on the actions already completed, we are setting our next milestone at a 25% adjusted EBITDA margin, targeted on a run-rate basis by the end of 2026. The path to 25% is anchored in three key levers. First, OpEx efficiency. We expect to realize an additional $35 million to $40 million of identified net cost reductions, excluding FX, in 2026. Second, organic mix. The announced portfolio optimization will improve mix and partially offset the nonrecurring favorability seen in 2025. And third, COGS productivity and pricing. With 2024 pricing headwinds fully reflected in the P&L, and ending 2025 with pricing stability, we are well positioned to turn pricing into a tailwind. Turning to Page nine. Considering our strong momentum of margin expansion, we are updating the financial framework we introduced at our Investor Day. We are raising our through-cycle adjusted EBITDA margin range to 25% to 31% from the prior 20% to 30%. Our through-cycle revenue CAGR remains 13% to 14% and we continue to expect greater than 100% free cash flow conversion. This updated financial framework reflects our Greer Aviv: execution. Dennis Fehr: And durability of the margin expansion we are driving. As we further progress on our margin expansion journey, we will continue to evaluate our margin ambitions and will update this framework accordingly. Let us turn to the operational update with our financial results. I will begin with a review of our fourth quarter results followed by an update on our performance for the full year. Starting with the financial highlights of the fourth quarter, Page 11 details our performance on three key financial metrics. One, adjusted EBITDA margin was 22.7%, representing an increase of 420 basis points year over year, the sixth consecutive quarter of year-over-year expansion. Matt Moschner: Two, Dennis Fehr: adjusted EPS increased 35% year over year, the sixth consecutive quarter of year-over-year double-digit EPS growth. And three, our trailing twelve-month free cash flow conversion rate reached 138%, meeting our target of greater than 100% for the fifth consecutive quarter. Our disciplined focus on cost management and profitable growth ensured that this quarter’s strong revenue performance translated into meaningful EPS growth and robust free cash flow. Turning to the income statement on page 12. Revenue increased 10% year over year and 9% on a constant currency basis. Looking at the geographic revenue trends on a year-over-year constant currency basis, Americas revenue expanded 11%, led by strong end-of-year demand in packaging and continued growth in logistics. Europe grew 13%, driven by strength in packaging. Greater China revenue increased 7%, driven by growth in consumer electronics and semiconductor. Other Asia revenue was flat in the quarter, as growth from the consumer electronics supply chain shift was offset by semiconductor against a very strong comparable. Staying on Page 12. Adjusted operating expenses increased 5% year over year and 2% on a constant currency basis, reflecting ongoing cost discipline offset by incentive compensation headwinds in the quarter. Looking forward, as we continue to drive cost efficiencies across the organization and incentive compensation already reset in 2025, we are confident to achieve the OpEx reductions discussed earlier and continue strong margin expansion in 2026. Driven by revenue growth and favorable mix, adjusted EBITDA margin reached 22.7%, well above the upper end of our guidance range. GAAP diluted earnings per share were $0.19, up 18% from a year ago. Adjusted diluted EPS was $0.27, representing 35% year-over-year growth. This strong EPS performance was driven by robust revenue growth, disciplined cost management, and a lower diluted share count compared to last year. In the fourth quarter, we recognized a $5 million gain on the sale of a property on our Natick campus that previously served as our training center. We are consolidating ongoing sales training into existing space at that campus, which allows us to further rationalize our real estate footprint. In addition, we recorded a $30 million E&O charge following a reserve update aligned with our strategy to focus on select products. Both items are excluded from our non-GAAP results. Next, I will cover our full year 2025 results, both as reported and excluding the onetime benefit from the commercial partnership. Starting with the as-reported results on Page 13. 2025 revenue of $994 million increased 9% year over year and 8% on a constant currency basis. Adjusted EBITDA margin of 21.5% expanded 440 basis points, and adjusted EPS increased 38% year over year to $1.02. Turning to page 14. I will now cover the underlying business performance, excluding the onetime benefit of the commercial partnership. Revenue of $982 million increased 7% year over year as reported and on a constant currency basis, marking the first year with substantial organic growth since 2021. Adjusted EBITDA margin of 20.7% expanded 360 basis points driven by revenue growth and disciplined cost management, marking the first year of margin expansion since 2021. Adjusted EPS increased 31% year over year to $0.97, reflecting the strong operating leverage on the business. We generated $237 million of free cash flow in 2025, the highest since 2021 and up 77% year over year. Trailing twelve months free cash flow conversion was 138%, comfortably above our greater than 100% target. We continued to drive working capital efficiencies in 2025, with our cash conversion cycle improving 57 days year over year and 116 days from the 2023 peak. Turning to capital allocation. We returned $206 million to shareholders in 2025, including $151 million of share repurchase. As of December 31, we had approximately $150 million remaining on our current share repurchase authorization. Yesterday, our board approved an increase of $500 million to the existing authorization. We intend to continue to be opportunistic with buybacks. Longer term, we remain committed to capital returns as a core pillar of the disciplined capital allocation framework we outlined last June. We ended the year with $642 million in net cash and investments, providing flexibility to pursue accretive growth opportunities while continuing to return excess capital to shareholders. Now Matt will discuss our vertical market performance for the year. Matt, Matt Moschner: Thanks, Dennis. Let us review current trends across our key end markets as shown on Page 15. Please note that my discussion on 2025 end market performance excludes the onetime benefit from the commercial partnership. Although the macroeconomic backdrop remains uneven and geopolitical uncertainty persists, in 2025, we saw momentum in consumer electronics, logistics, and packaging. Automotive remained soft. Starting with logistics. 2025 was another very strong year, with double-digit revenue growth led by large e-commerce customers. We are driving strong adoption of our standardized machine vision tunnel and layering new vision applications on top of code reading, increasing the ROI for customers. Looking ahead to 2026, after two years of outsized growth we expect more moderate growth in the mid- to high-single-digit range. Longer term, we believe logistics can be our fastest growing vertical with growth in the mid-teens through cycle. Next, let us talk about packaging. Packaging delivered solid high single-digit revenue growth in 2025. As a large underpenetrated and less cyclical market it remains a priority. Our Salesforce transformation and AI-enabled product ecosystem position us to capture incremental opportunities and deepen penetration. For 2026, we expect mid- to high-single-digit growth as we bring more machine vision into packaging. Turning to consumer electronics. Revenue grew double digits in 2025 as the market emerged from a prolonged down cycle. We see continued upside from ongoing supply chain shifts, new device form factors, and a consumer refresh cycle. For 2026, we expect high single- to double-digit growth driven by a continuation of these trends. Next is automotive. The automotive market remained challenging in 2025, with revenue down high single digits, in line with our expectations. Looking at the sequential development, we believe the market has reached a bottom and expect 2026 to be flat to low single-digit growth. Longer term, we see attractive opportunities for additional penetration as customers prioritize improving vehicle quality and reducing operating costs. Finally, in semiconductor, 2025 revenue grew mid-single digits ahead of our expectations. For 2026, we expect back-half weighted growth with full-year expansion in the mid-single- to double-digit range, supported by the AI-driven investment cycle and reinforcing our confidence in this market. Our deep relationships with leading semiconductor equipment manufacturers position us well for continued growth. Let me pass the call back to Dennis to discuss our outlook. Dennis Fehr: Dennis? Thanks, Matt. Moving to page 16. I will now review our financial guidance for the first quarter. In Q1, we expect revenue to be between $235 million and $255 million, representing growth of approximately 13% at the midpoint against a weak comp. Adjusted EBITDA margin is expected to be between 19%–22%, with the midpoint representing an increase of 370 basis points year over year. As discussed previously, please note that Q1 2025 OpEx benefited from FX and stock-based comp tailwinds that will not repeat this year. Adjusted earnings per share are expected to be between $0.22 and $0.26, with the midpoint of this range representing 50% year-over-year growth. In summary, 2025 marks a year of substantial turnaround, with our top line growing organically and our margins expanding, both for the first time since 2021. We exited 2025 with strong momentum across most of our end markets, and that strength has continued into 2026. As a short-cycle business, we have limited visibility and we therefore remain focused on our priorities, including continued disciplined cost management, a streamlined portfolio, and transforming our operating model. These actions position us to drive profitable growth, maximize free cash flow, and allocate capital with rigor to create long-term shareholder value. By the numbers, we are targeting a 25% adjusted EBITDA margin run rate exiting 2026 and at least 20% adjusted EPS growth, underscoring our ambition to significantly expand bottom-line profitability. Now Matt and I are ready for your questions. Operator, please go ahead. Operator: Thank you. The floor is now open for questions. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. We do ask that you please limit yourself to one question and one follow-up. Again, that is star 1 to register a question at this time. First question is going to be from Joseph Craig Giordano of TD Cowen. Please go ahead. Dennis Fehr: Good morning. This is Michael on for Joe. Hi, Michael. Good morning. Matt Moschner: Thank you. Thank you for taking my question. Just a two-parter here. So just Unknown Analyst: wanted to dive a bit deeper on the $22 million revenue divestments. Could you just frame out the timing of when this should be expected? And you know, how is that, you know, if that is included in the guide, as well. And then just have a quick follow-up to that. Dennis Fehr: Yep. No. Happy to do that. So maybe first, focusing, like, key takeaway on here. Right? It is really all about focusing on noncore or getting out noncore product lines, which do not have growth or low growth, and which have low margins. So in that regard, it is really focusing on improving the revenue mix and helping in that regard to offset some of the onetime favorability we have seen in 2025. The majority of that revenue which we are exiting is related to that Japan-focused trading business which we acquired along with Moritex. We are currently expecting to close that transaction by the end of, or within, the second quarter. So that means you would start to see that in the second half of this year. Keep in mind that exiting that revenue will change a bit the mix of the end market. Right? So the majority of that revenue would come out of the packaging vertical, and a smaller portion would come out of the logistics vertical. So in that regard, keep in mind when you model to reduce these two verticals, whereas the growth expectations Matt stated, or the initial view on these growth expectations in these vertical markets, basically would remain unchanged on that lower base. Unknown Analyst: Great. That is helpful. And just a quick follow-up to that. Can you just give us a better understanding how the company determines what is considered core versus noncore. For instance, like, things like Edge Intelligence were a highlight of the Investor Day a couple years ago. So just would love to better understand the framing behind these priorities. Thank you. Matt Moschner: Yeah. Thanks, Michael. Yeah. This is Matt. This is a process that we started almost a year ago as we really thought about where do we have advantage. Right? We start with where do we have core IP, core skill, you know, a deeper understanding of a certain application area is really the foundation of what we would define as core. And then, you know, we look at other financial metrics that Dennis mentioned, really, what is the size of that market, what is the growth potential, what is the relative profit pool, profitability, and our ability to capture those profits. You put those things together, and you put them really in the context of each other, as part of a portfolio of Dennis Fehr: activities, Matt Moschner: and, you know, I think what you quickly see are those that, you know, a, we have maybe a stronger right to win, and then, b, perhaps a weaker financial trajectory. So that is how we did it. Right? We have a pretty clear framework as to how we do that. And I think you are seeing the results of that work from last year in these results. Operator: Thank you. The next question is coming from Joe Ritchie of Goldman Sachs. Please go ahead. Dennis Fehr: Good morning. Hey. Good morning. So Matt Moschner: yes, so my first question is on the cost reduction program for 2026. Dennis, maybe as you kind of think through the bridge for EBITDA margin expansion for the year, what are kind of the offsets we should be thinking about for 2026 to this cost reduction plan? And then also, how do you see that progressing as the year goes along? Dennis Fehr: Yeah. No. Absolutely, Joe. So, right, I mean, we mentioned at the Investor Day last year that the largest lever is OpEx efficiency. And I think we really followed through on that in 2025 as we outlined in the walk for 2025. And then that enabled us at the end to hit the greater than 20% adjusted EBITDA milestone a full year ahead of Joe Ritchie: time. Dennis Fehr: Now looking at 2026, clearly, it is, again, the largest lever which we have. And then coming to your question, basically, what would be offsetting effects? It is on the mix side. Right? So I mentioned in the prepared remarks that we saw favorable, call it, onetime effects in mix in 2025. You are partially reducing that headwind with the portfolio optimization which we do, but it is not fully offsetting that. So really the headwind which we see is on the mix side. And then we would see perhaps, as we mentioned as well, some favorability from pricing, but I would say that it is probably really a smaller piece of the equation. Really think big picture about 2026. It is more OpEx efficiency partially offset by mix. Matt Moschner: Got it. That is helpful, Dennis. And then, Matt, just a question for you. Look. It seems like you are getting a lot of traction on your customer growth initiative. And it sounds like lead generation is certainly improving. Can you just maybe double click on what has changed over the last six to twelve months? And then as we move forward, you know, seems like you are seeing a lot of that opportunity on the packaging side of the business. Would you expect that to maybe broaden across your other end markets as well? Yeah, Joe. Happy to. Yeah. No. For sure, we are seeing great momentum in our ability to acquire new customers. I would maybe take a step back. In these earnings, we really wanted to showcase the work we have been doing on our Salesforce transformation. And I really cannot overstate how significant of a transformation that is to our go-to-market. There is really four pillars, as we highlighted on the slides, which is it is a brand-new organization. Right? What we had was more of a fragmented structure where we have combined and standardized how we structure our teams around the world. That has been huge in terms of driving productivity, segmentation of activities, and cross-selling. The second is process. Right? We have made huge investments over the last many years in business systems to really kind of digitize Cognex Corporation. We are seeing those pay off as we are able to arm our sales team with better data, better leads, better prospecting tools, better lead conversion metrics. So process is key, and we are, again, standardizing those with things like dashboards and things you would expect. Product. Right? We have been working hard on our product portfolio and we use this word ecosystem. And I want to encourage us all to think of that as not lip service. Right? That is really a deliberate effort to drive consistency in the user experience of our products. That helps us train our sales team. That helps us sell the full portfolio with fewer people and less complexity. That is paying off. The fourth is partners. Right? We have really doubled down on how we work with and collaborate with the world’s leading systems integrators, OEMs, and service partners. And you put those four things together, org, process, product, and partners, on one hand, dramatically different from where we were, let us say, even two years ago with emerging customers, but you have to get really all of those four right, and I think we are. We have a great leadership team in our sales organization right now. Karl Gerst came out of products and is now leading global sales as of a year ago, and he is really moving fast with an ambitious agenda and has a great team behind him. And I think you are seeing those results, you know, one year later. And, you know, quite frankly, we saw those even a bit earlier last fall, and the results are an acceleration of our customer acquisition. But it is also our ability to be much more flexible, to your question on packaging, how we direct our sales activities as we see opportunities across the end markets. Right? If we continue to see weakness in one and we see strength in others, we have tremendous flexibility now, maybe more so than we did in the past, to redirect our sales activities towards those high-growth areas and then actually the data to be able to show that it is working. So it is a longer answer to your question. I really cannot overstate the impact of our Salesforce transformation and the leadership that we have in place at the top of that organization. That is great. Thank you very much. Operator: Thank you. The next question is coming from Jamie Cook of Truist Securities. Please go ahead. Hi, good morning. I guess two questions. One, just on the organic top-line assumptions for 2026. Dennis, if you could provide any color, it looks like we should expect sort of mid- to high-single-digit growth organically. But I guess, the bigger question within that is with some of the success that you are seeing on the Salesforce transformation, you talked about adding 9,000 customers in 2025 versus ’20 versus 3,000. I do not remember what, when that was. But just are we starting to factor in more market outgrowth, and should we do that 2026 given some of the successes? And then I guess my second question just back on the portfolio optimization and the announcements you have made this quarter, I mean, where are you in this process? Is this, like, the first inning of the ballgame and there is more to come? Or we feel like we have, you know, fully identified sort of the noncore low-growth product lines? Thank you. Dennis Fehr: Yes. Thanks, Jamie. Let me start with your first question. So maybe first, let me clarify. Right? We are not providing a full-year guidance. I think what we try, in the sense, in the spirit of providing transparency to the investor community, we try to provide a view from today’s angle based on data which we have available. Right? So we talked on the last earnings call about, like, hey, what are PMI data suggesting? And it certainly continues looking both at data which we are seeing in our business as well as macro factors. So in that regard, I would say we are certainly encouraged by what we have been seeing towards the end of the year 2025, where we saw that strong year-end demand. And some of that turned into revenue in the first quarter in 2026 and helps with basically that growth in the first quarter against the weak comp. So and at the same time, we also saw some PMI uptick happening just in January. So these are certainly encouraging data points. But at the same time, clearly, I want to say, these are not yet a trend. Right? So in that regard, we keep mindful about what we see and that we certainly would want to see certain more data points to either update our view to perhaps the high single digits, and in that regard, I would say kind of that mid-single- to high-single-digit range is kind of what we would say from today’s perspective. But, again, we are a short-cycle business. Things can change fast. So we want to provide kind of a continuous update on what we see, but it is by no means a full-year guide. Matt Moschner: Yeah. No. I would, Jamie, if you allow me to take the second one, which is where are we, particularly as it relates to the portfolio optimization. I would say these things do not happen overnight. We really have been working on this since almost a year ago, even well before the CEO transition, where we put teams in place to really look hard at the portfolio and I think we took a very thoughtful and rigorous approach to that. And you are seeing the fruits of that work. And so in that vein, I would say we are very much sort of at the end of that cycle of analysis. And I think you are seeing the announcements of those ideas. So yes, as it relates to the portfolio analysis. That said, I think as a products-oriented company, there is always work to do in making sure that your portfolio is fit for purpose and that it lets you run the company efficiently. There probably is more work we have to do just generally speaking on cleaning up things like SKUs that really do not need to exist and eliminating complexity in other areas. I consider that more just work to be done and less of sort of a strategic thing that we did. And so you might see the effects of that trickle out through the rest of the year. But as it relates to the portfolio optimization, I think what we are announcing today is towards the end of that process. Jamie Cook: Great. Thank you. Operator: The next question is coming from Andrew Edouard Buscaglia of BNP Paribas. Hi. Good morning, guys. This is Brooke on for Andrew. Was wondering if you could go a little bit deeper into the end markets. You mentioned momentum in logistics and consumer electronics. For CE, what is kind of driving the demand there? I know you mentioned a refresh cycle, maybe some form factor on new devices. And for logistics, momentum, is that currently more greenfield or brownfield? If you could just give a little bit more detail into what you have been seeing in the conversations you have been having. Matt Moschner: Yeah. Sure. Hey, Brooke. Thanks for joining us. Yeah. I will go deeper on CE and logistics. For sure. Consumer electronics, as we really started to highlight at the tail end of last year, I think we are seeing encouraging growth trends and really more broad based and that is certainly exciting. And I think consumer electronics as an industry plays very much to our strengths in technology. These are very demanding applications that require precision and the highest levels of quality given that many of these devices are quite expensive and have high price points in the market. And so we see a lot of those customers, both end users, the product owners, as well as the systems integrators, really favor Cognex Corporation. But there is, you know, there is many underlying trends that are supporting that growth. Certainly, the shifts in the supply chain outside of the traditional manufacturing locations of China to Greater Asia, ASEAN, India, even other parts of the world. And given the global company that we are, I think we remain a strong partner to enable those geographic shifts as they happen. New vision capabilities, we brought to market some pretty transformational AI tools last year, specifically designed for consumer electronics. I think we are seeing those play out nicely. Consumer demand. Right? Consumer demand is very strong for these sorts of devices currently. A lot of that is driven by some of the new AI features that are being brought to consumer devices that are very exciting and driving maybe a refresh cycle that we have not seen for many years. And then last but certainly not least, we are seeing new form factors. Again, particularly as consumers want to interact with the latest AI software tools, we are seeing technology providers really experiment with different form factors, whether it be foldable phones, glasses, pendants. And so, you know, these are devices that get made in the millions, the hundreds of millions, with extreme precision and high quality. And that is just such a good place for Cognex Corporation vision to play. So that is consumer. I think on logistics, again, very exciting market for us. We are capping our eighth quarter of double-digit growth, which is, I think, a testament to our commercial efforts and our sales team that sells into this market, but obviously, our technology. As you would expect, we are starting to get into territory of tougher comps. And in all of our markets, we kind of expect growth to moderate after such a long stretch of outsized growth, and we are seeing that. But I will tell you, I remain optimistic about logistics. We have great relationships. We have a great team in place. We have great technology. And there are just huge white spaces that I think we are starting to tap into, particularly with product like the SLX as we start to dive deeper into the vision for logistics, which is really enabled by AI. And so you put those things together and I think this year, we are suggesting it might be a bit of a lower-growth year on logistics. I think it is still early to see how that plays out. But long term, I think we feel very, very strongly and excited about the logistics market overall. Hopefully, that answers your question, Brooke. Andrew Edouard Buscaglia: Yeah. Thank you. That was super helpful. And then just to follow-up, just an update going into 2026 on your capital allocation priorities. Your free cash flow has been very strong. Is there any update on M&A or acquisition targets? Dennis Fehr: I, yeah. See, in general, the capital allocation priorities remain unchanged versus what we presented at Investor Day. Certainly, we are very pleased with the strong cash flow generation which we had, especially in 2025, 77% up. What is really driven on the one side by driving bottom-line profitability, at the same time also by optimizing the working capital. Now looking forward, I would say probably right where we are, where we want to be on working capital. Right? So cash conversion cycle somewhere in that 150 to 155 days, really where we feel like it is a really good point for us as Cognex Corporation. So in that regard, probably we will see a bit less of contribution to the free cash flow from working capital Andrew Edouard Buscaglia: capital Dennis Fehr: optimization. And then at the same time, we think we can definitely still achieve the greater than 100% free cash flow conversion rate within 2026. So in that regard, still looking forward to a strong year of cash conversion, but more rooted in margin expansion than in working capital reduction. And, yeah, clearly, similar capital allocation priorities than previously communicated. Andrew Edouard Buscaglia: Okay. Thanks for the update. Operator: Thank you. The next question is coming from Ken Newman of KeyBanc Capital Markets. Ken Newman: Congrats. Matt Moschner: On the solid execution this quarter. Ken Newman: Hey, thanks, Scott. First, Matt Moschner: hey, thanks. Maybe first question for you guys. Dennis, it does not seem like you guys are seeing any impact from higher memory costs, but I just wanted to clarify if there is any cost increases that are embedded within the guide, and maybe just if you could remind us Unknown Analyst: the percent of COGS memory intensity. Matt Moschner: Yeah. Thanks, Ken. We do not disclose specifics around memory pricing, but I would say we do not expect any material impact from increased pricing tied to those supply chain issues. I would say we are pretty good at managing this. We really put teams in place many years ago when we saw a tightening of the supply chains on the tail end of COVID. We had some supply chain issues ourselves that have really forced us to double down and take many steps into our supply chain. And I think our ability to manage disruptions like this is really very strong, I would say world-class. We have great relationships with our suppliers and we keep very close to what they are seeing in the market. And so I would not say that we are seeing increased memory prices affecting our business. We are seeing them. And I would say I am not going to really give what percentage of memory is our bill of material, but I would say it is not an overly significant portion. And I would not say that we have experienced really any material procurement issues today. So we will keep an eye on it. But at this point, I think we feel comfortable that we have the tools to manage it and that it is already reflected adequately in our forward guidance. Unknown Analyst: Got it. Thanks, Matt. That is very helpful. Matt Moschner: And then for my follow-up here, just wanted to clarify. Is there any way to help us think about the cadence of how we should expect to realize that $35 to $40 million of cost benefits? Is that just an equal-weighted type of benefit through the year, or does some of that hit a little heavier in the first half? Dennis Fehr: Yeah. No. Fully understand the question. So clearly, we are focusing on executing a good majority of that in 2026. So that means we would start to see some of these effects show up more towards Q3 of this year, and then perhaps a smaller portion towards the end of this year. In that regard, yeah, start to look for effects in the third quarter. And in general, I think as mentioned before, that really would set us then up for this adjusted EBITDA run rate of 25%. And maybe let me elaborate a little bit more on that one. So first, it is very clearly a run rate as we exit 2026. It is not a full-year number. Right? So in that regard, it is probably pretty much what we have been saying before about how we think about margin expansion in 2026. I think, really, the message we want to give is that there is durability and that we have confidence in the margin expansion and that this will continue and can continue also into 2027. In that regard, take that comment mostly about, like, 2027 can have another increase or another year of margin expansion and that we are not done in 2026. Ken Newman: Great. Thanks. Operator: Thank you. Our next question is coming from Tommy Moll of Stephens. Please go ahead. Dennis Fehr: Good morning and thank you for taking my questions. Tommy Moll: Hi, Tommy. Hey, Tommy. Dennis Fehr: Automotive looks like it is going to move from red to green in 2026, which is nice to see. What context can you give us there, in particular by geography, maybe starting with North America? Just the latest and greatest on the demand side and the conversations you are having. Thank you. Matt Moschner: Yeah. Sure. As you mentioned, Tommy, as we have said before, you know, it is very much a geographic story. And that story tells differently in each area. So you ask about the U.S. and the Americas. What I would say is I would characterize it as an area where we are seeing relatively more activity and strength. Right? We are having good discussions with all the major OEMs. You would have seen them really try to cleanse their P&Ls of previous investments in EVs. And I think that is giving them flexibility to really think about the next iteration of powertrains. And those next generations are both perhaps a different powertrain, but also certainly a more connected car. And so, yeah, we are having those discussions with them, and there is quite a bit of activity that we are seeing start to come back in the U.S. Maybe if you do not mind, I will move on to Europe and Asia. In Europe, for sure, it is where we see the greatest level of weakness, and where the recovery seems to be slower. In Europe, just to build on some of my prior comments, we are shifting our sales activity to other verticals in Europe so that we can compensate for that weakness. But nonetheless, that is where it is. And in Asia, it is a bit mixed. I would say it is very much OEM dependent, whether you are talking about the Japanese OEMs, the Korean OEMs, the Chinese OEMs. And so we are staying close to all of them. And I would say both their investment levels, their powertrain choices, you know, are different. So we are trying to keep Asia as a bit more mixed. And hopefully, we can provide some more clarity as the year goes on. Hopefully, that is helpful, Tommy. Tommy Moll: Yes. Thank you, Matt. Dennis Fehr: Dennis, I wanted to ask about the raised through-cycle EBITDA margin expectation. Tommy Moll: Several Dennis Fehr: percentage points, if I just look at the midpoint from your Unknown Analyst: Investor Day versus the update you provided us today. If Dennis Fehr: we think about the bridging items there, is it as simple as Tommy Moll: you gave us three bullets under transforming the operating model that Dennis Fehr: net to the $35 to $40 million annualized. Is that the bridge? Or are there other operational changes that you have made to give confidence in that raised Unknown Analyst: through-cycle expectation? Dennis Fehr: I mean, yeah, I think the bridge is really what we showed at Investor Day, so we are not really changing compared to what we said at Investor Day. Our strongest lever is the OpEx efficiency. And, right, we provided a target value for each of these buckets, and we are striving to achieve those. I think really what has had us change versus Investor Day is that we reached our first milestone. Right? And I think as a company, as a leadership team, we are quite encouraged that we achieved our first milestone a full year ahead of time, and that basically kind of drove us now to say, like, let us take a look at the next milestone. So in that regard, nothing changed in the bridge in the way how we want to get there. It is really all about having hit the first milestone, and let us look at the second milestone. And the key levers to achieve the second milestone is really the cost optimization which we have announced combined with the portfolio optimization as well. Yeah. And, Tommy, I would just say, Matt Moschner: you know, anytime you think about being more efficient, reducing costs, it is easy to say, oh, you are just taking capacity out. And there were elements of that, right, where maybe we would have invested in capacity a little too far ahead of growth. But the other two areas that you have to look at are portfolio. We are doing that. You are seeing those as artifacts in today’s earnings. But the biggest and the hardest is changing the operating model. And I think if you just read the newspaper, there is just so many opportunities to be more efficient, be more productive. And that is really, I would say, where we go next and where you start to see more outsized benefits on efficiency over the longer term, right, where you can be more productive and automate more and do things more efficiently. And I think as an AI-first organization, I think we are embracing, I would say, a lot of the state of the art that is happening, not just in how you engineer products and do software development, but how do you interact with customers and how do you generate leads and how do you provide excellent tech support in more efficient ways. And so I think on that end, when it comes to operating model efficiency, we are probably earlier in our journey. And so you put those three things together and I think we have a lot of conviction, at least the 2026 numbers, that we are just, rest assured, that we are not settling. We are continuing to think about the longer term and how we would be a more productive, efficient organization. Tommy Moll: Thank you both. I will turn it back. Thanks, Tom. Operator: Our next question is coming from Piyush Avasthy of Citi. Matt Moschner: Good morning, guys. Dennis Fehr: Congrats on the great quarter. Piyush Avasthy: Thanks. Just following up on the last question, like, Dennis Fehr: you know, the AI-assisted coding for software development, like, you know, I know, like, at your Investor Day, you kind of had talked about R&D being like a lower, you know, going to low teens as a percentage of sales from like close to mid-teens that you reported in ’25. But seems you are, like, this integration can really help you reduce the timeline to lower the R&D. Is that true or we should not get that too excited yet? Matt Moschner: If you just let me, let me give you a, bear with me, I am going to give you a longer-run answer. You know, Cognex Corporation, you know, we take pride in our customers expect from us market-leading technology and capability, and we will continue to deliver that. And, you know, our ability to move the market and invent is very much driven by our investment in our world-class engineering organization. And so, you know, I do not want anyone to misconstrue the comments that I am about to make as us retreating from that objective, because I think we really want to be the gold standard and push the market forward to be the best in the emerging technologies that we know can help industrial machine vision. But for sure, you know, there are just so many ways to be more efficient and more productive when it comes to technical design. And that is not just software. I would say it is also hardware, and we are pushing on both. But we are years into using these tools, particularly as you mentioned on the software AI-assisted coding angle, and as we all see from the headlines and recent news announcements, those tools just keep getting better. We have an organization and a culture that embraces change and particularly as it relates to advanced AI, I would say. And so, yeah, we are, and we are doing it, I think, in the right way. Piyush Avasthy: Because Matt Moschner: we need to make sure that when we ship products, they have the utmost quality and security. And so there is a fine line you have to balance on all these things. But I think we are fully utilizing. I think it is still early days in terms of what the full potential is, and it is not just about software. I think it is really full stack. How we design and how we do more with the same or maybe slightly less heading into the future. Dennis Fehr: Got it. Very helpful. And this is following up on Jamie’s question. Like, your 2026 view, again, you guys said, like, mid-single-digit to high-single-digit range. But if I look at your Q1 2026 top-line guidance, you are kind of suggesting 13% top-line growth. So are there any larger projects or one-timers in Q1 that is helping growth in the quarter? And do you expect the growth to decelerate as we move through the year, or is it just the limited visibility and you guys are being a little bit more prudent? Yeah. No. I understand the question, Piyush. I think two things. On the one side, Q1 is still driven by some of the year-end spending we saw in 2025. That means just like revenue comes into the first quarter instead of being recognized in the fourth quarter. And then I really want to say that keep in mind that Q1 2025 was a weak quarter where we saw at that time a lot of logistics demand being pulled forward into Q4 2024. In that regard, that is a bit like this mix that this time we see kind of a reverse of shifting from quarter to quarter. Right? So last year, it was moved from Q1 into Q4, and this time, we see moves from Q4 into Q1. And that makes this 13% probably look a little bit larger than what it is. So in that regard, not expect things like, hey, there is a deceleration of things, but clearly, there is kind of this underlying timing effect, which kind of Piyush Avasthy: maybe Dennis Fehr: may make it look like that. But in general, we will have our typical seasonality with Q2 and Q3 driven by consumer electronics, so stronger quarters there. Then certainly, we cannot say how we think about Q4 this year, whether we would see a similar effect on year-end spending like this Q1 2025. That is just much too early to talk about that. So in that regard, it comes back to what I said before. We certainly are encouraged by that spending, by seeing the PMI coming up. But let us see more data. Let us see more data points. Let us see more trends. And at the same time, we will control what we can control, and that is our cost basis and our portfolio. And going hard after these topics, and that gives us the confidence in our margin expansion. Appreciate all the color, guys. Good luck. Piyush Avasthy: Thanks, guys. Thanks. Operator: Thank you. The next question is coming from Guy Drummond Hardwick of Barclays. Please go ahead. Matt Moschner: Hi, good morning and congratulations on the Unknown Analyst: on the great results. Matt Moschner: Looking at your outlook, your initial outlook slide for 2026, looks like on a weighted average basis, Guy Drummond Hardwick: your end market growth is sort of Jairam Nathan: mid- to high-single digits. First off, is that fair? And I apologize because I joined the call late, but the $22 million of divestments, is any of that reflected in the Q1 guidance? And how should we be treating that as excluding, as net of organic growth for this year? Or like a business divestment? Dennis Fehr: Yeah. So a few thoughts here, Guy. So first, yeah, probably like that mid-single to high-single digit is a fair statement on an initial view. I said earlier in the call, again, we are a short-cycle business, all driven by what we see today. That view could change. PMIs could change. Data could change. Business trajectory could change. So it is not a guide. It is just a view of what we see from today’s perspective. And then towards the question of the revenue exit. So there is some divestment included in there in regards to the Japan-focused trading business, which we think will, can close in the second quarter of this year. And then think about, like, how to apply some of these growth rates. A very simplistic statement is take the 2025 revenue numbers, subtract the $22 million of exiting business, and apply the growth factors on top of it. That is maybe the very simple statement. You may do a little bit of timing adjustments there, but that is kind of how we thought about it when we put out that slide. Guy Drummond Hardwick: Thank you. Operator: Thank you. Excuse me. The next question is coming from Jairam Nathan of DA Davidson. Please go ahead. Jairam Nathan: Hi, thanks for squeezing me in here. So Nathan McCurren: Matt, Cognex Corporation has, you know, has all this, I think, done a good job in entering markets ahead of everyone else, like logistics. And it looks like, so I am just trying to understand what opportunities could you have with physical AI. There seems to be a lot of focus on sensing, and vision is a key part of that. Things like AMRs, humanoid robots. So I am just wondering if there is, do you see any opportunities in terms of physical AI? Matt Moschner: Sure. Yeah. We are probably the oldest physical AI company in the world. We have been, yeah, we have been giving robots eyes, the ability to perceive the world around them, for about 44 years. And that gives us a lot of strength. We know those applications really well, but your question is really more about adjacencies in new markets. Yes, as an organization, we have a very good way of looking at those things, evaluating them, and understanding if we have a strong right to win in them. We like the five verticals, the market verticals we participate in, and we see tremendous growth to continue to expand in those verticals. I think we are not the share leader in every geography, market vertical, or product segment. We aim to be. And so that is our top priority, is winning the core. But as it relates to new markets, you know, we are looking at, you know, what is the future of automation in these massive data centers that are going to be built out over the next several years. You know, there is a resurgence in investment in defense, in particular, and aerospace, particularly in parts of the world like Europe, as those industrial bases come back to life. And these are highly engineered parts that require the highest levels of quality and precision. And so, you know, we are certainly looking at potentially aerospace and defense as a market that could come back to life in a way it has not been in many years. And then certainly robotics, like you mentioned it. And we have been serving the robotics market for decades, I would say. Maybe not in the way that, you know, we are seeing today with humanoids, but much more as it relates to high-speed in-line manufacturing. We have done that in consumer electronics. We have done it in logistics. We have done it in automotive. And you can expect us to continue to invest in how we can be a better provider of vision for the world’s robots. And so, an area where we are thinking about investing in, I would say less so with the angle of humanoids. In full disclosure, we do not see that as such a strong place for us and such a little too far from home in terms of in-line, but many, many other areas for industrial robotics that could use vision, visual perception, and where we see ourselves as really having a great win. Nathan McCurren: Thanks. And as a follow-up, and then it is just on the trading business with Moritex. Typically, businesses are low gross margin businesses. Should we, could we see a bump from gross margins in the second half with that divestment. Yeah. You are right. That Dennis Fehr: typically trading businesses are less attractive on the gross margin side, and we saw that in general that Moritex had lower gross margins. So in that regard, that certainly will help a bit on the gross margin side into the second half. Nathan McCurren: Okay. Great. Thank you. Operator: Thank you. I would like to turn the floor back over to Mr. Moschner for closing comments. Matt Moschner: Excellent. Well, thank you for joining us this morning and for your continued support of Cognex Corporation. We look forward to updating you on our progress in the first quarter. Operator: Ladies and gentlemen, this concludes today’s event. You may disconnect your lines or log off the webcast at this time, and enjoy the rest of your day.
Operator: Ladies and gentlemen, thank you for standing by and welcome to the Commerce.com, Inc. Fourth Quarter and Fiscal Year 2025 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that today's conference is being recorded. I would now like to turn the conference over to your first speaker today, Tyler Duncan, Senior Vice President, Finance and Investor Relations. You may begin. Tyler Duncan: Good morning, and welcome to Commerce.com, Inc.'s Fourth Quarter and Fiscal Year 2025 Earnings Call. We will be discussing the results announced in our press release issued before today's market open. With me are Commerce.com, Inc.'s Chief Executive Officer, Travis Hess; Chief Financial Officer, and Chief Operating Officer, Daniel Lentz. Today's call will contain certain forward-looking statements, made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements concerning financial and business trends, as well as our expected future business and financial performance, financial condition, and our guidance for both the 2026 quarter and the full year 2026. These statements can be identified by words such as expect, anticipate, intend, plan, believe, seek, committed, will, or similar words. These statements reflect our views as of today only, should not be relied upon as representing our views at any subsequent date, and we do not undertake any duty to update these statements. Forward-looking statements, by their nature, address matters that are subject to risks and uncertainties that could cause actual results to differ materially from expectations. For a discussion of the material risks and other important factors that could affect our actual results, please refer to the risks and other disclosures contained in our filings with the Securities and Exchange Commission. During the call, we will also discuss certain non-GAAP financial measures, which are not prepared in accordance with generally accepted accounting principles. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures, as well as how we define these metrics and other metrics, is included in our earnings press release, which has been furnished to the SEC and is also available on our website at investors.commerce.com. With that, let me turn the call over to Travis. Thanks, Tyler. 2025 was an important year for Commerce.com, Inc. A year in which we achieved meaningful operational improvements and laid the foundation for sustainable growth. We delivered revenue of $342,000,000, up approximately 3% year over year, and non-GAAP operating income finished at $28,000,000 with strong improvements to cash generation. We also delivered our highest sequential improvement in subscription ARR in over a year and a half, in Q4. Over the past twelve months, we have executed on a long-term strategy focused on three priorities: simplifying the business, realigning investment around our highest value initiatives, and building the infrastructure to scale as AI and agentic commerce reshapes how merchants engage with buyers. We have improved efficiency, reinvested savings in product innovation, and increased profitability and cash flow, allowing us to operate with greater leverage and speed. We also reintroduced ourselves to the market under a unified brand, Commerce.com, Inc., which reflects how we now operate as a connected platform across storefronts, product data, experience, and payments. Travis Hess: Importantly, 2025 was not just about internal alignment. It was about accelerating our pace of innovation and driving sustainable growth. We continue to see strong momentum in B2B, with B2B-oriented customers representing the majority of our new platform ARR over the past three quarters. Subscription ARR from customers using BigCommerce B2B Edition grew nearly 20% in 2025 and delivered the highest retention rates across our product portfolio. During Q4, we added several new industrial, manufacturing, and distribution customers including Build It Right, a leading distributor of specialized drilling equipment; Premier Water Tanks, a water truck manufacturer; Hawk Research Labs, a provider of high-performance refinishing coating systems; and KH Industries, a manufacturer of electrical and AV components. These wins, together with the continued performance of our existing customer base, underscore both the durability of B2B demand and the stickiness of our differentiated B2B capabilities. We are also seeing continued momentum with leading consumer brands. H&M, The RealReal, and Petco have adopted Feedonomics's data optimization platform to enhance product visibility and performance across digital channels, alongside Grainger, one of the largest industrial distributors in North America. On the BigCommerce platform, we added European apparel brand Lascana, and successfully renewed our long-standing relationship with luxury department store, Harvey Nichols, reinforcing our ability to support complex, global retail use cases across both new and existing customers. In parallel, we advanced our product innovation and product-led growth agenda with the late Q3 launch of Surface, our self-service version of Feedonomics. Surface enables BigCommerce merchants to enrich and syndicate their product catalog across Google Shopping, Meta, and soon, additional agentic advertising and marketplace channels. The early results are compelling. In Q4, merchants using Surface saw an average 24 points higher GMV growth compared to nonusers, a strong early proof point that better data leads to better discovery and conversion. Notably, that material difference in GMV growth was from only the advertising channels built into the initial release. We plan to quickly roll out additional advertising, marketplace, and agentic channels within Surface in the coming months to drive broader adoption and value to our merchants, while also driving monetization growth within our customer base. We also expanded partnerships with OpenAI, Microsoft Copilot, Google Gemini, and Perplexity to position Commerce.com, Inc. as an AI-ready infrastructure layer. These integrations are built to help our merchants bolster visibility and conversion in next-gen shopping and discovery flows with no added integration work or technical lift on their side. Notably, Commerce.com, Inc. is one of only two commerce platforms featured in Google's announcements of its new universal commerce protocol, further reinforcing our strategic alignment with leading AI and discovery platforms. We partnered with PayPal to introduce BigCommerce Payments, which remains on track to launch around 2026. We expect that this new solution will give small and midsized merchants a fast, integrated way to activate payments, simplify onboarding, and drive higher monetization of GMV. We have now completed many key elements to our transformation. We have integrated our products and brought them under a unified brand. We have the leadership team in place to drive growth. We have realized material efficiencies in our operations to fuel reinvestment in our products. And in 2026, we are increasing R&D investment by nearly 30%, focusing on four clear priorities that will drive growth. First, we are delivering AI capabilities directly into our core commerce platform for both B2B and B2C customers, while extending Feedonomics as the data enrichment and infrastructure layer for agentic commerce. This drives optimized product discovery and shopping experiences across branded storefronts, as well as advertising, marketplace, and agentic channels, accelerating time to value and retention across our installed base. Second, we are expanding Feedonomics Surface into more channels for our BigCommerce merchants, which we believe is a powerful driver of both customer outcomes and monetization. Third, we are rolling out BigCommerce Payments starting with the integration of our PayPal-powered solution to simplify onboarding for merchants and improve monetization of GMV. And fourth, we are expanding MakeSwift, first as a modern visual editor and page builder for our BigCommerce customers, and then launching a standalone version that extends our reach to third-party content and commerce ecosystems. These represent just a sample of what we plan to bring to market this year. These initiatives are designed to increase platform usage, improve attach rates across BigCommerce, Feedonomics, and MakeSwift, and unlock new monetization via payments, data, and bundling. And we are doing this in a commerce environment that is rapidly fragmenting across AI services. Buyers are increasingly starting their journey in AI interfaces, not on a brand site. Our role is to make sure our merchants are discoverable, trustworthy, and transactable wherever that journey begins or ends. To better reflect this evolution, we are introducing two new key metrics. First, gross merchandise volume, otherwise known as GMV, which is a clear measure of the scale of our platform. Our platform delivered GMV of nearly $32,000,000,000 in 2025, and with consistent double-digit growth over the last several years. Second, net revenue retention, otherwise known as NRR, which reflects our ability to grow within our customer base across product lines and services across our entire business, not just a subset of customers or products. Daniel will elaborate on these metrics in more detail shortly, but I would like to offer my perspective on their importance and what they reflect about our business. Commerce.com, Inc. operates one of the largest in-bases and GMV footprints in ecommerce, with GMV growing 12% in 2025 and 11% in 2024. GMV growth and NRR at a total business level provide a clearer picture of our scale, health, and the growth opportunity ahead. Driving improvement in both metrics is a top priority for us in 2026. The opportunities ahead across AI-driven discovery and checkout, first-party payments, and product data infrastructure are significant and expanding. While I am pleased with the strong foundation we have built through improvements to efficiency, profitability, and product innovation in 2025, we have not yet delivered on the full growth potential of this business for our shareholders. That changes in 2026, as we shift from foundation building to execution and monetization. With that, I will turn it over to Daniel. Thanks, Travis. Commerce.com, Inc. serves tens of thousands of merchants globally and facilitates nearly $32,000,000,000 in annual GMV across B2C and B2B customers on the BigCommerce platform. Feedonomics remains central to our data strategy, powering discovery, performance, and monetization across both traditional and AI-driven channels. Q4 revenue was $89,500,000, up 3% year over year. We expanded full-year non-GAAP operating margin by 230 basis points versus 2024 and 990 basis points versus 2023, underscoring efficiency gains and organizational simplification. We ended the year with $359,000,000 in ARR and continued strengthening our underlying business fundamentals. Operating cash flow was $3,000,000 and $27,000,000 in Q4 and 2025, respectively, which reflects more disciplined operating controls and improved working capital management. We closed the year with $143,000,000 in cash, cash equivalents, and marketable securities with no material debt maturities until 2030, providing flexibility to reinvest in our products to accelerate growth. We reduced our net debt position from $33,000,000 in 2024 to $11,000,000 in 2025, a decrease of nearly 67% year over year. For the three months ended 12/31/2025, we had approximately 81,400,000 common shares outstanding and 82,000,000 fully diluted shares outstanding. As Travis mentioned previously, we are adjusting certain metrics disclosures to better reflect business performance and incorporate investor feedback. Enterprise ARR ended the year at $287,000,000. Enterprise customer count was 6,648, up 897 accounts sequentially. And enterprise account ARPA, or average revenue per account, was $43,200, down 8% sequentially. The increase in customer count and decrease in ARPA was partially driven by a Q4 go-to-market program to upgrade select customer accounts from our Essentials plans to Enterprise plans. While we were encouraged by the progress and healthy engagement and retention across our enterprise accounts last quarter, we believe that driving dollarized expansion across the entire business and customers of all sizes is a better indicator of underlying performance than the growth of a select subset of customers alone. Beginning this quarter, we are retiring enterprise ARR and related metrics because expansion is increasingly driven by product cross-sell, data services, payments, and bundled capabilities that cut across legacy plan definition. In place of those disclosures, we will begin sharing quarterly two new metrics that better capture our scale and monetization efficiency. First, starting this quarter, we are now sharing total GMV, which reached nearly $32,000,000,000 in 2025, and grew 11% and 12% in 2024 and 2025, respectively. We have a significant opportunity to better scale ARR growth at a similar rate to GMV. Daniel Lentz: The gap between GMV growth and our top-line growth reflects several factors, primarily our strong growth in B2B, where credit card transactions represent a smaller percent of the payments mix and yield lower revenue share than B2C. To be clear, do not expect ARR to grow in lockstep with GMV, but we do expect the gap to narrow over time as we drive higher payments monetization mix, product cross-sell, and new product-led monetization models. Second, we will now share company-wide net revenue retention to provide greater visibility into expansion trends across our entire business. NRR was 95.2% in Q4, up from 95% in Q4 2024. Driving improvement in this metric is central to our company strategy and underpins many of our investment priorities, specifically improving time to value for our customers, cross-product adoption, and retention through tighter integration of Feedonomics, payments, and storefront capabilities. The areas that most directly influence expansion and churn. We believe this shift in reporting aligns more closely with how we are building and operating the business and provides clearer transparency and comparability for our investors. Now let me walk through guidance. For Q1 2026, we expect revenue between $82,500,000 and $83,500,000 and we expect non-GAAP operating income between $9,300,000 and $10,300,000. For the full year 2026, we expect revenue between $347,500,000 and $369,500,000 and non-GAAP operating income between $34,000,000 and $53,000,000. This outlook represents 2% to 8% full-year growth with non-GAAP operating margins of 10% to 14% at the revenue guidance midpoint. Our guidance exceeds current Street consensus both on revenue and profitability, reflecting the progress we have made in 2025. Importantly, after giving effect to anticipated operational restructuring payments, we anticipate cash and cash equivalents to exceed total long-term debt by mid-2026. And we expect to deliver GAAP profitability for the full year 2026, the first time in Commerce.com, Inc.'s history. This milestone is a direct result of disciplined execution, an expanding product model, and meaningful operational leverage. On a Rule of 40 basis, our non-GAAP guidance implies a combined growth plus margin performance of approximately 11% to 22% depending on how we execute within our ranges. Let me close with a few reasons we believe Commerce.com, Inc. is positioned to deliver long-term value. We operate at nearly $360,000,000 in ARR, with gross margins approaching 80%. We are generating meaningful profit and cash flow and expect to continue to do so this year with non-GAAP operating income 57% higher year over year at the midpoint. We facilitate nearly $32,000,000,000 in annual GMV with consistent double-digit growth. This business has yet to reach its full potential. We see meaningful opportunities to drive faster growth while maintaining the discipline that has delivered substantial improvements to profitability over the last two to three years. This is a structurally stronger business than it was a year ago. Our focus is squarely on execution, driving stronger growth, and sustainable margin expansion. With that, operator, let's open it up for questions. Operator: We will now begin the question and answer session. If you are using a speakerphone, please pick up your handsets before pressing the keys. If at any time your question has been addressed, at this time, we will pause momentarily to assemble our roster. The first question comes from Raimo Lenschow from Barclays. Please go ahead. Karnikatou Raju: Hi, this is Karnikatou Raju on for Raimo. Thanks for taking the question. Travis Hess: I wanted to talk about what you are seeing in the agentic commerce landscape as we have seen the PayPal and Stripe agentic commerce integrations, and as that evolves, where do you see the biggest opportunity for your platform and how do you expect to capture that over the near and the long term? Thank you. Thanks for the question. It is a good one. Listen, we are seeing lots of momentum, as others in the market have as well. Obviously, aligning with the major players. Certainly, Stripe and PayPal are two massive partners and valuable partners to us. We have aligned to their standards and schemas. We are doing the same across the answer engines, all of which have their own intricacies. We have been pretty public about where we are with several of them. We are in a position that have mapped to schemas across all the answer engines. Ultimately, a lot of these things are gated, particularly as it relates to checkout. So as an example, Perplexity, we have demoed agentic checkout and have been live on that surface for some time now. In the case of OpenAI, we have mapped to their schema, but, again, that is gated currently by OpenAI. They are not openly accepting merchants, so we are at the mercy of their thresholds and their internal tables for sequencing. Same for Google. We are mapped to their schema. We are in testing right now to get BigCommerce merchants on there. But, UCP only works with data and checkout and checkout is also gated. That is going on a case-by-case basis. We are in a good position to take advantage of that, and we will be testing with Google over the next quarter. Karnikatou Raju: Perfect. Thank you, guys. Travis Hess: You bet. Operator: The next question comes from the line of Ken Wong from Oppenheimer. Please go ahead. Ken Wong: Great. Thanks for taking my question. Travis Hess: Ken, it was good to see that GMV has grown 12%. It does show that you guys are driving some sustainability there. Yet when I do the math, it looks like take rate perhaps kind of inched down a little bit. As you talk about moving from foundation to monetization, how should we kind of anticipate what happens to take rate? Maybe talk about the partnership with PayPal, your own payment product. What is the path going forward there? Yeah, Ken. Great question. I will take the first part of it then turn it to Daniel for a minute. Monetization is going to come from a couple different capacities. One, obviously, we are shipping more products and really focusing on the existing install base to monetize that as laid out in some of the opening remarks by Daniel. Part of that is BigCommerce Payments. Obviously, I think this is a dramatically different approach than where the company was a year ago, where we really did not talk about this at any capacity. We have taken a more opinionated approach. We will continue to see that evolve over time as would be expected to monetize. We are also looking at ways to better monetize the B2B install base, as Daniel also laid out. By definition, it has a slightly different nuance to it, which is reflected in those numbers. But I would expect monetization to come really twofold: growth from existing customers through the shipment of new products, whether that is product-led growth or enhancements or new AI SKUs, certainly, as well as obviously monetizing payment. I will turn it over to Daniel as it relates to take rates and things like that. Yeah, Ken, I think it is a great question because I think it gets at why we felt it made a lot of sense to introduce the new metrics that we introduced. I think by and large, I would say our platform is larger than probably what it was known to be within the market. I think it is also growing faster, as you mentioned on the GMV metric, than probably what was broadly known. What I do not think was as well known and what we really wanted to create some transparency around is some of the why behind the things that we are doing here within the company. Take rate is not where it can be, and part of that is because of the fact B2B customers just do fewer credit card transactions, so we make less payments rev share. But beyond that, we also have an opportunity to better retain and expand the base, and you see that in the NRR number, which is not where it needs to be, but we wanted to be transparent about where it is. I do not think the metrics should be surprising relative to previous NRR disclosures that we made. I think it is pretty consistent with that. But what it really shows is an interesting story of opportunity within the business where it is a large, growing, and stable platform. We just have not had enough focus and success in having our growth rates track along with the growth rate of the underlying GMV on the platform. That gets into why we are taking a different point of view on how we are approaching payments. Daniel Lentz: We are starting with kind of a white-labeled version with PayPal as our first partner, which we think is great. But that is not the end of where that is going. And when you look at a lot of the product launches and initiatives that we have coming, they have embedded new monetization models that lead to better NRR and expansion of our existing base, which is also lower customer acquisition cost, which can allow the business to not only grow faster, but grow more profitably in the process. And so we just thought it was really important to add transparency around that really because we think it reflects the opportunity that has Travis and me so excited. We have a lot of work to do. I think that is evident in the numbers as well. But there are a lot of really good opportunities underneath that that we are excited about. Ken Wong: Understood. Very helpful. And, Daniel, second, just on the guidance range for fiscal 2026, the $20,000,000-plus revenue range, much larger than the $8,000,000 range you guys started off with in 2025. I would argue there is probably more uncertainty going into 2025 versus the foundation you guys have laid for 2026. Can you help me understand what is being considered in the guidance that would create such a large delta? Daniel Lentz: Yeah. Great question. And I expected this question, actually. So let me kind of go on either end of the range. So if you look at where we are from a Q1 guide, it looks a little conservative. That is just because we took a little bit of conservatism exiting the holiday GMV that we saw in the period, which was a little bit lower than where we thought it was going to be, which you see in the Q4 results, which was not a real big deal. But we kind of carried that into a little bit of conservatism in Q1 and carrying that forward in case we start to see just some sort of macro issues. There has just been a lot of uncertainty, I would say, in the labor market tech in particular. So the low end of the range kind of reflects that. But the reason we have such a higher dispersion than normal is because we also see a lot more upside this year than where we have been in years past because we have so much innovation that we have on the roadmap that is coming this year. Now, take payments as an example. We are not going to be having gross accounting. It is going to be net. We are expecting to see strong incremental growth on that over time. But that is one of probably five or six different things that are coming that have us optimistic about where the year can go. We still need to deliver on them. We think the midpoint fairly reflects where we see the business at this time, but we thought it was important for investors to understand kind of the range of outcomes and what we see in the business. We have a lot more going on right now at the beginning of the year from an innovation and what we are trying to ship than what we have had at any other time in the seven years that I have been here. We have to deliver on those things, and we felt that having a broader range than we have in the past accurately reflects that. Ken Wong: Okay. Perfect. Appreciate the insights, Daniel. Operator: We now have a question from the line of David E. Hynes from Canaccord. Please go ahead. David E. Hynes: Hey. Thank you, guys. Daniel, I will start with you, and then one for Travis after. So sorry on the numbers. Absent the program to upgrade select customers from Essentials to Enterprise, what was core Enterprise ARR growth in the quarter? It was slightly up apart from that. But that was a big driver on why we saw that move that we saw. It was aligned to a little better probably than where we were in prior quarters. We did not make that change because we were trying to kind of be unclear about what is going on in the underlying. We just feel overall it was better to kind of pivot the focus to where, frankly, Travis and I are running the business, which is looking at how we are monetizing underlying GMV, and if you look all and particularly, David, what we launched on Surface, the self-service version of Feedonomics as an example, that is primarily focused on smaller customers, not our larger customers. And so as we have been talking over the last several quarters that our focus is on dollarized expansion, not particular count of a subset of customers. While it is important, it is an indicator, but not the most important one and not how we were running the business anyway. And so we felt it was important to make this pivot. David E. Hynes: Yep. And just a clarification on the metrics going forward. Understand we are not going to talk about Enterprise ARR anymore. Are you not talking about ARR at all? No. Okay. Let me this. We are going to continue to disclose ARR every single quarter. There is no change to that. We are also going to continue to talk about subscription ARR, which is simply the difference between total ARR and the last twelve months of partner and services revenue, so no change there. All we are going to be doing, I would say, is additive, which is we are going to start disclosing GMV on a quarterly basis beginning next quarter. So you will be able to see the quarter over quarter prior year going forward. We are also going to be sharing total NRR on a total business level every single quarter, which that number kind of definitionally is a rolling prior twelve-month metric. And so it is going to make it very easy for investors to see how we are doing in terms of total platform growth and stability on the GMV side, how are our initiatives making progress or not, depending on how results go, in driving better monetization and realizing the opportunity to better track overall top-line ARR growth underneath it. The only thing that we are going to be doing is taking away enterprise-specific metrics. But if anything, I actually think this adds better transparency to what is going on under the hood. To be really clear, that is the intent. David E. Hynes: Yep. Okay. Very clear. And then the follow-up for Travis. So it sounds like Shopify's agentic plan, which you talked about yesterday, is directly competitive with Feedonomics. Right? I mean, they talked about using that for non-Shopify customers kind of in the same way that you talked about. Is that right? And if so, can you kind of go a little deeper on what positions Commerce.com, Inc. and Feedonomics to win versus what Shopify is doing. Travis Hess: Yeah. There is some overlap there, but I would say by definition first of all, it is a completely different cohort of where those products historically serve. I would say with Feedonomics, it serves primarily what I would define as enterprise. You are talking about the largest brand of manufacturing and retailers in the world. We do have a large subset of those clients that actually run on Shopify for platform but use Feedonomics. That is for a reason, and it is not because it costs less. It is because they cannot get the value out of the data enrichment from what Shopify does or how they do it that they get from Feedonomics. Because, again, that product data is enriched bespokely for the surfaces by which they show up on, the syndication of which will eventually become commoditized. I mean, all these protocols will become open. They will become standardized so that agents can interact with them. So there is no value proposition in the syndication. The value proposition is in the data enrichment and orchestration. And it is not just orchestration of the data. It is also the orchestration of, say, inventory availability. So as people get into contextualized conversations, and you are looking for something that you need for next weekend, that contextualized input has to marry against what inventory is available, just like Google Ads do today as far as what is available close to you by a particular time frame. So it is doing a lot of things behind the scenes that, by definition, is different. It is agnostic to platform. So we accept the fact that there are a lot of merchants that are happy with the current platform or incapable of moving current platforms, but still have a material need to show up relatively and valuably across services their customers want to meet them. Our responsibility is to enrich and syndicate that agnostically and at scale. That is the biggest difference. We are not trying to monetize this through a checkout. We are trying to drive merchant value to the extent that also overlaps with BigCommerce. And to Daniel's point earlier, the self-service version of Feedonomics, which has been one of the things we had not done yet here, having bought Feedonomics, is having a self-service version to make it available for smaller merchants. That is what we are most excited about. That will overlap probably the most with what Shopify is doing, and the overlap is really we are offering it for a similar cohort on our platform that they are offering on their platform. I am not saying one is better than the other. It is just by definition native to the platform itself, and we have just been done running rolling that out over the last four if that is helpful. Yep. David E. Hynes: Yep. Super helpful. Thank you, guys. Travis Hess: You bet. Operator: The next question comes from the line of Madison Taylor Schrage from KeyBanc. My first one is just on the payments offering. Could you walk us through the cadence of PSR contributions throughout 2026? And I guess, could you walk us through how that would also touch margins? Thanks. Daniel Lentz: Yeah. So we are on track to launch BigCommerce Payments roughly around Q1. That is the plan today. We are also going to be making some changes to kind of underlying pricing and packaging on our plans around the same time to correspond with the integration of BigCommerce Payments into our core offerings. Daniel Lentz: One of the reasons we are excited to partner with PayPal is we have such a huge installed base of existing customers that are already using PayPal, which makes it far easier for us to shift as many existing customers into BigCommerce Payments after launch and then start incrementally growing it over time. We are going to have, I would say, a two-pronged effort. One is to get as many new merchants that are signing up to go into that solution, which is going to be primarily focused at the outset on small business and mid-market customers, I would say. There will be more features we will launch more across the back half of the year that I think will make it more relevant for large corporate and enterprise customers. But wave one is we want to get as many new customers into that as possible, but we are also going to have a lot of ways that we are going to look at other customers within our base and see where we get them to switch into that, where it makes sense and it does not conflict with existing arrangements, obviously, with other partners where we have wonderful relationships with a number of payment partners, including Stripe and Adyen and others, and we have no intention of disrupting that. So I think from a margin perspective, we do expect it to be additive across the year. It takes the place of other existing agreements with PayPal, so it is not all 100% greenfield on top of where we already were. Which we baked in the guidance and factored that into the range. But we see this really, Madison, I think is important. This is the start of how we are thinking about the strategy here. This is a very demonstrable pivot from how we have thought about this in the past. We think it is very possible and good to be both open and opinionated. In the past, from a fintech point of view or a payments point of view, it has been very much saying, look, you can use whoever you want. We will continue to allow customers to have wide choice in who they want to use on the payment side. But we would like to be able to bring more focus to a smaller number of partners and include the branded solution so that we can have better technical integrations and better results for customers by focusing on perhaps a smaller number of partners going forward. And then over time, might we expand this further and start investigating whether we want to take further steps towards the PSP or things like that? Those are certainly things we are still evaluating. It just felt it was prudent as the first step. Let us start with this, see how we can drive adoption on this, get margin improvement over time, and then expand this further as we go to better link up our overall growth rate to GMV growth rate on the platform, which, as we said, has been really strong and stable for several years. Madison Taylor Schrage: Understood. And then I guess my second question kind of piggybacks off of that. But as you guys become more penetrated on the B2B side of things, and that is lower credit card penetration, how does that kind of impact what the take rates would be going forward? Daniel Lentz: I think you see that and why our take rates, to the question we got earlier, if you just derive total ARR into GMV, it went down slightly over the course of the last quarter. A lot of that is B2B mix, and it is the issue that you described. Some of that is somewhat inevitable. I mean, I think what we are really looking at is to say, okay, we have a lot of really unique competitive differentiation in B2B. And we want to encourage merchants to have all great services in all of the different ways that they need their customers to be paying them, whether ACH, going through POs and invoicing, or credit card transactions. What we are going to do is narrow the aperture of the number of partners that we are really focused on within B2B so that we can have better solutions offerings for customers that have expanded payments opportunities and monetization opportunities for us over time as well. It is always going to look a little different than the B2C side of things because of the credit card mix, but we still think there is a lot of opportunity to incrementally improve monetization of B2B even if on an apples-to-apples basis, it is intrinsically always going to be a little different than B2C. There are a lot of ways that we still see that we can improve that and create upside there even within the B2B cohort. Operator: As a reminder, if you have a question, please press star then 1. Unknown Speaker: The next question? Operator: Comes from the line of Koji Ikeda from Bank of America. Please go ahead. Koji Ikeda: Yeah. Hey. Thanks, guys. Good morning. I wanted to ask about the NRR metric being 95. Being sub-100 raises a lot of questions on growth durability. So how should we be thinking about the core drivers to expand this metric in the near term, and what sort of NRR assumptions are baked into the 2026 guide? Daniel Lentz: This is Daniel. I will take that one. So that number for the total business is 95. I do not believe it should be surprising when the metric for enterprise accounts in that prior disclosure was around 100, and I had said it was kind of in 99 to 100 range. I think we finished last year, I think, at 98. So the fact that at a total business level, we are 300 basis points lower than that, I do not think really should be surprising. The core to the question is, obviously, we do not consider that number acceptable, and it is nowhere near best in class and where it needs to be. I think it reflects the fact that we have not had the focus that we need on delighting and expanding our existing customers. And if you look at why we made the changes that we made from a restructuring basis in the announcement that we made last quarter, it is because, one, we can run the business a lot more efficiently than where we had before. This is not a pivot or a change. We are running the same plan that we have been talking about for the last year. We can just do it with less capital in the go-to-market side in particular, which is what is enabling us to redeploy dollars into R&D in investments that are directly focused on what we are doing on the NRR side of things. And I think that the fact that we are able to increase our capital investment in R&D in 2026 nearly 30% while having a midpoint guide that is nearly 60% higher profit growth year over year, I think shows how much wins we have seen within the business and how we are operating. That creates efficiency to free up capital to reinvest. You look at just the initiatives that Travis mentioned in his prepared remarks in particular, I would argue almost every single one of them is focused on getting NRR to the number where it should be. Launching Surface, great. We have 24 points higher GMV growth for customers that are using it than were not, and that was only with two advertising channels built in the initial release. That drives better retention, and it is a new monetization path that did not exist before. Launching MakeSwift as our new page builder, which is going to happen roughly in the next quarter or so, same thing. That has new monetization models built in. And a lot of the places where we are directing dollars is on core product performance to delight our customers to help improve retention and expansion. Travis Hess: Yeah. And I think foundationally, Koji, over the last year, year and a half, we have laid the foundation to be able to actually execute on this. I know it has not been sexy. We are super excited in a lot of the changes that we have made, certainly, but they were intentional, and intentional to get to this point. It is still, to Daniel's point, we have got a lot of work to do. That is certainly not mission accomplished by any stretch, but we actually have the foundation in place to go take advantage of this. I think that is reflected in the guide and certainly will be measured in ongoing capacity on efficacy against this. But we think net revenue retention is the ultimate metric of the business and where we are. And giving that transparency to the Street, we think, is helpful and less confusing than guiding on a particular type of plan that might be misconstrued, which is where we were in the past around Enterprise. One last point, Koji, I would make. Just to your specific question at the end, essentially, what is baked into the guide. Baked into the guide is incremental improvements across the year, but not so dramatic an improvement that it is something that is unrealistic and we feel like we can achieve within the twelve-month period. I think if you just look at the pace of new account additions and growth over the course of the two years or so, it has been pretty stable. We want to see that inch up incrementally. But we have a lot of levers to pull to improve this, and we do not need to see some dramatic improvements that is unrealistic in order to get to the numbers that we have included in our guidance. We need to get better, but we think that it is certainly achievable. Got it. No. Thank you. Maybe a question for either of you. Travis, in your prepared remarks, you talked about Commerce.com, Inc. becoming successful in the AI-ready infrastructure layer for B2B and B2C commerce strategies. Like, if you guys are successful with that, what would it mean for customer buying patterns of the three big products, BigCommerce, Feedonomics, and MakeSwift? Does that change the algorithm at all? Travis Hess: I think it is well, it is going to organically change just because those three products would be more easily available certainly to the install base, which was the intention, I think. I have said this publicly a couple times now. We have not focused enough on the existing customer install base, quite frankly. We were not in a situation to be able to do because these other products were not installed, and there was a lot of duplicity in both cost and just distraction and overall roadmap, unintentional duplicative. Duplicative. Sorry. Duplicative. It is early in the morning. Anyway, we were not in a position to take advantage of that. So that is part of the thesis here was integrating those products and making it available. To your point, there is also a slightly different wedge strategy now as well. Feedonomics being agnostic, we have talked about going on from a distribution perspective in other ecosystems. We now have creative new ways to access business outside our own four walls at the same time in a land-and-expand motion, which is also something. We did not have the systems. We did not have the infrastructure. We did not have the motion to be able to do that. So I think that will impact it. AI is obviously accelerating all of those things, so it is allowing us to go at a much faster, more efficient pace, which is allowing us to do more with less. That is probably the biggest impact as far as cadence and things are concerned. So if you had asked us two years ago, we thought we had accomplished this in the time frame. Without AI, I do not think that would be possible. So I think the speed by which we will deliver product and are delivering product, the speed by which we are enabling our sales folks and go-to-market teams, and the speed by which we are actually able to take things to market and drive efficacy is obviously radically improved. Koji Ikeda: Thanks so much, guys. Operator: We now have a question from the line of Josh Baer from Morgan Stanley. Please go ahead. Josh Baer: Great. Thank you for the question. I wanted to follow up on the 2026 guidance range question, which you answered from a growth perspective. On the margin side, the range for operating income also wide. I guess the question is really like, how should growth and revenue coincide with margins? Is there a framework? Is it a scenario where the upside on revenue is payments, net rev recognition that drops to the bottom line and drives the higher margins, or is it a scenario where the slower growth, you lean into profitability? Daniel Lentz: That is a great question, Josh. This is Daniel. I will take that one. I would say just the way that Travis and I are operating this approach in the year, growth is paramount. That is the focus. We are confident. I think we have demonstrated this over the course of the last several years. We run a disciplined business. We run a disciplined P&L. We need to be growing faster. I am very confident as we grow, we are going to deliver strong margins as we go through. And I think the fact that we delivered such a materially higher guidance than probably where the Street expected us to be for 2026 while reinvesting in growth shows that priority. If we end up on the high side of the range, obviously, that is going to throw off extra profit that would take us to the higher part of the range. Daniel Lentz: But if we are landing in the high side of where we talked about on the revenue guide, Travis and I are going to look for opportunities to reinvest that further into growth. We are going to do it in ways that we think are prudent. We are not going to throw money after high cost of acquisition, low ROI things. We need to get materially better in sales and marketing efficiency. That is one of the reasons we made some of the redeployments and changes that we have made because we see that in the numbers the same way that our investors have over the course of the last year or two. But where we have opportunities to reinvest if we are coming in on the high side of the revenue range, we are going to do that because we want to plow more back into growth as we get momentum going further. Josh Baer: Okay. Makes sense. So if we come in at the high end on revenue, we will see more investment because the return is there. And if we are at the low end on revenue, that is going to be a negative for the margins coming at the lower end. Let me just clarify. Daniel Lentz: If we come in on the lower side of the revenue guidance range, we are going to tighten the belt where we can to make sure that we deliver within the range that we provided on profit. Right? If we end up on the high side of the revenue range, we run an 80% gross margin business. A lot of that is going to flow to the bottom line, and we are not going to reinvest every single dollar. A lot of what we would put in, we would probably put into additional capital in R&D. You have got normal capitalized software rules and things like that that we would need to go through. So it would end up generating additional profit. So probably high side of revenue range is high side of profit range, even with reinvestment. We are going to do it in a way that we think is really, really prudent. We are not just throwing money around everywhere. I think we have shown really clearly that is not how we run the business. Josh Baer: Exactly. Okay. That is super helpful. And then on the disclosures, one follow-up. With the removal of the enterprise-related metrics, is there a customer count disclosure now going forward, and just really wondering how you think it is best that we track an important element of the business around net new customers, market share, and go-to-market initiatives and progress. Thanks. Daniel Lentz: Yeah. We are not going to have a specific customer count metric going forward. It is something that we will speak to so investors kind of understand where it is. We think one of the best ways to understand how we are doing on a market share basis is how are we doing on GMV growth. And I think for a long time, we got questions from a lot of investors specifically about that because that is also how they were trying to understand overall market share growth. But because our customer count metric that we were disclosing was a subset metric anyway, it did not represent the breadth of the counts of customers on the platform to begin with. I mean, we are talking we have 6,000 accounts that happen to buy our Enterprise plans of tens of thousands of customers that are running on the platform. We look at B2B by count. We think we are probably one of the biggest B2B platforms in the world. And that is at a subset. But I think the most important thing is are those customers being retained and expanding? That is reflected in NRR. There is some goodness there in some of the underlying parts, but we need to get a lot better. But if you look, importantly, at the overall GMV metric, the scale of this business and the health of the growth and what we see in the underlying platform is good. We need to do a better job orienting the business to drive monetization of that growth down to our shareholders, and that is where we are focused and where we have been focused for the last year. We just did not think that the metrics that we had were really providing a good enough why to connect the dots between where we were applying capital and where we see growth opportunity to drive monetization in the business. Josh Baer: Got it. Thanks, Daniel. Operator: The next question comes from the line of Brian Christopher Peterson from Raymond James. Please go ahead. Brian Christopher Peterson: So, Travis, maybe for me to start, I wanted to get your perspective on how agentic commerce may be impacting replatforming opportunities. On one hand, I could see it driving a lot of innovation and people looking at new approaches to this, but I also could see it maybe slowing purchasing decisions. Any perspective on what you are seeing from the impact of agentic, if at all? Travis Hess: Yeah, Brian. Great question. Certainly in 2025, it impacts it on the B2C side, most notably, and I would say the back half of the year. Obviously, we were disappointed in what we delivered in the back half of the year. I think we expected more there. I think the good news is we have got great product-market fit for agentic. We are obviously in the midst of a lot of positive things there, but the downside is the collateral damage is you have got brands and retailers where traffic has dropped off. Obviously, and that has become the importance as opposed to replatforming. It has not killed it. We certainly have a healthy pipeline. But I do not think it has been helpful in speeding up replatforms, particularly upmarket on B2C. I would expect it to change a little bit, but I think what is also happening through agentic is it is spawning new commercial models where you are seeing components of different aspects, like our agentic checkout product as an example is an easy use case of an existing Feedonomics client where we are enriching and syndicating that catalog, either directly or through financial partners like PayPal, where, again, that checkout may happen on our rails with our cart and our order orchestration capabilities within Feedonomics into somebody else's order management system. You are going to see more and more of those sorts of things. So different commercial models, different components and things and mixing coming together. I think our North Star in all of this is to remain agnostic to what is best for our merchants. If we are providing all of that infrastructure, fantastic. That makes the most sense. If we are providing a portion of it, and that makes the most sense. I think in the example earlier, I think Ken asked the question around Feedonomics. One of the biggest differentiators for us on the Feedonomics side and how it differentiates in market are the control mechanisms within that product. Larger brands, enterprise branded manufacturers, and retailers need those controls, and they also need the agnosticism because if they are going through an agentic checkout regardless of infrastructure, they want to make sure that that aligns with their back-office systems, meaning their point of sale and other channels by which people may transact. So if I buy something agentically, through, say, ChatGPT and I want to return that product in store, that needs to have interconnectivity there. If that technology is not agnostic and they are forced to use different rails, that sync is off and it creates a bad customer experience and increased cost for the merchant. So I know these are weird use cases that nobody thinks about because shopping just happens to the customer. But these are very complicated, nuanced, expensive mistakes in the back end, and that is where you are seeing a lot of hesitation from the more enterprise-oriented branded manufacturers and retailers. They know how complicated this is. They know how hard it is, and they know how expensive it is to go create friction in those buying experiences. When they do this, they want to make sure they do it right and they adjust accordingly. We are allowing them to do that through some of our components and some of our capabilities. And that is what is probably slowing up more of the replatforming than anything else, certainly upmarket, if that is helpful. Brian Christopher Peterson: No. That is great color. Daniel, maybe one for you. I appreciate all the new disclosures. But any perspective that you can give us on how the split of GMV growth in 2025 looked on B2B versus B2C? Thanks, guys. Daniel Lentz: Yeah. I would say, I mean, we called out last year customers using B2B Edition. ARR from those customers grew almost 20%. GMV was similar. B2B is a disproportionate grower. It is a share of GMV, which is why you see some of the kind of derived slight decline in net take rates when you look at ARR as a percentage of total GMV. Again, it is a high-class problem. B2B is growing really, really well. It is differentiated. It is doing great in market. It is kind of fun to be able to look to our product leaders and say, look, we have got to get monetization up. You are doing a great job driving growth in the platform. We need to close the gap between monetization between B2B and B2C. Some of that spread is inevitable. It just is, but there are a lot of opportunities for us to improve that. Operator: This concludes our question and answer session. I would like to turn the conference back over to Travis Hess, CEO, for any closing remarks. Travis Hess: Thank you. I want to thank everyone for attending. We are excited to execute against our strategy laid out and look forward to discussing further with you all next quarter. Thanks very much. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Greetings and welcome to the Conduent Incorporated Q4 2025 Earnings Conference Call. At this time, all participants the formal presentation. As a reminder, this conference is being recorded. Conference It is now my pleasure to introduce your host, Joshua Overholt, Vice President of Investor Relations. Thank you. You may begin. Joshua Overholt: Thank you, operator, and thank you for everyone for joining us today to discuss Conduent Incorporated's fourth quarter 2025 earnings. Am joined today by Harshita Agadi, our CEO and Giles Goodburn, our CFO. We hope you've had a chance to review our press release issued earlier this morning. This call is being webcast and a copy of the slides used during this call as well as the press release were filed with the SEC this morning on Form 8-Ks. Information as well as the detailed financial metrics package are available on the investor relations section the Conduent Incorporated website. During this call, we may make forward looking statements. These forward looking statements reflect management's current beliefs assumptions and expectations are subject to a number of factors that may cause actual results to differ materially from those statements. Information concerning these factors is included in conduits annual report on Form 10-Ks with the SEC. We do not intend to update these forward looking statements as a result of new information or future events or developments except as required by law. The information presented today includes non-GAAP financial measures. Because these measures are not calculated in accordance with U.S. GAAP, they should be viewed in addition to and not as a substitute for the company's reported results. For more information regarding definitions of our non-GAAP measures, and how we use them, as well as limitations to their usefulness for comparative purposes please see our press release. And now I would like to turn the call over to Harsh. Thank you, Josh. I want to welcome our investors analysts and clients as well as colleagues around the world to this call. Harshita Agadi: I am confident you will be encouraged by what you hear as we discuss where Conduent Incorporated is headed and how we intend to get there. I also want to say good morning, good afternoon and good evening to my 51,000 conduit colleagues across the globe. Over the past few weeks, I've been energized by the stories I have heard. Stories of teams serving clients with commitment, resilience and professionalism every single day. Thank you for what you do and for the pride you take in representing Conduit. Over the past three decades, I've had the opportunity to lead more than half a dozen companies across multiple sectors. Both private and public. Most relevant to conduit I have founded in the past and led a BPO that scaled globally and eventually list it on the NYSE. Through those experiences I have learned what it takes to build organizations that move with deliberate speed and purpose. Deliver measurable outcomes for clients, generate sustainable growth and free cash flow for investors, and create meaningful development opportunities for all our employees on a global scale. I'm here because I believe Conduent Incorporated can deliver those same outcomes. My expectations are simple and my objectives are clear. It is to lead Conduent Incorporated to consistent year over year revenue and EBITDA growth supported by very strong and durable free cash flow generation. In the BPO industry, these are not aspirational results. They are the natural results of a healthy business with clear strategy disciplined execution, and a relentless focus on serving clients on a daily basis. As clients focus on their business, our focus is to provide seamless BPO and KPO services to enable their daily services smoothly to their clients. Having been in the role for less than thirty days at Conduent Incorporated, it would be premature for me to present a fully detailed long term plan for conduits return to sustained growth, improved earnings and free cash flow. Ladies and gentlemen, this is a turnaround story. The work is underway and we will with you. What I can commit to today is full transparency and cadence. In addition to our normal earnings reports, we intend to host an Analyst Day in New York City where you will have the opportunity to meet our board and other members of the Conduent Incorporated executive team and hear directly about our strategy. Priorities, and execution plan. While the full plan is still being finalized, this is not my first turnaround. Having led multiple transformations in various sectors, I know there are decisive actions that must happen early. Operator: Actions Harshita Agadi: that set direction, change momentum, and create the conditions for sustainable results. Those actions are already underway and they inform the priorities I am here to outline. First, and foremost, we will move faster that means faster decision making faster execution, and faster improvement. The senior leadership team has already felt this increased pace and we will only continue to accelerate it. The tone has to be set from the top. Opportunities do not wait and neither will we. Our leaders are being empowered to act and empowerment comes with clear accountability. We must move with speed to capitalize on the opportunities before us. Second, we will apply maximum financial discipline across every major decision especially capital allocation. We will evaluate decision through multiple lenses revenue growth margin expansion, and free cash flow generation. This framework will guide how we allocate capital rationalize parts for the portfolio, manage working capital, and prioritize investments. Third, we will lower our cost structure. This includes reducing corporate overhead, particularly within SG and A and taking a hard luck at our entire technology spend and stack. However, we will not compromise quality, or client outcomes but we must be more efficient in how we deliver our At current levels, corporate overhead and technology expense as a percentage of revenue must come down. Fourth, we will continue to rationalize our portfolio. My goal for Conduent Incorporated is clear. Organic revenue growth resulting in strong free cash flow. To get there, we are reviewing every business categorizing each as either fixed sell, or grow. Businesses that are categorized as fix will operate under formal improvement plans with clear metrics timelines leadership accountability goes hand in hand with that. Businesses that are in the category of sale will be actively marketed with a focus on executing transactions efficiently and at fair value. Proceeds will be first used to reduce debt. Followed by multiple other priorities. The third is growing the businesses that are identified to grow will receive the required investments as well as be unconstrained so that they can grow. Fifth, our qualified ACV plan today stands at 3,200,000,000.0 Joshua Overholt: Our priority Harshita Agadi: is better conversion rates. Going forward, our priority is not just building pipelines, but consistently converting it. Across each of our businesses, pipeline development and execution will improve in a way that supports sustainable revenue growth. Finally, we will simplify and strengthen our organization deliver on these priorities we will become a nimbler company with fewer layers lower costs and clear accountability. We will reduce organizational complexity that slows decision making and empowers our leaders with full P&L ownership. Joshua Overholt: I Harshita Agadi: would now like to hand over to Giles to continue the update on the earnings calls as he will be giving you a very clear update on Q4 which was not under my CEO leadership. Thank you, Giles. Joshua Overholt: Thanks, Harsher. As we've done in the past, Harshita Agadi: we're reporting both GAAP and non GAAP numbers. Giles Goodburn: The reconciliations are in our filings and in the appendix of the presentation. Let's discuss our key sales metrics on Slides five and six. We signed $152,000,000 of new business ACV in the quarter, one of the highest quarters in recent years. Up 11% versus Q4 2024. Our full year 2025 new business ACV was $517,000,000 up 6% versus 2024 Each quarter can be influenced by the timing of large deals, especially in the public sector segments. However, if you aggregate the ACV on a trailing full quarter basis, you can see we're trending in the right direction. On a full year basis, our Government segment new business ACV is up 50% and our transportation segment is up 14% versus 2024. While our commercial segment is down 15% versus prior year, the encouraging signs are that our new capability ACV, selling new products to our existing clients, up again this year by 60%. Joshua Overholt: This is a cornerstone of our commercial go to market strategy Giles Goodburn: which we are optimistic continue to reap rewards. Within the quarter, we signed 14 new logos and 20 new capabilities. And on a full year basis, signed 41 new logos and 87 new capabilities. New business TCV for full year 2025 was up 16% versus 2024, driven by our Government and Transportation segments. As Harsher mentioned, our qualified ACV pipeline remains strong at 3,200,000,000.0 which is up 4% year over year. The strength here is driven by our government segment, which is up 29% year over year. With an in year 2026 qualified pipeline almost double where it was at the beginning of 2025. Let's turn to Slide seven, and review our Q4 and full year 2025 P and L metrics. Adjusted revenue for full year 2025 was 3,040,000,000.00 compared to $3,180,000,000 in 2024, down 4.2%. We ended the year with Q4 adjusted revenue growth in two of our three segments. Our Government segment grew 1.8% and our 1.9%. Both segments shown positive momentum and positioned well for growth in 2026. Adjusted EBITDA for the year was $164,000,000 as compared to 124,000,000 in 2024. And our adjusted EBITDA margin of 5.4% up 150 basis points year over year and towards the top end of our guided range. We finished the year with a Q4 adjusted EBITDA margin of 6.5%, up two fifty basis points versus Q4 2024, and a sequential improvement of 130 basis points versus Q3. Let's turn to Slide eight. Review the segment results. Full year 2025 Commercial segment adjusted revenue was $1,500,000,000 down 5.9% as compared to 2024. The volume declines in our largest commercial clients drove approximately 40% of this revenue decline, Joshua Overholt: The remaining top 10 commercial clients Giles Goodburn: grew on an aggregate basis in 2025 versus 2024. Commercial adjusted EBITDA was 154,000,000 and adjusted EBITDA margin of 10.2% was down 30 basis points year over year. While we made good progress with our cost efficiency program in this segment, it wasn't enough to offset the impact of lower revenue. The five priorities Harsher outlined earlier will significantly accelerate the desired improvement in this segment. Government segment adjusted revenue for the year was down point 3% at $922,000,000 Our new business revenue outpaced lost business revenue, with the primary driver of decline being the completion or winding down of large implementation projects which we expect to replace in 2026. As I mentioned earlier, in the fourth quarter, our Government segment grew 1.10.8% year over year, We are confident this will continue. And the team is positioned to deliver full year 2026 revenue growth. Adjusted EBITDA was $221,000,000 with adjusted EBITDA margin of 24%, up two seventy basis points versus 2024. The drivers here resulted from our AI initiatives, and efficiency programs, resulting in lower fraud, labor and telecom expenses offsetting the implementation run offs. Harshita Agadi: Transportation segment adjusted revenue was $6.00 £9,000,000 for the year, Giles Goodburn: an increase of 3.9%. While adjusted EBITDA was 18,000,000 and adjusted EBITDA margin was 3% for the year, up 300 basis points versus 2024. Both revenue and EBITDA improvements were driven by strong equipment sales and a contract amendment in our international transit business. Operator: Unallocated costs Giles Goodburn: were $229,000,000 for the year, a decrease of 10.2% versus 2024 The improvement here is driven by the cost efficiency programs our corporate functions and a recovery of legal costs. Which more than offset significantly higher U.S. Employee healthcare claims activity activity. We continue to experience. Let's turn to Slide nine and discuss the balance sheet and cash flow. We ended the year with approximately $243,000,000 of total cash on balance sheet, and adjusted free cash flow was negative 130,000,000 Adjusted free cash flow in the quarter was positive $28,000,000 a little less than we had anticipated due to the timing factors I mentioned last quarter. The updates on these timing factors are we signed the contract amendments that were delayed by the government shutdown in Q4 and build the client for the work already performed. However, we now expect to receive this cash later in Q1 or early in Q2. Which accounts for the reduction in contract assets and the increase in accounts receivable on our year end balance sheet. Our net leverage ratio decreased to 2.8 turns this quarter which was a result of the higher EBITDA and our capital expenditure for the year was 3.4% of revenue in line with our expectations. We continue to make progress with our portfolio rationalization plan and relating to our full year 2026 guidance, As Harsham mentioned earlier, given his short tenure in the CEO role, and the five priorities he has outlined, you can expect a more wholesome update on both these items with our Q1 financial results in early May. That concludes the financial review of 2025. And I'll now hand it back to Harsher. Harshita Agadi: Harsha? Thank you, Giles. I look forward to coming back on our Q1 to revisit these priorities and give you a very detailed update. Just so you're clear the initiatives would have already starting to take momentum well before our call. Next call. We will also be prepared to outline their expected impact on Conduent Incorporated's financial performance. As I continue forward, I would say Conduent Incorporated has a strong foundation meaningful client relationships, and a global team that knows how to deliver to our thousands of clients across the globe. What we are focused on now is execution. Operator: Moving faster Harshita Agadi: simplifying the business allocating capital with discipline, and holding ourselves accountable for results. Our direction is clear Our execution plan is now in motion. The actions we're taking are designed return Conduent Incorporated to sustainable revenue growth expanded margins and generate strong free cash flow that is sustainable. As we execute, we will continue to communicate transparently measure progress rigorously and earn your confidence quarter by quarter. I am truly energized by the opportunity given by the board and the support to lead from the front confidently We do have a good leadership team in place deeply committed to building a stronger more focused and more valuable conduit Operator: for our clients, Harshita Agadi: all our employees and without any doubt our shareholders. Ladies and gentlemen, that is the message for the day. And I think, if we can get the operator to open it up for questions. Operator: Thank you. Operator: Thank you. We will now be conducting a question and answer session. The first question is from Pat McCann from Noble Capital. Please go ahead. Joshua Overholt: Morning. Thanks for taking my questions. Harsh, it's great to hear. Patrick Joseph McCann: About your vision for the future of the company. I was curious when it comes to the the framework that you that you outlined of looking at business units and deciding whether to fix, or grow them I was just wondering about, you know, would you could you give any more color into what what metrics you would be looking at the various business units with to kind of make that that decision in terms of whether that's margin profile or the capital intensity of of a business unit. Anything like that that you know, any any more color you could give there in terms of how you will evaluate Harshita Agadi: Thank you very much again, for the question and actually a very thoughtful question. So, there will be multi variables at play. And I'll just name a few which you named a few but I'll start with the CEO's very important job is capital allocation. We have a lot of capital going in. Are we getting the right rate of return? And where should we place our bets. So, what we have today is an accumulation of somewhere between fifteen and twenty small businesses covering not just the commercial side, but also the government and the transportation segments. So what happens is I'm looking for does the sector have unbelievable growth metrics. As an example, healthcare will continue to grow. Second, can we have decent predictable EBITDA margins? Sometimes when EBITDA margins are high we can be taken thinking it's a great business but anything that's not sustainable you run out of steam So, also need to think through how much capital needs to be allocated and what is the free cash flow that's coming in Finally, is there a moat around the business? Can somebody come in and replace us Operator: easily? Harshita Agadi: Or not? And can the moat be breached with the number one question of the day technology that is extremely dynamic at this time. And obviously driven by AI, Gen AI and all of the other variations. So to me, these are some of the factors. So I intend as quickly as our next board meeting to actually sit down with a matrix and say here's how we're looking at the world. And by the way, a lot of the I've talked to the top 10 investors and I have to tell you all of you have given me wonderful ideas to make sure I'm covering all bases. So those would be the factors. Patrick Joseph McCann: Thank you. And I'll just ask one more question and I'll hop in the queue because I know there are others Operator: Sure. Patrick Joseph McCann: When it comes to, you know, the the company obviously has a, you know, number of different business units. Some of them are more closely related to each other. Some not as much. I was wondering what's your general is on on a a go forward basis on on which business you would keep when if you look at it from the perspective of certain businesses are have overlap or, you know, have their efficiencies because of the similarities of of where certain business units operate and that sort of thing versus the the more disparate portfolio of businesses that are you know, completely separate. I I don't if the question you know, clear, but Giles Goodburn: No. I philosophy on trying to keep it all kind of in going in one direction. Harshita Agadi: Yeah. No. No. It's actually not not only is the question clear, it's a good dilemma. And so I'll tell you what has been the case to some extent in the past and I'll move away from the past quickly. And I've seen this in other businesses that are going through a turn is let us be everything to everybody. Or let us be anything to anybody. We need to walk away from that and one of the things we as a team are doing is listing out things we will just not do. It is actually not just important what you do, you have to make a list of what you really will not do and refrain from it. It may look good. And I am off the mindset when I go to a client I will say this is what we can do and we're the best at it If you need this additional service, maybe we can do this but maybe we'll find you somebody that we might partner with. We have one big element within our company and that is very deep client relationships. We have a long list That to me is worth a huge royalty. So if I'm going to bring a partner to execute with me on a third or fourth service with a client, I may be charging for that relationship because I bring to bear the relationship management. So to me, I hopefully have answered the question but it will be case by case. But even in the case by case, we have to be very disciplined about it. We have 20, 30 different services but we're offering maybe one and a half, two services here completely different services elsewhere. That does not generate scale or efficiency. I'll go back to my previous days in another BPO We were doing tax returns only for partnerships and we got a request to do it for corporations. Operator: I actually declined the business saying we're experts. Harshita Agadi: At doing back office work for the next four big firms just for partnerships and not corporations that are public. So, you have to start having a little bit of silo mentality and actually viciously your value proposition and how you deliver it. Patrick Joseph McCann: Thank you very much, Harshal. Operator: Thank you. Operator: The next question is from Ghoshri Sri from Singular Research. Please go ahead. Harshita Agadi: Good morning, guys. Can you hear me? Yes, sure. Very clearly. Giles Goodburn: Thank you. My question is on the commercial side. I know you laid out in the last call that the top 24 to 25 accounts Gowshihan Sriharan: were growing and the and the new leadership would necessarily affect the 2026 performance As you sit here in Q4, any evidence you're seeing that revamped go to market feeding into the top of the funnel help you outrun that one client that was kinda lagging you behind? Giles Goodburn: Yes, Ghanshi, good question. So, the top top 25 and the top 10 that I talked about specifically relate to the commercial segment. As you think about 2026, as I said in the remarks, we've got some really good momentum in both our public sector businesses Government grew for the first time in Q4 1.8%. And has got an extremely strong pipeline across all components of their product offerings. And a lot of that pipeline relating to 2026 opportunities. So we feel really good about the government segment From a Transportation is somewhat in the same boat. Some good good relationships there, a good strong pipeline and work that we've got that we can achieve and continue drive year over year revenue growth in that segment. Commercial is where we've got a little bit of work to do. We've reshaped the go to market strategy and and bought the teams closer to the clients so that we can we can better serve those client bases, especially those top 10, top 25 clients where, you know, lot of them we are we are growing revenue and we are expanding our capabilities with with that client base. So, you know, we know we've got work to do in there. I wouldn't anticipate growth necessarily in 2026, but that certainly make the right trajectory as we look forward out into 2027. Operator: So Harshita Agadi: here is, I'd call it good news. We are right now examining the leadership for commercial. When you look at mid sized companies three to $5,000,000,000 range, many a time the CEO may not be as close to the client as they should be. Gowshihan Sriharan: I have this rare opportunity Harshita Agadi: to have three of the leaders reporting into me directly right now. It's an easy answer to go find somebody to run commercial and I have some candidates outside as well as some candidates inside the company. It will end up having a single leader. But at this time, I am actually getting close to the processes. I'm getting close to the clients. I have now at least one phone call a day with a client. Some not happy. Some extremely thrilled. Some wanting more services, I have been active for many years in the CEO ranks I've been very careful in cultivating relationships across the board, across sectors and I will bring it to bear for my commercial friends and colleagues so we can generate more. The other good news is that the discipline around sales force the discipline around how we're approaching sales By the way, there is now Operator: and I will not comment on the past Harshita Agadi: because we'll run out of time but there is now a weekly regimen with me sitting in at the meeting where we only focus on revenue generation as it relates to commercial, Operator: transportation Harshita Agadi: and government as nobody from the administration side They're welcome to come in if they have time, but this is purely the sales guys and gals and the line management of the company focus. And even within commercial, we may choose to focus on a few sectors. We may not just go here and there, but where we are strong where we have name recognition, where we have strong references, we're definitely going to piggyback on that. Operator: Okay. Gowshihan Sriharan: Thank you for that call. Like you said, the commercial segment healthcare has been a particularly successful side of the business. Are you deliberately choosing to go with a smaller set of payers and health plans especially with your AI offering? Or or do you still think you need more logos here? I'm trying to understand whether the the HSP and other platforms scale better via depth of breadth from here. Harshita Agadi: Yeah. I would say it's not as much as more logos. We have a lot of logos. I think it's going to be getting deeper into certain sectors where we already have a fair amount of market And so to me, you look at healthcare today, and you just look at Medicare spending, I'll just give you round numbers. It's probably a trillion. No. No. Maybe even 4 or 5,000,000,000,000. It's a large number. In fact, healthcare spending in The U.S. This I know for a fact is now the third largest economy in the world after United States and China. So to me focusing on that heavily and participating in it helping make a difference to our commercial clients and our government clients simultaneously. If you look at even the big beautiful bill, it has brought in a lot of stringency on re reclassifying changing eligibility states are a little lost and we are their solution to simplify how the big beautiful bill applies whether it's Medicaid, whether it's Medicare, whether it's social security eligibility. So I think we're going to be more focused than less focused. Operator: Thank you for that. Gowshihan Sriharan: And on the government side, talked about margin expansion from AI driven fraud cost reduction reduction and then like and you said direct expense and Medicaid as early showcases. As you scale those solutions, are you leaning more towards a gain share economics with clients or fixed price movements? What does that mean in terms of margin improvement and revenue in 2026? Harshita Agadi: Sure. So I think first of all, one risk we do have is in the world of AI, some clients may wanna take it in house. But it may not be that simple. So I'm gonna talk about a few things as it relates to let us say an AI company versus Operator: Conduent. And I'm going to say this is a small Harshita Agadi: $25,000,000 revenue AI disruptor. What we have is a strong distribution network deep client relationships, operations know how, Patrick Joseph McCann: proprietary data, Harshita Agadi: and there are large switching costs. Operator: But Harshita Agadi: the disruptor may bring a solution that might lower cost and increase accuracy. So you know, one of the mantras we have in the company is let us not behave like a large company. Let us not have a big ego. Let us partner with small disruptors who might bring the solution to increase accuracy, lower cost, and yes, we might Gowshihan Sriharan: share some of the savings with the client Harshita Agadi: in this case, the government or it could be commercial. But in addition, we may not use the same AI disruptor let us say on a healthcare client that we might use in transportation. The gentleman who runs transportation will have the leeway to partner with a different AI disruptor. What these AI companies are thirsting for is a bank of clients. Gowshihan Sriharan: They don't have that, but they have the technology. Harshita Agadi: I'm not going to sit and innovate these things from scratch we don't have that much time and leeway. Because they're going to be nimbler and faster how do you partner with them commercially and sharing the economics will be the way to go. Gowshihan Sriharan: Excellent. Thanks for that. And I'll just make this, I'll be a little cheeky at As you walk us through the 25 ACV and you expect that to expect to you've alluded to convert that into revenue with speed. Where are you most confident by segment and your exit EBITDA margins were 6.5 for Q4. Full year. As you look into 2026, should we think of it as a realistic margin once all the cost actions and portfolio moves up? Have been embedded? Harshita Agadi: Okay. So here's how I would say. Clearly, we haven't given you guidance. Which we will in Q1. But having not given guidance, I'll give you a sense first on how the businesses are growing. Second, what I believe should be steady state margins. And when I say steady state, it could be in three years, it could be in two or we might be faster, it depends. So the government sector for us is growing smartly and doing well and has come out of the gates quite strong. The transportation sector has potential and actually is also strong. Operator: And Harshita Agadi: positive. Commercial needs a turnaround job and the three individuals running it are on it like a rash. Let me assure you. Now coming to margins, in a business in our sector, which is BPO, KPO, I think at a minimum we need to start really clipping at between an 810% margin in the medium term, maybe even higher. And that potential exists. Today, I can see and I'll use Gowshihan Sriharan: a colloquial phrase Harshita Agadi: low hanging fruit that I can see maybe one of the few people because I'm new. Gowshihan Sriharan: Whenever you're new, it looks clearer. Harshita Agadi: As you get older into the company, the complexity in your mind increases. So when I don't have past memory, I'm actually at the edge of saying, oh, we can do ABC so I think there is a fair amount of cost takeout that and by the way, it's not just me, to the credit of the senior leadership team they have come to me without me challenging. Have come to me and said, there's cost here, there's cost here, there's duplication of efforts, So, think the margin should increase. And it's not just the margins, we have to convert our EBITDA and I'm not talking adjusted EBITDA, convert EBITDA to free cash flow. Which means how do you collect how fast do you collect, are you tracking DSO, are you tracking DPO, And are you converting that into eventually positive free cash At $3,000,000,000 you have scale, you should be able to. Gowshihan Sriharan: Thank you, gentlemen, for taking my questions, and good luck, Harsh. Operator: Good Thanks, Gaushi. Harshita Agadi: Thank you. Operator: The next question is from Matt Swoop from Baird. Please go ahead. Operator: Good morning, Harsh, Giles and Josh. Good morning. Joshua Overholt: Harsh, you mentioned a couple of times the sort of moat around the business Chris Sakai: Can that moat be breached by technology, AI? The impact that these AI disruptors are having? Obviously, that's been the talk of 2026 so far. Can you give us some comfort? How much of your existing revenue stream do you think is exposed to AI disruptors or other sort of technology threats Harshita Agadi: Having been here less than thirty days, inside the company, I would humbly say I cannot answer that question right now, but here's what I can tell you. That I would say safely rough guess 15% to 20% of our business may be exposed to it but here is the problem It is a moving target technology, particularly AI is dynamic. And therefore I think we're going to need to get ahead or partner with people who keep us ahead in the arms race if you will of AI. So to me is the risk today No. Can the risk keep increasing? Operator: Yes. Harshita Agadi: Therefore we're gonna need to move quickly is what I would say or else our clients will move quickly. Now the positive is I would say the commercial segment will get disrupted maybe a little faster than transportation or government. So, I'm just going to give you a tip of the iceberg. In transportation, we have a new product It's called Fairgate. It's automated It's precise. And it is safe and that is now being installed across the entire New York subway system that tests are on and we're gonna start rolling this out. And when we roll it out, and we get this right, this will also move into other geographies. So this will make a big difference. As an example. Giles Goodburn: I think as well, Matt, to add to that, you know, clearly, is right. There's probably about 15% that that at risk in the commercial space. So I think we're securing that moat a lot tighter with some of our own AI capabilities as well. Right across the platforms that we have, whether it's in commercial you know, using AI to streamline our benefit enrollment environments for our clients in there. Their employees. Harsh had touched on some of things that we're doing for for tolling as well as some of the the capabilities we've got in license plate recognition and occupancy detection. And then we've talked about all the fraud components that we've got in that government space as well. So, we're shoring up the moat of of some of the areas that we've got around the company as well. Chris Sakai: I appreciate that guys. That's helpful. Charles, maybe one for you as you sort of bridge the gap in CEOs. We've heard a lot about these 2025 exit rates We've heard a lot about the portfolio divestiture plan. Can you help us with where that stands now? For example, the 2025 exit rate free cash flow was going to be 60,000,000 to 80,000,000 Obviously, we're well, well into the negatives on free cash flow. Should we think about modeling going forward? I know you're not giving full guidance given that Harsh has just started. But vis a vis the 2025 exit rates we've heard about for a while, Giles Goodburn: Yeah. How do we think about 2026? Yeah. So I think, you know, we clearly we we set those we set those targets about you know, three years ago and they were aspirational targets. You know, we're we're making we are making progress towards some of those targets. You look at government and transportation. And, you know, we've done well and got there from a revenue growth standpoint. We've still got work to do in in some of the areas. You know, we would still I'd say we're still target a sub one time levered business as we look out into the future. And and that's gonna come from, you know, some of the divestiture activity that Harsh has alluded to. I think you'll see us accelerate with speed that some of the cost initiatives that we've got going on right across the organization, whether it's in the corporate functions, technology, or improving margins in the business. And just better discipline around our working capital. We did have a couple of large implementations out there that we didn't quite get to the place where we wanted to get to by the 2025. That had a fairly significant impact on our cash generation and given where we landed at the negative numbers that we posted for the year. Now that cash hasn't gone away. We're going to receive it in Q1 or early Q2. But we've got to have better discipline on how we're on some of these larger projects. So I guess my answer is the destination hasn't changed. We're still striving towards improving EBITDA margins on a sequential basis. We're still striving to get to profitability and free cash flow generation. I think Harsh are coming in is really going to push us to accelerate that as quickly as possible and that's the journey that we continue to be on. Chris Sakai: Do you think free cash flow can be positive for 2026? Operator: That's Giles Goodburn: a I can answer Harshita Agadi: Here's how I would answer it. We are obviously we ended '25 as Jai said negative 01/30. There's there's a fair amount of work but I'm gonna give it a shot. But again, I'm not giving guidance. And I will have guidance. I will have very precise free cash flow goals. And if you notice in my script, in my message, in my dialogue, I've mentioned the word free cash flow at least 10 times. I am fixated on it. So we're gonna try really hard but definitely the turn is coming. You you see the progression. Chris Sakai: Okay. And and and how about you guys have always historically had this portfolio rationalization slide in the deck that's obviously out for the moment. The Phase two proceeds that were targeted before were up to $350,000,000 know you I think you had that as priority number four, Harsha. Where does portfolio rationalization timing set and maybe magnitude versus what you what we've heard in the past? Harshita Agadi: Okay. So first of all, I have to thank you very much Operator: for Harshita Agadi: a statement you made. You called it priority four. I should have said those six priorities do not have a sequence you have to run and chew gum at the same time, and we have a very good leadership team that's capable of doing So having said that, portfolio rationalization is a very high priority There are some things in motion that were put in motion before I took over as CEO. I was the chairman for a very short while, I was familiar with it. Gowshihan Sriharan: If anything, as Giles alluded to, he he has hit the acceleration Harshita Agadi: on the rationalization, but what I'm also seeing is a thorough review of the entire portfolio and looks like we may have some other opportunities that we're gonna work on simultaneously. We have Gowshihan Sriharan: bankers in place Harshita Agadi: We may have maybe more bankers so that we can kind of swiftly go through this So that I'm not waiting a year from now saying, oh by the way, we're still on portfolio rationalization. The faster we get it done, the more we focus on our base business. So, the folks who are in line management they're not in the middle of portfolio rationalization exercise. They're focused every day. I have said to them, assume you own the business until that last day of transfer. We don't know if we will 100% for sure sell. Meanwhile, the group that's focused inside M and A and finance are fixated on portfolio rationalization. So, we need to do this simultaneously and to me it's not number four priority That's why I was appreciating you. To pointing that out. Chris Sakai: That that is helpful. Thanks. And just one one last quick one if I could squeeze it in. With your bonds trading down into the low 70s, would bond buybacks in the open market fit within your capital allocation? Harshita Agadi: Well, you've asked another good question. So to me, I think making sure we delever first Giles Goodburn: a little bit Harshita Agadi: and get our debt lined correctly. And I think the trading of the bonds has opened up in my opinion an opportunity that may be more Operator: lucrative Harshita Agadi: than buying our shares back. So to me, it's a touch and go, but again bankers are reasonably smart So, I'm going to have them run cross mathematics to give me an option each time as to each dollar of allocation. Right now, where it's trading the yield is rather attractive. And saying that we will go into open window fairly soon here as a typical public company So, I as an investor, I'm also in my head saying, do I buy more shares, do I buy more bonds. So that excitement is actually percolating in my little brain right now. Chris Sakai: Thank you guys very much. Giles Goodburn: Thank you. Thanks, Matt. Thanks, Matt. Operator: Next question is from David Nierenberg from Nierenberg Investment Management Company. Please go ahead. Joshua Overholt: Arsha, it's wonderful to be working with you again. Harshita Agadi: Nice to hear your voice, David. You definitely surprised me sitting in the West Coast. Patrick Joseph McCann: It's our third time together in ten years. I imagine that most David Chen: people on the call don't have the depth of experience that I've had with you. But I've already bought a million shares in in confidence because you are a a great leader. A great businessman, a great salesman, a diplomat, a tough guy, and you have a global network across multiple industries to, access to the benefit of this company. I am very excited to be back with you here. And looking forward to you. You are, making shareholders a great deal of wealth just as you have done since you succeeded me as chairman of the board of Flowtech Industries. Looking forward to working with you Grateful that you were here. Wishing you all the best. Harshita Agadi: Thank you very much, David. And I appreciate one your support not just verbally but through your pocket of backing our shares and buying Gowshihan Sriharan: I'm actually taking it in as you're saying a million shares Harshita Agadi: So I need to have more shares than you. That's pretty clear. The good news is that the board has Gowshihan Sriharan: structured my compensation heavily on share price Harshita Agadi: that dictates vesting, but doesn't doesn't stop me from buying the shares as soon as open window opens up. But I appreciate your support immensely. Thank you. Operator: My pleasure. Operator: This concludes the question and answer session as well as today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Good morning, ladies and gentlemen. Welcome to Avient Corporation's webcast to discuss the company's fourth quarter and full year 2025 results. My name is Michelle, and I will be your operator for today. At this time, all participants are in listen-only mode. As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to Giuseppe Di Salvo, Vice President, Treasurer, and Investor Relations. Please proceed. Giuseppe Di Salvo: Thank you, and good morning, everyone, and thank you for joining us on the call today. Before we begin, we would like to remind you that statements made during this webcast may be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements provide current expectations or forecasts of future events and are not guarantees of future performance. They are based on management's expectations and involve a number of business risks and uncertainties, any of which could cause actual results to differ materially from those expressed in or implied by the forward-looking statements. We encourage you to review our most recent reports, including our 10-Ks or any applicable amendments, for a complete discussion of these factors and other risks that may affect our future results. During the discussion today, the company will use both GAAP and non-GAAP financial measures. Please refer to the presentation posted on the Investor Relations section of the Avient website where the company describes the non-GAAP measures and provides a reconciliation of historical non-GAAP financial measures to their most directly comparable GAAP financial measures. A replay of this call will be available on our website. Information to access the replay is listed in today's press release, which is available at avient.com in the Investor Relations section. Joining me on the call today is our Chairman, President, and Chief Executive Officer, Ashish K. Khandpur, and Senior Vice President and Chief Financial Officer, Jamie A. Beggs. I will now hand the call over to Ashish to begin. Thank you, Joe, and good morning, everyone. Ashish K. Khandpur: Strong execution by our teams, with favorable mix and management's tight cost control, led to 80 basis points of adjusted EBITDA margin expansion and a strong 14% adjusted EPS growth for the fourth quarter. With this result, we expanded our adjusted EBITDA margins year over year in each of the four quarters of 2025. Organic sales in Q4 were down slightly at 0.8%, and grew 1.9% as reported over the prior year due to favorable foreign exchange impact. As we had highlighted in our third quarter earnings call, we continue to see strong momentum in defense, healthcare, and telecom markets with business growing double digits in each. In addition, packaging demand improved modestly, growing sales low single digits in the fourth quarter compared to being down low single digits in the third quarter. As expected, businesses in our other markets finished down versus the prior year. Moving to the right-hand side of the slide, for the full year 2025, sales were relatively flat year over year. Favorable product mix and our productivity initiatives led to 50 basis points of adjusted EBITDA margin expansion versus 2024, helping us achieve full year record high margins of 16.7%. Adjusted EBITDA finished at $545,000,000 for 2025 with 3.5% year-over-year growth as reported. Adjusted EPS grew 6% helped by lower interest expense and favorable foreign currencies. Our team's highly disciplined cash management enabled us to generate $195,000,000 of free cash flow, enabling us to reduce our outstanding debt by $150,000,000 and end the year with a net leverage ratio of 2.6x. As you know, one of our key drivers to advance our strategy is innovation. Creating meaningful and differentiated products, especially in markets supported by secular trends, will not only help us grow faster, but also increase our profitability. Today, I would like to share some examples of recent innovations from our company. The first set of examples address the need and demand for non-PFAS products in applications currently using PFAS materials which are facing stringent regulations, especially in the United States and Europe. Our teams recently developed and commercialized GlideTech technology which enables new non-PFAS and non-silicone lubricious materials for use in catheters, particularly those used in neurological and vascular applications. Our portfolio contains formulations that are ISO 10993-5 and USP 87 compliant in standard grades. These products deliver exceptional coefficient of friction reduction, are compatible with all common sterilization methods, and processable using conventional extrusion equipment. Another example in this space is non-PFAS polymer processing aids for polyolefin film used in packaging applications for personal care products. Here, we have innovated and launched a portfolio of products in 2025 and several other customer manufacturing qualifications are in progress currently. We continue to gain more knowledge and experience in this new area working closely with our customers, and understanding the interplay between our innovative materials and their processes. The last example for today is a process innovation where we can unlock additional Dyneema fiber making capacity with tailored material properties using our existing manufacturing equipment. As you may recall, demand for our products in defense grew double digits in 2024, followed by high single digits growth in 2025. We expect this momentum to continue supported by the announced increases in defense spending over the next few years, especially in the United States and Europe. Due to the success of our innovation, we will now be able to quickly unlock meaningful new capacity from our current manufacturing lines to support the anticipated growth in our defense growth vector. In addition, we plan to deploy incremental capital over the next two years to further expand capacity and support the growth we foresee from our Dyneema-based businesses. Jamie will share more about these investments in her section. Before we get to 2026, I would like to take a moment to reflect on our performance over the last two years. As you know, in 2024, we evolved our company strategy to prioritize organic growth, to be complemented by targeted M&A where it enhances our capabilities. We also sharpened our focus on profitability to deliver both top line growth and margin expansion. 2023 to 2025 marked the first period of time in nearly twenty years where there has been no impact on financials from acquisitions or divestitures, providing clean and noise-free data to compare performance. I am happy to report that over the last two years, our strategy has gained significant traction with our prioritized growth vectors delivering substantial growth, with innovation beginning to show up in differentiated products and improved margins. Additionally, we continue to eliminate structural complexity and drive productivity to become a more agile and customer focused organization. These actions have enabled us to deliver consistent improvements across our key financial metrics for the second consecutive year despite a volatile macro backdrop. Over the last two years, we have grown adjusted earnings per share by about 20% and expanded adjusted EBITDA margins by 70 basis points, 20 basis points in 2024, and an additional 50 basis points in 2025. As a result, ROIC has improved each year and is now up 90 basis points versus 2023. Our strong free cash flow generation and disciplined capital deployment also allowed us to reduce debt, bringing net leverage down from 3.1x in 2023 to 2.6x in 2025. Importantly, we achieved these results while continuing to invest in the business, particularly in our prioritized growth vectors aligned with our strategy. As we move forward, we plan to continue advancing these value creation metrics. Ashish K. Khandpur: As we have over the past eight quarters. With increasing traction from our growth vectors and innovation pipeline, we expect to scale revenue and margin expansion with greater ease over time. Coming specifically to 2026, our premise is that the macro environment will remain volatile, impacted by trade policies, geopolitics, and moving supply chains. We are cautiously optimistic about 2026 being a better year than 2025 from a market demand perspective. This is especially true for our Color Additives and Inks, or CAI, business, which showed negative 2% organic growth in 2025. Last year, some of the biggest markets for the CAI business, namely consumer, industrial, building and construction, and transportation, saw anemic demand while packaging was relatively flat. With 2026 showing stronger than 2025 U.S. GDP growth projections, and several government initiatives in the United States like the new tax bill, focus on domestic manufacturing expansion, and the potential for easing interest rates, demand in our relevant markets is expected to improve. This would be a welcome scenario for our customers and our business, but at the same time, we are also focused on driving productivity in the organization to ensure we continue to drive our earnings and margin expansion in case market demand does not improve. We grew our Specialty Engineered Materials segment sales by 2% in 2025 excluding foreign currency impact, and we believe there are several secular macro trends in this business that will support organic sales growth again this year. Before I hand the call over to Jamie, who will provide additional color on our 2025 segment and regional performance, as well as our guidance for 2026, I would like to thank the entire Avient team for their determination and outstanding efforts to successfully deliver in 2025. I have no doubt our team is up to the task to deliver an even stronger 2026. Jamie? Jamie A. Beggs: Thank you, Ashish, and good morning, everyone. Jamie A. Beggs: I will start with the fourth-quarter performance of our Color Additives and Inks segment. Continued strength in healthcare and improving packaging demand was not enough to offset demand conditions in consumer, industrial, and building and construction, which led to a 3% decline in organic sales for the segment during the quarter. EBITDA margins declined 10 basis points as productivity initiatives helped mitigate the impact of inflation and reduced demand. Giuseppe Di Salvo: Specialty engineered Jamie A. Beggs: Materials organic sales increased 3% as strong growth in defense, healthcare, and telecommunications more than offset lower sales in energy, industrial, and building and construction end markets. Healthcare continues to deliver strong growth, supported by our innovative and specified materials for use in medical devices, equipment, and supplies. Defense grew double digits in the quarter driven by strong U.S. and European demand and supported by new innovation, including next-generation materials in our Dyneema line that we have highlighted in the past. Favorable mix and productivity contributed to 80 basis points of margin expansion, which combined with higher demand and positive FX, resulted in 10% EBITDA growth. In the fourth quarter, U.S.-Canada sales declined 1%, which is an improvement from the prior quarter's 5% year-over-year decline, as we saw positive growth in packaging. This, combined with continued underlying strength in healthcare, defense, and telecom demand, partially offset lower sales in the industrial, building and construction, and energy markets. Future policy changes and lower inflation could be positive factors that provide momentum to the region in 2026. Similar to the U.S.-Canada, EMEA also performed slightly better than the third quarter where organic sales only declined 2% on a year-over-year basis. Positive growth in the consumer end market, primarily driven by an increase in small and large appliances, along with continued momentum for defense and healthcare, helped offset weaker industrial demand. Asia grew 3%, driven by strength in packaging and telecommunications. The secular trend of high performance computing creating new opportunities for our materials has helped offset weak consumer demand, particularly in textile applications. Latin America sales declined 5%, primarily due to softer consumer demand and a difficult year-over-year comparison where the region grew 14% in the fourth quarter last year. Turning to full year 2025 results, we navigated an uncertain macro environment while delivering bottom line growth through customer focus, Jamie A. Beggs: innovation, Jamie A. Beggs: productivity, and operational discipline. Full year CAI organic sales declined 2%. Steady growth in healthcare throughout 2025 helped offset softer demand in consumer, industrial, transportation, and building and construction. Packaging remained relatively resilient, ending the year flat versus 2024. EBITDA margins expanded 50 basis points, benefiting from favorable mix and productivity tied to our plant footprint optimization, as well as initiatives to streamline the organization, allowing us to serve our customers more efficiently. SEM organic sales grew 2%, driven by defense, healthcare, and telecommunications, partially offset by subdued consumer, industrial, and energy demand. EBITDA margins declined 40 basis points, primarily reflecting planned maintenance in our Avient Protective Materials business, completed in 2025, and strategic investments in our growth vectors in this business. Turning to our 2026 outlook, our full-year guidance reflects the balance between encouraging demand trends across our portfolio and continued macro uncertainty and volatility. As Ashish mentioned in his comments, we are cautiously optimistic that some of our end markets negatively impacted in 2025 will start to improve in the coming year, including consumer, industrial, and building and construction. Favorable government policies and easing interest rates, as an example, could spur consumer and housing demand as we progress through the upcoming year. With that being said, uncertainty remains with evolving global trade, labor markets, GDP growth rates, and foreign currency fluctuations. Accordingly, we are establishing full-year guidance for adjusted EBITDA of $555,000,000 to $585,000,000, which is up 2% to 7% year over year, as well as adjusted EPS of $2.93 to $3.17, which is up 4% to 12% over the prior year. This range includes our first-quarter adjusted EPS outlook of $0.81. Productivity will again play a role in supporting earnings growth and margin expansion in 2026. We will see carryover benefits from initiatives executed in 2025, along with new actions that are now underway. In addition, we will monitor demand conditions and are prepared to enact additional actions should the demand environment not improve. Regarding free cash flow, we expect another strong year of cash generation with an anticipated range of $200,000,000 to $220,000,000 for the full year. This assumes capital expenditures of $140,000,000, which is approximately $33,000,000 more than 2025. This is driven primarily by the incremental investments to support growth in our defense business as Ashish highlighted earlier today. As we demonstrated in 2024 and 2025, we have consistently moved the key value creation metrics in the right direction, even in a tough macro environment. Our guidance for 2026 projects another year of adjusted EPS and adjusted EBITDA growth, improved return on invested capital, and a reduction in net leverage. Our strategy of catalyzing the core and building platforms of scale continues to bear fruit and create value for our shareholders. With that, we will now open the line for Q&A. Operator: Thank you. Press 11. If your question has been answered and you would like to remove yourself from the queue, please press 11 again. Our first question comes from Michael Joseph Sison with Wells Fargo. Your line is open. Michael Joseph Sison: Hey, good morning. Nice quarter and nice finish for the year. Ashish, you sort of mentioned that some of these markets will improve or could potentially improve this year. Are you seeing any sort of green shoots in some of those, the consumer, industrial, transportation, and construction areas now? And then at the midpoint of your guidance, what improvement would you need to get to hit it? Ashish K. Khandpur: Thanks, Mike, for the question. Part of the improvement that we are seeing in the U.S., especially we expect in Q1 for consumer and packaging to flip from negative to positive. Last year, packaging Q1 was pretty negative, down 10% in the U.S., and so the comps are pretty favorable, and so that is going to help us. But in general, we are seeing better conditions than we were seeing before on the packaging side. As you saw, in Q4 itself, packaging was up 1% in the United States, so that is a good sign. On the consumer side, it is still subdued, but probably getting a little bit better. Too early to say. There is a little bit of noise in the system with the Asia situation with the Chinese New Year moving overall, and we generally do not want to make too many assumptions with respect to January itself because there might be some pull-ins from February based on the Chinese New Year situation, and so we would like to see January and February together on that one. But overall, January came marginally better, I would say definitely as well as we expected, marginally better. So that gives us some optimism at this point in time, but as I said, we are not reading much into it because there might be a little bit of noise in the data from Asia. But overall, I think we are feeling that consumer and packaging should be at least turning positive in the first half of the year for sure, and for the United States, probably in first quarter. And then the other part of the question is on the guidance on midpoint. On the low end of the range, we expect that the consumer, industrial, and the building and construction markets will probably not improve. They stay as they are. In the midpoint, that assumes that there is modest growth in all of them, probably low single-digit kind of growth, and packaging also a little bit more modest growth. And then on the high end of the range is a little more robust growth, so what typically we would grow in a good year. So that is probably the range that captures our EBITDA ranges and our sales range and everything. Michael Joseph Sison: Got it. And then a quick follow-up. When you think about the last two years, you spent a lot of time on innovation, R&D, and trying to get your growth vectors to sort of get beefed up. So when you think about 2026, how much growth do you think you will generate from those initiatives? And are there any particular product lines or end markets that are going to drive that? Thank you. Ashish K. Khandpur: Yes. We have been trying to highlight some of our innovation in multiple earnings calls like these, and today again, I highlighted a few new ones that did not exist a couple of years ago. The idea is to tell the audience that we are moving ahead on this. Our intellectual property filings, for example, the last two years, we have filed 50-plus patents, which includes initial patent filings, provisional patents, as well as PCT filings, so that is 50-plus for both the years. That compares to a number of 20-odd maybe two or three years ago, so you can see how much innovation is going on. That is an indirect measure. From a financial perspective, if you take 2025, our growth vectors grew high single digits, almost closer to 10% versus closer to 5%, I would say, and the rest of the businesses actually did not grow. That gives you an idea of why we were still flat in a year that had so much low demand in most of our core markets. The big idea is that with these growth vectors, we are really now trying to build businesses of scale in markets that are supported by secular trends and growing at rates much faster than GDP, and that seems to be taking hold. So maybe that is where I will leave it. Michael Joseph Sison: Thank you. Operator: Thank you. Our next question comes from Laurence Alexander with Jefferies. Hey, guys. It is Dennis on for Laurence. Thanks for taking my question. Dennis (for Laurence Alexander): You kind of went through some end markets, maybe I missed it, but you did not mention transportation and the outlook. What are we thinking there? Is it expected to improve at all? Ashish K. Khandpur: Yes. Transportation for us, Laurence, was overall down 1% for the year. It is a little bit of a regional story. We grew in EMEA 1% versus the auto build was down 1%, and we grew in Asia 5%, which was consistent with the builds in the Asia market. In the United States, the market was down 1% for the year, but we were down 5%, and that is largely driven by the fact that we also have rail and commercial vehicles in our transportation, which were down significantly in the United States. In the auto business, we are doing fine, consistent with how the market is doing, but the rail and the commercial vehicle piece brought us down a little bit. As I look into the future, we are watching transportation carefully. There was a lot of build that happened towards the end of last year in China especially. They are calling it supply-side structural reform where because of their structural reform, they were going to put restrictions on export of EV vehicles starting January 1. So a lot of material got pushed out at the end of the year, which we benefited from, and as I said, we grew 5% in Asia. I think Q1 probably will be softer based on that, and then for the total year, flattish to low single digit is my projection. Dennis (for Laurence Alexander): You kind of talked about not doing any divestitures or acquisitions in the last two years. Thank you very much for that color. I was wondering—obviously your focus is on organic and internal growth—but what should we expect going forward? Is it that there is not a lot out there, we are focused on our business, or what are your thoughts there? Ashish K. Khandpur: One of the things that we are trying to do, Laurence, is build a few muscles of innovation and commercialization, and that has been going well for the last two years. You can see the teams getting better every day in customer focus and key account management, and then innovating from the market insight, and then understanding the value chains in these growth vectors, which some of them are quite new to us, is very important. Before we put in any acquisitions—which we think at some point we will do, probably not this year, maybe something after that when we also have a better balance sheet situation than where we are today—by that time, we expect to understand the value chains in our growth areas much better, and then M&A would probably be something to complement or augment our strategy of organic growth versus a stand-alone M&A in a brand-new area. Dennis (for Laurence Alexander): Alright. Thank you very much. Michael Joseph Sison: Thank you. Operator: Our next question comes from Frank Mitsch with Fermium Research. Your line is open. Frank Mitsch: Thank you so much, and nice end to the year. If I could just follow up on that last question, it looks like you ended the year at a better net debt to EBITDA than perhaps was considered at the beginning of the year. You offered your thoughts, Ashish, on M&A. I am curious as to what your thoughts are with respect to debt paydown versus buybacks. Ashish K. Khandpur: Thanks, Frank. One of the things that we have obviously been prioritizing is paying down the debt, as you mentioned. As I said, the next twelve months, no M&A. So most of the cash probably will still go toward paying more debt. We would like to make that situation stronger, so we expect to finish the year lower than 2.5x for sure, if not better than that. At that point, we will have more flexibility of buyback versus reduction and also looking at M&A at that point in time would make sense. But I would say that in the near term, you can expect us to keep paying the debt versus buyback. Frank Mitsch: That would be my Ashish K. Khandpur: strategy on deployment of the cash. Frank Mitsch: Okay. Understood. I appreciate the color with respect to the patent filings. I am curious if we could ask it another way in terms of a vitality index, in terms of products introduced over the last four or five years and how you track that and where that stands today. Ashish K. Khandpur: I do track that internally, Frank, but for me, that number is not as critical. I come from a company, as you know, where these vitality indices were talked about a lot. I think it is a good internal measure for us to keep tracking to see the health of the organization and whether the creativity of the organization is in play. But for me, you could have a couple of products that are big and are creating a lot of value. For us, it is more important what is creating growth. Obviously, we have to do a lot of product development for replacement because the market needs that, but as we are bringing our strategy into this growth mode through growth vectors, especially in these new areas, the focus is on net new growth creation. Our NPVI, or new product vitality index, is pretty healthy. It is tracked internally, but I do not intend to speak about it. The difference is that most of that NPVI has been based on replacement products versus products that create new growth, and I am trying to flip that around and say we need products that customers need for replacement on an ongoing basis—which is a very important part of our core business—but we now need to also create products which are going to create brand-new growth for this company. That is what some of the products I keep highlighting in some of our slides represent. These products did not exist a couple of years ago, and they are creating brand-new growth for us. Frank Mitsch: That is very helpful. I am looking forward to any other metrics that you might be able to catch that transformation from replacement versus new growth down the line so we get a better handle on it. Thank you so much. Operator: Thanks, Frank. Our next question comes from Aleksey Yefremov with KeyBanc Capital Markets. Your line is open. Brian (for Aleksey Yefremov): Thanks, and good morning. This is Brian on for Alexi. Brian (for Aleksey Yefremov): I just wanted to go back. I think you talked about some more productivity gains and maybe some cost cuts. I think there is some carryover from 2025, but you also mentioned some new actions. Can you help us understand, in terms of dollar-wise, how much is embedded in the guide for this year? How much is carryover from 2025, and how much are these new actions? What exactly are these actions that you are taking? Jamie A. Beggs: Hi, Brian. Thanks for the question. Our productivity initiatives really center around four to five major programs. That includes sourcing savings, taking a look at our footprint and optimizing it, Lean Six Sigma program, as well as simplifying our structure. We accomplished a little over $40,000,000 of that productivity from last year. We expect about half of that to basically continue on into 2026 based on when those were initiated. As we take a look at guidance for the full year for 2026, it really is a lever that we will continue to evaluate depending on demand. We are a big believer that we need to invest in the underlying growth of the business, and so you want to be a little bit cautious about cutting too deep on certain things. As we look at how demand evolves, we will assess those productivity initiatives. As we said in the commentary earlier today, we are taking a harder look at how demand will end up playing out. Our net inflation for the year is around $30,000,000, so that is a baseline. There could be more depending on how the year evolves. Brian (for Aleksey Yefremov): Okay. Great. That is very helpful. Then I just wanted to ask in terms of the regional performance—Asia obviously stands out; it is the only region that grew organically in the fourth quarter. I just want to understand what is driving that. Is that largely the exposure you have on the semi front in packaging? Or is it something else? Thanks. Ashish K. Khandpur: Asia in Q4 has been a good story because Q3 Asia was negative 1% for us, and in Q4, we flipped it positive to plus 3%, and that is largely coming from GCA, which also flipped from minus 1% to plus 4.5%. If you look into GCA, both packaging and telecom went in the right direction. I just visited our Asia team in January. I was there, and I was very pleasantly surprised to see how much market share they are gaining in a market that is not growing, especially in the food and beverage area. That brought us to slightly positive in packaging in GCA, which helped a lot because packaging is the biggest market there. It is about 33% of Asia, of GCA. Then the other part is that in high performance computing, which Jamie mentioned in her remarks, we have been growing quite well in that secular trend, and materials that are used in semiconductor chip packaging and wafer packaging have been growing at double digits for us, which were also the case in Q4, which really helped Asia as well. Those were the two main reasons. Operator: Our next question comes from Kristen Owen with Oppenheimer & Co. Your line is open. Kristen Owen: Good morning. Thank you so much for the question. I wanted to pick up the thread, Jamie, on EBITDA expansion. You have done a really nice job of continuing to grow that margin in a tough environment. But as we look back to, say, 2024 Investor Day, you had this target out there of 20% EBITDA. If we were to revisit that target against the work that you have done on productivity since those targets were laid out, how do you think about the buckets of opportunity that you have to move further towards that 20% EBITDA margin target? Jamie A. Beggs: Thanks for the question, Kristen. When we laid out in the Investor Day, we were sitting around a little over 16% EBITDA margins. Our goal is to get above 20% EBITDA margins. How we looked at how that would evolve over time would be about half of it related to operating leverage, another quarter related to moving up the value chain in terms of mix, and then another quarter from productivity. Obviously, the last couple of years have been more focused on the mix dynamic and the productivity dynamic. In fact, if you take a look at the 50 basis points of expansion that we accomplished in 2025, there was not any operating leverage, as you can see our organic sales were basically flat for the year, but we did have quite a bit of price/mix and productivity. I would say about half and half between those two. As we look forward and we look at the opportunity to continue to expand margin, price/mix will continue to be a lever. We are very focused on productivity, especially in, I would say, a low demand environment. I think you are going to see a pretty big uplift once the market starts to stabilize in some of our core markets such as consumer and building and construction and industrial. I think that would really boost that up. As I look forward to 2026, the majority of it at this juncture we are counting on the expansion coming from those two other areas. Kristen Owen: That is super helpful. Maybe to double click on that macro piece, what catalyzes color here? You have talked about some of the big macro pieces, but is there anything from a portfolio standpoint—things like maybe the PFAS replacement products—that we should be thinking about driving that market outgrowth in color going forward? Ashish K. Khandpur: Kristen, the big opportunities for color are in the area of functional additives, and PFAS is one example of that. The same things can be extended to certain kinds of flame retardants and can also be extended into foaming agents, which are used in building and construction materials. Functional additives are close to a half-billion-dollar business for us, so it is sizable in color. It is not insignificant. If we can grow that fast, based on attaching to some of these secular trends and our growth vectors, we feel that we have a good story. That is what we are pursuing. Kristen Owen: Great. If you do not mind, if I could sneak one more in, just double click on the investment. Are you currently demand constrained in that, and what is driving the additional CapEx? That is my last question. Thank you. Ashish K. Khandpur: We are not demand constrained, and we are driving as much as we can. This business is lumpy and sometimes shifts in quarters, as we have highlighted several times before. Defense has grown double digits, 14% in 2024 and 8% in 2025. We again expect a strong year from this business, continue to see strength there, and actually are making capacity investments. Innovation for debottlenecking the capacity is underway, as we highlighted today in one of the examples. We are then making some more CapEx investments that Jamie mentioned for $33,000,000 which will bring additional capacity in 2028. This business takes a while because it is very process intensive and needs a lot of equipment, so it does take time. When we look into the future, we still see this business growing quite well over the next several years, and so we are making investment decisions now so that we are ready when the capacity continues to grow. Operator: Thank you. Our next question comes from Michael Joseph Harrison with Seaport Research Partners. Your line is open. Michael Joseph Harrison: Hi. Good morning. Congrats on a nice finish to the year. I was hoping to ask another question on the Dyneema process that you talked about and some of the changes you are making there. Can you give some more color on what exactly you are changing? You categorized it as a debottlenecking, but it also sounds like you have added some additional capabilities to really tailor some of those products to specific customer requirements or specific applications. Beyond that, are you able to share how much additional capacity you are going to be able to get as a result of that change? Also, what does that mean for the margin performance of that Dyneema business, just from the debottlenecking and changes that you are making to process near term? Ashish K. Khandpur: There are many questions there, Mike, and I will start by saying that I cannot disclose anything about the process. It is a trade secret because in process innovation, it is very hard to file and then police patents, so we keep it as a trade secret. That is pretty standard, and that is what we have done here as well. All I can tell you is that these fibers are made at a certain tenacity, which gives strength to the fiber, and that tenacity value is achieved—the slower you spin the fiber, the more crystallization can happen to the fiber, which can give it higher tenacity, and so on and so forth. Typically, when you make high-performance fibers, you are slowing down your speed of the equipment significantly if you want to increase tenacity. I think our teams have figured out ways to not slow it down and continue to ramp it up at a fast rate. That is as much as I can tell on the process side. It is a slight modification of the equipment but also a process modification, and the team has worked on it diligently for more than a year to get us here. It is significant. It does give us enough capacity to buy time till 2028 when our new capacity would be needed. We were not expecting defense to grow like it has been growing. We were thinking more like mid-single-digits growth, and it has been growing double digits or high single digits. So this debottlenecking is really helping us get there without compromising and not being able to serve our customers on time, while in the meantime, we are making these new investments so that we are ready when we run out of capacity. Michael Joseph Harrison: Alright. That is helpful. On the healthcare business, just curious: a number of these GLP-1 drugs appear to be shifting from a weekly injection with an injector pen that I think you are involved with to either a monthly injection or even an oral dosage. Can you talk a little bit about your drug delivery product line within healthcare and whether you expect to see any impact from the evolution of how those GLP-1 drugs are administered? Ashish K. Khandpur: Drug delivery for us is a couple of things. What you mentioned on GLP-1 biopens is one part of it. The other part is remote devices which are used for delivering drugs and glucose monitoring and so on and so forth. That is also part of healthcare. From a GLP perspective, it is too early for us to say. We believe, and our customers believe, that there is market for both oral and injection pens at this point in time. The injectors are also being utilized for other applications, not just for weight reduction, and the market overall growth is expanding and is continuing to be robust. That is the signal we get from our customers, and so we are going with that premise at this point in time. Both in drug delivery devices, remote monitoring devices, as well as injector pen kind of devices, we seem to be doing quite well and expect that to continue at least for 2026. Michael Joseph Harrison: Alright. Thanks very much. Frank Mitsch: Thank you. Operator: Thank you. Our next question comes from David Begleiter with Deutsche Bank. Emily Fusco (for David Begleiter): Hi. This is Emily Fusco on for Dave Begleiter. What are your expectations for pricing in CAI and Specialty for 2026? Jamie A. Beggs: So, Emily, when we think about pricing, we are obviously always doing value pricing. We take a look at both price and mix as we move forward. As we mentioned for 2025, we have had a lot of success in healthcare and in defense. That has driven a lot of our price/mix dynamic in 2025. We expect that to continue as we think about 2026. Other pricing initiatives that people think about include what is going on with raw materials. We have proven through at least the five or six years that I have been here that raw materials can enable us to capture some margin expansion. We are always on top of it in terms of making sure that margin is not destructed based on where materials are. In our bridges, as I mentioned with Kristen's comment, we do expect some margin expansion in 2026 based on price/mix, and that really is a function of where we are selling our product, not because there are specific pricing initiatives going on other than our normal monitoring of where raw materials are and making sure that we are value pricing our products as they are created and differentiated from what else is in the market. Emily Fusco (for David Begleiter): Perfect. Thank you. Operator: Thank you. Our next question comes from Ghansham Panjabi with Robert W. Baird. Your line is open. Ghansham Panjabi: Ashish, just going back to the fourth quarter, as it relates to the strategic growth vectors you have outlined in the past, how did that portion of the portfolio grow on a core sales basis in the fourth quarter relative to where you came in on a consolidated basis, which was roughly down 1%? Giuseppe Di Salvo: Sorry. Growth vector growth versus the rest of portfolio. Ashish K. Khandpur: In fourth quarter specifically? Ghansham Panjabi: Yeah. Or you can speak to us for the year. Ashish K. Khandpur: For the year, maybe it is better for me to talk about the year versus quarter because these growth vectors are launched in different parts of the year, so it can be unfavorable. As I mentioned, growth vectors grew high single digits for us, and high single digits for growth vectors versus less than 1% or low single-digit kind of decline in the rest of the business. Ghansham Panjabi: Okay. Then as it relates to core sales for the following year, for 2026, did you break that up by segment? Ashish K. Khandpur: Not sure if I heard that. Jamie A. Beggs: No. We did not provide any specific guidance based on segments. We did provide a full-year range on EBITDA as well as EPS. We gave a little bit of color between the segments in terms of some of the end markets and where we are seeing strengths and weaknesses. Maybe just to reiterate, from an SEM perspective as well as a Color perspective, we expect things like healthcare to continue to perform well. SEM also has exposure to defense. That is also something that we continue to take a look at. We are looking to see how the evolution really comes about for consumer, industrial, and building and construction, which will be a key driver for the Color segment. Ashish K. Khandpur: Very good. Thank you. Giuseppe Di Salvo: Thank you. Operator: We have time for one last question, and that question comes from Vincent Andrews with Morgan Stanley. Turner Wills Hinrichs (for Vincent Andrews): Hi. This is Turner Hinrichs on for Vincent. I was just wondering if you could provide a little bit more regional color on what your 2026 guide considers for growth by region, particularly in Europe and Asia, considering you talked a lot about growth drivers in the U.S. economy so far? Jamie A. Beggs: Turner, we did not give any specific guidance by region, just like the question that Ghansham asked based on segments. We were talking more about end markets. There is a lot of geopolitical uncertainty, trade tariffs, and other things going on as it impacts the U.S. in particular, and those are the things that we are watching closely, as well as whether or not the Fed will decrease rates and at what pace they will actually do that. You mentioned Europe and Asia specifically. As you can see from what happened in 2025 in Europe, we ended it down 1%. At this juncture, we are expecting similar levels until we see some type of potential recovery. The Asia dynamic, as Ashish mentioned during the commentary, includes some really nice tailwinds in our packaging space and our telecommunications space. We expect with the underlying GDP there, although maybe slightly lower than what has been previously, it is still a growth part of the world. I would expect to continue to see growth in that area. Ashish K. Khandpur: Great. Thanks for the color. Operator: Thank you. This concludes the question and answer session. You may now disconnect. Everyone, have a great day.
Operator: Good day, and thank you for standing by. Welcome to the ECARX Holdings, Inc. Q4 and Full Year 2025 Earnings Conference Call. At this time, participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you will need to press *11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press *11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Julian Tiltman. Please go ahead. Thank you, operator. Good morning, and welcome to ECARX Holdings, Inc.'s fourth quarter and full year 2025 earnings conference call. Joining me today from ECARX Holdings, Inc. are Chairman and Chief Executive Officer, Ziyu Shen; Chief Operating Officer, Peter W. Cirino; and Chief Financial Officer, Phil Zhou. Following their prepared remarks, they will all be available to answer your questions. Before we start, I would like to refer to our forward-looking statements at the bottom of our earnings press release, which also applies to this call. Further information on specific risk factors that could cause actual results to differ materially can be found in our filings with the SEC. In addition, this call will include discussions of certain non-GAAP financial measures. Reconciliations of the non-GAAP to the GAAP financial measures can be found at the bottom of our earnings release. With that, I would like to hand the call over to Rene Du. Please go ahead. Rene Du: Thank you, Julian. Hello, everyone, and thank you for joining us today. ECARX Holdings, Inc. is transforming vehicles into seamlessly integrated information, communication, and transportation devices. To realize this vision of becoming a leading AI technology provider in the automotive industry, we must proactively navigate today's dynamic regulatory and market environment, ensuring we remain compliant and maintain growth while pushing the boundaries of automotive intelligence globally. By diversifying both our geographic revenue base and our solution portfolio, we are building ECARX Holdings, Inc. into a robust, compliant, and most important, a truly global business. The fourth quarter was a critical inflection point and marks the start of our next phase of sustainable profitable growth. We delivered net income of $2,800,000, adjusted EBITDA of $22,000,000, and operating income of $7,000,000, marking our second consecutive quarter of positive results as revenue hit a historical high of $305,000,000, up 13% year over year. Gross profit was $64,000,000, up 11% year over year, with a gross margin of 21%. These results are a direct reflection of the execution of our lean operating strategy, which continues to deliver a resilient recovery in gross margin, enhance R&D efficiency, and optimize operating expenses despite the several challenges posed by patent policy in the global semiconductor supply chain. We remain firmly on track to sustain this strong and profitable momentum into 2026. Our momentum is being fueled by two distinct engines that are allowing us to unlock growth opportunities from existing and new partnerships. First, our computing platforms continue to drive strong sales growth for best-selling models, allowing us to deepen the penetration rate of our solutions across our partner vehicle lineups and anchor the stability of our core business. Notably, shipments of our Antora series reached the 1,000,000 unit milestone in 2025, underscoring the platform's market leadership. With the concentration of Antora shipments increasing within our total shipments, our vertical integration capability allows us to capture greater value and structurally enhance our long-term profitable growth trajectory. Secondly, our globalization strategy continues to amplify our unique value proposition as a core technology partner worldwide, demonstrating the global repeatability and scalability of our solutions to potential and existing partners. Our deepened partnership with Volkswagen Group in Latin America is a key milestone in this journey, demonstrating how the Antora platform is setting a global standard for intelligent cockpits and driving our international expansion. This agreement utilizes our platform to meet diverse market needs, with the high-performance Antora 1000 for online brands that integrates our Cloudpeak software stack and Google Automotive Services, and the effective Antora 500 for entry-level segments. This highlights how our core technology, already proven in the popular launch of Geely Galaxy EX5 and Volvo EX30, can seamlessly scale across diverse brands and international markets. This flexibility showcases how we effectively integrate to address the evolving needs of leading automakers on a global scale. Looking ahead to 2026 and beyond, we are fully prepared for this next phase of growth. Our future strategic priorities as we progress will focus on three key pillars. First, we will continue to drive our globalization strategy and develop broader global strategic partnerships, continuing to leverage our cutting-edge, cost-effective solutions. These existing partnerships are a blueprint to demonstrate the capability and scalability of our physical AI architecture, and they will allow us to further strengthen partnerships with significant commercial value and drive an increase in overseas revenues. We are on the path to transforming our business into even more of a truly global technology leader, where we have set targets to meaningfully increase our share of total revenue from international markets by the end of the decade. Second, we will continue to invest in our long R&D roadmap and development of next-generation computing platforms, intelligent driving solutions like Skyline Pro to drive high-performance AI computing power, and in-vehicle AI large models. By driving the industry transition from feature-centric to intelligence-centric experiences, we will maintain our leadership position and propel our business toward high-value software and AI services not only for automotive applications, but also adjacent sectors like robotics. Third, we will continue to strengthen our lean operating strategy and strategic execution to sustain profitability. Our transition to an automotive AI technology provider allows for greater platform modularity, which drives R&D efficiency and sustained profitability. Our target for 2026 is to continue to generate meaningful annual revenue growth and to maintain positive operating income throughout 2026. Moreover, we raised nearly $200,000,000 in recent months from partners including Geely and ATW Partners, a powerful endorsement of our global growth strategy, technology leadership, and proven ability to capitalize on accelerating demand. This additional capital will support the build-out of our R&D and engineering hub in Germany and infrastructure across key growth markets in South America and Southeast Asia, providing us with R&D delivery and supply chain capabilities to fuel our global expansion. With a strong finish to 2025, a growing suite of innovative solutions, and the first two quarters of profitable growth, we are confident in our ability to capture the opportunities ahead as the automotive industry continues its transformation. I will now pass the call over to Peter W. Cirino, who will go through the operating results of the quarter in more detail. Peter W. Cirino: Thank you, Ziyu. Good morning, everyone. In the fourth quarter, we made strong progress executing our strategic priorities. As we continue our global expansion, deepen key partnerships, and execute on our R&D roadmap, our ability to execute on complex global programs is becoming a defining competitive advantage. During the quarter, we continued to intentionally increase shipment volumes to meet accelerating market demand, shipping approximately 910,000 units. This brings the cumulative total number of vehicles equipped with ECARX Holdings, Inc. technology to approximately 11,000,000 units, up 36% from last year and a direct reflection of the increasing recognition our reliable and cutting-edge solutions are receiving globally. Today, we proudly serve 18 OEMs across 28 brands worldwide. Our global expansion remains a core focus. In Q4, we made significant progress. Our partnership with Volkswagen Group continues to progress smoothly. Both sample development and delivery continue to consistently meet all targets and exceed expectations, opening the door for deeper collaboration. We are excited about the opportunities that will come from our growing European pipeline. Our ability to strategically execute these programs demonstrates our world-class engineering delivery and project management capabilities on a global scale. This expertise provides a solid foundation to capitalize on future large-scale revenue opportunities across EMEA, the Americas, and the emerging markets. As we execute on these priorities, our global capabilities are gaining greater visibility and exposure, helping us build a robust overseas business development pipeline that is growing substantially. This expansion directly supports the long-term goals Ziyu mentioned earlier, with our target to generate 50% of our total revenue from overseas markets by 2030. Our technology continues to power some of the most exciting, increasingly popular new vehicles in the market. During the quarter, the Pikes computing platform and Cloudpeak cross-domain software stack powered the next-generation AI cockpit experience for the Geely Galaxy M9, showcasing our core strengths in developing solutions from the ground up and enabling the delivery of in-vehicle AI agents at scale. As this model gained significant traction among customers, global automakers can increasingly see how our solutions can drive sales with their differentiated experience. This solution was replicated in the Lynk & Co 07 and 08 EM-P, further expanding its global visibility and adoption. Additionally, the highly sought-after Geely EX5 also launched in the UK during the quarter, with the AI-enhanced Antora 1000 and Cloudpeak solutions integrated, marking the start of the large-scale deliveries of these solutions in core European markets and another milestone in our global expansion. Crucially, the Antora platform has obtained key safety and privacy certifications for the European market entry, providing us with the foundation to drive deployments across Europe and engage with automakers in the region. Our solutions are increasingly being adopted by global automakers across different markets, validating their competitiveness, seamless adaptability, and reliability. They are compatible with Flyme Auto and Google Automotive Services, and will help accelerate AI-driven intelligent in-vehicle experiences across multiple vehicle segments and markets worldwide. This sustained demand has allowed us to maintain a leading market share with over 11,000,000 units installed as of December 31, 2025. Innovation remains at the core of our strategy and forms the basis of our full-stack technological leadership. At CES last month, we demonstrated the strategic versatility of our portfolio, showcasing solutions for scalable UI, agentic and agent-to-agent AI, high-end computing intelligent cockpits, and next-generation fusions of cockpits and assisted driving and parking that accelerate and address the evolving needs of global automakers. Ziyu Shen: A key highlight Peter W. Cirino: was a working demo of our Cloudpeak software stack running side by side on two different computing platforms, powered by the latest generations of SiEngine and Qualcomm chips. Through seamless integrations with Google Automotive Services, these solutions provide automakers with the flexibility to select their optimal hardware foundation while ensuring a consistent experience. Our technological leadership now unifies critical domains into a seamless, high-value competitive advantage that spans across the entire value chain, from hardware such as chips and computing platforms, to software, including operating systems and AI services. This vertical integration allows us to provide automakers with high-value, cost-effective turnkey solutions that can be rapidly integrated across models and geographies, and significantly reduce time to market. Our leadership is supported by a resilient strategic supply chain that acts as a critical competitive barrier. Along with our Fuyang intelligent manufacturing facility, our global partnerships with Samsung and Monolithic Power leverage our combined global R&D capabilities to establish an intelligent industrial ecosystem focused on system integration and platform adoption. Together, they not only secure our supply chain, they accelerate our ability to capitalize on opportunities in the automotive and embodied intelligence sectors. Finally, we continue to aggressively push our global compliance platform to enable our transformation into a truly international business. We are rapidly operationalizing our Singapore headquarters, which will be coming online soon and will act as our central hub for global IP, R&D, and treasury activities. Currently, we are working to obtain the relevant regulatory certifications in the US to engage with US automakers and further expand our addressable market. These steps will ensure we can serve our partners in any market, backed by a delivery system that already is verified by leading automakers around the globe. With that, I will now turn the call over to Phil Zhou, who will review our financial results and provide guidance as we look forward to both the first quarter and full year 2026. Phil Zhou: Thank you, Peter. And hello, everyone. The 2025 represents a strategic inflection point in our company's evolution. Through disciplined execution and focused innovation, we have successfully navigated complex macroeconomic headwinds to deliver our second consecutive quarter of positive operating income and EBITDA, a powerful testament to the resilience of our business model and our clear path towards long-term profitability. Top-line revenue for the fourth quarter reached an all-time high of $305,000,000, representing 13% year over year growth and exceeding both our guidance and market expectations. This resilient growth, achieved despite persistent macroeconomic headwinds, was primarily driven by strong customer demand for our core computing platforms. This strong finish to 2025 enabled us to achieve the double-digit annual revenue growth target we set for 2025, with full-year revenue reaching $848,000,000, a 10% increase over 2024. Breaking this down further, sales of goods revenue reached $270,000,000, a remarkable 27% year over year increase. The impact of our in-house development strategy is clearly visible, with shipments of our Antora, MONADO, and Pikes series increasing by 62% year over year during the quarter. These advanced platforms contributed 74% of the total sales of goods revenue, demonstrating our technological differentiation. In our services business, revenue reached $33,000,000, while software license revenue stood at $2,000,000. Both areas reflect strategic project timing considerations rather than underlying demand challenges. Now turning to our profitability metrics. Despite facing a global supply shortage for hardware and components, particularly in storage, and significant cost pressures, we delivered an impressive margin performance. Gross profit increased about 11% year over year to $64,000,000. Gross margin was 21% for the quarter. This performance demonstrates our strong operational resilience and disciplined cost management. Our lean operating strategy continues to yield significant efficiency gains. Operating expenses decreased by 19% to $57,000,000 for the quarter. For the full year, operating expenses fell 24% to $216,000,000. Most importantly, we achieved these efficiencies while simultaneously driving global expansion and exceeding critical R&D milestones. Our operational performance speaks to a fundamental transformation. Operating income reached $7,000,000 during the quarter, a 155% improvement year over year. Adjusted EBITDA was $22,000,000 during the quarter, a significant increase from $10,000,000 in Q4 last year. Beyond the numbers, these results underscore the tangible outcome of our strategic transformation into a technology-driven, globally competitive organization. Turning to the balance sheet, we took several significant steps to fortify our capital position, providing us with the flexibility to execute our global expansion and drive our R&D roadmap. In recent weeks, we successfully signed a convertible bond financing agreement of up to $150,000,000 with ATW Partners and raised $456,000,000 from our strategic partner Geely. This is a powerful endorsement of our global growth strategy, leadership, and long-term growth prospects. Starting this quarter, to enhance transparency and to provide better visibility, we are initiating a formal guidance framework that aligns our financial disclosures with the global nature of our expanding business. For full year 2026, we expect to drive total revenue in the range of $1,000,000,000 to $1,100,000,000, representing a year over year increase of 20% to 30%. Furthermore, we are committed to maintaining positive operating income throughout 2026, underscoring the impact of our lean operating strategy. For 2026, we anticipate seasonal fluctuations typical of our industry. Consistent with historical patterns, the first quarter represents a softer period for automotive consumption following the fourth quarter peak. However, it is important to contextualize this seasonality with our full-year outlook. Our full-year order pipeline remains robust and aligns with our growth targets. We have implemented proactive cost management strategies to mitigate margin pressure. The underlying demand drivers for our core automotive technologies continue to strengthen. Most importantly, despite a typical first quarter seasonality, we maintain full confidence in our ability to navigate these near-term dynamics and achieve our full-year revenue and profitability targets. In closing, our 2025 performance represents more than just strong financial results. It demonstrates the successful execution of our strategic transformation. Our progress is a testament to our team's tireless focus on operational excellence and technological innovation. By consistently meeting each milestone, they have been critical in building a sustainable foundation that makes our long-term growth trajectory possible. With that said, I would like to take the opportunity now to thank the investment community. As I will conclude my time at ECARX Holdings, Inc. with this release, I am confident that the company will continue to strive to ever higher heights, and I look forward to following its progress as I venture to new opportunities. That concludes our remarks today. I would now like to hand the call back to the operator to begin a Q&A session. Operator: Thank you. If you would like to ask a question, you will need to press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. Please stand by while we compile the Q&A roster. Thank you. We will now take our first question. This is from the line of Wei Huang from Deutsche Bank. Please go ahead. Wei Huang: Hello. Thank you for taking my question and congratulations on the strong set of results. My first question is regarding your analytics guidance. Can you give us a bit more color on your ASP and margin outlook for the year? It seems like generally so far, auto demand has been impacted by the weakening of the government-supported policies. What would you offer for the rest of the year? Thank you. Phil Zhou: Hey, Mr. Huang. This is Phil. I am happy to address your question. So yes, for the guidance for the full year 2026, we expect to drive the total revenue in a range of $1,000,000,000 to $1,100,000,000, and this is representing a year over year increase of 20% or 30% under the macroeconomic headwind you just mentioned. And yes, in Q1, it is true that the overall automotive market is impacted by policy, as you mentioned just now, and the end user Wei Huang: demand shrinking. Yes. Some reports Phil Zhou: show that estimation of 20% decrease or even worse of auto wholesale in Q1 year over year. And part of the reason is also Wei Huang: triggered by electronic component cost inflation. Phil Zhou: Especially in memory side. But, you know, we have good momentum. We delivered a very strong Q4 2025 and full year, and we will move our momentum into 2026. And we have all kinds of actions in place to mitigate Wei Huang: the potential challenges and risks. Phil Zhou: And Q1 is a low season, but we have full confidence to deliver a solid Wei Huang: full year 2026. Thank you. A bit of a follow-up on that. You also mentioned the rising memory costs, which is expected to further increase going into 2026. Can you comment a bit on the impact on margins for the year? Phil Zhou: Yeah. Sure. And as you can read from our financial reports, 2025 we delivered a pretty good margin performance. Especially in Q4, we are able to maintain or even improve our hardware Wei Huang: gross margin Phil Zhou: consistent. And that is due to our strong execution in cost optimization, you know, VA/VE strategy execution. Wei Huang: And then moving to 2026, Phil Zhou: along with the industry-wide cost inflation, we still need to execute pretty well in terms of cost management. And we will collaborate closely with our customer on the industry-wide cost inflation as well. And on the pricing strategy, we will also drive a very reasonable pricing capex to offset, to mitigate the challenge as well. In terms of total gross margin outlook for 2026, I would say a range Wei Huang: about 15% to 18%. Phil Zhou: And that is the latest calculated number after our internal guidance. Wei Huang: Thank you. That is very clear. And my last question is can you provide us another update on your latest progress with foreign OEMs? These older ones? Thank you. Peter W. Cirino: Yeah. Hi, Wei. This is Peter W. Cirino. Let me address that question. So as Ziyu mentioned in his comments, ECARX Holdings, Inc. is positioning ourselves as a global physical AI provider, a technology provider to the automotive industry. So, early in 2025, we announced our first major global win with a European OEM with VW to support business in Latin America. In the fourth quarter, we extended our partnership with Volkswagen Group and announced another win to take the Antora platform across additional vehicle lines in Volkswagen Latin America, including our collaboration with Google. Currently, as we look across the market in Europe, we have a broad level of significant opportunities that are emerging from our engagement with our European partners. And we certainly hope that as we move into next year, this pipeline will pay us very well, and we will see additional wins that we hopefully can discuss and will contribute to our revenue profile in the future. So I would say our global expansion is going quite well, and we have these two very significant and tangible wins for the Volkswagen Group. Wei Huang: Thank you. There are no more questions. Congratulations again on the great set of results. Thank you. And that does conclude today's conference call. Operator: Thank you all for participating, and you may now disconnect. Speakers, please stand by.