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Operator: Good afternoon, everyone, and thank you for participating in today's conference call to discuss Forward Industries' financial and operating results for the First Quarter of Fiscal 2026 ended December 31, 2025. By now, everyone should have access to the first quarter of fiscal 2026 earnings press release, which was issued today at approximately 4:05 PM Eastern Time. The release will be available on the Investor Relations section of Forward Industries website. This call will also be available for webcast replay on the company's website. Following management's remarks, we will open up the call for Q&A. I will now hand the call over to Forward Industries' General Counsel, Georgia Quinn, for introductory comments. Georgia Quinn: Thank you, operator. Before we begin, I'd like to remind everyone that today's call may include forward-looking statements within the meaning of the federal securities laws. All forward-looking statements made by the Board or management on this call are based on their assumptions and beliefs as of today. You should not rely on forward-looking statements as predictions of future events as these statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied. More information about these risks, uncertainties and other factors can be found in Forward Industries' filings with the Securities and Exchange Commission. During today's discussion, we will reference certain metrics related to our Solana Digital Asset Treasury, including SOL Holdings, staking performance, validator operations and deployments. These metrics are core to evaluating the execution and progress of our strategy. With that, I will turn the call over to Forward Industries' Chairman of the Board, Kyle Samani. Kyle, please go ahead. Pyahm Samani: Thank you, Georgia, and good afternoon, everyone. 2025 represented an important inflection point with the evolution of Solana and Forward Industries. Over the last year, Solana has continued to grow into real financial infrastructure that's being used by companies around the world, including the most recent partnerships, including Revolut, Western Union, Calshi, Figure, PayPal and many others. For Forward, Q1 marked our first full reporting period operating as a Solana treasury company, and more importantly, a quarter that demonstrated strong execution amidst volatility in the market. We moved from launching the strategy to actively putting it to work, building the foundation to compound SOL per share over time. Our mindset remains long-term, as we're not managing forward around short-term market moves. And we're focused on building a permanent capital vehicle that's designed to participate directly in the growth of the Solana ecosystem and to evolve beyond simply a treasury and into an active value-generating business. On the topic of thinking long term, I'm sure some of you may have seen the news around my departure from Multicoin Capital. I won't go into the details which are publicly available, but I do want to take a moment to reaffirm my commitment to Forward Industries and its mission. I will continue to serve as Chairman of Forward, and I intend to significantly increase my personal holdings in Forward. Looking ahead, we believe the opportunity in front of Solana, and by extension for Forward, is increasingly clear. While the markets are volatile in both Solana and Forward, our assets are not immune to wider market volatility. Solana is no longer being evaluated on theoretical scalability or future potential. It's being used today at scale across payments, trading, DeFi, emerging market applications and more. This shift from promise to performance is critical. Forward Industries' strategy is intentionally aligned with this phase of Solana's life cycle. We are focused on compounding SOL per share by participating directly in the economic activity occurring on chain rather than relying on passive exposure alone. At the network level, Solana continues to demonstrate resilience, performance and reliability. The network has maintained high throughput, low transaction costs and consistent uptime, even during periods of elevated activity. Solana continues to lead across key metrics, including decentralized exchange trading volumes, real economic value generated, active users and developer engagement. These fundamentals matter because they represent sustained demand for block space and growing on-chain cash flows. The underlying drivers of long-term value for the network and for SOL as an asset. Momentum across the Solana ecosystem accelerated throughout 2025 and has carried into early 2025. We've seen continued growth in stable coins, payments, DeFi, and real-world asset experimentation, all enabled by Solana's ability to deliver speed, cost efficiency and composability at scale. Institutional engagement has also expanded meaningfully, whether through ETFs, tokenized financial products or integrations by large financial institutions and payment platforms. As an example, on January 28, WisdomTree, which is a $140 billion asset manager, expanded their full suite of regulated tokenized funds on Solana, enabling institutional and retail investors to access real-world assets natively on-chain at scale. We're also seeing new consumer-facing financial use cases emerge, such as Calshi's regulated prediction markets becoming available through Solana wallets via Jupiter, extending regulated financial products to a broader crypto-native user base. Taken together, these trends reinforce our belief that Solana is becoming the execution layer for what we often describe as internet capital markets. Central to Forward's strategy to deliver SOL per share growth for shareholders is to be an active participant in the Solana ecosystem. During the quarter, Forward became one of the first public companies to have its own SEC-registered shares live on a public blockchain with FWDI now issued on Solana through Superstate's Opening Bell platform. These are actual Forward Industries common shares, not synthetic or derivative representations, recorded and updated on chain in real-time by Superstate, an SEC-registered transfer agent. In addition to self-custodying their shares, eligible non-U.S. holders can now use tokenized FWDI as collateral in DeFi, including on Kamino, enabling stablecoin borrowing while maintaining exposure to the underlying equity. We view this as an important step in bridging public equities with programmable on-chain financial infrastructure and as a foundation for future functionality as regulatory frameworks evolve. In December, we announced our collaboration with Sanctum, the leading infrastructure powering Solana's largest liquid staking tokens, validators and apps, to launch fwdSOL, Forward's proprietary liquid staking token. Through this partnership, approximately 25% of our SOL holdings are represented by fwdSOL, allowing us to continue earning native staking yields while maintaining liquidity. fwdSOL enables Forward to deploy staked SOL more efficiently, including using the token as collateral for borrowing and selectively participating in on-chain strategies alongside institutional partners. We view liquid staking as a core component of our treasury strategy, one that allows us to move beyond passive staking and responsibly capture incremental sources of yield, while preserving flexibility and risk discipline. We also began testing our proprietary automated market maker or Prop AMM, developed with Galaxy and infrastructure expertise from Jump Crypto. The Prop AMM deploys proprietary capital into on-chain trading strategy and is integrated into Jupiter and other Solana aggregators and positions Forward to participate in Solana's growing trading activity. With that, I'd like to now turn the call over to Ryan Navi, Forward's newly appointed Chief Investment Officer, to dive into our Solana treasury operations. Ryan? Ryan Navi: Thank you, Kyle, and good afternoon, everyone. As many of you know, I was appointed Chief Investment Officer of Forward in December 2025. In my first 60 days, I deeply familiarized myself with the business and have begun working with both our team at Forward and our partners to put in place our 2026 plan to deliver SOL per share growth for Forward shareholders. What is clear to me is that Forward has built a truly differentiated foundation, an at-scale SOL treasury larger than the next 3 largest SOL digital asset treasury companies combined, a clean balance sheet, high-quality partners in Galaxy, Digital and Jump and the strategy that's been thoughtfully constructed to operate through different market environments. This foundation enables us to execute deliberately, manage risk responsibly and focus on compounding SOL per share for our shareholders. With that context, I'll dive into how we're putting that foundation to work, starting with our treasury positioning and key metrics, which we view as the core drivers of value creation for our company and the lens through which we evaluate our performance. On December 31, 2025, Forward held approximately 6,962,501 Solana with more than 99% stake, generating native staking yield between approximately 6.5% and 7.2%. As of December 31, 2025, we have generated over 112,000 Solana in staking rewards. We've also compounded our fully diluted SOL per share from 0.0604 as of the end of September 2025 to 0.0624 as of December 31, 2025, using a SOL holdings of approximately 6,962,501 and a total fully diluted shares outstanding of 111,591,332. That share count is made up of 84,924,272 common shares, 26,359,600 warrants and 307,460 options. Our annualized sold per fully diluted share growth was roughly 13% in our fiscal first quarter. As of December 31, 2025, Forward's mNAV was approximately 0.85. Calculated using the closing price of Solana on December 31, 2025 of $125, a total of 6,962,501 Solana, a Forward stock closing price of $6.61 and a fully diluted outstanding share count of 111,591,332. I'm very proud of the progress we've made in the first few months operating under our Solana treasury strategy. While we are still early in that journey, we've established a solid foundation and we are well positioned to take advantage of the opportunities in the market to continue to scale Forward's treasury and drive SOL per share accretion for our shareholders. With that, I'll now pass the call over to our CFO, Kathy Weisberg, to walk you through our fiscal first quarter results. Kathy? Kathleen Weisberg: Thank you, Ryan. As a reminder, all comparisons and variance commentary refer to the first quarter of fiscal 2025, unless otherwise specified. Jumping into our financial results for the first quarter of fiscal 2026. Revenue in the first quarter of fiscal 2026 increased more than 4x to $21.4 million compared to $4.6 million. Our gross margin increased significantly as well to 78.6% in the first quarter of fiscal 2026 compared to 24.5% in the first quarter of fiscal 2025. These increases were primarily driven by staking revenue generated through Forward Solana treasury strategy. Selling, general and administrative expenses during the first quarter of fiscal 2026 were $7.2 million compared to $2 million in the first quarter of fiscal 2025. The increase was primarily driven by higher operational costs associated with Forward's transition to its Solana treasury strategy. For those who are not aware, I'd like to detail the current GAAP accounting treatment for our SOL holdings. Current accounting standards for digital assets require changes in the fair value of SOL and fwdSOL to be recorded as components of operating income or loss. These fluctuations do not impact our cash balance, yield generation or ability to continue compounding SOL per share. We believe this distinction is essential in evaluating our financial performance, which is driven by strategy execution, not short-term market volatility. As a result of this accounting treatment, in the first quarter of fiscal 2026, Forward recognized a loss on digital assets of approximately $560.2 million and an impairment charge of approximately $33 million leading to a net loss of $585.6 million compared to a net loss of $0.7 million in the first quarter of fiscal 2025. Again, this loss was primarily driven by the decline in fair value of our SOL holdings. As of December 31, 2025, cash was $25.4 million compared to $38.2 million as of September 30, 2025. This concludes our prepared remarks. I'd now like to pass it back to the operator to open up the call for live Q&A. Georgia Quinn: Thank you, Kathy, Ryan and Kyle. As we gather the queue for live questions, we'd first like to address a few of the questions that have come in via email. Kyle, we'll start with you. Could you share your perspective on the recent token price volatility? Given your tenure in the industry, how has your experience prepared you to navigate periods of drawdown like this? Pyahm Samani: Everyone, Kyle here. SOL is down something like 70%-ish from its all-time high, which in crypto is somewhat par for course. Last market cycle, SOL was down 90-some-odd percent from its all-time high in the '21 through '22 cycle. So this is somewhat standard and to be expected in crypto. I think the most important thing that we have done at Forward is to maintain a clean balance sheet. Ryan and I and others have dialed in conversing, and we all agree that we've made the right set of decisions to not lever up. And I want to position that in stark contrast to what a lot of our competitors have done who have levered up, who have purchased SOL at substantially higher prices than the current market price and who are now substantially at risk. Ryan, if you want to chime in and share any additional thoughts there? Ryan Navi: Yes. We've taken no institutional debt so far, although that could change in the future. And that really gives us the ability to play offense in this environment where things are dislocated while some of our peers have to play defense. So definitely excited for the opportunity set ahead. Georgia Quinn: All right. This next question is for Ryan. Can you share your thoughts on potential M&A? Do you have a specific framework that you are using to evaluate potential targets? Ryan Navi: Yes, that's a good question. I'd break it up into debt versus non-debt M&A. So for debt M&A, it's pretty straightforward. We'll look to acquire businesses that are accretive on an enterprise value to NAV basis. As I just mentioned, the recent crypto sell-off really has improved the opportunity set for us. So again, we have no institutional debt, so we can play offense when others are playing defense. For non-debt M&A, it's a little bit more nuanced. We want to invest in businesses that have product market fit, scalable unit economics, durable moats and push the Solana ecosystem forward. Specifically, we look at situations where we can create our own catalyst basically by utilizing our scale and involvement. Georgia Quinn: All right. Ryan, this next one is also for you. You frequently referenced SOL per share in your public remarks. How should shareholders think about that metric as an important framework for evaluating Forward's performance? Ryan Navi: So yes, in the short to medium term, SOL per share -- per fully diluted share growth is our North Star KPI. So if you think about Solana plus its staking yield as the benchmark, that means that you have full beta plus a 6% to 7% yield. Our mandate is to consistently generate greater than that rate of return on a risk-adjusted basis. So this quarter, we did 13% annualized, so we effectively outperformed Solana staking yield by 2x. That's why I keep referencing it and that will most likely be one of our go-forward KPIs in the near to medium term. Georgia Quinn: Great. And then this last one for you, Ryan. While we understand you manage with a long-term mindset, is there a target growth rate or benchmark that investors should keep in mind? Ryan Navi: Yes. So as I also just mentioned, I think the SOL staking yield as our effective benchmark for yield generation. So any spread above that has to make sense on a risk-adjusted basis. So that can be various DeFi strategies, CeFi strategies, derivatives, RWA assets, it can really range the gamut. And then from an M&A perspective, the opportunity cost is the upside on our Solana. So if we engage in non-debt M&A, with SOL prices down, obviously, the bar is a lot higher. We're definitely taking a long-term disciplined approach and believe that this is the best way to generate sustainable shareholder value in the future. What else I can say is we will continue to adapt and capitalize as the market environment evolves. And when things are this dislocated to the downside, there's arguably more opportunity than when things are extremely bullish. So given our clean balance sheet, as Kyle mentioned, I'm actually very excited for the go-forward opportunity set. Georgia Quinn: Okay. Thanks, Ryan and Kyle. That concludes the email submitted questions. So I'll now pass it back to the operator to open up the call for our live question-and-answer period. Operator: Our first question comes from Devin Ryan with Citizens Bank. Noah Katz: This is Noah Katz on for Devin. I'll start off with a question on broader Solana adoption. You guys have called out adoption across payments, trading and emerging capital markets as a key to the thesis. Looking out over the next year, what are the most important catalysts that would signal Solana is moving from more of a high-growth ecosystem to mainstream financial rails? And how is Forward positioning itself to convert this into SOL per share compounding? Pyahm Samani: It's Kyle here. I'll chime in. I think there was a lot there in the question, but let me just state it back. I think the core of the question is, how do we know we're kind of entering mainstream adoption. Look, I think broadly with crypto, you should think about kind of all of crypto in 2 buckets, either payments or trading. And if you talk to people from each of those worlds, they tend to talk about crypto fairly differently. It's that old image of the 7 blind touching the elephant and they all describe it in a different way. Let me touch on each side. On the payment side, Solana, I think at this point is pretty unequivocally in the lead of all the major chains. Folks at Visa, Mastercard, Stripe, PayPal, Western Union, Square Cash have all that big on Solana. Today, Visa is settling USDC payments between banks on, I believe it's a daily basis at this point. They haven't disclosed the public -- the absolute scale of the numbers, but they have disclosed annualized growth, and it's all triple-digit percentages. Square Cash announced late last year that they're rolling out USDC payments to all 65 million Square Cash users on Solana. Western Union is launching a stablecoin. PayPal, although PYUSD is on many chains, their preferred chain is Solana. And that's actually where the bulk of PYUSD volume and market cap is at. So if you look across what we can see there publicly, Solana is doing a really good job. And I think the core of it is just it's the most adopted, most used globally -- global chain and it's fast and cheap, and that's what these guys want. All of the additional features that payments companies look to expect are also there. With the smart contract capabilities built in Solana, they can add things like chargebacks and whatever else they need on top of just the basic ability to send money from point A to point B. On the trading side, things are -- the entire industry is a little slower, and that's just because the existing asset classes that are traded that are non-crypto think equities, commodities, FX, et cetera, those are all regulated institutions and many of them are -- many of those institutions are regulated across jurisdictions and geographies. And so there's just inherently a lot more inertia in making those transitions. But obviously, you can see now public announcements from the SEC Chair, Paul Atkins and then more recently, CFTC Chair, Mike Selig, have all basically announced Project Crypto and that their intention is to move U.S. securities markets on chain. That is not yet -- the fruits of that are not yet in the public eye, but there's a lot of work happening behind the scenes. And I'm pretty confident that the -- a lot of folks are having all the relevant conversations with the relevant parties to make sure that Solana has a real shot at winning that. Given the demonstrated trading volumes of crypto on Solana, I think they're in the pole position to win and to substantiate that specifically. Today, the substantial majority of trading volume across all major blockchains for spot assets is on Solana today. So it is kind of the logical place for all of the major regulatory institutions and financial institutions to end up. Ryan, Georgia, if you all want to chime in on this one, please do. Ryan Navi: Yes. I think to answer part of the -- second part of the question in terms of value capture for Forward, I think we'll look to partner, buy or build depending on what vector we want to lean in, whether it's payments, whether it's RWA tokenization. I think the world is kind of our oyster and we can be adaptive to where we're seeing product market fit to the point that any such investment or organic build-out would be accretive to shareholders. Noah Katz: Okay, great. And then if I could sneak in a quick follow-up on capital allocation. I know you spoke a little bit on M&A, but given the volatility with marking to market, prices tied to SOL, what does your capital allocation playbook look like across different environments, such as when you're trading at a premium versus a discount to implied NAV and when SOL volatility spikes or liquidity tightens? Ryan Navi: Yes, I'll take that, Noah. So when things are a little bit more buoyant and we're trading at a premium, I think it's the well-known playbook of equity-linked securities, which can be pref, convertible notes, ATMs, which a lot of our competitors have also done when things were a little bit more buoyant during the summer of last year. I think when things are dislocated to the downside and things are trading at discounts, I think it becomes a lot more about, a, like balance sheet quality, is there actually like left tail risk or solvency risk? And I think some of our competitors are -- I wouldn't say like against the ropes or anything, but you're starting to see that discount reflected in how they trade. So that definitely opens up the playbook for us given we have no institutional debt to go acquire if we're trading at sufficient premiums where it's accretive for us even on a stock-for-stock basis. Again, I'm just speaking in generalities, no specific targets in mind. But I think that's like a critical differentiator is we're the largest more than the next 3 combined in the Solana space. So we have the scale, we have the clean balance sheet. So we can really be like the net consolidator. I think that's a big strategic advantage of Forward and our positioning when things are dislocated. To your point, though, when volatility is higher, we would look to be a lot more conservative as we have been to date in taking dollar-denominated debt. So whether that's lower LTV or like very low probability of any type of issues and withstanding significant shocks over and beyond what has already occurred. Again, none to date through 12/31, but the bar is that much higher, right? But if we see accretive opportunities and it makes sense to take on non-dilutive financing, we won't be afraid to take those shots on goal. But again, we have a very conservative risk-adjusted mindset in terms of how we are running this company. Operator: And your next question comes from Fedor Shabalin with B. Riley Securities. Fedor Shabalin: I have a few, and I would start with the macro one. Probably, Kyle, it's for you. How do you expect staking yields to trend as Solana network usage grows and validator competition intensifies? Because historically, increased network adoption can either increase yields through higher transaction fees or compress them through greater validator participation. Just would like to hear your thoughts on this one. Pyahm Samani: Yes, happy to take this one. So first, I'll address actually the second -- the very last thing you said, which is actually incorrect. As more validators come on to the network, that does not impact yield for stakers. Validators obviously compete for yield, but that doesn't change the total yield available, both in terms of inflation as well as in terms of tips and MEV rewards. So first comment there. Second comment is inflation on the Solana network is written into the code and has been trending downwards since the Genesis block in March of 2020. I actually, in a term sheet to Anatoly and Raj back in 2019, proposed what is today the Solana inflation schedule, which is that, Solana's inflation is reducing at 15% per year until it reaches a floor of 1.5%. I believe today, headline inflation or I should say nominal inflation is somewhere in the neighborhood of 4%, 4.5%. So that's second part of the question. Third part, this kind of gets to the first part of your question. As network activity increases and specifically as volatility increases, that creates more opportunities for MEV and more reason for users of the network to pay fees. And so as total network activity increases and as total volatility in market increases, that should increase yield to stakers, including to Forward. So we are explicitly -- Forward is explicitly long the growth of those transaction fees on the Solana Network. We do expect over time that the composition of Forward's yield that it earns from staking to transition away where today it's mostly from inflation, the transition to being mostly from network usage as we expect network usage to grow in absolute terms and inflation to decrease in absolute terms. Fedor Shabalin: And my second one is a company specific. So your combined SG&A expense included, I believe, $3.4 million in related party G&A expenses. Can you clarify the nature and expected recurrence of these related party charges? Distinguish whether they relate to the digital asset business or other operations and provide guidance on, let's say, normalized SG&A run rate going forward? Pyahm Samani: Yes. I think I know what that's referring to, but either Ryan or maybe Georgia or Kathleen, you all might be a little closer to the middle on that one. Ryan Navi: I think, Kathy, could you shed a little light on that? Kathleen Weisberg: Yes. So those related party expenses relate to the launch of our digital asset treasury strategy and pertain to accounting support and other related support as we launch the business. Those are expected to decrease in the coming months. Fedor Shabalin: Okay. And what would be the guidance like a normalized like $3 million, $3.5 million per quarter? Is it the right ZIP code? Kathleen Weisberg: We don't have that information currently available. We are negotiating and it will be less, but I don't have those numbers. Operator: And your next question comes from Sam Dufault with Oak Ridge Financial. Sam Dufault: Congrats on the quarter despite the overall market volatility. My question is mostly relating around the yields for Forward Industries. I believe, Ryan, you mentioned it's about 13% right now, which is about 2x on the current native yield. Can you kind of dive into kind of the aspects of that outperformance? How much is that attributed to fwdSOL? And kind of just how that fwdSOL launch has played into the overall Forward strategy? Ryan Navi: Yes, happy to take that. I would say that the outperformance on a SOL per share basis is a combination of just the staking yield across fwdSOL and just stake SOL, again, which I think we've publicly stated is roughly 99% of all our Solana at 6.5% to 7.2%. But then also, as I mentioned, there's a playbook when things are dislocated at different times, our stock was trading at significant discounts. And as you can see, our share count actually declined quarter-over-quarter. So we did use some cash to repurchase shares when things were sufficiently accretive to our internal kind of thresholds and benchmarks. So I think us being opportunistic will allow us to continue to outperform even when things are, let's say, more bearish such as today. But on your question on fwdSOL, to my knowledge, we are not generating -- it would be immaterial amount that would be attributed. So it's predominantly driven by our capital allocation today, broadly speaking, across different investments and share buybacks and the like. Sam Dufault: And kind of going off the buybacks, I mean, given the current market conditions, what's kind of the deciding factor, kind of what goes into those decisions when you decide to do a buyback or maybe hold off and wait for some of those debt M&A opportunities? What kind of, I guess, metrics or decisions goes into that? Ryan Navi: Yes, it's definitely a relative value equation. So ironically, the better FWDI trades, that lowers our appetite to buy back stock and increases our appetite to do stock for stock or even cash doesn't really matter, but stock for stock, M&A, while our competitors are more dislocated than us. So interestingly, if we're trading closer to 1x, the buyback doesn't make any sense, but M&A becomes a lot more relatively attractive. So like I mentioned in Q&A earlier, we have looked to be adaptive based on market environment, including how the market is trading us versus our peers. And it's constantly evolving, but we're definitely thinking about things on a relative value creation accretion basis. Operator: And that is the end of our question-and-answer session. I'll hand the floor back to Kyle Samani for closing remarks. Pyahm Samani: All right. Thank you, everybody. Thank you for joining us today, and thank you for your continued support and confidence in our vision. We are encouraged by the progress we've made and the platform we've put in place as we move into 2026. With a strong balance sheet, expanding on-chain capabilities and deepening engagement across the Solana ecosystem, we believe Forward is well positioned to continue executing its strategy and compounding SOL per share. We remain focused on disciplined growth, responsible risk management and building long-term value for shareholders. As a reminder, we will have our Annual Shareholder Meeting, which is going to be held virtually at 10 AM Central Standard Time on March 3, and we encourage all shareholders to vote. Information on voting can be found on our website or in our proxy filing. We look forward to speaking with you again on our next earnings call. Operator: Thank you. All parties may now disconnect.
Operator: Greetings. Welcome to Optimum Communications, Inc.'s fourth quarter and full-year 2025 results conference call. At this time, participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Note that today's conference is being recorded. At this time, I will turn the conference over to Sarah Freedman, Vice President of Investor Relations. Sarah, you may begin. Thank you. Welcome to the Optimum Communications, Inc. Q4 and full-year 2025 earnings call. We are joined today by Optimum Communications, Inc.'s Chairman and CEO, Dennis Mathew, and CFO, Marc Sirota, who together will take you through the presentation and then be available for questions. As today's presentation may contain forward-looking statements, please carefully review the section titled “Forward-Looking Statements” on slide two. I will now turn the call over to Dennis to begin. Dennis Mathew: Thank you, Sarah, and good morning, everyone. Dennis Mathew: Before we begin, I want to thank all our teammates across Optimum Communications, Inc., particularly our network and frontline teams. Their proactive preparation and disciplined response during the multiple winter storms that affected the majority of our footprint in early 2026. Our teams worked alongside local, state, and federal authorities as well as power companies to mobilize personnel, equipment, and critical infrastructure. This focus defined by our one. 2025 was a year of meaningful transformation for our business. We sharpened our focus on core priorities, strengthened execution to drive operating efficiencies, enhanced network quality and reliability, and made intentional decisions to elevate the customer experience. This foundational work was critical as competition intensified across nearly every market and promotional activity reached unprecedented levels. Against this backdrop, we took a balanced and disciplined approach to execute our objectives and remain firm in our go-to-market and base management strategies. Turning to slide three, you will see that our fourth quarter financial results reflect that focus. While total revenue declined by 2.3%, connectivity and all other revenue grew 2% year over year. Broadband subscriber results reflect both the intensity of the competitive environment and our conscious decisions to prioritize sustainable pricing and returns. We delivered our best performance on video net losses in the last several, supported by lower video churn and growing penetration of newly launched video tiers. At the same time, we moderated the pace of fiber migrations to balance near-term margins and cash flow. On mobile, we strengthened the quality of our mobile customer base, which contributed to improved mobile churn in the quarter. Looking at customer economics, broadband ARPU grew 2.8% and residential ARPU grew 0.4% year over year. These results demonstrate continued progress in product mix retention, rate actions, and pricing discipline despite market dynamics. In the fourth quarter, improved gross margins combined with cost discipline contributed to a meaningful up in adjusted EBITDA. Consistent with our guidance, adjusted EBITDA grew nearly 8% year over year to just over $900,000,000, representing our first quarter of year-over-year adjusted EBITDA growth in 16 quarters. Adjusted EBITDA margin expanded to over 41%, up 380 basis points, and gross margin reached approximately 70%, up 180 basis points year over year. Adjusted EBITDA growth reflects nearly $60,000,000 of year-over-year operating expense reductions, driven in part by continued improvements in customer experience and operational performance. Our field dispatch rate improved 19% year over year. Our seven-day customer care repeat rate reached its lowest levels ever in Q4. And we ended the year with a Net Promoter Score 11 points higher than when we started the year. We further improved efficiency through the divestment of noncore assets, including the i24 News business in December and the sale of our towers business earlier in the year. Our disciplined execution and capital management drove cash generation, resulting in free cash flow of approximately $200,000,000 for the quarter. In the fourth quarter, cash capital stepped down 28% year over year, achieving approximately 13% capital intensity, while growing our total passings footprint by 1.8% year over year for the full year. Overall, the fourth quarter reflects the progress we made throughout 2025 to improve the business, drive efficiency, and reset our foundation. With that context, let us turn to our full-year 2025 results. Slide four outlines the commitments we set early in the year and how we successfully delivered on them while remaining focused on controlling what we can control. Full-year revenue came in at approximately $8,600,000,000. Broadband ARPU grew 1.6%. Programming and direct costs, along with other operating expenses, were each $2,600,000,000. Notably, we made strategic and sometimes difficult programming decisions designed to strengthen the overall economics of the video business while remaining focused on customer needs. We completed several major programming agreements that provided customers with the content they value, increased flexibility and choice, and reinforced cost discipline, resulting in improved video churn and gross margin. Full-year 2025 adjusted EBITDA was $3,400,000,000 excluding the divested i24 News business, or $3,300,000,000 on a reported basis. Cash capital expenditures totaled roughly $1,300,000,000 and we added 177,000 new passings, slightly exceeding our target. Overall, our full-year 2025 performance reflects the deliberate trade-offs and disciplined execution across the organization during a challenging operating environment. Importantly, we entered 2026 with a simplified operating model, improved cost structure, and a clearer path to strengthening our performance. Let us now turn to slide five to review our 2026 priorities, which are centered on further simplifying how we operate to deliver greater customer-first and employee experiences. We are focused on improving our broadband trajectory, simplifying our product portfolio by offering fewer speed tiers, transparent pricing, and driving increased attachment of value-added services. This includes rolling out our refreshed mobile offer to drive deeper convergence and putting greater emphasis on our new video tiers. Mobile convergence serves as a key driver of improved broadband retention and residential ARPU. Following the investments we made in mobile in 2025, we expect that mobile along with other value-added product bundles will reduce churn and increase customer lifetime value. It is important to highlight that our simplified go-to-market strategies reflect testing and trials we started in select markets in late 2025, which showed encouraging results in December, and which we will continue to use to inform our broader 2026 strategy. Improving our broadband trajectory directly supports our second priority of maintaining financial discipline in 2026. Our approach begins with a continued focus on base management, including proactive churn reduction, targeted competitive responses in areas of elevated pressure, a customer loyalty program, and the use of price locks for certain subscriber cohorts. We will also continue to drive product margin expansion across the portfolio. Video is a good example. Industry-wide cord cutting and shifts in consumer behavior have contributed to significant video revenue decline since 2022. Despite this, our video profitability in 2025 was higher in absolute dollars than in 2022, and video gross margins were more than 750 basis points higher in the full-year 2025 compared to 2022. This performance reflects our disciplined approach to programming costs, margin management, and the introduction of flexible packages that resonate with our customers. Furthermore, we will continue to deploy advanced AI tools and automation across the organization, including in network operations, customer service, marketing, and sales. Specifically, we are increasingly using AI tools to support our frontline teams and help improve their productivity, which in turn leads to better employee and customer experience. For example, as a result of our partnership with Google, millions of customer calls are now routed through Google CCAI, which analyzes customer sentiment and agent interactions to identify opportunities for continuous improvement and best practices across our care organization. On the network side, we leverage access network automation, which ingests network telemetry and operational data, including trouble tickets, and applies AI to more precisely identify the location and root cause of a network issue. Taken together, these capabilities help us resolve problems faster and proactively, reduce recurring issues, identify opportunities for self-service, and reduce contact rate and service, which enhance efficiency and improve our overall cost structure. Finally, investments in these tools and automation combined with changing business demands allow us to continue to evolve our workforce and organizational structure. In late 2025, we expanded partnerships with leading third-party service providers to rationalize and consolidate elements of our field services and retail operations, improving accountability and driving operating efficiencies. We will continue to evaluate opportunities, both internally and with key partners, to ensure we have the right workforce structure to drive our business forward. Importantly, our approach to managing costs has not come at the expense of network performance, product quality, or customer experience. In fact, customer satisfaction scores continue to improve and our network continues to lead the market. Just last week, our Optimum Fiber network in the Tri-State once again earned multiple number one rankings from Ookla’s Speedtest for best-in-class Internet performance, outperforming every major 5G home Internet provider on speed, reliability, and consistency. These results reinforce that Optimum Fiber delivers the fastest and most reliable speeds, the lowest latency, and a best-in-class gaming experience across key markets. Finally, our third priority is investing for long-term value creation. This includes continued fiber expansion, targeted network upgrades, and ongoing investment in technology and tools that improve the customer experience, enhance performance, quality, and reliability, and drive operational efficiency. With more than 3,000,000 fiber passings, we view fiber as an important long-term value engine and are actively improving the migration process to increase customer lifetime value while improving ARPU erosion and migration costs, helping to maximize the value of our existing customer base. As these process enhancements are implemented, we expect to expand migrations in a disciplined, returns-driven manner over time. On the new build front, we have more precision than ever in how and where we build, as well as greater command of how we drive penetration to those new passings through a coordinated go-to-market strategy. We will continue to balance our build plans with long-term economics to further enhance our returns. Of note, we can offer one gigabit or higher download speeds to approximately 6% of our entire footprint. We will continue to evaluate markets to deploy mid-split upgrades on our DOCSIS 3.1 HFC network to enable multi-gig speeds and improve capacity and reliability in a highly capital-efficient manner. Regarding our capital structure, as Marc will review shortly, we completed several debt refinancings in 2025 which improved liquidity and expanded financial flexibility, giving us room to operate in 2026. In closing, I could not be prouder of the entire Optimum Communications, Inc. team for their hard work in 2025 and their unwavering commitment to each other and our customers. Despite the sustained competitive intensity, I remain confident that by simplifying how we operate, we can strengthen execution and elevate our operating performance to build a stronger business and deliver long-term shareholder value. I will now turn it over to Marc to review our performance in greater detail. Thank you, Dennis. Starting on slide six, I will review our subscriber trends. In the fourth quarter, we lost 62,000 net broadband subscribers and ended the year with 4,200,000 broadband subscribers. Net losses were primarily driven by fewer gross additions reflecting continued low household move activity, heightened price sensitivity among customers, and sustained competitive intensity. Marc Sirota: In addition, our more measured and disciplined promotional approach combined with the competitive environment contributed to higher churn year over year. Marc Sirota: As we closed out 2025, we began testing a simplified pricing and product structure with more competitive offers, and those early learnings have helped shape the 2026 broadband strategy that Dennis previewed. Our fiber customer accounts reached 716,000 at the end of Q4, representing 33% year-over-year growth. Marc Sirota: Net additions moderated in the fourth quarter with 12,000 fiber customer net adds, reflecting our intentional decision in mid-2025 to slow fiber migrations. This approach underscores our focus on executing migrations in the most value-accretive manner, minimizing ARPU erosion, and optimizing costs. Total mobile lines at the end of the fourth quarter reached 623,000 lines, representing 35% year-over-year growth. In Q4, we added 38,000 mobile lines, in line with recent trends. Our focus remains on building high-quality mobile customer relationships to reduce churn and increase penetration within our broadband base. Marc Sirota: In Q4, annualized mobile churn improved by over 700 basis points, reflecting the effectiveness of programs and initiatives we launched in 2025 to strengthen quality in the mobile value proposition. Marc Sirota: As we enter 2026, our mobile program is centered on driving high-quality sales, expanding multi-line attach rates, and deepening broadband-mobile convergence. Marc Sirota: To drive growth, strengthen retention, and expand customer lifetime value. We ended the year with 1,700,000 video subscribers, down 13% year over year. In the fourth quarter, we recorded a net loss of 49,000 video subscribers, representing our lowest quarterly video net losses in more than five years and a marked improvement compared to recent trends. This performance reflects our intentional video strategy of delivering the content customers want at a compelling value with choice and flexibility at the center of our negotiations. This proactive approach enabled the launch of three new higher-margin video tiers in 2024, which are performing well, stabilizing gross add attachment rates, and supporting our lowest video churn in more than a decade. At year-end 2025, these video tiers account for over 15% of our residential video customers. Lower video churn was driven in part by higher retention effectiveness as our teams increasingly migrate customers to these new tiers. Marc Sirota: Across broadband, mobile, and video, all results reflect deliberate trade-offs in a challenging competitive environment. While subscriber trends remain under pressure, we are taking clear actions to drive improved performance in 2026 through simplified product and pricing, a more focused go-to-market approach centered on convergence, investments in AI to improve marketing and sales channel yield, and improved customer value propositions. Next, on slide seven, I will review our quarterly financials. Marc Sirota: Total revenue of approximately $2,200,000,000 declined 2.3% year over year. Revenue pressure remains mainly concentrated in video, which declined almost 10%. News and advertising revenue declined 8%, driven by tougher political comps from the prior year. Excluding political revenue, news and advertising revenue grew 6%. Connectivity and all other revenue grew 2% year over year. This was supported by timing of rate actions within residential connectivity, mobile revenue growth of over 40% as well as business services growth of over 8% driven by LightPath revenue growth of 35%. LightPath growth was driven by nonrecurring revenues from and deliveries of services to large hyperscale customers, as well as recurring revenue growth from continued positive net installations. News and advertising growth, excluding political, was driven by continued growth in our advanced advertising agency services business. Marc Sirota: Contributing to higher national sales. Marc Sirota: Residential ARPU grew by 0.4% to $134.49, or grew by $0.54. Of the $0.54 year-over-year growth, video represented a $2.80 decline, while all other products grew by $3.40 driven by broadband ARPU expansion and selling of mobile and value-added services. Residential ARPU remains under pressure as a smaller share of customer relationships include a video product. While this continues to weigh on top line and per-customer revenue, the impact of a declining video base is increasingly being mitigated by continued product margin expansion. Broadband ARPU grew 2.8% year over year to $76.71, our highest quarterly broadband ARPU in fourteen quarters. Marc Sirota: Driven primarily by the benefits of timing of rate actions as well as disciplined rate preservation in care and retention. Continuing on slide eight, gross margin reached 69.5% and expanded by 180 basis points year over year. This reflects the continued mix shift towards higher-margin products such as broadband, and new video tiers along with a disciplined approach to programming agreements and ongoing efforts to optimize video margins. Marc Sirota: We also continue to see favorable mix shifts to our higher-speed broadband with 52% of new customers selecting one-gig or higher tiers during the quarter, bringing 43% of our broadband base to one-gig or higher speeds at year end. Marc Sirota: Adjusted EBITDA of $902,000,000 grew 7.7% year over year. Marc Sirota: Fourth quarter adjusted EBITDA margin expanded by 380 basis points year over year to 41.3%, representing our highest EBITDA margin in sixteen quarters, and surpassing the 40% margin milestone. Our fourth quarter adjusted EBITDA performance was supported by a few key drivers. In the quarter, revenue declines moderated primarily supported by rate actions and pricing discipline, LightPath revenue growth, and continued momentum in mobile. Strong gross margin performance reflected the benefits of disciplined programming and direct cost management, which helped offset some revenue pressure. And operating expenses declined year over year by almost $60,000,000. Contributing to this was a strategic workforce optimization, which represented over 6% reduction in headcount year over year. In addition, we exercised tighter cost controls across the business, including a mix shift in marketing in the quarter to rationalize customer acquisition costs. Turning to slide nine, I will walk through our network investments and capital expenditures. Marc Sirota: As shown on the left side of the slide, full-year 2025 cash capital totaled approximately $1,300,000,000, reflecting our disciplined approach to capital deployment, increased capital efficiency, and focus on prioritizing higher-return investments. For the full year, cash capital spend excluding LightPath improved by 10% year over year for an improvement of over $120,000,000. LightPath capital spending accounted for approximately $200,000,000 in full-year 2025. Marc Sirota: Total capital intensity reached less than 16% in the full-year 2025, our most efficient in the last four years. Marc Sirota: Excluding the LightPath business, capital intensity would have been approximately 14%, a 500 basis points reduction compared to 2022. On the far right, you can see how that capital translates into network expansion enhancements. In the fourth quarter, we added approximately 65,000 total new passings, bringing full-year additions to 177,000 total passings. In total fiber passings expansion of 43,000 homes in the quarter, resulting in 134,000 new fiber passings for the full year. Underscoring our continued progress in expanding our footprint primarily as fiber passings. Our approach to network investment remains balanced and disciplined. We moderated capital intensity, prioritized fiber and high-return projects, and leveraged targeted upgrades to our HFC network to support improved broadband competitiveness, protect margins, and drive long-term network value. Turning to slide 10, I will highlight the continued strength and momentum of our LightPath fiber business. LightPath continues to increase its position as a provider of AI-grade digital infrastructure and connectivity. At 2025, LightPath awarded AI-driven contract value totaled $362,000,000. This represents a 40% increase over the $110,000,000 of total contract value awarded in 2024. As shown on the right, LightPath revenue, which is consolidated in business services revenue within Optimum Communications, Inc. total revenue, has grown steadily over the past several years. LightPath revenue reached $468,000,000 in the full-year 2025, representing 13% growth year over year. This growth reflects continued demand from hyperscale customers along with strong underlying recurring enterprise revenue. Profitability continues to scale along with revenue, with LightPath adjusted EBITDA growth of 17% year over year. In addition, in February, LightPath priced an inaugural ABS transaction of approximately $1,700,000,000 which is expected to close in early March. Proceeds are primarily expected to repay existing LightPath debt. Overall, LightPath continues to serve as a differentiated growth platform within our portfolio, supported by durable revenue growth, expanding margins, and attractive returns while reinforcing the strategic value of our fiber infrastructure and addressing broader enterprise and network connectivity needs. And finally on slide 11, I will review our debt maturity profile, pro forma for recent transactions. In the fourth quarter, we closed a refinancing through which we received $2,000,000,000 of new financing from JPMorgan to voluntarily prepay our existing incremental B6 term loan in full. Subsequent to quarter end, in January, we secured approximately $1,100,000,000 of additional financing from JPMorgan to refinance our $1,000,000,000 asset-backed facility. Both transactions enhance our short-term liquidity and financial flexibility. And as previously mentioned, in February, LightPath priced an ABS transaction, which is included in our pro forma schedule subject to closing. Pro forma for these transactions, our weighted average cost of debt is 6.8%. Our weighted average life of debt is 3.3 years and 81% of our debt stack is fixed. Marc Sirota: Consolidated liquidity is approximately $1,400,000,000 and our leverage ratio is 7.3 times the last two quarters annualized adjusted EBITDA. As we have communicated, one of the company's key strategic priorities is ensuring that our capital structure supports our long-term operating goals. We believe meaningful debt reduction and reset of the balance sheet are essential to continuing our transformation, competing effectively, and investing thoughtfully to maximize long-term value for all stakeholders. In closing, 2025 was a year of execution and progress. We strengthened our foundation, improved profitability, and positioned the business to move forward with greater focus and competitiveness. Importantly, we have remained focused on the operating and financial levers within our control. Since Dennis and I joined the company nearly three years ago, our strongest broadband ARPU performance this fourth quarter represents our best adjusted EBITDA margin, our near-lowest capital intensity, and our strongest LightPath performance to date, along with a near all-time high gross margin. While the business environment remains challenging, we look to 2026 with clear and deliberate focus. We are simplifying how we operate and how we serve our customers while improving efficiency through continued disciplined cost management and execution. At the same time, we are investing across the portfolio in a way that protects cash flow and margins and creates long-term value for our shareholders. With that, we will now take questions. Thank you. Operator: We will now be conducting a question-and-answer session. Our first question is from the line of Kutgun Maral with Evercore ISI. Please proceed with your questions. Great. Good morning and thanks for taking the questions. Two, if I could. First on broadband subscribers, as always, Dennis, thank you for the color and candor. Is there anything more you can unpack as it relates to Q4 and trends into 2026? Kutgun Maral: I know that improving broadband trends is a key priority in the year, but that seems hard for any cable operator in this hypercompetitive backdrop. So do we think about the timeline and path towards an improvement as you continue to also focus on financial integrity? And then I know you have not provided, or at least that I have seen, explicit guidance for EBITDA and free cash flow. But following your execution against the 2025 outlook, I wanted to see if there is anything you would be willing to share on how we should think about these metrics in 2026. Thanks. Dennis Mathew: Thanks, Kutgun. Q4, we continued to operate in a very hypercompetitive marketplace. We continued to see just unprecedented levels of spend from a marketing perspective, very aggressive pricing and packaging, and value-adds and incentives that were being provided. That being said, we continued to operate with discipline. As I have said. Last year was a year where we continued to lay the foundation. We are on a significant transformation journey. 2023–2024, we were focused on stabilizing the company. 2025, we continued to invest to ensure we have a high-quality network, and we are continuing to win awards across the, like, from Ookla. We saw an improvement in our customer experience, which was critical. 11 improvement. And we are leaning into automation and AI which is really helping us optimize our cost structure and leaning into digital. We saw a 12% improvement there and 19% improvement on dispatch rate which allowed us to further transform the workforce. I say all this because this is critical as we think about how we can now start to, one, ensure we have command of the business. We have more command than ever as we think about reporting and analytics and ARPU erosion and managing credits and making sure that we are disciplined on acquisition pricing, and this will allow us to really start to go on the offensive in a more meaningful way from a go-to-market perspective. And so as we enter into 2026, we are continuing to evolve our go-to-market. I am excited about some of the new programs that we have launched around referrals and platforms for leasing agents and property managers, affiliate programs, but then, ultimately, we have launched some simplified pricing and packaging across all the geographies and all the channels. And we will be able to leverage the hard work of 2025 to further invest in our go-to-market strategy. And so Q1 remains hypercompetitive, and there are lots of headwinds. But we did some foundational work in 2025 that will allow us to go on the offensive more meaningfully in 2026, is what I will say. Maybe, Marc, you can comment on the financial questions. Marc Sirota: Sure, Kutgun. Not going to be providing specific 2026 guidance on this call today. As Dennis was mentioning, we believe that the operational improvements we made in 2025 certainly put us in a better position to support long-term EBITDA stability and, over time, growth. In 2025, we certainly benefited from the operational efficiencies, the OpEx efficiencies, including the org redesign, vendor rationalization, the foundation of just simplifying how we operate, using AI in a much more meaningful way. These actions really reset our cost base, strengthened our execution, just as we were navigating this unprecedented competitive environment. As we think about turning to 2026, I think the work that we did in 2025 really does allow us to invest in a targeted way into strategies that stabilize broadband trends. It is going to be some targeted investments in pricing, customer value, again, just continuing to improve the network. But we certainly will share more in our first quarter earnings call. Dennis Mathew: Understood. Kutgun Maral: Thank you both. Dennis Mathew: Thank you. Operator: Our next question is from the line of Frank Louthan with Raymond James. Please proceed with your question. Frank Louthan: Great. Thank you. Can you give us an update on the balance sheet? You have done quite a few debt refinancings and the LightPath ABS deal. So what is the net impact there? And you have a debt stack going current this year. Just give us an update on the balance sheet and how you plan to address that in the next twelve months? Thanks. Marc Sirota: Yes. I will take this, Frank. Again, pleased with the work that team has done this year. As we have communicated, one of the key company strategic priorities is ensuring that we have the right capital structure to support our long-term goals. We do still believe that meaningful debt reduction and a reset of the balance sheet are essential to continuing our transformation and really allowing us to invest thoughtfully to maximize long-term value for all of our stakeholders. We are not going to comment beyond that on the capital structure. I will just call out, proud of the LightPath team. They just priced this week their inaugural ABS, $1,700,000,000, that is expected to close here shortly, probably early March. Those proceeds will be primarily used to repay the existing LightPath debt. Beyond that, we will not comment. Frank Louthan: Alright. Great. Thank you very much. Operator: The next question is from the line of Michael Rollins with Goldman Sachs. Please proceed with your question. Hey, good morning. Thank you so much for the question. I just have two. Dennis Mathew: First, I was wondering if you could talk a little bit more about Michael Rollins: the residential broadband ARPU strength, $77. I think that this is the second highest on record. So if you could talk about that and whether you see that as a good baseline for next year, that would be helpful. And then I just have a quick follow-up. Dennis Mathew: Jump into that, Marc? Marc Sirota: Sure, Michael. Yes, really, again, proud of the team for all the hard work. Overall, total residential ARPU grew 0.4% year over year. And this is despite all of the video headwinds, nearly a $3 decline in video contribution. We overcame that with $3.50 of connectivity and other ARPU expansion, really driven by broadband. The broadband results just continue to demonstrate our continued progress on product mix. We now have 43% of our customers taking one-gig services. Our selling is over 50% selling on one gig. When our fiber customers are over 50% on the one-gig platform, it shows the continued discipline that we have in retention, our pricing strategies, and price actions. Just executing with a different level of discipline, leveraging AI at a size levels, and that is despite all of the competitive pressures. Certainly made trade-offs this quarter to focus on driving ARPU expansion and EBITDA stabilization. Came at a slight cost to subscribers, but still positive on how the team managed ARPU this year. When you think about video ARPU, that is up over 4% year over year. Mobile ARPU up 2%. So the team is really operating at all cylinders and really controlling what we control. Dennis Mathew: Great. Yes. And I will say just on ARPU, the ability to control erosion, the ability to strategically drive our acquisition pricing. We are just gaining more command across all channels and geographies that will allow us to remain disciplined going forward. Michael Rollins: Great. Wonderful. Thank you for all that color. Second, I wanted to ask about your expectations around video programming costs per subscriber. You know, really good favorability from that this quarter. You know, I can appreciate there are a lot of moving parts as we think about next year. The impact from, you know, the more skinny bundles perhaps, I know there are some comps on, like, carriage disputes. You know, there you have given some of the spin-offs like Versant and. Do you see opportunities to work down programming costs there? Just any thoughts there would be helpful. Thank you. Yes. We have been laser focused on programming and our video strategy as you have seen over the past year or so. We are going into these conversations with much more data and clarity than ever. We have a clear understanding of the value of this content relative to our customer base, and so that gives us the opportunity to have some of these hard conversations. And we are fighting for our customers to make sure that we have got flexibility in terms of Dennis Mathew: tiering and packaging, that we have the right cost basis, and we are able to ensure that ultimately our customers are at the center of these discussions, that we can deliver value and choice. And so we continue—we have, you know, ongoing programming discussions that are happening throughout the year, and that is going to be the focus: to make sure that we have very disciplined conversations so that we deliver for our customers, and we see the results we are able to produce. For example, these new e-tiers that have been very well received and are helping us drive attach during acquisition, helping us also in terms of going back to our base and talking about these new tiers that deliver incredible value for them as well to help us stabilize the base. Marc, you want to talk a little bit about the financial elements? Sure. Again, the team Marc Sirota: doing a fantastic job again, just renegotiating and resetting programming. Our costs are down in the quarter, 16% on programming costs. I think an industry-leading measure, 15% for the full year. And we know that there is pressure on revenue, so we are targeted and focused on driving our gross margin for every—interesting fact, for every dollar of video declines that we see, we offset with $1.20 of programming cost reductions. And so we are just taking a different approach. In fact, typically you see steady inflation in pricing for programmers. We are down almost 3% in the quarter on cost inflation. So we are heading in the other direction. That is really just optimizing our packaging, our constructs, getting folks, as Dennis mentioned, onto these skinnier tiers that are meeting the customer needs. So really pleased with that. It is funny, when you look back before Dennis and I started in 2022, we have certainly eroded customers and revenue tied to the video business, but in an absolute dollars basis, we actually make more money now Dennis Mathew: from the video business Marc Sirota: from where we were in 2022. So again, controlling what we control, we take a very financially disciplined approach to pricing, packaging, and strategy here and I think it is paying off. Michael Rollins: Dennis, thank you, Marc. Dennis Mathew: Thank you. Operator: The next question is from the line of Sebastiano Petti with JPMorgan. Please proceed with your questions. Hi, thank you for taking the question. I guess just housekeeping or just clarification. On the fourth quarter EBITDA, I did think, Marc, in your prepared remarks, you did say that there was some nonrecurring product Marc Sirota: revenue. Operator: That kind of hit that drove some of that Dennis Mathew: strength. Operator: Should we assume that that is zero or very low-margin contribution to the overall EBITDA in the fourth quarter? Dennis Mathew: Yeah. Marc Sirota: From the fourth quarter, again, really pleased with the revenue trajectory. As we looked at the connectivity business specifically, just as it relates to the revenue side, really where we saw some of that one-time stuff was around LightPath tied to the hyperscaler activity that we have in the business. Dennis Mathew: Now, Marc Sirota: really pleased with where LightPath is growing. As you heard, over $250,000,000 of contracts awarded in 2025, up from $100,000,000 about in 2024. We are just at the start of the cycle, I think, here as it relates to LightPath growth. So in my mind, these things will continue as we go out. I am really pleased how we are positioned in the hyperscaler market. We are well positioned for the connectivity provider to these data centers. So good about how LightPath is set up for continued growth. Dennis Mathew: Okay. And then any way to help us think about the Operator: the book-to-bill and the total contract value that has been announced to date. What is the timing or phasing as we should think about that over time? Are these like thirty-year IRUs? Any kind of help Dennis Mathew: that. Yeah. Marc Sirota: We will not get into the specifics around the individual contracts, but again, we see that there is a large opportunity still out there for us to capture with the funnel. Really pleased on over $360,000,000 of contracts booked to date. And, again, as we turn these networks on, we will start to see those revenues come in. And I would say the team is firing on all cylinders as far as construction and really getting those networks turned up. Beyond that, we will not comment on the specifics just due to confidentiality of those agreements. But really pleased on where we are positioned and really the opportunity ahead. Operator: Got it. And then lastly, on competition. I mean, is it concentrated in one specific market or one specific legacy operating footprint as you think about Suddenlink versus Fios in the Northeast perhaps? Just any kind of help about where the competitive intensity is coming from. Dennis Mathew: Thank you. Yeah. The competitive landscape continues, in line with what I have shared in the past. You know, when we look at the East, we are 70% fiber overbuilt, primarily with Verizon. You know, we have got fixed wireless at over 85% now across the East. In the West, I mentioned last time, based on the BDC data, we were 45%–46% overlap with fiber. That is now up to 50%. And almost 80% in terms of fixed wireless. And so that intensity remains, but I believe that we are really well positioned in terms of having the right products, the right pricing, the right network to be able to compete, and that is exactly what we are going to be doing in 2026. Really going and leveraging all of the hard work in 2025 to be able to invest in our ability to go to market from an acquisition perspective and make sure that we can compete for jump balls, which, by the way, are fewer than ever just given the move environment, but then also from a base management perspective and continuing to lean in the base and mitigate churn. Thank you. Yep. Operator: Our next question from the line of Craig Moffett with MoffettNathanson. Please proceed with your question. Craig Moffett: Hi, thank you. I want to stay on this topic of LightPath because it really is, obviously, a pretty dramatic set of numbers. Dennis Mathew: First of all, what portion of the growth Craig Moffett: was what you characterized as nonrecurring? And I am curious as to what makes it nonrecurring. It is not obvious that contracts—if you see future growth in significant contracts with hyperscalers and cloud providers and the like—that that would necessarily be nonrecurring. So I wonder if you could just talk a little bit more about that and what we can expect from LightPath going forward. Dennis Mathew: Certainly. I will take that. Marc Sirota: Craig, again, the LightPath business is accelerating the growth. 35% growth in the quarter, very strong results. And exciting for the full year. You see EBITDA along with that growing 17%. When you look at the core LightPath business, excluding the LightPath—the hyperscaler activity that we have going on—business grew 8% year over year. So there is still strong underlying demand for just the core business. As we enter into the hyperscaler business, maybe nonrecurring is not the right choice of words. But as we stand up these networks, the sale of those networks—we recognize that revenue as we build those projects. And so as we continue to scale and get more contracts under our belt and build these new connected pipes, we will continue to see revenue growth coming from that. So feel pretty optimistic about where we stand today with the contracts that we have awarded and the growth that will come from that. And then, more importantly, the pipeline looks like—and where we are placed in the marketplace—to win incremental contracts and continue to drive our large AI-driven data center connectivity business. And so, really pleased. We do feel that there is a nice path of growth here, continuing growth for LightPath. Operator: And outside of LightPath in the business services segment, what are you seeing outside of the enterprise and hyperscaler market? Particularly, I am thinking with small-medium business in your core footprint. Craig Moffett: What do those trends look like? Marc Sirota: Yeah. Dennis Mathew: Craig, this is Dennis. For small-medium business, we remain disciplined. The environment is competitive. And so there is a lot of focus for us in terms of moving beyond just core connectivity. We have launched a whole host of new products like our Connection Backup product, like our Secure Internet product, a relaunch of WiFi Pro, and so we believe that there is opportunity here. And we also, earlier last year, completed the launch of the fiber products on the fiber network as well. And so we see steady trends there, and we are going to continue to lean in, as we are on the residential side, to be able to move beyond just connectivity and offer a whole host of solutions so that we can drive growth in the core B2B business as well in the small and medium space. That is helpful. Thank you. Yep. Operator: Our next question is from the line of Vikash Harlalka with New Street Research. Please proceed with your question. Vikash Harlalka: Hi, thanks so much for taking my questions. Two, if I could. Frank Louthan: One, since you mentioned the slowing down of the pace of fiber migrations in 4Q, Vikash Harlalka: I was wondering if you could sort of, like, double click on that and just help us understand how you are thinking about 2026. And has your thinking around fiber changed at all for the long term? And then second, are there any further opportunities for you to take out nonprogramming cost from the business? Especially in 2026? Marc Sirota: Thanks, Vikash. Dennis Mathew: You know, on fiber, we remain very bullish on fiber. We see churn benefit. We see NPS benefit. And so we are excited. You know, our new builds at over 177,000 new passings are fiber-rich, the majority of which are fiber. On fiber migrations, as you know, this has been a transformation journey. When I first joined, there were numerous technical challenges with being able to migrate folks, and we had to spend the better part of a year solving those defects so that from a technical perspective, we were able to do that seamlessly, efficiently, and ensure all the products worked in the right way so that we were delivering the right customer experience. As we continued on that journey, now we really need to continue to refine the process so that we are doing this in the most cost efficient and maximizing customer lifetime value. You know? In full transparency, a lot of that activity was happening in our retention channel and in our care channel. We have an opportunity to really leverage our base management strategies to do that much further up the funnel so that we can maximize customer lifetime value and ARPU and ensure that we are delivering the absolute best experience. And that is why, purposely, we decided to slow down the migration process. We are continuing to drive from a gross add. We are going to take a beat and make sure we have the right strategy to be able to Marc Sirota: maximize our Dennis Mathew: CLV when doing a migration. And so expect us to pull that strategy together over the next few months and then really hit the accelerator in the second half of the year and really do that in a way that is scalable and delivers the maximum enterprise value. Again, you know, we are going to do all of these things in a very disciplined fashion. That is how we operated in 2025, and this is another area where I know that we can do this in a way that is delivering even more value to the enterprise. And so we are going to build that strategy and more to come. And then— Marc Sirota: On the cash for OpEx in 2026, I mean, just first reflecting on 2025, down nearly 9%, $60,000,000 quarter over year over year in the fourth quarter really—we talked about it going into the quarter—reflects all the optimization we have done over 2025, workforce transformation, really taking a hard look at our SAC costs and marketing and really rebalancing that. We mentioned that we expected lower consulting costs as we entered in the second half of the year, and that certainly took place. So pleased on really how we are acting with discipline around managing OpEx lower. As we think about 2026, we still think the work that we did in 2025 sets us up for a strong foundation. It is going to allow us to make strategic investments in 2026, but continue to try to optimize our workforce, leveraging AI, and really driving out noise—truck rolls, phone calls—out of the ecosystem. So we still feel like there is opportunity, and we will continue to optimize the business. Yeah. We are really pleased with the early results that Dennis Mathew: leveraging AI is delivering, but we are in the early innings. And so, as I mentioned earlier, you know, we have seen a 12% increase in digital interactions. So we are shifting from, you know, phone calls to chat and mobile and self-service, and we are still in the early innings of that. We are leveraging solutions to optimize the management of our network. And so again, early innings. We are seeing great results in terms of call and service visit reduction. You know, for the year, we were able to reduce dispatch rate by almost 20%. And there is more opportunity. And so we are leaning into AI and seeing real tangible results in terms of driving efficiency, but also elevating customer experience. And so we are excited about continuing to lean in here. Thank you. Yes. Operator: Thank you. The next question is from the line of Steven Cahall with Wells Fargo. Please proceed with your question. Dennis Mathew: Thank you. Steven Cahall: First, just wanted to drill down a little more in the ARPU trends. So as you talked about, really strong Q4 in terms of sequential growth. It sounds like gig selling is a big piece of that. Steven Cahall: You also spoke to looking at doing some targeted competitive responses, including maybe price locks in 2026. So how do we wrap all that together? Do you think you can grow ARPU in 2026 and sort of continue that strong Q4 trend? And then a big-picture question on the balance sheet. You know, on a good day, the debt is 25 times the equity. On a bad day, it is closer to 50 times. I know you have got a lot going on with your creditors to look at ways to improve the indebtedness over time. What do you think the scope is for something strategic where you can really, you know, maybe potentially chop that big debt stack down because there is just so much potential equity realization if you can do that. Thank you. Dennis Mathew: I will talk a little bit about our strategy on ARPU and, Marc, you can fill in anything I missed and then, of course, talk a little bit about the balance sheet. But from an ARPU perspective, as I mentioned, we spent, you know, 2025 really laying the foundation. So we have much more command of ARPU holistically. Quite frankly, when I joined, we had little to no visibility in terms of ARPU erosion, what channel, how it was happening. We were able to use some, you know, brute force to mitigate that some, and we have now implemented solutions and tools to be able to manage that more effectively. Had little to no command over things like rate events and promo rolls. Now we have incredible visibility into customers and customer segments so that we understand exactly what is happening, why it is happening, how much erosion occurs within our—with a promo roll, with a rate event, so that we can be much more targeted and disciplined in the way we do that. And then in terms of just being able to drive selling of products—faster, higher speeds, mobile—you know, we have not talked much about mobile, but we are really proud about the improvements that we have made. You know, we, as I mentioned earlier, we were going to, again, take a step back and focus on quality. And now we have delivered a 700 basis point improvement in churn and we have seen incredible improvement: 10% improvement in ported phone numbers, 15% improvement in selling in new devices and financing devices. And so this will allow us to really start to scale not only on acquisition, but also in the base. And so we will be able to leverage all of this foundational work to drive our go-to-market, to improve our subscriber trends, and remain very disciplined from an ARPU perspective. Marc, anything to add? Marc Sirota: I think you got it. The only thing I would just call out is, think about broadband ARPU certainly up $2 year over year, nearly 3%, very strong, again up $2 sequentially as well. It is really about the product mix that we talked about. There were timing of just the annual rate event. We did have some of that hit in the fourth quarter. Vikash Harlalka: But we are going to take a measured approach to rate and volume Marc Sirota: as we turn to 2026. We are not going to provide specific guidance on this call around ARPU trends 2026. We will do that in the first quarter call. But pleased around how we are executing and managing in a disciplined way the rate strategy. Marc Sirota: And then on just the balance sheet, we are not going to really comment beyond what we always talked about. It is a strategic priority of ours. We do feel that there is a meaningful amount of debt reduction that we do need to obtain to really continue on our journey of transformation. But nothing more to share outside of that. Operator: Thank you. At this time, we have reached the end of our question-and-answer session. I will turn the floor back to management for closing remarks. Sarah Freedman: Thank you all for joining. Please reach out to Investor Relations or Media Relations with any further questions. Operator: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.
Justin McCarthy: Good morning and welcome to Westpac's Q1 FY '26 Update. I'm Justin McCarthy, GM, Investor Relations. Joining me today is Nathan Goonan, our CFO. Before we commence, I acknowledge the traditional custodians of the land on which we meet. For us in Barangaroo, that's the Gadigal people of the Eora Nation. I pay my respects to Elders past and present and extend that respect to all Aboriginal and Torres Strait Islander people. This is an inaugural quarterly call designed to enhance transparency and disclosure. We hope this refinement is helpful and welcome your feedback. Nathan will provide a brief overview of our quarterly performance and then take questions. In the interests of time, we'll take one question per person. With that, Nathan. Nathan Goonan: Thanks, Justin, and good morning everyone. Thank you for joining. As we start the financial year, we're continuing to drive operational momentum across the group and our quarterly performance reflects a disciplined execution of our 5 strategic priorities. Net profit excluding notable items increased 5% compared to the second half '25 average. Revenue was up 1%, comprising a 2% increase in net interest income driven by an increase in average interest-earning assets and a stronger Treasury performance, and a 4% decrease in noninterest income driven by lower markets revenue due to unfavorable DVA. Operating expenses ex the second half '25 restructuring charge were stable. Including the restructuring charge, expenses were 5% lower. These revenue and expense outcomes resulted in an increase in pre-provision profit of 6% or 2% ex-restructuring. Sustainably growing customer deposits underpins our ambition to be our customers' main financial institution. The growth of $12 billion in the quarter highlights the inherent strength of our franchise, with household deposit growth of 3% and business transactional deposits up 4%. We expect deposit growth to remain strong through FY '26. Loans increased $22 billion with growth across all customer segments. Institutional lending grew by 7% and was well diversified. We continue to see good opportunities in this part of the market, although we expect the rate of growth to moderate over the remainder of FY '26. Australian mortgages excluding RAMS grew by 3%. This reflected progress in executing our mortgage strategy with the proportion of proprietary flow rising to 35% in the quarter. This positioned us above system for the quarter. We're targeting consistent performance broadly in line with system from here. Australian business lending maintained momentum, growing at 3%. More bankers on the ground is improving proprietary flow. The stronger lending than deposit growth resulted in a modest widening of our funding gap, with the deposit to loan ratio down 1 percentage point to 84%. We remain on track to settle the RAMS transaction by mid-year and have intentionally positioned the balance sheet to accommodate the expected $16 billion reduction in mortgages. Funding markets have been supported and we have issued $18 billion in long-term wholesale funding since October '25. Net interest margin decreased 1 basis point to 1.94%. Consistent with expectations set out at FY '25 results, core NIM of 1.79% declined by 3 basis points compared to second half '25, with the decline moderating to 1 basis point on a quarterly basis. Lending margins edged lower as competitive pressures persisted. The rate of compression was stable in mortgages, has moderated in business, and was more pronounced in institutional this quarter. The nonrepeat benefit related to interest rate reductions in prior period was a net drag in the quarter, with the lending reduction more than offsetting a deposit benefit. Prior period rate lag impacts have now flowed through our numbers. Overall deposits were stable. Compositionally growth in higher rate savings balance continues to be a drag, while liquid assets provided a slight benefit. The Treasury and Markets contribution of 15 basis points was up from 13 basis points, reflecting favorable interest rate positioning by Treasury in a more volatile market environment. To provide further earnings stability through the cycle, the deposit hedge was increased by $15 billion to $92 billion, $7 billion of which was flagged at the full year results. This had no material impact on NIM in the quarter. In terms of considerations for the first half, we continue to expect the net replicating portfolio benefit to be approximately 1 basis point, and our sensitivity to a 25 basis point rate rise is a benefit of approximately 1 basis point over a 12-month period. However, the recent RBA rate rise will be a slight headwind in the second quarter due to the timing of passing through the rate rise to customers. Operating expenses excluding the second half restructuring charge were stable at $3 billion. We report to the nearest $100 million with expenses rounded up in the quarter. We remain confident our FY '26 expense growth will be largely offset by productivity savings, which include ongoing benefits from the restructuring charge taken in the second half of '25. Considerations provided at the full year results in relation to investment spend and operating expenses more broadly remain current. Credit quality metrics improved over the quarter. Stressed exposures to total committed exposures decreased 11 basis points. This reflects a decline in Australian mortgage arrears and reduced stress rates across most industry sectors. Our portfolio remains well diversified across sectors and geographies. Total credit provisions rose marginally and at $5 billion were $2.1 billion above our base case. Coverage was stable at 125 basis points. While modeled collective assessed provisions were stable, reductions from improvements in underlying credit metrics were offset by model adjustments related to the severity of the downside scenario. Credit impairment charges remained low at 6 basis points of average gross loans. The CET1 capital ratio remains strong at 12.3%. The reduction in CET1 reflects the payment of the full year 2025 dividend, which more than offset earnings for the quarter. There were also several items that moved in both directions and summed to a reduction of 5 basis points. These movements, many of which are one-off in nature, include: a benefit from the removal of the operational risk overlay; higher lending balances which were partly offset by credit quality improvements and data refinements; IRRBB was a modest drag with embedded losses and an increase in hedge deposits more than offsetting the benefit of standard changes; and the capital floor drove a marginal reduction. In second half '26, we expect a 22 basis point benefit from the completion of the sale of our RAMS portfolio. To conclude, the performance for this quarter demonstrates solid progress against our plans. Discipline execution is driving our momentum, we're deepening customer relationships and investing in our business. We're optimistic on the outlook for the economy and expect demand for both business and household credit to remain resilient. With that, I'll hand back to Justin for questions. Justin McCarthy: [Operator Instructions] Our first question comes from Matthew Wilson from Jarden. Matthew? Matthew Wilson: Pretty clear result. Therefore, perhaps can we ask a question -- obviously, you've had 2 senior leaders in the IT area depart in recent weeks, which coincides with an important part of the UNITE project. I understand Peter Herbert is running it, but obviously IT is important. Could you add some color to the outlook for that? Nathan Goonan: Yes. Thanks, Matt. We've obviously got an update on UNITE in the diary for I think the 26th of March where we'll do a fulsome update on that. I think obviously Anthony and Scott has announced his retirement and so he and Anthony have been working through that over a period of time to work out when's the best time for that to happen. Scott's remaining with us until the end of the year as we find a replacement for him. But as you said, Peter Herbert runs the UNITE program. We have a dedicated CIO who works for Scott who's been embedded in that program alongside Peter Herbert running it. So don't read anything into that. It's no material impact on UNITE and you'll get a fulsome update on the 26th of March. And you could almost read it the other way, Matt. This is a retirement for Scott that Anthony and Scott have been working through when's the best time to do that. Matthew Wilson: What about David Walker? He seems more hands-on and obviously has fantastic experience with his time at DBS. Nathan Goonan: I think David Walker again, these are great executives who have done good things for Westpac over a period of time and come to the end of their time here. I think we've also been bringing in talent into the tech team and again there's a dedicated CIO who isn't David Walker or Scott Collary who's been working on the UNITE program. Matthew Wilson: The next question comes from John Storey from UBS. John? John Storey: Happy Friday. Yes. I guess the question that I would have, Nathan, is just around your hedge, right, and obviously the decision to increase the size of the hedge into a rate hiking cycle. I mean obviously in the short-term, maybe not ideal, but maybe you could just give a little bit of context around how tactical you can actually be on the hedge itself and then maybe the 50 basis points let's say of potential interest rate increases during the course of this year. What would be the impact actually on NIM from increasing the size of the hedge? Nathan Goonan: Thanks, John. Happy Friday to you as well. On the hedge, I probably came into the role, John, thinking that one of the things we needed to do was just increase the proportion of our non-rate sensitive deposits that were hedged. And I think really what we're trying to do here is provide medium-term earnings stability through the cycle. And so while yes, you can be tactical and when you put it on, I think the main point here is to try and give that earnings stability so that it's better for us when we're planning to run the bank and we think it's a more predictable earnings profile for the market. The timing of these two was -- and I think now just to say, John, I think we're now proportionally up there with some of our peers in terms of eligible deposits that we could hedge. The timing of the two that we put on, so we did 2 $7 billion broadly. The first was in October, that went on probably slightly below cash. So what you're doing here as you know is effectively taking earnings that might be earning the overnight cash rate and investing across the 5-year curve. So the October one was slightly below, so we took a little bit of near-term earnings hit on that one to give us the earnings stability over time. And then actually the December one was just slightly before Christmas and we actually were able to invest that pretty much at the cash rate. So there's no near-term earnings impact from that one. And as I said, take that all in aggregate, we expect a one basis point benefit from the hedge when we get to the first half. Justin McCarthy: Our next question comes from Andrew Triggs from JPMorgan. Andrew? Andrew Triggs: Nathan, can I just ask on the momentum in the core NIM in the quarter, please? Just the 1 basis point decline. Just a bit more in terms of the drivers of that, what were you seeing with respect to mix shifts especially on deposits? You mentioned perhaps there was a little bit of a headwind from your change to the hedge there. What are the other sort of drivers you can call out for us please? Nathan Goonan: Yes. Thanks, Andrew. And I think, maybe I'll answer this one a bit fulsome and then hopefully it helps others on the call as well. I guess the trends that we're seeing in the quarter, Andrew, are very consistent with what we were talking to you about at the full year. And I think they're obviously going to be the things that we'll be talking about when we get to the half as well. It is a more stable environment for margins and you're right to call that out. And as you said, we've sort of seen moderating trends. While there are consistent trends, they're moderated. We had sort of 3 basis point decline in margins when you compare to the second half and then 1 basis point when you isolate it to the quarter. And I think if you back out the net negative from the rate lag, the prior period rate lag when rates were declining, it is relatively stable. That said, the underlying trends are sort of as I outlined at the full year. On lending, we're seeing that gradual decline in lending margins across the books. So mortgages was relatively stable for the quarter, but remains competitive. Business lending, the compression was much more moderate in this quarter than it's been in prior periods for us. And then maybe Institutional is a little bit more this quarter than it's been, although we've seen a little bit of margin compression coming in there sort of last quarter of '25 and into this quarter. And on the deposit side, while relatively stable overall, the thing that's hurting margins there a little bit, and again it's a gradual decline, has just been the real success of that savings product. So at a macro level, deposits mix has been improving, proportion of TDs is continuing to decline. The bonus saver product, the life product, continues to be a great product for our customers and so that might have been $5 billion of growth in the fourth quarter last year was another $4 billion of growth this year. And one of the factors there is consistent with our peers. We're just seeing a slight tick up in the people who are qualifying for the bonus rate. So I mentioned that at the full year, the fourth quarter was about a percentage higher than what it had been for the average of that year, and that's continued into this quarter. So they're the sort of trends. If I thought about the considerations going forward just to be fulsome in the answer, Andrew, I think you continue to see those underlying trends flow through into the second quarter. The replicating portfolio wasn't much of a benefit in the quarter, we expect it to be one basis point in the half. Liquids I think remain a benefit for us in the second quarter. And then just to call out the rate, the benefit from the 25 basis point hike that we've had, albeit a 1 basis point benefit over a 12-month period, it's likely to be a slight drag in the second quarter just given the timing difference between when we pass on to deposit holders relative to lenders. Justin McCarthy: The next question comes from Jonathan Mott from Barrenjoey. Jonathan? Jonathan Mott: Just a quick question if I could on the deposits. You said there was really good growth and success that you've had in the savings product, and that's, I think, you just mentioned $4 billion. Have you seen any growth in non-interest bearing deposits which was a real tailwind for CBA when they just reported? Nathan Goonan: Yes, we have seen growth in those, Jon. Yes, we have seen growth in those transaction deposits. In particular, I called out in the speaking notes. I think Paul and the team are doing a really neat job in business there, Jon. We had sort of 4% growth in the quarter of transaction accounts in Business Bank. That's sort of $2.8 billion growth there. And then overall we're seeing growth in transaction accounts in consumer as well. So it has been outpaced by growth in offsets and growth in savings, so hence calling out that mix shift with the higher proportion of growth coming in those higher rate products. But we are seeing that underlying quality growth as well. Justin McCarthy: Next question comes from Carlos Cacho from Macquarie. Carlos? Carlos Cacho: I'm just wondering if you can give us any detail about the proprietary broker split in mortgages. It looks like from your portfolio side you've continued to lose a bit of proprietary share, but on the flow side have you seen any stabilization or improvement there given the renewed focus on the proprietary channel? Nathan Goonan: Yes, thanks, Carlos. Yes, we have. In from a flow sense -- and you're right to say it's a big ship and I think Anthony's mentioned at the full year, we're going to measure this in sort of halves and years, not in quarters. But for the quarter, we have had that improve for 2 quarters in a row now and on a flow basis it was 35%, which is up from where it had been. Actually, interestingly, if you're sort of looking for a stat or you want to be a believer in this space, which we certainly are, we've had first party growth of $3 billion in the first quarter. If you compare that to the fourth quarter last year, that was a reduction in that first party or proprietary book and it grew by about $100 million in the prior period. So it's sort of grown by $3 billion, prior period it grew by about $100 million. So we are seeing green shoots there. It's going to be a journey for us as we continue to push on that and the team are doing a good job executing against a multi-year plan that we expect to just continue to improve and improve as we go through that. Justin McCarthy: Our next question comes from Brendan Sproules from Goldman Sachs. Brendan? Brendan Sproules: Just a quick question on the contribution to NIMs from Treasury this quarter. Is that a little bit circumstantial to the conditions that you faced during December? And how do you sort of see the contribution to NIM on a more sustainable basis from this part of the business? Nathan Goonan: Yes, thanks Brendan. It's a good question. I think it's clearly been a bit of an outlier in this quarter. So I would expect it to moderate. And I'd expect it to moderate even into the half, Brendan. So I think long run of that has been more like in the 12. Some people tell me it's sort of almost been in the down around 10. I think we've clearly had a good quarter where the contribution's been significant. I'd expect it moderates. And so don't expect that to be 15 when we get to the half. Justin McCarthy: Our next question comes from Tom Strong from Citi. Tom? Thomas Strong: Nathan, you mentioned the funding gap in the quarter which meant that you haven't got the same portfolio mix that your peers have seen. I mean how should we think about the funding of growth into the next couple of quarters given your loan growth is quite strong? How should we think about how you're going to fund this? Do you have to get potentially a bit more competitive in deposit pricing to pick up that deposit growth? Nathan Goonan: Yes, thanks, Tom. I think we're doing a neat job on deposits. So I think the major thing just to call out as you think about the outlook is just the RAMS sales. So we've got $16 billion of mortgages that we expect to drop off the sheet when we get to completion of that, which we're expecting by mid-year. And so what we've been able to do a little bit if you think about that is just pre-position the balance sheet for that eventuation. We've sort of been doing that a little bit on both sides, I guess. So that has given us the confidence to be lending a little bit more on the asset side. And we've also structured up some of our liability side a little bit for that eventuation. So for the real studies out there, you'll see we've been increasing short-term funding a little bit with for that eventuation. And we've been able to sort of structure up for that. So that's the big thing that we've got going on as we think about the outlook for funding the balance sheet for the rest of the year. I think on deposits, look, it's a competitive market. We're doing well. We feel good about that. And we've been sort of taking a slight amount of share in household deposits or being just slightly above system. We want to continue to do well there. Business transaction growth has been good and the team are executing really well there. So we want to continue to be focused on deposits and make sure we're getting our share or slightly above, but we don't think we have to do anything crazy on price to be able to do that. Justin McCarthy: Our next question comes from Brian Johnson from MST. Brian? Brian Johnson: Nathan, I'd just be intrigued -- I know Carlos kind of answered this, but I'd love if I could get some more detail. We've seen the flow go from like 33% through the prop channel up to 35%. But the flip side is that we've actually seen the percentage of the book decline from 45% to 44.4% on Slide 8. Could you just explain to us the increased flow versus the declining book? Is there something weird that's happened in the life of the book between the two? Nathan Goonan: Yes, thanks, Brian. I think it is just going to be a sort of a what proportion is running off relative to the flow that we're putting on. And so I can take it away and come back to you and just sort of outline how the maths would work on that, Brian. But I think my comments really go to the bit that we're most focused on had been that flow number in terms of improving how we're going to market and making sure that our application front of funnel was most focused on improving that first party mix relative to third party. Clearly there's just maths in the back about how the back book is behaving relative to that flow that causes the dynamic that you're seeing on the page there. Brian Johnson: And that would it be incorrect, so it's hard not to conclude that the prop book is running off faster than the broker book. Is that a fair conclusion? Nathan Goonan: Yes, I think it has to be the maths of it. So the absolute prop flow was sort of up in the year, but up in the quarter as I said we had sort of $3 billion of prop flow. But then to get the dynamic that you've got there in the stock, you have your prop book is running off faster than your broker book. Justin McCarthy: And also consider that the flow is still below 50 from proprietary. So we're still getting more flow from broker. Our next question comes from Ed Henning from CLSA. Ed? Ed Henning: Sorry, there might be a bit of background noise. Can I just ask a question on capital? Obviously capital position looks pretty strong. You got the RAMS sale coming through. Can you just talk about more optimization opportunities coming through in the next half and the next year? And also potential impact of the RBNZ changes as well coming through. Nathan Goonan: Yes, thanks, Ed. We can hear you fine so. Just sort of take those in turn. I think inside the quarter on refinement, we've -- basically, we've had a track record here of about $10 billion of sort of optimization in the risk weights every year. And I think the team have been executing really well against that for a number of years. It's been a pretty consistent number. You'll see in the pack when you get the opportunity, it's been -- that was $2.3 billion of risk weight optimization in the quarter. I do expect, and I think I said at the full year that, that run rate is unlikely to repeat for the full year. So I don't expect we're going to be at $10 billion this year. I expect that will be a much more moderate number. If we got that somewhere near the sort of $7 billion or $8 billion, I think, it would be a good effort based on the pipeline of opportunities we've got ahead of us. So we continue to see opportunities. Maybe they're moderating a little bit from where they've been. The other thing that's, sort of, offsetting some of the strong credit risk weighted asset growth has been credit quality. So when you get the opportunity to go through the pack, you'll see that was a $3 billion RWA benefit from improvements in underlying credit quality. That was about $3 billion in the fourth quarter last year. So that's a pretty consistent trend now. And if we continue to see those asset quality improvements flow through the book, you could expect that that continues to be a benefit for us. And then I think lastly on -- and offsetting that, we've obviously got strong credit growth. So that's the most important thing that's offsetting that there. As it relates to New Zealand, that's still early days in terms of those things haven't been finalized, but they do look positive. So we have -- that would mean that we're pretty much at the capitalization rate of 12.5 set one in New Zealand that we need to be at. So there will be some opportunities there. I don't think it's particularly material for us, but net-net that'll be a positive for us as well. Justin McCarthy: Our next question comes from Richard Wiles from Morgan Stanley. Richard? Richard Wiles: So I just wanted to follow-up on the questions around Treasury. I think you said that Treasury had a good quarter, boosted the margin, but markets was negatively impacted by DVA. If we put it all together, Treasury and Markets, it looks like the margin benefit might have been greater than the drag on other income. Although you haven't split it out. Last year or last half the Treasury and Markets was about $1.1 billion. So the quarterly average is around $550 million. Could you tell us what it was in the quarter and how much it -- so whether that margin boost has been fully offset by a reduction in other income? Nathan Goonan: Yes, thanks Richard. And obviously we'll sort of do that fulsome disclosure when we get to the half. In terms of just to give a high level sense, I think you're reading it right, they've probably offset each other, but I think we can give more fulsome disclosure on that when we get to the half. But proportionally I think you're getting that pretty right. Justin McCarthy: Next question comes from Matt Dunger from Bank of America Merrill Lynch. Matt? Matthew Dunger: Could I just revert to the capital position? Just I know you said the 5 basis point net impact of the one-offs, but just wondering how the embedded losses unwind. You've got the RAMS sales. So just wondering how you thinking about potential for capital returns coming in into the half given strong capital generation expected? Nathan Goonan: Yes, thanks, Matt. Just specifically on the on the embedded losses there, I think IRRBB was a net drag of 4 basis points. There's sort of 3 component parts here. So we had the benefit of the standard changes, I think we flagged that at the full year. It's about 40 basis points or 39 to be precise. And then sort of offsetting that there's 2 points: the deposit hedge, so we obviously have increased that by 15 $billion, there's 27 basis points consumed there for that. And then as you rightly call out, we had embedded gains swing to embedded losses and so there's sort of 16 basis point drag from that in the quarter. In terms of the look forward on that, obviously the embedded loss or gain is really all rate dependent. So that is quite hard to predict. And so it's like the unwind of that is obviously a possibility -- there's obviously a possibility that that goes the other way as well. So that's a little bit of a one to watch in terms of where things go from here. I think our movement there just looking at the other results this week looks very consistent with what other people have seen. On the go forward, as you rightly call out, I think a number of the movements in this quarter are a little bit one-off in nature. So operational risk overlay removal is one-off in nature. The impact of the standard change is one-off in nature. The additional deposit hedge, while we'll continue to have rebalancing while we've got strong growth there, I think we're now proportionally in and amongst our peer and I wouldn't expect material movements in that in the second quarter. And then it just all comes down to sort of earnings, credit, risk weighted asset growth through credit, what happens in asset quality, what happens in the embedded loss. So there's a few moving parts on that and look forward to discussing it more with you at the half. Justin McCarthy: That was our last question. We certainly thought this morning was valuable. Hopefully you did as well. We welcome your feedback and thank you for being succinct with your questions because we're just on 8:30 now. Come through with anything else we can help with throughout the course of the day. Thank you, Nathan. Nathan Goonan: Thanks very much.
Operator: Good evening. This is the conference operator. Welcome, and thank you for joining the TF1's Full Year 2025 Results Conference Call and Webcast. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Rodolphe Belmer, Chief Executive Officer; and Mr. Pierre-Alain Gerard, Executive VP, Finance, Strategy and Procurement. Please go ahead, sir. Rodolphe Belmer: Good evening, everyone, and thank you for joining us for our full year results presentation. As said, I'm Rodolphe Belmer, the CEO of the group; and along with Pierre-Alain Gerard, the CFO, we will present TF1 Group 2025 results. Let's start on Page 3 with the key highlights of the year. Starting with audience. In 2025, TF1 Group confirmed its leading position, both in terms of overall audience and among younger generations. TF1 Group made progress in all targets year-on-year with an audience share rising by 1 percentage point among women below 50 and by 0.4 percentage points among individuals aged 25 to 49. TF1 channel maintained its high audience share in the 4-plus target group, reaching 18.7%, stable year-on-year and up 0.1 points versus 2023. With a distinctive editorial stance on the latest international political and economic news, LCI has achieved an audience share of over 2% in the 4-plus target group since it moved to DTT channel #15 in June and records the strongest audience growth among news channels over the past year. TF1 Group's content achieved unparalleled scale, reaching 60 million monthly viewers, equivalent to 94% of the French population, a unique position in the media landscape. Focusing on the individuals aged 15 to 34, our content was watched by 15 million people per month, 15 million of this age representing 97% of this age group. In digital, TF1+ attracted 38 million streamers per month on average in 2025 and 42 million streamers, users in October 2025, our new record. Financial performance now, the group consolidated revenue amounted to EUR 2.3 billion in 2025, almost stable like-for-like and at constant currency. This amount includes an advertising revenue of EUR 1.6 billion, a 4% decrease year-on-year, reflecting the structural linear market decline exacerbated by an unstable environment throughout the year, in particular in the fourth quarter due to France's political and fiscal situation. Despite these headwinds, TF1+ maintained a strong growth momentum for the second year in a row. Its advertising revenue rose by nearly 40% year-on-year to close to EUR 200 million, largely outperforming should I say, the digital advertising market. Our Studio business recorded good momentum with a 9% growth. Margin from activities stood at 11%, in line with our revised target. Finally, the group reinforced its financial position with net cash of EUR 515 million at end December, up EUR 9 million year-on-year. Overall, I would say that in a complex environment, the group achieved its revised 2025 targets, demonstrating the success of its strategy as well as its resilience. Now let's go to more details. We'll first give you an update on our business segment, then we'll provide additional information on our financial results, and then we will update you on our strategy and the outlook for the next year. And we'll close, as usual, with the Q&A session. Starting with a quick update on our linear streaming and studio business lines. I'm starting on Page 6 with a quick reminder of why television and of course, TF1 in particular, offers a unique value proposition in the media landscape, unique and distinctive. Reach remains our core competitive advantage, underpinning the unmatched value we deliver to the advertisers and viewers alike. In 2025, TV overall reach stood at 77% daily, while TF1 Group maintained an unrivaled position, covering 53% of French people every day, well above any other media business such as YouTube, SVOD services and TikTok. On the right-hand side of the slide, you will see that beyond reach, TF1 also delivers a superior return on investment for advertisers. On the French TV market, TF1 delivers industry-leading ROI for advertisers with every euro spent on our channel, generating EUR 6.3 in incremental sales, a figure that rises to EUR 6.6 during prime time, outperforming all TV competitors. The return for our DTT channels is also at EUR 6.6, which is also above, of course, any other TV player, underpinning the strong resilience and pricing power of the group in the French market. It's worth noting that within the French broader video advertising market, TF1 currently delivers a similar ROI versus online video platforms, demonstrating the group's competitiveness and strategic positioning to drive incremental market share gains. Turning to Page 7 now. In terms of audience share, the group maintained its leadership across commercial targets and the TF1 channel retained a significant lead over its main competitor by almost 10 points among women below 50 with an audience share of 23% and ahead by 8 points among individuals aged 25 to 49 with an audience share of 20%. The TF1 channel recorded the best ratings in most genres like French drama, entertainment and movies. The group's news, which plays an essential role in the democratic debate in France, continued to strengthen its position with 99 out of the 100 best news ratings of the year. Our news programs moved further ahead of their competitor, and our morning show, Bonjour !, became the second most popular in that category. LCI, our news channel, recorded the fastest audience growth in the year for news channels since the DTT renumbering. Let's move to streaming, Page 8. Our strategy is to leverage the group's solid content lineup to address both linear and nonlinear exploitations. 20% of total viewing today of the group comes from nonlinear consumption among individuals aged 25 to 49 for TF1. This share is even higher on our strong franchises, reaching, for example, more than 80% for the reality TV genre and close to 50% for our daily soaps like Plus Belle La Vie. In just 2 years since launch, TF1+ has established itself as the leading free streaming platform for French-speaking audiences, driving growth across all key metrics from brand awareness to monetization. In terms of brand awareness, TF1+ reached a level of 81%, a 3-point increase over last year. The application had first visibility across 69% of households with connected TV devices, up from 68% at end 2024. Regarding consumption, TF1+ offers more than 35,000 hours of programs available at any time, including aggregated third-party content. On average, the platform attracted 38 million streamers per month in 2025 compared to 33 million in 2024. This number increased quarter after quarter in 2025, reaching 41.5 million streamers on average in Q4. Streamers visited the platform 4.7 times per month on average in 2025, up 3% over the year before. As a result, 1.2 billion hours of content were watched on TF1+ in 2025, almost 25% ahead of France's second largest platform. Based on site-centric figures, consumption rose by 12% year-on-year. Ad pressure reached 5 minutes and 14 seconds per hour on average, up 15% from 2024 with a target of around 6 minutes on the midterm. And finally, CPM stood at EUR 13.5 on average, broadly stable compared to 2024 with a target of around EUR 15 in the midterm. The strong performance translated into a 36% year-on-year increase in advertising revenues with TF1+ almost reaching the EUR 200 million milestone, a proof of its growing appeal among advertisers. After launching TF1+ in January 2024 and having positioned it in the advertising market as the premium alternative to YouTube, the group has entered in 2025, the second phase of its strategic plan. The first element of this second phase is the new form of monetization on TF1+, a new form of monetization that involves micro payments. This initiative is inspired by the model by the mobile gaming industry where it has proven largely successful. Since last September, streamers visiting TF1+ have had access in return for a small payment to new features like previews of our programs or ad-free content as well as an exclusive live channel, for instance, of our show, Star Academy. These offers have been adopted fast by TF1 streamers with 700,000 transactions recorded between September and December. And these initial figures are very promising because the micro payment offers have been deployed only in a small perimeter of devices since most telcos have not been deployed yet. On the TF1+ application, an environment where the offer is fully deployed, streamers who have converted to this offer have made on average 3 transactions per month between September and December. Note that the TV screen only represented 15% of micro payments transactions since launch, showing that there is room for progress once the offer is fully deployed, notably across telcos. And we're confident this initiative will unlock a significant revenue stream in the medium term. Page 10, update on Studio TF1. Studio revenue totaled EUR 376 million in 2025, up 9% year-on-year. This good performance was notably due to the contribution of JPG acquired during the summer of 2024. The soap Tout Pour La Lumière, All for Light in English, broadcast on TF1 and Netflix, the production of the Flemish version of Dancing with the Stars, the deliveries to streaming platforms of premium series like Merteuil for HBO Max and the successful theatrical releases of key movies like Chasse Gardée 2, Game Reserve 2 ranked #5 in terms of ticket -- of admissions in the French market in 2025. Now turning to the financial performance with Mr. Pierre-Alain Gerard. Pierre-Alain Gerard: Thank you, Rodolphe. Good evening, everyone. Let's move now to a more detailed breakdown of our financial results for the full year 2025. You will find additional information in our consolidated financial statements and their notes as well as our management report, all of which are available on our website. First, a word on revenue on Page 12. The TF1 Group's consolidated revenue amounted to EUR 2.3 billion in 2025, down 2.5% year-on-year, but almost unchanged like-for-like and at constant FX. The small gap we have with the consensus mostly relates to perimeter effects. Revenue in the Media segment totaled EUR 1.9 billion in 2025, down 2% like-for-like. In linear advertising, the structural market decline was exacerbated by an unstable environment throughout the year, in particular, in the fourth quarter due to France's political and fiscal situation. However, that decline was partly offset by an increase in the group's market share, showing the commercial relevance of the ad sales house offering. Despite these headwinds, TF1+ continued to demonstrate its appeal for advertisers. For the second consecutive year, its advertising revenue rose by almost 40%, reaching about EUR 200 million in 2025. Again, note that we are only talking about ad revenue for TF1+ here. When taking into account advertising revenue from TF1 Info and addressable TV, along with revenue from subscription, TF1+ Premium and micro payments, our total revenue amounted to EUR 249 million in 2025, our total digital revenue. This KPI encompasses the various levers activated by the group to boost our advertising and non-advertising revenue. We will keep disclosing it in our future quarterly publications. Non-advertising media revenue amounted to EUR 347 million, down 6%. After rising in the first 9 months of the year with good performance by interactivity as well as music and live shows, the decline in revenue at the end of the year resulted mainly from the deconsolidation of Play Two and My Little Paris. Please note that those activities generated slightly more than EUR 40 million in revenue in 2025, which will, therefore, not be included in our 2026 revenue. Studio TF1's revenue totaled EUR 376 million in 2025, up 9% year-on-year. It included a EUR 44 million contribution from JPG as opposed to EUR 24 million last year. Like-for-like, revenue rose by 6.5%, notably thanks to the premium deliveries that we mentioned earlier. Now turning to profitability on Page 13. TF1 Group's COPA amounted to EUR 252 million in 2025, in line with the company compiled consensus. The impact of lower advertising revenue compared to last year was mitigated by the strict cost control and active portfolio management, which allowed the group to preserve resources that are crucial to the second phase of its strategic acceleration. Margin from activities stood at 11%, corresponding to the midpoint of the revised target range provided during our Q3 2025 results. Coming back to our value creation through our active portfolio management. The group materialized EUR 38 million of capital gains in 2025 from the disposals of My Little Paris and Play Two during the summer, along with the closing of a partnership with Sony Music Publishing regarding music assets in Q4. Excluding items, but factoring our digital reinvestments, margin from activities would stand around 9%. The Media segment reported COPA of EUR 212 million. This represents a year-on-year decrease of EUR 47 million, mainly resulting from the decline in advertising revenue. Studio TF1 generated COPA of EUR 40 million and a margin of 10.7%, broadly stable compared to last year. Regarding the income statement on Page 14, I have already commented on consolidated revenue and COPA. Looking further down, operating profit totaled EUR 233 million. That figure includes EUR 10 million in PPA charges related to the JPG acquisition and EUR 9 million in nonrecurring expenses mainly related to the group's digital acceleration plan. Net profit attributable to the group, excluding exceptional tax surcharge, was EUR 168 million, down EUR 38 million, mainly reflecting COPA decrease. Compared with 2024, net profit was also affected by reduced income from the group's cash position due to lower market interest rates and a reduction in the group's share of associates, mostly due to the impairment of a small investment at Studio TF1. The impact of the exceptional tax surcharge in 2025 was minus EUR 15 million. This mechanism has been maintained in 2026 in France, but the impact for TF1 should be lower in the mid- to high single-digit range. Moving on to the net cash position. At end December 2025, the TF1 Group had a solid financial position with net cash of EUR 515 million. Our solid balance sheet is an asset to navigate our complex environment and keep rolling out our digital road map. The EUR 9 million increase compared with 2024 mainly reflects free cash flow after working cap of EUR 102 million, dividends of EUR 127 million paid by TF1 in April and an impact from disposals of around EUR 20 million. Looking at free cash flow before working cap, it stood at EUR 85 million, which is EUR 144 million below 2024 level, mainly explained by the following: a EUR 71 million decrease of net cash flow, mainly related to the linear decline of the exceptional and the exceptional tax surcharge in France, a EUR 70 million increase of net CapEx with three drivers. First, a base effect related to the disposal of the Ushuaïa brand in 2024 for roughly EUR 30 million, EUR 27 million exactly. The delivery schedule, which was expected for co-productions in 2025 at our Media segment and a more sustained level of production activity at Studio TF1. Here, I remind you that production costs are capitalized. So this is future activity. On Page 16, let me wrap up the key takeaways of 2025 from a financial standpoint. In a very uncertain and unstable environment, the group successfully tackled advertising market headwinds, thus mitigating the impact on COPA. First, we managed to gain market shares across the board in a more challenging market than expected, underlying the competitiveness of our ad sales house. Digital grew by 36%, significantly ahead of the market, while our linear revenue was down by a high single-digit percentage, still outperforming the linear market estimated to be down by low double-digit percentage. Second, we kept a tight control on costs as illustrated by the EUR 19 million decrease in programming costs. And on the other hand, we preserve resources required to fuel the second phase of our strategy. Lastly, we actively manage our portfolio, both on Media and on Studio, as illustrated by the disposal of My Little Paris, Play Two and the partnership we signed with Sony Music Publishing regarding music assets and by the successful integration of JPG. Let's now turn to Page 17. In line with our distribution policy targeting a growing dividend, the Board will propose at the next general meeting a dividend of EUR 0.63 per share, up 5% from 2024 and 40% up from 2021. This dividend offers an attractive yield of 8%. I now leave the floor to Rodolphe to provide an update on our strategy and outlook. Rodolphe Belmer: Let's move to Slide 19 on our strategy. The first pillar of our strategy is to consolidate our linear market share in a declining advertising market. First volume, the reach of television and the reach of TF1 in particular, is a differentiating factor for brands or customers. A premium content offering is instrumental in an increasing fragmented media environment as it generates the best advertising inventories on commercial targets for our customers. To maintain this advantage, we secured the most powerful programs, including the most iconic unscripted franchises such as Dancing with the Stars, Koh-Lanta, The Voice, Mask Singer, also premium French drama with a very solid lineup with the much awaited Cat’s Eyes Season 2 or the historical drama L’été [ 36 ], Summer 36. The flagship -- with flagship also sports events of 2026 with the majority of the six nations matches, it's Rugby, and the new competition in Rugby called the Nation's Championship. In football, French Ligue played by the French national team as well as the Nation's League matches of this year and the Women's World Cup in basketball. Second lever that we activate to consolidate our market share, of course, is the implementation of a distinctive commercial and pricing strategy. After changing the length of its advertising pricing units in 2025, the group has overhauled its linear advertising offering, featuring a new segmentation that is more suited to market expectation and that enables us to fully extract the value from the unrivaled quality and unique depth of our advertising inventories. What does it mean it means that we now offer, on the one hand, the highly powerful and premium screens of TF1, which have a unique value in the market through what we call the Peak offering. And on the other hand, another product that we call Reach, which offers the rest of our multichannel inventory, representing 1/3 of the total market inventory. This new segmentation, Reach and Peak strengthens the group positioning on the market as the most relevant partner for advertisers as it covers all their marketing and business needs and underpins our objective of growth in market share of the advertising market. The second pillar of our strategy is to increase our nonlinear revenue by gaining market share in the fast-growing digital video advertising market. To that end, we intend to further increase the digital consumption of our programs, notably through two levers. First, we will extend our reach, thanks to groundbreaking distribution deals. Starting in June 2026, our linear channels as well as the vast majority of our on-demand content will be made available on Netflix. This unprecedented alliance will unlock additional audiences for TF1 as a significant portion of Netflix subscribers, around 12 million in France according to various sources, consider Netflix as their primary source of TV entertainment and are low consumers of television content. Second, we will continue to offer attractive content, notably through our aggregation strategy. TF1+ already offers more than 35,000 hours of programs available at any time, including aggregated third-party content. More partnerships will be announced in 2026, further enhancing TF1+ catalog with content that complement those already available on the platform. This aggregation strategy reinforces the platform's appeal with limited impact on the group's programming cost as it is based mostly on a revenue sharing model. Then we intend to improve monetization as illustrated by two strong initiatives. The first one, as previously mentioned, we are developing a new form of monetization, which is not advertising based through micro payments. In 2026, the group will expand its catalog of eligible content and strengthen the editorialization around these offerings to maximize their visibility. The rollout of micro payments across all four telecom operator set-top boxes will continue and will include integrated payment solutions in-app payments to make purchase easier. Once our offer is fully deployed, we believe that there is a significant revenue potential as the penetration rate on the TF1+ mobile app is currently 3x higher than in other environments. Second, we will continue to address advertisers' needs across the entire marketing funnel from brand awareness to conversion with the development of innovative and distinctive advertising formats. Advertisers are adopting more sophisticated marketing strategies aimed at creating brand interactions through the consumer lifetime value. While most platforms on the market only offer pre-rolls or mid-rolls, we have offered innovative advertising formats starting in 2025 like Cover+ or Ad Pause to increase awareness and brand values. In 2026, we will launch new formats on connected TVs in order to stimulate consumer purchases like Send to Phone redirections or Carousel Retail Ads. Another pillar of our strategy will be to enhance our media buying effectiveness on both linear and digital. To that end, we have launched what we call TF1 Ad Manager in January, a transactional and service-oriented platform, which offers a fully simplified and competitive experience to agencies and advertisers, meeting the standards of pure players. TF1 Ad Manager will make it much easier for our customers to do their media buying and oversee their advertising campaigns effectiveness. The platform makes use of AI and machine learning at each stage of the process from audience simulation to content creation and key metrics reporting. It will be possible to set up a campaign in just a few minutes instead of several hours or days until now. This initiative has been very well received, of course, by our customers and the big 5 agencies are already on board and setting up campaigns. This platform, even more importantly, also aims at addressing a new segment of the advertising market that we call the mid-tail segment. This market, which comprises small and medium enterprises as well as commercial retail networks is estimated to represent around EUR 2 billion in France in terms of video advertising, which is quite significant. Starting in April 2026, our dedicated mid-tail solution will enable small and medium enterprises, small and medium customers to buy and easily create geo-targeted advertising inventories, starting with low price points like EUR 1,000 and therefore, making television accessible to all and to smaller customer, television and streaming space. The penetration of this market segment will grow our advertising revenue while diversifying our customer portfolio towards smaller businesses, which are evolving in different business cycles than our historical multinational customers. This initiative will be driven by a small dedicated team, therefore, limiting the impact on the group's fixed cost base and will rely on an outsourced sales team providing nationwide coverage. Studio TF1, Page 22. Our 2026 priorities will be to secure the business in France with long-standing partners and notably with the ongoing production of the three daily shows for TF1 and of the Magazine de La Santé for France Television. We will also keep expanding the customer mix via collaborations with the streaming platforms as illustrated by the future delivery of Day 1 to Prime Video and with the expansion of our film production and distribution, cinema production and distribution, notably with the launch of the new film distribution division with four releases already scheduled, including Jean Moulin, the biopic of Jean Moulin, starring Gilles Lellouche. This is a key milestone for the group, allowing Studio TF1 to support productions from development to theatrical release. Activity will be, again, skewed towards the second half of the year, notably due to Studio TF1 America delivery schedule. Page 23. Capitalizing on our strategy. Our new digital initiatives and our solid financial position, we reiterate the following targets: Number one, achieve a strong double-digit revenue growth in digital in 2026. Note that we refer to the new digital revenue KPI here. Second, aim for a growing dividend policy in the coming years. In 2026, we anticipate a continued strong pressure on the linear advertising market amid rapidly shifting consumer habits and macroeconomic uncertainty. During this digital transition phase, we intend to maintain in 2026 a mid- to high single-digit margin from activities before capital gains, subject to the evolution of the linear market. Still, we are well positioned to navigate these challenges through our digital acceleration, cost discipline and a solid balance sheet. That's all for us, and we are ready to take your questions. Operator: [Operator Instructions] The first question comes from Christophe Cherblanc of Bernstein. Christophe Cherblanc: The first one was on advertising. Given the exit rate of 2025, do you think it's fair to expect at least a double-digit decline in ad revenues in Q1? And I know Q2 is far away, but what do you expect the World Cup impact to be, i.e., would you expect advertisers to save money for the event or to spend before or after? That would be the first question. The second question is on programming costs. Programming costs were below expectation, I believe, at EUR 967 million. Is it fair to expect that as a starting point for the '26 budget? And the last one was on the disposal or the capital gain. The Sony publishing gain in music, is it a cash impact? And was it recognized in media or in content? Rodolphe Belmer: Thank you for the set of questions. I'll answer the first two questions and maybe Pierre-Alain will answer the third one. On the advertising outlook for 2026. Well, as you know, we don't guide on this metric, but I can give you some color of what we think for the outlook of this and the perspective. What we can say is that the linear advertising market is under pressure due to different factors like the erosion -- like the migration of the audience from linear to digital, which reduces watching time and which in turn has an effect on the advertising inventories that we do produce and that we can sell to our customers. You said that we ended the year -- the 2025 year with a decline in linear at a double-digit pace, true, but we think that this decline -- this market decline in the Q4 of 2025 was the outcome of two elements. First element, the secular slowdown of the linear advertising market; and second, the conjunctural consequence of the political unrest in our country. Which means that with the political instability being now, I would say, absorbed by our customers, if I may say so. The only remaining effect -- negative effect headwind that we see in 2026 is the evolution of the consumer behavior, which means that we anticipate at a market level, an evolution which is more acceptable than double digit, better than double digit, meaning, it will be in decline, but single digit, mid- to high single digit, we could say. But I mean linear. What we typically do, as you have noted, we typically perform a bit better than market. And we're able to gain market share because our ratings are solid and our commercial strategy delivers well. It has been the case in 2025 since we gained around 2 percentage points of market share in the linear advertising market. 2026, we anticipate a market share which will be more stable. Why? Because, as you said, our competitor will have the World Cup in the summer, which is not a good moment for advertising revenues, as you know. But still, it means that we anticipate a stable market share in the linear market for us. In digital, the market is well oriented, around, well, double digit, low double digit, 10% to 15% growth annually, and we do far better than the market because our digital strategy works very well. We post figures for '25 in growth by 36% year-on-year after almost 40% the year before. And we will continue to have -- to post very solid double-digit growth in 2026 on the back of the very strong adoption of TF1+ among French users and also advertisers. Programming cost, we had programming cost of around EUR 970 million in '25, as you said. And you can assume that our programming cost base will be more or less similar in 2026. Our objective during the transition phase that we are having, our objective is to fight in linear to limit and to stabilize the erosion in linear as much as we can, grow as much as we can in digital, and we did very well, while being able to maintain our programming cost. Pierre-Alain Gerard: And maybe let me answer your question on the deal we struck with Sony Music Publishing. Basically, we had a library of around 9,000 titles, musical titles in-house that have been built in-house within TF1. And we sold a majority stake to Sony Music Publishing, which will boost the distribution of these titles internationally. So Sony took control of this company, TF1 keeping 49%. So the cash impact of this transaction is only limited to the 51% we sold and is a low double-digit figure. Operator: The next question comes from Conor O'Shea with Kepler Cheuvreux. Conor O'Shea: A few questions from my side as well. Just -- sorry to come back on the advertising outlook for '26 as it stands today. I mean, from your comments, Rodolphe, can we conclude that if the linear is down mid- to high single, so let's say, 7% or 8%, and the digital is up, let's say, 20%, that we could be down overall by 3% to 4%? Or is that too optimistic at this stage? That's the first question. Second question, I think there was quite a step-up in CapEx in 2025 and as a percentage of revenues as well. Is that a permanent step-up? Or could we expect an easing in '26 and the future years? And then just last question. You gave some interesting data points on the micro payments in the fourth quarter. Can we have a sense of what you expect for '26 and just have an idea of the kind of drop-through of units of revenue to margins in micro payments? Is it pure margin business? Or are there some costs associated with that? Rodolphe Belmer: Well, thank you, Conor. On the advertising outlook for '26, well, we have described, I think, quite explicitly what we think will be the outlook for the linear market and how we will perform in terms of market share. And I think we have understood well what's our view of the perspective in that segment. Digital, this year, we have gained -- we have grown by 36%, the year before, 40%. And we said we will maintain a very solid double-digit growth in '26. We're not going to guide specifically on that notion, on that element. But we expect we continue to deliver a very solid growth far ahead of the average market growth in digital. And we expect the market growth in digital as everybody, there is a consensus on that perspective. Well, we estimate that the market will grow again in digital video in 2026 by around 15%. We have the growth of TF1 which we think will continue to establish itself well among the French population. And we have quite a headroom to continue to grow in TF1+. There is the growth of consumption, which will continue, number of hours that we will continue to -- hours viewed that will continue to produce. As we said, we will also be able to grow substantially the penetration of TF1+, hence, the number of hours viewed with the distribution on Netflix that you should consider. Another element, we are still not where we want to be in terms of advertising load. We have produced around 5 minutes per hour of advertising load in 2025. And as we said, we want to reach 6 minutes in 2026. And there is the CPMs. We produced CPMs of EUR 13.5 per mille in 5, and we want to grow that number steadily to reach EUR 15 in the midterm, not in '26, but after. But it means that if you combine all that, the leeway for solid growth is very solid, plus we have two initiatives beyond the expansion of Netflix, which will foster the growth rate of TF1+. That's the micro payment, and I'm going to explain more on that in a minute. And there is the initiative which is very important in the mid-tail segment. We have invested significant efforts to develop a very solid technological platform to enable the purchase of advertising inventories by small and medium customers sitting in the provinces of France, retail networks or leisure parks or all those kinds of categories, which are in search of geo-targeted advertising. And now we have a solution for them. And it's a big market, more than EUR 2 billion, which means -- which is comparable to the size of the television market of today. And with all that, we think we have growth avenues, which are very solid to feed the growth rate of digital at a very solid double digit in the coming years. Pierre-Alain Gerard: Maybe I can follow up on CapEx, Conor, because I think Rodolphe has answered your first and your third question. Rodolphe Belmer: No, I'm not completely. I want us to deliver on micro payment. Pierre-Alain Gerard: So just a quick word on CapEx. So you see that there is an increase in EUR 70 million in CapEx compared to last year. Bear in mind that last year, we sold Ushuaïa, which came as a disposal for around, let's simplify EUR 30 million. So you only have to explain EUR 40 million increase. And this is on one side related to the coproduction delivery on the media side, which will bring revenue in the future. And also on the -- as you know, on the Studio TF1 side, we capitalize the cost. So basically, what you see in CapEx is future revenue. So it's good cholesterol somehow. Rodolphe Belmer: Micro payment, I wanted to tell more -- I promised some more words on this initiative that we are taking. Well, that's the very beginning of it since we launched in September, while deploying progressively this new service, this new feature across all the devices that we serve with TF1+. And we can say that while the initial results were quite positive and encouraging. In terms of -- well, what we said in the presentation, I don't know if it was clear, but in the universes among the devices in which the solution is deployed correctly, we had a usage, which is very interesting with a penetration of between 1% and 2% of the number of users, which have used the service. And remember that the number of people visiting TF1+ each month is very large. It's 40 million. And those people, we said that, that used -- that tried -- between 1% and 2% of the total population that tried the service, they made 3 purchases per month. It's quite big. And if you apply that to the total portfolio of users of TF1+, you have a sense of what's the magnitude of the business potential behind that initiative, which is not huge, but substantial. Now in terms of margin of the service, you can assume an order of magnitude of 50% because we have to share revenues with third parties, with our partners. Conor O'Shea: Makes sense. And can I ask just a quick follow-up question on the margins generally? I mean, if the calculations are accurate in terms of the potential advertising decline overall, including the growth on digital after all the valid points that you made, that might suggest a decline that's not that different from '25 versus '24. In that context, your margins fell by 160 basis points. If you're now guiding towards more or less flat programming costs and potentially, let's say, I know you're not specifically guiding, but maybe a similar decline in advertising revenues, why would the margins fall to mid- to high single digit. I mean that's a much steeper fall. Are there substantially more variable costs in there relating to the TF1+ or other costs that we're not taking into account? Or are you just being very conservative at this stage of the year? Rodolphe Belmer: Well, I would say a bit of both, if I may say so. What you may have in mind is that, well, of course, we are posting a margin of 11% for year 2025, for the year 2025. But on this margin of 11%, we have capital gains, which represent around a bit less than EUR 40 million. If you exclude those capital gains, we have made a margin in 2025 of 9%. And that's why when we say we estimate, we guide that our margin in 2026 will be stable in the corridor, mid- to high single digit. That's because we estimate that we will stay in the same kind of order of magnitude as what we did in 2025, more or less. Pierre-Alain Gerard: I think the reasoning would -- yes, yes. I think you didn't have the right starting point. Conor O'Shea: No, makes sense. But then... Rodolphe Belmer: I said point is not 11%, it's 9%. Conor O'Shea: 9%. But the underlying change could be something similar if we get a similar top line. Rodolphe Belmer: Well, that's something that could be said, yes. Conor O'Shea: Could be said, okay. Makes sense. Rodolphe Belmer: And what we must say is that, well, we don't mean -- we don't intend to mean that we are not going to try to generate capital gains in 2026 because we have a sort of reverse bolt-on strategy, which works quite well, and we intend to continue likewise. But we don't want to guide on that because, of course, there are -- that's not within -- totally within our hands. We have counterparts to convince each time, and we don't want to take objectives on that kind of commitments. And that's why we want to guide only on the margin from activities without the capital gains, and that's why we express it likewise this year. Pierre-Alain Gerard: And just to follow up on that, Conor, because I know you asked the question previously. We only do this kind of sale when there is an important gap in terms of valuation between the trading multiples of this kind of assets in the market and what we can achieve when there is a gap of several turns, we find that attractive and we create value and then we sell. Operator: The next question comes from Eric Ravary of CIC. Eric Ravary: First one on Studio TF1. Could you give us an idea of the kind of growth that you're expecting for 2026 with the lineup that you presented? And also, could you tell us the exposure to France Television and the planned cost cutting in content from France TV? Second question is on TF1+. CPM was stable at EUR 13.5 in '25. So could we have a comment on the reason why it was stable last year? And third question is on the disposals of My Little Paris and Play Two. What was the impact on COPA on Q4, please? Rodolphe Belmer: Sorry, I missed your second question, sorry, for asking you to... Eric Ravary: Yes. CPM on TF1. It was stable last year. So could you explain that, please? Rodolphe Belmer: Yes. On the outlook for Studio TF1, what we can say without being too precise at this stage because we don't want to guide on this metric, but we will continue to grow softly in 2026 as we did in 2025. Of course, there is the uncertainty of the evolution of one of our key customers, which is France Television. But what we understand from the very close relationship that we have with them is that most probably the revenue stream that we get from France Television and the orders that we take from them should stay solid in 2026 because they like the franchises that we make for them. On the CPM, yes, it was stable in 2025. Well, it's a combination of different factors, but we have tried to continue to focus on the growth of TF1+ in 2025. But we think we can continue to progressively grow the CPM in the next few years and to reach around 15% with the development and the sophistication of the data and the digitization we are able to deliver to our customers. Pierre-Alain Gerard: Then, Eric, you were asking about the perimeter effect and the consequences of the disposals from My Little Paris, Play Two and -- which is mostly the perimeter effect. We said during the presentation that it's slightly above EUR 40 million that won't be to take into account in 2026. Eric Ravary: EUR 40 million in revenues? Pierre-Alain Gerard: Yes, in revenue for the full year. Eric Ravary: In COPA? Pierre-Alain Gerard: Nothing since we disposed during the summer. Eric Ravary: Yes. But I mean compared with 2024, what was the impact on the... Pierre-Alain Gerard: Yes, the COPA contribution of these two was breakeven plus. So not a big impact on COPA. Operator: The next question is from Jérôme Bodin with ODDO BHF. Jérôme Bodin: Just a quick question on the -- if you can come back on the Q4 advertising trend because you mentioned two factors for this decline. So first, the economic situation, which is true, but it's not a total disaster. And according to other media, there is not a big slowdown in the French market. So I can understand that point. And then you mentioned a strong migration from TV to digital. But the same, there is no big acceleration of the decline of linear TV versus digital. So why according to you, there is such a drop in October and November in the TV market? Is it something very short term with a temptation of clients to move from TV to digital short term, and then we should get a normalization in 2026. So just to try to understand why such pressure, which is very unusual if we look back to your historical number. Rodolphe Belmer: Well, our analysis of this question, of course, and we have spent a lot of time to analyze those elements and to make up our mind on what's the drivers of the break in the trend of the advertising market in France in 2026. What we said is that there is a secular element, which is not specific to October and November, of course, it's constant. That's what I mean by secular. It's the progressive erosion of linear watching migrating to digital. And this -- well, the watching time of the commercial targets is in recess in the order of 10% year-on-year. That's an underpinning factor of decline. Of course, it's compensated by price increase, but slightly price increase of the GRPs. That consideration number one. The recess in the French market in Q4 was much worse than that, which is unexpected. And with one explanation only, which is the political unrest in the country. And we have seen a very brutal slowdown in the market trend at the end of September when the Prime Minister stepped down again. Which has sort of frozen the investment of our customers for some time at the end of the year, which -- because well this kind of events or accidents at this time of the calendar year for our customers is not good because, of course, it does freeze their willingness to invest. And that's exactly what happened. Now what we think is that the secular trend will continue affecting and being a headwind to the linear market. And we have quoted figures which are -- and I think Conor has made a summary of that, which was quite accurate in our view. And there is the element of uncertainty among the advertisers driven by the political context, which will progressively vanish. And that's why we think that '26 will be better in the linear segment than the Q4 of 2025. And another point I would like to make, I commented on market figures, not our figures because we have sustainably constantly made better, delivered better than the average market. In the last quarter of the year, well, we did 5 percentage points better according to our estimates than the average market. Jérôme Bodin: Maybe just to follow up quickly. So you don't think that this is linked to a change in terms of commercial policy from clients, a short-term change or from advertising agencies that may have put pressure on the -- specifically on the French market at the end of the year. It's much more structural according to you. Rodolphe Belmer: Yes, it's much more structural. And the reason -- it's not specific to French market. When you look to in our neighborhood, the adjacent markets like the U.K. or Germany, the trends are more or less similar. Of course, the trend was marked especially with the political situation in France in Q4. But if you take a broader view and if you look at annual trends, it's very similar across European countries, if you accept Italy for -- because digitization is a bit lower in this country, but it's similar everywhere in Europe. It's not specific to France. And when we say that the situation should be better than Q4 in '26, we have some data points to sustain that assumption because we have started to negotiate with our customers, the annual commitments that they take vis-a-vis us, meaning that we know already more or less what will be the picture for '26. Operator: The next question comes from the webcast from Alexandre Desprez with AlphaValue. Do you think that the seemingly huge decline in the French TV market is a sign of cannibalization by the streaming platforms launched by broadcasters in the past year? Rodolphe Belmer: Well, there is no -- well, again, sorry to insist, but there is no huge decline in the French market. There was a drop, air pocket in Q4 of 2025, driven by the political unrest, which added to the secular decline of the linear market, which is more progressive. Second, do we see cannibalization? No. Why? Because the first 9 months of the year were much better, while our streaming platform, for instance, did very, very well, and we're able to more or less have only slightly declining linear revenues across the first 9 months of the year, while our digital platform grew by 40%, which means that it's not a direct consequence. There is an element which is very clear now, which is there is a migration of usage from linear to digital, which translates into declining watching time of television in the order of 10% year-on-year among the commercial targets, which creates an underpinning trend for the revenues in that segment of the market. You should assume that -- well, there is a declining trend in watching time, which means that what we produce and what we sell, which is the GRP in volume will decline by more or less 10%, but will be compensated slightly by price increase. In the past, we have been able to offset entirely the erosion in viewing time in GRP production by price increase. But now with the more direct competition from YouTube and the likes and with ROI, which we told you that in our presentation with ROI of TF1 being more or less similar to YouTube and the video online platforms, our price increase abilities or headroom is more limited and which means that our price increase will be more in the mid-single digit, low to mid-single-digit order of magnitude rather than two-digit level that we had before. And that's what will be resulting in the trend in the linear market. And hopefully, we'll offset that erosion factor with the strong growth that we have and the unique and the very specific and insist on that we have very distinctive results on that front with our very, very strong digital strategy, which is proving very, very effective and has been able to more or less absorb the erosion in linear. When you look at our figures, at our revenues in '25, if you exclude the perimeter effects, we are stable, which is, in my view, in the European landscape will be very distinctive. Operator: Gentlemen, there are no more questions registered at this time. Back to you for any closing remarks, if any. Rodolphe Belmer: Well, I think no closing remarks. Well, thank you for taking the time so late in the evening. What I'd like to say is that, well, we believe that our figures were very strong in 2025 with performance in linear in which we were able to outperform the market largely and our competitors and also with a very distinctive, unique performance in digital with a very solid growth for the second year in a row of around almost 40%, which enabled us to post revenues figures, which are almost stable at constant perimeter and FX. Going forward, we believe that the pressure -- the downward pressure in linear will continue relatively at a mid- to high single-digit level in 2026, but we'll continue because we have a very offensive, very aggressive, very innovative digital strategy. We'll continue to post very solid double-digit -- strong double-digit growth rate in digital in 2026, which will continue to produce solid set of figures for the total group in 2026, enabling us to continue to foster a strong dividend policy. That's all for us for today. Thank you for taking the time and see you for me in 6 months because next time, you'll have the chance to have Pierre-Alain for yourself. Pierre-Alain Gerard: Thank you very much. Operator: Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones. Thank you.
Operator: Good morning, ladies and gentlemen, and welcome to the Baxter International Inc. Fourth Quarter 2025 Earnings Conference Call. Your lines will remain in a listen-only mode until the question and answer segment of today's call. At that time, if you have a question, you will need to press the star then one keys on your touch tone phone. If anyone should require assistance during the conference, please press star then 0 on your touch tone phone. As a reminder, this call is being recorded by Baxter International Inc. and is copyrighted material. It cannot be recorded or rebroadcast without Baxter International Inc.’s permission. If you have any objections, please disconnect at this time. I would now like to turn the call over to Kevin Moran, Vice President, Investor Relations at Baxter International Inc. Kevin Moran, you may begin. Good morning. Welcome. Today, we will discuss Baxter International Inc.’s fourth quarter results Kevin Moran: along with our financial outlook for the full year 2026. This morning, a press release was issued with our preliminary earnings results and updated outlook. The press release and investor presentation are available on the Investors section of the Baxter International Inc. website. Joining me today are Andrew Hider, President and Chief Executive Officer, and Joel Grade, Executive Vice President and Chief Financial Officer. During the call, we will be making forward-looking statements, including comments regarding our financial outlook for the full year 2026 and anticipated timing and impact of our deleveraging efforts, the amount and timing of charges related to operating model and cost structure actions, the anticipated impact of various regulatory and operational matters including ones related to our infusion pump platform, and to clinical practice changes following Hurricane Helene, and commentary regarding the global macroeconomic environment including tariffs and proposed mitigating actions. Forward-looking statements involve risks and uncertainties which could cause our actual results to differ materially from our current expectations. Please refer to today's press release, the forward-looking statements slide at the beginning of our investor presentation, and our SEC filings for more detail. In addition, please note that on today's call, all our comments will be on a non-GAAP basis, unless they are specifically called out as GAAP. Non-GAAP financial measures are used to help investors understand Baxter International Inc.’s ongoing business performance. GAAP to non-GAAP reconciliations can be found in the schedules attached to our press release and our investor presentation. On the call, we will reference operational growth, which excludes the impact of foreign exchange, MSA revenues from Vantiv, and the previously announced exit of IV Solutions from China. We will also reference organic growth which excludes the impact of foreign exchange, MSA revenues from Vantiv, and any impact from future business acquisitions or divestitures. We plan to utilize the organic growth measure going forward. Finally, as a reminder, continuing operations excludes Baxter International Inc.’s Kidney Care business which is now reported as discontinued operations. With that, I would like to turn the call over to Andrew. Thank you, Kevin. And good morning, everyone. Andrew Hider: Fourth quarter 2025 global sales from continuing operations totaled $3,000,000,000 and increased 8% on a reported basis and 3% on an operational basis. Total company adjusted earnings from continuing operations were $0.44 per diluted share. Kevin Moran: While the top line exceeded our expectations. Andrew Hider: Adjusted EPS fell short. Joel will get into greater detail on the results, but there were a few areas that differed from our expectations we provided in October. On top line, we saw a more modest net impact from Novum IQ large volume pump customer returns, which was favorable to results. While responses have varied, in general, customers are waiting for additional clarity on the nature and timing of the additional corrections that we will look to deploy. Margins were pressured by both an unfavorable mix of sales Joel Grade: as well as some nonrecurring items, including inventory adjustments. And finally, we saw a higher tax rate. The results in the quarter are disappointing and underscore the work ahead to improve performance and execute more consistently. I stepped into this role in August with confidence in the potential of the business given the central role Baxter International Inc. plays in health care, but also with a practical sense of the hurdles before us. As I have continued to visit our sites and engage directly with the team and customers, I have deepened my understanding of both the challenges and opportunities facing Baxter International Inc. We are in the early stages of a turnaround and have more work to do to deliver strategically, operationally, and commercially, and recognize that it will take time to implement real long-term solutions. That said, there is a strong thesis where we can take this business, and we saw some examples of this in the quarter’s results. For example, the Advanced Surgery business capped off a great year with a strong quarter, growing 11% with contributions both across the portfolio and around the globe. And the HealthCare Systems and Technologies segment had another quarter of consistent performance, including a contribution from the recently launched Connect 360 Monitor in the Front Line Care division. We are also preparing for the launch of the recently announced Dynamo series stretcher, the latest innovation in our portfolio of smart beds, services, and connected care solutions. Innovation will be a critical element to our success, and we recognize the importance of bringing new innovation into the market. Accordingly, you should expect a heightened focus going forward and continued investment in R&D at or above historical levels. As I said during our last earnings call and reiterated last month, I am focused on three main priorities. These are stabilizing the areas of the business that require increased focus, strengthening our balance sheet, and driving a culture of continuous improvement and efficiency. We are moving with focus and urgency on each of these, and our teams are driving relentlessly to improve execution and performance across the enterprise. It is with this in mind that we have decided to hold off on our Investor Day. Let me share a few updates on our priorities and the actions we have taken. Stabilize: just a few weeks ago, we internally announced a new operating model that is designed to simplify our organization, accelerate innovation, and improve performance. Most significantly, we are delayering levels of leadership, including removing the segment management layer, and embedding critical functional roles directly in each of our businesses. This will allow each leader to have full P&L responsibility for their business with fully aligned commercial, R&D, manufacturing, medical, and targeted functional support and, importantly, full accountability to the results. These changes are significant and are designed to reduce complexity, eliminate barriers for decision making, bring us closer to our customers, and help us to improve our S&D ratio. We have also taken actions within our IV Solutions business to rightsize the support footprint to align to the lower demand environment which we believe is a new baseline in the market. In Pharmaceuticals, in addition to market demand softness, supply and backorder challenges have impacted revenue and driven unfavorable product mix. Specific initiatives to address these are in progress; however, it will take some time to bear fruit. Overall, across the enterprise, we are taking actions to further strengthen our focus on quality and improving on-time delivery. Balance sheet: our two customer value creators. We continue to focus on improving our cash generation and leverage. In line with our expectations, free cash flow generation exceeded $450,000,000 in the and continuous improvement. As a reminder, operational efficiency is at the center of what we are driving. As you know, a key element of this is our Baxter Growth and Performance System, Baxter GPS, which we rolled out in October to ensure continuous improvement, enterprise efficiency, and a growth and performance mindset are integrated into our day-to-day work. We recently held our first annual President’s Kaizen, where I was impressed by the resolve each of our leaders demonstrated in driving change for the better with a focus on 10 events that will drive cross-business impact. With focused week-long sprints, teams tackle critical opportunities aligned to our eight value creators. The work underway is helping us reduce complexity, better anticipate customer needs, accelerate innovation, commercialize faster, and deliver value sooner. We are focused on improving every aspect of our operations, and we will be consistently measuring our performance to deliver just that. Importantly, this is not a one-off event. It is how we are building a continuous improvement culture where everyone is empowered to make things better every day. Before I turn it over to Joel, I just wanted to reiterate the key steps we are taking. We have streamlined the organization for greater accountability. We have launched GPS to drive continuous improvement. And we have tightened our focus on innovation to better meet customer needs, all to drive improved performance and long-term shareholder value creation. Now I will turn it over to Joel. Joel, over to you. Thanks, Andrew, and good morning, everyone. Fourth quarter 2025 global sales from continuing operations totaled $3,000,000,000 and increased 8% on a reported basis and 3% on an operational basis. Performance in the quarter reflects growth across all segments. On the bottom line, total company adjusted earnings from continuing operations were $0.44 per share. Results in the quarter reflect unfavorable product and geographic mix, some nonrecurring items including inventory adjustments, and a higher tax rate partially offset by the positive impact from pricing in select segments. Now I will walk through our results by reportable segment. Commentary regarding sales growth in 2025 will be on an operational basis. Sales in our Medical Products and Therapies segment, or MPT, were $1,400,000,000 and increased 4% in the quarter. Performance in the quarter reflects growth in Infusion Therapies and Technologies, or ITT, as well as continued strength in Advanced Surgery. Within MPT, fourth quarter sales from our ITT division totaled $1,100,000,000 and grew 1%. Performance in the quarter was driven by growth in IV Solutions, which benefited from a favorable comparison with the prior year period, partially offset by lower infusion pump sales due to the previously discussed shipment and installation hold of Novum LVP. Within IV Solutions, underlying U.S. demand remained below historical levels. As previously discussed, fluid conservation practices embedded with clinical practice changes in the market following Hurricane Helene remain. Kevin Moran: And Joel Grade: continue to weigh on volumes. In infusion systems, results in the quarter reflected the net impact of lost sales due to the ongoing shipment and installation hold of the Novum LVP, customer returns, and transitions to Spectrum. Relative to our prior guidance, this net impact was more modest in the quarter. While customer responses have varied, in general, many are understandably waiting for additional clarity on the nature and timing of additional corrections that we will look to deploy and of the release of the ship and installation hold. Sales of Advanced Surgery totaled $328,000,000 and grew an impressive 11%. Results in the quarter reflect continued solid demand for our portfolio of hemostats and sealants, strong commercial execution across regions, and steady procedure volumes. MPT’s adjusted operating margin totaled 15.4% for the quarter, decreasing 110 basis points over the prior year period, and reflects increased manufacturing and supply costs, unfavorable product mix, inventory adjustments, and higher costs related to tariffs. These factors were partially offset by positive pricing in the quarter. Kidney Care TSA income positively contributed as well. In HealthCare Systems and Technologies, or HST, sales in the quarter totaled $827,000,000, increasing 4%. Within HST, sales of our Care and Connectivity Solutions, or CCS, division were $537,000,000 and grew 4% globally. Performance in the quarter was driven by double-digit growth in our Surgical Solutions business and continued momentum across our Patient Support Systems portfolio. Total U.S. capital orders for CCS increased nearly 30% compared to the prior year, driven by broad-based strength across Patient Support Systems, Care Communications, and Surgical Solutions, and our order book remains strong. To date, we have not observed a slowdown in U.S. hospital capital spending. However, given the broader macroeconomic uncertainty, we continue to closely monitor the situation. Front Line Care sales in the quarter were $290,000,000 and increased 3%. Performance in the quarter reflects increased demand in cardiology and patient monitoring portfolios, which includes our recent launch of Connect 360. HST adjusted operating margin totaled 15.2% for the quarter, decreasing 330 basis points compared to the prior year. These results reflect unfavorable product and geographic mix. Kevin Moran: Increased corporate allocation expenses, Joel Grade: and higher costs related to tariffs. Kevin Moran: TSA income partially offset Joel Grade: these increased expenses. Moving on to our Pharmaceuticals segment. Sales in the quarter totaled $668,000,000, increasing 2%. Within Pharmaceuticals, sales of our Injectables and Anesthesia division were $352,000,000 and declined 9%. Performance in the quarter reflects a decline in our injectables portfolio, driven by a difficult comparison to the prior year period as well as softness in certain premixed products, largely consistent with the dynamics discussed last quarter related to IV infusion protocols and increased use of IV push in select hospital settings. Our Anesthesia portfolio declined high single digits, reflecting softer demand for select inhaled anesthesia products. Drug Compounding grew 18% and reflects continued strong demand for our services outside the U.S. Pharmaceuticals adjusted operating margin totaled 5.8% for the quarter. These results reflect increased manufacturing and supply costs, an unfavorable product mix, price erosion, inventory adjustments, and increased corporate allocation expenses following the sale of Kidney Care. These expenses were partially offset by Kidney Care TSA income. Finally, Other sales, representing sales not allocated to a segment and primarily including sales of products and services provided directly through certain manufacturing facilities, were $7,000,000 in the quarter. MSA revenue from Vantiv totaled $84,000,000. As a reminder, these sales are included in our reported growth; however, they are not reflected in our operational growth for the quarter. Before moving on to the rest of the P&L, an important reminder on our continuing operations reporting: Following the sale of our Kidney Care business, certain corporate costs that did not convey with the business are now allocated across our segments in both cost of goods sold and SG&A, along with income from the TSA, which is currently recognized within Other Operating Income. In addition, as previously discussed, we reclassified certain functional expenses from SG&A to cost of goods sold beginning earlier this year. These costs support manufacturing and are now treated as indirect expenses subject to inventory capitalization and recognized in cost of sales when sold. Fourth quarter adjusted gross margins from continuing operations were 35.5%, a decrease of 900 basis points compared to the prior year. Fourth quarter adjusted SG&A from continuing operations totaled $637,000,000, or 21.4% as a percentage of sales, a decrease of 330 basis points from the prior year period. Results reflect disciplined expense management and the benefit from the reclassification of certain functional costs. Adjusted R&D spending from continuing operations in the quarter totaled $116,000,000, or 3.9% as a percentage of sales, which came in lower than our expectations. This reflects the reclassification of certain product support and sustaining activities into cost of sales, and therefore does not reflect our anticipated level of R&D spend going forward. TSA income and other reimbursements totaled $50,000,000 in the quarter and came in line with our expectations. As previously discussed, the associated expenses related to this income are reflected in other lines of the P&L, including cost of goods sold and SG&A. Altogether, these factors resulted in an adjusted operating margin of 11.8% on a continuing operations basis, a decrease of 340 basis points compared to the prior year period. Results reflect unfavorable product mix and nonrecurring items, including inventory adjustments, partially offset by positive pricing in select segments and the benefits of TSA income. Net interest expense from continuing operations totaled $58,000,000 in the quarter, a decrease of $32,000,000 versus the prior year period, reflecting lower interest expense following the paydown of existing debt with proceeds from the Vantiv sale. Adjusted other nonoperating income totaled $15,000,000, driven primarily by amortization of pension benefits compared to the prior period. The continuing operations adjusted tax rate for the quarter was 27.2%, driven primarily by mix of earnings across jurisdictions. In total, adjusted earnings from continuing operations were $0.44 per share for the quarter. Before turning to our 2026 outlook, I want to comment on cash flow and liquidity. Fourth quarter free cash flow was $456,000,000, bringing full-year free cash flow to $438,000,000. Performance in the quarter reflects improved cash flow generation and seasonality, including progress across select areas of working capital as well as continued focus on execution as we close out the year. We continue to focus on strengthening cash flow generation and maintaining discipline around working capital, foundational elements of our financial strategy. Improving the balance sheet continues to be a key area of emphasis, and we intend to deploy cash towards reducing leverage in line with our capital allocation framework. Now our outlook for the full year 2026, including some key assumptions underpinning the guidance. For full year 2026, we expect total sales growth to be flat to 1% growth on a reported basis. This reflects current foreign exchange rates, which are expected to contribute approximately 100 basis points to top line growth for the year. In addition, Andrew Hider: reported sales are expected to include Joel Grade: a headwind of approximately $25,000,000 from MSA revenues from Vantiv. This represents approximately 30 basis points of impact on reported growth. Excluding the impact of foreign exchange and MSA revenues, we expect organic sales growth of approximately flat in 2026. As it relates to the segments, in MPT, we expect full-year organic sales to be flat to slightly up. This reflects the continued uncertainty around the Novum situation, including the potential impact from various customer responses. It also reflects the assumption that the ship and installation hold will remain in place for the full year. And as previously discussed, Robert Justin Marcus: we believe that the market is at a new baseline in our IV Solutions business. In HST, we expect full-year organic sales to grow low single digits. This reflects expected contributions from both the Care and Connectivity Solutions and Front Line Care divisions. Andrew Hider: In Pharmaceuticals, Robert Justin Marcus: we expect full-year organic sales to be approximately flat. This reflects continued pressure in injectables and anesthesia related to softer market demand, supply challenges, and ongoing IV push utilization trends that have been discussed in prior quarters. Turning to our outlook for other P&L line items. Beginning with tariffs, we estimate the full-year impact to range $130,000,000 to $140,000,000. We expect full-year adjusted operating margin from continuing operations to range between 13% to 14%. This primarily reflects lower gross margins driven by unfavorable product mix, including the impact of lower manufacturing volumes and reduced contribution from pricing. These pressures are expected to be partially offset by improvements in SG&A, including the recent restructuring actions. We expect our nonoperating expenses, which include net interest expense and other income and expense, to total between $280,000,000 to $300,000,000. This reflects higher interest expense from the recently completed debt mutual transactions and lower contribution from other income. On a continuing operations basis, we anticipate a full-year tax rate to range between 18.5% to 19.5%. We expect our diluted share count to average approximately 518,000,000 shares for the year. Based on all these factors, we now anticipate full-year adjusted earnings on a continuing operations basis of $1.85 to $2.05 per diluted share. While we will not be providing quarterly guidance, I want to offer some perspectives on the expected cadence in results over the course of the year. Andrew Hider: Overall, Robert Justin Marcus: we expect the first quarter to be the most challenging, with improving performance thereafter. Specifically, the ITT division has an unfavorable year-over-year comparison in Q1 due to the onetime distributor build in the prior year. Additionally, ITT results in the first half are expected to reflect absorption headwinds from the rollout of higher cost inventory produced in 2025. We also expect to see a second half benefit from the recently taken actions to rightsize our cost structure. Joel Grade: Therefore, Robert Justin Marcus: we expect ITT performance to improve throughout the year assuming relatively stable demand. Within HST, new product launches are expected to contribute stronger growth in the second half of the year compared to the first half, including Connect 360 and Dynamo. Joel Grade: In Pharmaceuticals, Robert Justin Marcus: we expect the previously mentioned headwinds to continue in the first half of the year. As we move into the back half of the year, we anticipate a more favorable comparison and improved performance. Finally, as a reminder, the first half of the prior year saw benefit to operating margins related to the timing of certain functional costs being reclassified into cost of goods sold. Collectively, these factors support our expectation that organic sales growth, operating margin, and adjusted earnings per share will be back half weighted. With respect to free cash flow, similar to 2025, we expect it to be back half weighted due to our normal seasonality, expected gains in earnings, as well as recent cost structure actions. With that, we will now open up the call for Q&A. Operator: Thank you. We will now begin the question and answer session. If you have a question, please press the star then one keys on your touch tone phone. If you wish to remove yourself from the queue, again, star then one. If you are using a speakerphone, please lift the handset to ask your question. So that we may be respectful of everyone's time, please limit your comments to one question with one follow-up question if necessary. We appreciate everyone's patience and would like to provide as many of you as possible the opportunity to ask a question. We will pause for a moment while the list is being compiled. I would like to remind participants that this call is being recorded, and a digital replay will be available on the Baxter International Inc. website for 60 days at www.baxter.com. Our first question comes from David Harrison Roman of Goldman Sachs. Your question, please. David Harrison Roman: I wanted to start on one strategic question that had one financial follow-up. Maybe firstly for you, Andrew. As you just think about the number of moving parts you are trying to navigate here, strategic review, catching up on innovation, deleveraging. What are you doing to ensure sustainability of the business as it relates to the competitive dynamic? And how are you gaining sufficient visibility to drive the forecasting process? Joel Grade: Yeah. So good morning, David. Let me start by just walking. Part of my standard work as a CEO is to visit customers on an ongoing basis. And I will tell you that the message is loud and clear that we are essential to not only supporting but to enabling their ability to bring a high level of patient care. We are an essential and trusted brand through that. As a reminder, we touch over 350,000,000 patients per year. All that said, we need to get better, and we are not satisfied with our current performance. And you have heard me consistently talk about not only near term, and to walk through, it starts with stabilizing the business. And I have outlined that in my prepared remarks. To get more specific, we are driving the accountability at the lowest levels in the organization. Additionally, about strengthening our balance sheet, and lastly, our focus on continuous and really enabling that such that we focus on the customer and streamline the organization to be able to execute at the pace we expect. We are early in our journey, but we are making progress. Now Operator: to date, Joel Grade: we have aligned around streamlining the organization. We have launched GPS. And we have heightened our focus on innovation. And back to listening to our customers and launching products, it starts with our Connect 360 that I talked about. And then additionally, we launched earlier in the year or talked about launching earlier in the year the Dynamo Stretcher platform. So while we are making progress, we have a lot more work to do. Robert Justin Marcus: Yeah, David. And it is Joel. I will take the forecasting piece of this thing. And clearly, improving our forecasting accuracy is a major priority, and we are attacking that in a very structured way through Baxter GPS. And I certainly understand and appreciate the frustration and the volatility of our historical results. We have and will continue to be transparent about the challenges we are facing and the actions we are taking to address those challenges as well as, obviously, the assumptions underpinning the guidance. But GPS gives us a more disciplined operating rhythm, clear accountability, and a lot more continued visibility that drives our performance. So as you have heard us talk about focusing on demand planning, we also focus really around our cross-functional alignment to our commercial teams, our operational teams, our finance teams, and just building more rigorous daily and weekly operating mechanisms that really surface issues earlier and allow us to course-correct more quickly. So the goal is designed to reduce volatility, improve the predictability of our results over time, and, as Andrew likes to say, drive a really consistent S&D ratios in our organization. So we know we have work to do, and we are attacking it head on. David Harrison Roman: And then maybe just as a follow-up here. Can you just remind us on where you are and the progress you are making on reducing the G&A and support costs that today are getting reimbursed by Vantiv via the TSA? And how we should think about the runoff of the TSA over the course of the year and into next year, and your retained cost? Can that be a one-for-one offset? And maybe just help us think through the nature of the operating dynamics there. Robert Justin Marcus: Yeah. Sure. So a couple of things there. Number one, for 2025, one of the things we have said is that we had, including cost takeout and TSA income, about a 40 basis point remaining impact on the year, and we are on track for that. And so I think that has been successful that way. We continue to make good progress on our cost takeout, and you have heard Andrew talk about streamlining the operating model. That is a continued workstream on this. We have continued to streamline our operations to meet demand. We have talked about that as well from a buying perspective. And then again, this work is done in relation to our stranded costs as well. So our TSAs do start to tail off some in 2026. Obviously, they really go into 2027. As we have said, we are committed to eliminating our stranded costs by 2027, and we remain on track to do that. So I again feel good about that progress, and, again, a lot of this work you are hearing us talk about today is targeting that goal. So hopefully that helps. David Harrison Roman: Yes. Thank you for taking the question. Operator: Robbie Marcus of JPMorgan is on the line with a question. Please state your question. Robbie Marcus: Yeah, great. Thanks for taking the questions, and good morning. Two for me. Joel, maybe just to follow up on David’s question, especially as the TSAs roll off, and I know it is early here, but do you think you will be able to grow earnings next year as the TSAs roll off where you sit today? Robert Justin Marcus: Just to be really quick. Next year, do you mean 2027 or 2026? Robbie Marcus: 2027. Robert Justin Marcus: 2027. We are certainly not forecasting or issuing guidance on that today. Do I anticipate growth? Yes. But as we have talked about, Robbie, the TSA typically are 24 months. Our deal was closed on 01/31/2025, so the majority, I will say, of the TSAs fall off in 2027. And, again, we do expect to continue to work through that in the year and, again, finish that off by 2027. But, again, we are not going to give guidance on growth at this point. Robbie Marcus: Great. Maybe a follow-up question. The gross margins obviously came in well below where the Street was and operating margin as well. I was hoping you could just bridge us from the fourth quarter 2025 to the 2026 guide, how much shifted from below gross cost of goods into cost of goods, and if you could also help put a finer point on first quarter so we could get a better sense of cadence through the year. Thanks. Robert Justin Marcus: Sure. Maybe I will start again. We have not provided specific numerical guidance, but I would certainly reiterate that I anticipate Q1 is going to be our most challenging quarter. There are a number of reasons for that, Robbie. Number one, I would call it normal seasonality. Obviously, Q4 tends to be a lot larger quarter than Q1, so our margin pass-through, again, there is some typical detriment there. Now there is also a prior year comparison, remember, at ITT, and while that is not a sequential driver, it does mess a little bit with seasonality we talked about because our comparison in Q1 year over year with the onetime distributor build in 2025 is a little bit unique. At the time we sized that, it was about 150 basis points to total company sales, so call that a $40,000,000 to $50,000,000 impact, and that will be a headwind in year-to-year growth in Q1. There is also continued uncertainty on Novum returns. One of the things we talked about in the last quarter was an uncertainty around customer behavior. That uncertainty still exists to a degree, and it really carries into this year. And so our customers are in a bit of a wait-and-see mode still, and therefore, as we referenced last quarter, Joel Grade: there is an ongoing risk for customer responses there. Robert Justin Marcus: With that, this is all top line, but Drug Compounding in Q4 grew 18%. Probably not necessarily sustainable from that number, so obviously expecting that to be lower in Q1. And then from a margin perspective, again, I already referenced some of the lower volume. There are also what I will call absorption headwinds. In 2025, we had some of these higher manufacturing costs, and that ended up in our inventory capitalization. That is then rolling out as we sell those products, obviously in the first half of the year really, but also certainly in Q1. And so that is something of a headwind to margins. We have not given specific guidance around the number on that. And then the other thing is we continue to expect bottle margins to remain pressured due to softness in Injectables and Anesthesia, and then really just the overall mix of the business. Finally, from an EPS perspective, Robbie, the incremental interest expense kicks in in Q1, and so that is certainly something to expect there. Hopefully, that helps with guidance there. Robbie Marcus: Very much. Thanks a lot. Operator: Vijay Muniyappa Kumar of Evercore ISI is on the line with a question. Please state your question. Vijay Muniyappa Kumar: Hey, guys. Thank you for taking my question. Robert Justin Marcus: Andrew, maybe my first one for you is you mentioned customers are awaiting how you resolve Novum, right? But your guidance assumes Novum ship hold remains in place for the full year. Have you communicated this to customers? What have you told customers? I understand the guidance assumption, but I am curious, are customers willing to wait for a year for Novum to resolve? Joel Grade: Yeah. Good morning, Vijay. Let me walk this through a little bit here. First and foremost, customers can and are continuing to use the device according to existing instructions and mitigating actions. We have continued to make progress on our Novum solution and the correction. We are staying close, and as we go through testing, as we go through really identifying the longer-term solution set, we will update. As a reminder, we have a strong pump portfolio. We have our Spectrum LVP that we utilize through this transition, and I even walked through earlier in the year we have launched Spectrum with the IQx platform, and it enables us to really not only work with our customers but to have a total pump portfolio with Spectrum being our LVP and Novum being our syringe, and Novum being a newer product set that we have launched in the recent history. And so while we are going through our Novum updates, we have a strong platform that we can bring to market. And as a reminder, we are also launching early Q2 PureVu on the IQx platform, and PureVu is designed to really support our customers and their ability to identify and work on fluid processing. So we are continuing to innovate, continuing to build on, and given our pump platform, we are in a position to support our customers through this. Robert Justin Marcus: Understood. And maybe my second one for you, Andrew. You mentioned the operating model change. Curious on what has changed from prior model. How is this model better? And what is the impact to or implication of free cash flow? You mentioned P&L responsibility. Is free cash flow going to improve from fiscal 2025? Joel Grade: Yeah. I will take the first part, and then I will let Joel walk through a little bit around that, the cash process. Just a few weeks ago, we internally announced the new operating model, and it is designed around simplifying our organization, accelerating innovation, and improving performance. We are putting the accountability at the lower levels in the organization. Most significantly, we are delayering at the top level, removing the segment management, and embedding critical functional roles directly into the business. This allows us to further eliminate the barriers for decision making, and it is streamlining to listening to our customers and ultimately helping us improve our S&D ratio and execute on a more consistent basis. This approach is really moving down that decentralizing and streamlining the organization with black-and-white accountability. Robert Justin Marcus: Yeah, Vijay. And then I will take, again, the cash piece of this. Certainly, as you have heard Andrew talk about regularly and myself as well, improving our balance sheet and cash generation continues to be a top priority for the company. We do expect in 2026 that free cash flow will improve versus 2025, driven primarily by stronger working capital performance and, as well, obviously we do not expect to repeat some of the onetime hits that happened in 2025, specifically the expenses for the hurricane. From a free cash flow perspective, similar to 2025, we do expect it to be somewhat back half related. That includes a charge in Q1 related to recent operating model and cost structure actions, as well as some of the seasonality that we typically show. We also do expect, as we have talked about from a P&L standpoint, our earnings tend to be skewed towards the second half of the year due to some of the structural impacts that have been recognized and we expect to recognize in H2, again, as well as some of the impacts from the manufacturing side of our business in terms of adjusting to better volumes. We feel confident in that. Why? Because some of the impacts are driven by actions that are in flight. The structural cost work is in flight. The work around adjusting our manufacturing operations for better impact, one of the volume, is in flight. The biggest year-over-year drivers I mentioned are really around working capital, inventory management, improved receivable collection processes, and tighter control of our payables process, including commercial terms. GPS is playing a role in this as well, giving us more consistent operating rhythms, better visibility to reduce volatility, and overall strengthening our cash conversion. We do expect cash flow to continue moving in the right direction as we execute through 2026. We saw some of that already in 2025. Joel Grade: Thank you. Operator: Lawrence H. Biegelsen of Wells Fargo is on the line with a question. Please state your question. Robert Justin Marcus: Good morning. Thanks for taking the question. Two for me. One on the gross margin, one on Pharma. Lawrence H. Biegelsen: Joel, could you please give us a little bit more color on the Q4 gross margin? How much of the year-over-year decline was due to tariffs, mix, reclassifications, and the onetime items you called out? And how much lower do you expect the gross margin to be in 2026 versus 2025? I assume it is more than the decline we see in the operating margin guidance. I had one follow-up. Robert Justin Marcus: Yes. Thanks, Larry. Appreciate the question. From a gross margin and overall operating margin standpoint, certainly, a few factors played into this. An unfavorable mix of sales, so with business mix, geographic mix, product mix, that certainly was a key element. We also had, as was referred to earlier, some higher manufacturing and supply costs for a couple different reasons. One, some of the challenges we had aligning our labor to volumes, but also some of the impacts that Andrew mentioned related to some of the challenges that we have seen in Pharma. Those factored into this as well. The nonrecurring items, I would classify that as around $40,000,000 of impact that were related to gross and operating margins in the quarter. Those are things to contemplate as part of that. I would say that is really the main driver there. Again, about $40,000,000 of that is nonrecurring. Lawrence H. Biegelsen: In 2026 versus 2025? Gross margin, I did not hear that. Yeah. I know. But we have not given Robert Justin Marcus: specific guidance on that. I would say, a little bit to the commentary I had as it relates to the Q4 to Q1, there are some of these impacts that we expect to continue into 2026. I think about it a little bit as an H1/H2 split. In other words, this is going to continue to improve over the second half of the year, but there are really two factors I would say in H1 to consider. One is mathematical, and one is more actions driving outcomes. The mathematical piece: we do have some normal seasonality in our company between H1 and H2 from a pure volume perspective. We would expect that to continue. Our cadence reflects a more challenging first half with improvement in the second half. ITT absorption headwinds: in the first half, we had higher cost inventory that we capitalized, and we saw benefits there. That is going to roll into the first half of this year, so that is essentially a headwind in 2026. Those are the mathematical pieces, as well as tariffs. Remember, we had tariffs in the first half of last year. Then, related to the actions driving outcomes: the structural cost takeout that we have talked about, the impact of that is in play. We are confident in the work that we are doing, but the outcomes are primarily going to be impacted in the second half of the year. In terms of aligning our manufacturing labor with our volumes and our production cost, again, that impact will start to show itself in the second half of the year because we are still taking the hit, if you will, from the capitalized higher-cost inventory as we sell those products in the first half of the year. Lawrence H. Biegelsen: That is helpful. And, Andrew, thanks for giving us the P&Ls by sector. Pharma has an operating margin of 9%. It was even lower in Q4. My guess is Compounding, which is your fastest growing business, does not make a lot of money. What are you doing to improve the margins in this business? And why does it make sense to keep a low-margin business like Compounding that seems to hurt your mix every quarter? Thanks. Joel Grade: Yeah. I will walk through the fundamentals of Pharma and really outline. Overall, we like the fundamentals of this business. A couple items: we have also taken this part of the organization and combined it with our ITT business. The reason being is it is synergistic with that organization, with common customers and common call points, and there is an opportunity to improve the business. We have, and we are continuing to take actions to do so. Additionally, there have been some areas that have been in our control where we have been challenged, and through GPS and through driving accountability at the lowest levels, we have taken critical actions to improve. One is around operational execution. Not to get into too much specifics, but we saw one of our facilities really hindered by the ability to drive output. We took an action team around this. They have already improved, they are continuing to improve, and we are going to see that performance improve through the first half of the year. More importantly, it is around how do we not get back into this situation, how do we build this and have this being performance. The role GPS plays in that is around identification and critical action. The second piece within our control is we had a supplier challenge. To be quite candid, it was an area that we identified. We are working through it. It is going to take us a good portion of the year to get through this, and we are identifying how we have alternatives to continue to support the product. We are continuing to ship. That said, we are looking to identify the long-term solutions. To answer your question head on, we like the fundamentals of the business. We have some work to do here, and we need to continue to align around the value creation we have for our customers. Robert Justin Marcus: And, Larry, two other things I would add. Number one, some of the margin challenges that you saw in Q4, as Andrew said, start to improve over the second part of the year, but we still anticipate that being an impact in Q1. Second, as it relates to the Compounding business, yes, certainly that mix impact is the margin impact as well in terms of the relative level of growth in Compounding to our Injectables and Anesthesia. One thing about that is it is our fastest cash cycle in the business, so that is a benefit from that particular business. Joel Grade: Alright. Thank you. Operator: Travis Lee Steed of Bank of America is on line with a question. Please state your question. David Harrison Roman: Joel, just trying still a little confused on what to put in the model for Q1 and to understand the slope of the recovery in 2026. Is revenue going to be down low single digits, down mid single digits? Are gross margins, op margins flat, down sequentially? Lawrence H. Biegelsen: What percent of earnings should fall in Q1 versus the second half of the year? Just any more details on how to model Q1? Robert Justin Marcus: Yeah. Thanks for the question. We have not specifically given numerical guidance on the quarters. I would continue to reiterate the key elements impacting Q1. There is a volume and seasonality impact. There is continued uncertainty around our Novum customer behavior and Novum LVP returns. There are likely continued challenges from a Pharma perspective as it relates to overall margin. The headwinds from an absorption standpoint: we capitalized into our inventory costs some of the higher costs that we experienced in 2025. As we head into 2026, those are going into our cost, and as we sell those products, those are essentially selling higher priced inventory as we head into the first quarter and H1 in general. Those are the main issues driving that. On the EPS level, interest expense is kicking in. Those are the main key drivers as to why our first half, and specifically first quarter, remains particularly challenging. Lawrence H. Biegelsen: Okay. David Harrison Roman: We will hopefully get more offline. Two little nitpicky questions. One, just curious if you are assuming share gains or share losses in infusion pumps this year. And OUS Care and Connectivity Solutions was up $50,000,000 sequentially. Was there anything onetime in that line item? Joel Grade: Yeah. I will start with the first question. We have good opportunities as we go into the year. As a reminder, Spectrum is a workhorse in the space. Not only is it a workhorse, we continue to innovate on the platform, and now that it speaks with Novum syringe, we are continuing to be confident in our ability to bring high value to the market we serve. Robert Justin Marcus: Can you repeat the second part of your question? I am sorry. David Harrison Roman: Yeah. International Care and Connectivity Solutions was up Lawrence H. Biegelsen: $50,000,000 sequentially. David Harrison Roman: I did not know if there was anything onetime in there. It looked like a big growth rate Lawrence H. Biegelsen: in the international business. Robert Justin Marcus: I would just say, in general, that business has been performing well. I do not know that there is anything onetime. In the overall CCS business, we have a strong order book. We have talked about that. We have had some competitive wins from a customer standpoint, and capital spend in general remains strong across our geographies. I do not know if there is anything unusual onetime there. That business continues to be strong, and they continue to improve outside the U.S., which was somewhat of a headwind last year. Joel Grade: Okay. Thank you. Operator: Danielle Antalffy of UBS is on the line with a question. Please state your question. Hey. Good morning, guys. Thank you so much for taking the question. Danielle Antalffy: Andrew, I appreciate it has not been terribly long, but I am just curious, looking at the Baxter International Inc. portfolio in its totality, how you feel about the state of the portfolio today, appreciating you are not going to be doing M&A anytime soon. But, a) where you see the most exciting opportunities with the current portfolio that might be underappreciated by investors, and b) where you think there is opportunity to ramp up the product portfolio. Thanks so much. Joel Grade: You bet. If I miss something, Danielle, certainly feel free to jump in. I will take this as you outlined. Baxter International Inc. is fundamental to the health care system. As I mentioned earlier in the call, it is a trusted partner. We have market leadership across multiple product categories. We have a resilient portfolio and deep customer relationships that really give us a competitive advantage. As we go forward, innovation will be a critical element to our success. As we look at innovation as an enabler, it is extremely important as we bring new innovation to the market, not only from listening to our customers and identifying the pain points to solution, but also staying in front of our total portfolio of product set. There is an opportunity to not only improve our performance, but GPS becomes the foundational operating system for how we really drive disciplines, not only operating rhythm but also clear accountability and clear enablement to listen to our customers, streamline our ability to bring strong capability to the market, and have real-time visibility to bring innovation to solve issues and challenges that our customers face. We like the fundamentals of where we sit, and there are certainly areas we need to continue to challenge on. There are some areas internationally that we are looking at. We do have smaller exits that we are looking at in 2026 as we look at our total portfolio. As far as areas where we are pleased with our performance, in many of our businesses, but more specifically, how we bring our solution from our Advanced Surgery business and the capability we have in that space and how customers look to Baxter International Inc. to support and have high value when they are treating and working with patients. We have many of those. MPT is areas we are looking at as well as HST and as well as Pharma. More to come. If I could characterize how we think about innovation for the future, it is a base hit discussion, not walk-off grand slam. It is about that constant drive to launch products and solutions that really enable our customers to bring a higher level of care at a more efficient pace. Last, capital allocation is a critical element. We talk as directly on capital allocation as we do around our market strategy, and I have outlined it starts with delevering our balance sheet, and we have taken critical actions around that. When we look at the other levers, reinvesting in the business, and I walked through, we are going to be at or above on our innovation reinvestment, expecting new product launches, expecting areas to drive R&D, not just sustainment. But also as we get into the future, as we delever, identifying targets that can add high value from an M&A perspective. We have a strong funnel, but we need to delever first. Hopefully, I answered your question. Danielle Antalffy: Yeah. Very helpful. Thanks, Andrew. Joel Grade: Appreciate it. Operator: We have time for one more question. Joanne Wuensch of Citi on the line with a question. Please state your question. Joanne Wuensch: Good morning, and thank you for squeezing me in. I am just curious, when you went to put guidance together for 2026, what was your philosophy of how to deliver it so you can deliver on the guidance? Thank you. Robert Justin Marcus: Thanks, Joanne. I will take a stab at that. I always view guidance as prudent and reflective of the best and most current information we have available. We think about these things as trying to continue to be very transparent about the challenges we are facing. This is certainly apparent in our Q4 results, but also about the actions we are taking to address those issues. We try to talk about the things that are market conditions, but also things that are in our control to deal with. All that falls in the underlying assumptions underpinning the guide. As we pull that together and think about the key factors in the year that are happening, we talked about the fact that there is a key Novum assumption that was in there. We have talked about our IV Solutions that we rebased that. We have talked about some of the challenges in our Injectables and our Anesthesia, some of the product mix impacts, the manufacturing volumes that we had to adjust to, and in 2026 there is going to be a reduced contribution from pricing, as well as the EPS impact. Joanne, I would say when we pull that all together, that is where our guidance sits. I certainly understand the frustration with some of our volatility. It matters to us a ton for our S&D ratio to be in a place where we say here is what we say, then here is what we do relative to our guidance. Hopefully, that helps. Is there anything you would add to that? Joel Grade: I would just say, I will echo, it is a view of the market. It is our prudent view of how we operate. I just want to reiterate, GPS will become who we are and how we operate. Kevin Moran: Operate. Joel Grade: It will allow and enable us to go very deep in the organization and drive accountability. It is part of our journey around the continuous improvement model and how we need to continue to improve our S&D ratio. It is an area that we will continue to update as we go throughout the year. Joanne Wuensch: Thank you. Operator: At this time, I will now hand the call back over to Andrew for some final closing comments. Joel Grade: Thanks, Operator. In closing, we are not where we want to be, but we are confronting our challenges head on and taking deliberate steps each day to better position Baxter International Inc. for the long term. I am energized by the opportunities ahead, driven by the essential role Baxter International Inc. plays in patient care, and our mission-driven team that is committed to drive stronger and more consistent performance over a long period of time. Thank you very much. Stay safe, and goodbye for now. Operator: Ladies and gentlemen, this concludes today’s conference call with Baxter International Inc. Thank you for participating.
Operator: Good day, and welcome to the Fourth Quarter and Full Year 2025 Zebra Technologies Corporation Earnings Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Michael Steele, Vice President of Investor Relations. Please go ahead. Good morning, and welcome to Zebra Technologies Corporation’s fourth quarter earnings conference call. Michael Steele: This presentation is being simulcast on our website at investors.zebra.com and will be archived there for at least one year. Our forward-looking statements are based on current expectations and assumptions, and are subject to risks and uncertainties. Actual results could differ materially and we refer you to the factors discussed in our SEC filings. During this call, we will reference non-GAAP financial measures as we describe our business performance, with reconciliations shown at the end of this slide presentation and in our earnings press release. Throughout this presentation, unless otherwise indicated, our references to sales performance are year-on-year at constant currency and exclude results from recently acquired businesses for twelve months. This presentation will include prepared remarks from William J. Burns, our Chief Executive Officer, and Nathan Andrew Winters, our Chief Financial Officer. Bill will begin with a discussion of our fourth quarter and full year results. Nathan will then provide additional detail and discuss our outlook. Bill will conclude with progress on advancing our strategic priorities. Bill and Nathan will take your questions following the prepared remarks. Now let's turn to slide four as I hand it over to Bill. Thank you, Mike. William J. Burns: Good morning, and thank you for joining us. We delivered fourth quarter results above our outlook driven by our team's strong execution and positive demand trends. Before discussing the quarter, I would like to briefly reflect on the progress we have made over the past year on our vision to advance intelligent operations. In 2025, we expanded our connected frontline portfolio and customer base through the Elo Touch acquisition and expanded our 3D machine vision capabilities with the Fotoneo acquisition. We advanced our market leadership with the introduction of our AI solutions for the frontline and sharpened our focus on automation by exiting our robotics business to prioritize areas where we see better growth opportunities including RFID, machine vision, and AI-powered solutions. Operationally, we delivered solid growth, generating strong free cash flow, and deepened customer and partner relationships. For the fourth quarter, we realized sales of nearly $1,500,000,000, a 10.6% increase, or 2.5% on an organic basis, from the prior year, an adjusted EBITDA margin of 22.1%, and non-GAAP diluted earnings per share of $4.33, which was 8% higher than the prior year. We drove strong results in our Asia Pacific and Latin America regions with EMEA returning to growth. Our healthcare, manufacturing, and retail and e-commerce end markets grew while transportation and logistics cycled strong compares in North America. Elo performed well in the quarter and we are pleased with the early progress on driving synergies. We realized solid earnings growth by fully mitigating existing tariffs and driving operating expense leverage through productivity initiatives while continuing to invest in our market leading solutions portfolio. For the full year, we achieved greater than 6% sales growth in line with our long-term expectations and 17% non-GAAP diluted earnings per share growth. We also generated more than $800,000,000 of free cash flow and closed on accretive acquisitions. Overall, our team executed well while navigating an uncertain environment. Our strong financial position enabled us to return significant value to shareholders with more than $300,000,000 of repurchases in Q4 and nearly $600,000,000 for the full year. Given our progress, our Board of Directors has expanded our authorization by $1,000,000,000. We will continue to execute on our disciplined and balanced capital allocation strategy prioritizing investments in our business that elevate our portfolio of solutions, while consistently returning capital to our shareholders. We are well positioned as we enter 2026 and excited about the opportunities ahead. I will now turn the call over to Nathan to review our Q4 financial results and 2026 outlook. Nathan Andrew Winters: Thank you, Bill. Let's start with the P&L on slide six. In Q4, total company sales increased 10.6% or 2.5% on an organic basis with growth across most categories. Our Connected Frontline segment grew 3.6% led by mobile computing, and our Asset Visibility and Automation segment grew 1.3% led by printing and supplies. We realized solid performance across our regions. William J. Burns: Asia Pacific sales increased 13% led by Japan and India, Nathan Andrew Winters: sales increased 8% in Latin America with double-digit growth in Mexico, William J. Burns: in EMEA, sales increased 4% with solid growth in Northern Europe and Germany. And in North America, sales declined 1%, as we cycled large order activity in the prior year partly offset by solid run-rate demand. Adjusted gross margin declined 50 basis points to 48.2% primarily due to lower services and software margins. Nathan Andrew Winters: We fully mitigated current tariffs earlier than expected thanks to our team's successful efforts including supply chain moves, product portfolio rationalization, and price execution. William J. Burns: Adjusted operating expense leverage improved by 60 basis points. Nathan Andrew Winters: This resulted in fourth quarter adjusted EBITDA margin of 22.1%, William J. Burns: non-GAAP diluted earnings per share were $4.33, an 8% year-over-year increase, Nathan Andrew Winters: and above the high end of our outlook. William J. Burns: In Q4, we recognized $76,000,000 of restructuring charges relating to the exit of our robotics business and productivity initiatives. Turning now to the balance sheet and cash flow on slide seven. For the full year, we generated free cash flow of $831,000,000, or a conversion rate of 102%. At year-end, we held $125,000,000 of cash with a modest debt leverage ratio of 2 and $1,200,000,000 of credit capacity. Nathan Andrew Winters: We have been deploying capital consistent with our allocation priorities. For the full year, we repurchased $587,000,000 of stock William J. Burns: and acquired Elo, Nathan Andrew Winters: and Fotoneo with cash on hand and our existing credit facility. William J. Burns: We continue to maintain excellent financial flexibility Nathan Andrew Winters: for investment in the business and return of capital to shareholders. As Bill noted, our Board authorized an additional $1,000,000,000 of share repurchase providing a total of $1,100,000,000 after the $100,000,000 repurchase through early February. William J. Burns: This action underscores the confidence in Zebra Technologies Corporation’s prospects for continued growth and value creation. Let's now turn to our outlook. Nathan Andrew Winters: We entered 2026 with a solid backlog and pipeline that supports our first quarter sales growth guidance range William J. Burns: of 11% to 15%, Nathan Andrew Winters: including approximately 10 points of contribution from business acquisitions and favorable FX. Our first quarter adjusted EBITDA margin William J. Burns: is expected to be between 21%–22%, and non-GAAP diluted earnings per share Nathan Andrew Winters: are expected to be in the range of $4.05 and $4.35. For the full year, William J. Burns: we expect sales growth to be 9%–13%, Nathan Andrew Winters: which reflects a strong pipeline of opportunities, William J. Burns: machine vision returning to growth, continued momentum in RFID, along with manufacturing, and a seven-point favorable Nathan Andrew Winters: impact from acquisitions and FX. William J. Burns: Our full year adjusted EBITDA margin is expected to be approximately 22% and non-GAAP diluted earnings per share are expected to be between $17.70 and $18.30. We are currently facing industry-wide price increases for memory components beginning in Q2. Our full year guide reflects us fully mitigating this approximately two-point headwind and driving profitable growth in 2026 through multiple initiatives, including collaborating closely with our vendors to manage supply, targeted price increases, net savings from the robotics business exit, Nathan Andrew Winters: targeted actions to drive productivity, as well as FX favorability. William J. Burns: Free cash flow for the year is expected to be at least $900,000,000 which reflects free cash flow conversion of approximately 100%. We are continuing to optimize our working capital levels balanced with our supply chain resilience objectives. Nathan Andrew Winters: Please reference additional modeling assumptions on slide eight. With that, I will turn the call back to Bill. Thank you, Nathan. As we turn to slide 10, William J. Burns: Zebra Technologies Corporation remains well positioned to benefit from secular trends to digitize and automate workflows with our innovative portfolio of solutions including purpose-built hardware, software, and services. We deliver intelligent operations by digitally connecting people, assets, and data to assist our customers Nathan Andrew Winters: with business-critical decisions William J. Burns: that drive meaningful outcomes. A $35,000,000,000 served market represents a significant growth opportunity. Zebra Technologies Corporation’s complementary and synergistic segments position us well to capitalize on this opportunity. The Connected Frontline provides the digital touch points necessary to improve efficiency, collaboration, and the customer experience. Our solutions include enterprise mobile computing, Nathan Andrew Winters: interactive displays, William J. Burns: frontline software, and AI agents. Asset Visibility and Automation gives assets a digital voice to automate environments with technology that scales through printing solutions, advanced data capture, RFID, and machine vision. Turning to slide 11. Zebra Technologies Corporation solutions enable our customers across a broad range of end markets to drive productivity and efficiency and improve the experience of their customers, shoppers, and patients. We are accelerating our investments in RFID, machine vision, and AI, further sharpening our strategic focus. Zebra Technologies Corporation is investing in RFID solutions that advance our leadership and support emerging use cases. Our next generation mobile computers embed RFID reading capabilities to prepare our customers for the increased penetration of RFID tags across the supply chain. A North America telecommunications company recently selected our new RFID-enabled mobile computers for their retail locations, replacing consumer devices. Our solution enables this customer to improve inventory accuracy and reduce shrink, as well as lowering IT support costs over the product life cycle. We are excited about the momentum we are seeing in RFID adoption and our pipeline of opportunities. We are driving new opportunities in machine vision by investing in go-to-market initiatives for deeper engagement with our customers. There are many mainstream workflows that benefit from the proven return on investment from our solutions. Nathan Andrew Winters: For example, William J. Burns: a large European parcel delivery company has selected Zebra Technologies Corporation’s machine vision platform to drive productivity gains by identifying and sorting parcels, eliminating bottlenecks along conveyance systems. We have a strong pipeline of machine vision opportunities and expect to return to growth in 2026. Now turning to slide 12. At the National Retail Federation trade show in January, our team, along with valued customers and partners, demonstrated how our innovative portfolio advances the AI-powered modern store through engaged associates, optimized inventory, and an elevated customer experience. Nathan Andrew Winters: These outcomes are achieved William J. Burns: through improved real-time inventory management, omnichannel execution, and technology-empowered workers and shoppers. Nathan Andrew Winters: The addition of the Elo Touch business William J. Burns: enhances the modern store experience as our combined capabilities along with AI enable us to offer additional ways to digitize operations across multiple touch points. Together with Elo, we will deliver higher customer satisfaction and complete solutions through the intersection of frontline mobility, self-service, and digital media. This value proposition extends well beyond retail, including quick-serve restaurants, hospitality, healthcare, and other industrial markets. For example, a high growth multinational fast-food restaurant recently selected Elo's self-serve kiosk at its U.S. locations to increase order size, Nathan Andrew Winters: enable faster fulfillment, William J. Burns: and improve order accuracy. Looking ahead, we have an opportunity to expand our business across their entire point of service platform Nathan Andrew Winters: and also supply their international locations. Turning to slide 13. William J. Burns: Our industry leadership puts us in a unique position to be a supplier of choice of AI solutions for the frontline of business. Our Connected Frontline and Asset Visibility and Automation segments play a critical role in enabling AI for business operations. As AI transforms the frontline of business, asset visibility becomes essential, providing a digital voice to physical assets to identify, locate, and understand condition. This real-time data provides critical insights allowing AI models to better understand the physical world which is fundamental to transforming frontline workflows across industries. Our connected frontline solutions unify a mobile workforce which, combined with our SaaS offerings, deliver the output from AI models to frontline workers providing the right information to the right person at the right time. Nathan Andrew Winters: Global solutions will be capable of seeing, William J. Burns: hearing, and understanding the environment while interacting with frontline workers in a conversational or vision-based way. We continue to invest in our AI solutions with our recently launched Frontline AI Suite, comprised of three components. AI Enablers are foundational to our offering, consisting of tools and APIs that empower partners and customers to build enhanced applications for mobile devices. Our AI Blueprints combine enablers into purpose-built templates that streamline multistep workflows. These blueprints integrate computer vision, Nathan Andrew Winters: voice recognition, and sensor data William J. Burns: to automate critical workflows such as proof of delivery, material receiving, and shelf merchandising. Zebra Companion includes agents we design and manage addressing key responsibilities including operating procedures, product knowledge, and sales enablement. Our Frontline AI Suite is a clear differentiator in the industry and enables us to meet a range of customer requirements. Our partners and customers can choose to build their own fully customized application using Enablers, elect to adopt Blueprints to more quickly address their evolving business needs, or deploy our fully functional Zebra Companion. AI Enablers are a value add to Zebra Technologies Corporation’s mobile computers, while AI Blueprints and Zebra Companion are software and service offerings with paid pilots already underway and scaled deployments expected this year. We are pleased that two prominent retail customers demonstrated the value of our Frontline AI Suite at the NRF trade show, and we look forward to building on our momentum to further elevate Zebra Technologies Corporation as the leading solutions provider Nathan Andrew Winters: for the frontline of business. William J. Burns: I will conclude on slide 14, which highlights end market trends driving our long-term growth opportunities across our end markets. These include several broad-based themes including labor and resource constraints, track-and-trace requirements, increased consumer expectations, and advancements in artificial intelligence. Nathan Andrew Winters: Our customers rely on our solutions William J. Burns: to advance their business-critical workflows and we are uniquely positioned to address the need for intelligent operations with our market-leading portfolio. I will now hand it back to Mike. Michael Steele: Thanks, Bill. We will now open the call to Q&A. We ask that you limit yourself to one question and one follow-up to give everyone a chance to participate. Operator: We will now begin the question and answer session. If you are using a speakerphone, to withdraw your question, Operator: Our first question today comes from Thomas Allen Moll of Stephens. Please go ahead. Good morning and thanks for taking my questions. Good morning, Tommy. Good morning, Tommy. First one for you on memory. Nathan Andrew Winters: Nathan, I think I heard you say that beginning in Q2, you anticipate a two-point headwind that you can fully offset. So maybe we can just unpack that a little bit. Two-point, I presume you are just referencing a two percentage point hit to William J. Burns: gross margin Nathan Andrew Winters: and William J. Burns: maybe you can give us some context how that progresses from Q2 and beyond? Or Nathan Andrew Winters: maybe you can quantify for us some of the William J. Burns: initiatives that you have in flight to try to offset that headwind? Thank you. Yes, for sure. Nathan Andrew Winters: No. It is correct. What we said in the statement is about two-point gross margin headwind on a gross basis, but obviously, the memory chip demand and price expectations have escalated quite a bit since the beginning of the year. But we are pursuing multiple mitigation strategies, different than what we have done before, whether this was with tariffs or semiconductors. So we recently announced price increases globally over the past week. They will be effective in March. Practically working with our suppliers around spot buys, co-planning around the demand trends as well as looking for alternative memory sources. And then a lot of work from our product teams on transitioning to some higher density memory. So, again, quite a few active work streams in process. And if you look at the impact for 2026, I mean, this is based on indicative pricing from our suppliers and where they see that going here over the next several quarters. The impact really begins in Q2 just based on the timing of those price increases, as well as what we have in inventory going into the year. But we fully expect to mitigate that within the year, and that is embedded in our guidance. About a half of that or a point is offset with just other offsets we have, whether that is the exit of the robotics business, some tailwinds from some of the lower tariff rates, as well as the actions the team has taken to mitigate the tariff exposure, as well as some of the favorability in FX. And then the other half coming through as we realize the pricing benefits into Q2 and through the second half of the year, as well as all the other mitigating actions the teams are currently working. So again, our teams have done a really great job at securing supply to meet the demand we have within the guidance. So a lot of work. It is obviously dynamic, but I think, again, we feel good about where we are at with the work streams and working closely with our supply base. Thank you. And I want to follow up on the repurchase Nathan Andrew Winters: update you provided today. It sounds like you have already done William J. Burns: $100,000,000 through Nathan Andrew Winters: the year-to-date period. And so my question is with the new authorization and William J. Burns: assuming your stock is at similar levels, is there any reason why you would not Nathan Andrew Winters: or, excuse me, why you would slow down the recent level of repurchase? Nathan Andrew Winters: No. If you look at, I mean, if you just take a step back, ending the year from a debt leverage around 2x, we feel great about the overall capital structure, strong cash position, balance sheet is in good shape. So, as we said, we repurchased $300,000,000 of share repurchases in the fourth quarter. We have repurchased $100,000,000 year to date leading into the call. So right now, we are targeting to do share repurchase around 50% of our full year free cash flow of $900,000,000. That will be primarily here in the first half of the year. So, again, we continue to plan to be aggressive in the market here over the next several months, and this still provides ample flexibility as we enter the back half of the year based on our cash profile for the year. Operator: The next question comes from Guy Drummond Hardwick of Barclays. Operator: Hi, good morning. Guy Drummond Hardwick: Bill, I think it has been a couple of years since you have referenced the pipeline. So I guess that is very positive. So is visibility improving? But just more specifically in the near term, it appears the midpoint of your Q1 revenue guidance suggests revenues are above Q4, which is much better than seasonality. Any particular reasons for that? Is that Elo? Is it because of the pull forward from Q4 to Q3 makes an easier comparative? What other sort of issues are there? And is FX a big change sequentially? William J. Burns: Yeah. I would say that the strong finish to the year certainly is playing into this. As we exceeded our outlook, 2025 we drove solid growth, 6% growth and then 17% EPS growth, greater than $800,000,000 of free cash flow in what was an uncertain environment through the year. Elo added two points of sales growth to the year leading to 8% growth for the full year, really advancing our offerings in the Connected Frontline segment, and then also our capabilities across engaging customers in a digital way certainly in that segment. So enhanced our modern store offering as well. We see that, as we enter 2026, there is momentum. Right? We see reacceleration of growth coming out of fourth quarter, led by manufacturing, our machine vision pipeline, momentum in RFID are all positives as we enter the year. We are seeing our customers continue to talk about investments in technology as we spent a lot of time with them at the National Retail show. Really, we are focused on higher growth opportunities across the portfolio and to drive productivity with the business, as Nate talked about, kind of offsetting memory. So I think overall, we feel good as we enter the year and that the momentum is there to Nathan Andrew Winters: drive profitable growth in 2026. Nathan Andrew Winters: And then, Guy, I think, if you look at the Q1 guidance, as you mentioned, in line or roughly flat from where we were in Q4. I think a couple of things in play. One, if you just look back over the last couple years, linearity has been anything but typical. So I think it is hard to say what has been typical linearity if you look back just at what has happened over the past couple years. Nathan Andrew Winters: But also, Nathan Andrew Winters: we did not see, as we said in our guidance for the fourth quarter, kind of a surge in year-end spends. So we did not see the same type of cyclical improvement from Q3 to Q4. And then Elo plays a small part, just not quite the same seasonality, more linear throughout the year. So I think all three of those play a factor, along with, as Bill mentioned, the demand environment, all play a factor in why Q1 is going to be in line with Q4 in the top line. Guy Drummond Hardwick: Sorry. Just on the memory issue, do you have much visibility to the back end of the year in terms of what could be the annualized impact as we kind of exit Nathan Andrew Winters: Yes. I mean, we have, I mean, really, the Guy Drummond Hardwick: the year? Based on your discussions with your suppliers? Nathan Andrew Winters: pricing we have gotten now is kind of through the middle of the year. So I think that is, you know, and obviously, that is what we have incorporated into the guide as well as some assumptions around just how that may play out in the back half. I think the way to think about it now would be you take the two points, really pull that over the second, third, and fourth quarter, and then annualize that run rate on an annual basis. So it is not that much different from what we are seeing here in our 2026 guide. Operator: Our next question comes from Joseph Craig Giordano of TD Cowen. Please go ahead. Operator: Hey, guys. Operator: Good morning. Thanks for taking my questions here. Can you talk about, like, I mean, it is a fairly wide-ish, it is kind of a wide organic growth guide for the year. So maybe you could talk to scenarios and what your visibility looks like and how you are, you know, what would be required from a Nathan Andrew Winters: from, like, a market standpoint to get to that higher end? And how, like, de-risked is the low end. Yeah. Maybe just, you know, start with the full year guide. 11% at the midpoint, 22% EBITDA margin, and double-digit EPS growth. So again, I think we feel good about the overall profile for the year. And as Bill mentioned, I think the underlying theme of that is entering the year with a strong pipeline, the momentum across different parts of our business, whether that is RFID, manufacturing, machine vision. And I think if you take a step back, we believe the guide provides a balanced view of the environment where we sit here today, including still some macro uncertainty out there, the memory component challenges, with the opportunities that we see in the market. So if you look at the 11% midpoint, about four points of that is driven by underlying demand. Elo provides five and a half points of the growth, and FX is a point and a half there. And I think visibility is pretty typical for what we see at this time of the year. So I think the range is really bound around the midpoint. It is more how we think about it in terms of circular around the midpoint. Obviously, the macro conditions, timing of deals, play a factor in kind of the balance between the low and high end of the range. But I think we are based on everything we have today. Joseph Craig Giordano: And just a follow-up. Can you talk about price just like bigger picture? Has the William J. Burns: has the way customers think about price of these types of electronics, like, structurally changed and maybe permanently changed? Like, is it, I mean, how much of your, how much of your revenue base now is almost like just pure pass through of weird things that have happened, right? Whether it is Joseph Craig Giordano: whether it is tariffs or memory or etcetera. Is it just, like, William J. Burns: more acceptable behavior now and customers kind of can accept that price is not just going to keep going down into perpetuity for, like, existing products? Nathan Andrew Winters: Yeah, Joe. I would say that Joseph Craig Giordano: you know, the things like tariffs and memory and others have, William J. Burns: you know, allowed us to raise price where, you know, along with Joseph Craig Giordano: with our competitors as well. I think you are just seeing this across the industry that it is William J. Burns: not possible to absorb the cost of tariff or memory and we have to raise price. And I think that, look, our customers are price sensitive. We have competitors in the market. Our largest customers get our best pricing. That is just the way it works, and we continue to work with them to make sure they are seeing the value. We are adding a lot of technology to our devices, not just, you know, we are raising price because we have to on memory and tariff and others, but also, they are getting a lot of value. Right? We have added RFID to all our next generation mobile devices. We are increasing memory and Joseph Craig Giordano: processing speeds, working with, William J. Burns: you know, our partners in Qualcomm and Google on the OS to make sure that they can support AI models on the device. So they are seeing value in things like mobile computing. We are doing the same across the entire portfolio, adding Joseph Craig Giordano: AI capabilities, capabilities to machine vision, continuing to enhance capabilities around scanning, William J. Burns: printing to that portfolio. So, you know, our print portfolio, we are adding RFID. There is a lot of value as well that our customers are getting from our solution. William J. Burns: Certainly, there is price sensitivity and competition, and that all matters. But look, we do not have a choice but to raise price when memory and tariffs and others are so significant. But I think our customers understand that. They are seeing that across not just our segment, but many others. Nathan Andrew Winters: Yeah. And, Joe, I think if you just look back at last year, even with the price increase we did in April, it still represented a little over half a point of the full year organic growth. So still the vast majority of the growth last year was driven by underlying demand. So it clearly plays a part, but that underlying demand is still what is going to ultimately drive the top line. Operator: The next question comes from Robert W. Mason of Baird. Operator: Please go ahead. Yes. Good morning. Operator: Maybe just an extension of that last question. I mean, as you think about the way you have laid out the guidance for the first quarter and how you are thinking about the balance of the year and when pricing goes into effect. Are you giving any consideration to customers trying to get in front, you know, moving projects, pulling those forward, you know, trying to get ahead of some of the price increases or just, you know, uncertainty around memory in general? Nathan Andrew Winters: Yeah, Rob. So I think two points. On the first quarter, we are not expecting any type of pull-forward activity, or that is not incorporated into the guidance. I mean, we just announced the price increase this past week. So, obviously, what we were seeing in the pipeline of opportunities was unaffected by the price announcement here just over the past week. And just how we implement that through our distribution channel, with our partners, in terms of honoring prior pricing that we have or updating the full backlog or what is sitting with our distributors. As we have done these price increases in the past, we really have not seen a huge pull-in of demand just based on how we administer that through our channel, as well as honoring some of the PCs, price concessions we have with certain customers on deals. And then I think the other one, just as you look at the incremental price increase we announced this week, that is not been incorporated into the guide. Similar to how we thought about last year. We want to monitor the impact. We just announced it, so, obviously, that is being absorbed through the channel. So I think, as we sit here today, we thought it was the right move to say, what is really what we are seeing from the underlying demand today? And then we will update that as we go through the year in terms of how we see that as either incremental revenue or any type of trade-off with underlying demand. William J. Burns: Yeah. I would say that maybe just to add, Rob, that, you know, talking to our partners at our channel partner conferences, we have been through North America and Asia Pacific already, and you know, the message they are sending to customers is, you know, let us talk about these major projects early. Let us get those orders in. William J. Burns: Not the idea of to save on pricing or others, but more just to make sure we have supply for them ultimately. And I think that is the message they are sending. So I do not see people buying early because of it. I think it is just a reality of what is happening across memory. But I think it allows our partners to have the conversation early with early visibility William J. Burns: to especially larger opportunities with our customers to make sure that they understand that, you know, the more visibility we have to demand on specific product they are looking to utilize, then we can go meet that demand with the memory we have. Operator: Makes sense. And then, Bill, you mentioned this Operator: return to growth in machine vision. I think historically, we are aware of where you had some maybe over-index into certain verticals. Are those the verticals that you are expecting Joseph Craig Giordano: to see recovery in? Or do you have some new ones that you are looking to drive that return to growth? Yeah. We see that machine vision is really an integral part of the Asset Visibility and Automation segment for us. And I think that William J. Burns: when we look at machine vision, we saw sequential growth in fourth quarter. So we feel good about that. We have seen some new wins both in, you know, as you know, the machine vision market, there are two sides of that. One is T&L. So we have seen some large Joseph Craig Giordano: transportation and logistics wins, and the other is inside William J. Burns: manufacturing. So we have seen at the high end of our portfolio some Joseph Craig Giordano: you know, automobile manufacturing wins that are coming back a bit. So I think manufacturing William J. Burns: in general on the machine vision side Joseph Craig Giordano: recovering, in addition to T&L, is William J. Burns: a good sign. Joseph Craig Giordano: We expect sequential growth to continue through first half, but solid growth for the full year. I think the pipeline is, you know, we have been working hard to diversify the pipeline of customers, but William J. Burns: everything across inspection, you know, dock door, pack bench, scan tunnel, optical character recognition, to a broad breadth of Joseph Craig Giordano: opportunities that the team is working on. I would say as we are looking to diversify, William J. Burns: the business, as you said, into new vertical markets. I think our value proposition is strong. We have got, Joseph Craig Giordano: you know, we focus around ease of use, the unified software platform that we have brought across the portfolio. We have invested in go-to-market. We have changed out some leadership in the business. Acquired Fotoneo to have another offering at the high end of the market. William J. Burns: So I think, you know, Joseph Craig Giordano: we feel good the market is recovering overall in machine vision as manufacturing recovers and T&L spends again in that environment. Joseph Craig Giordano: So Joseph Craig Giordano: we see, you know, solid growth, quite honestly, into 2026. So, you know, overall, I would say we feel good. Operator: Our next question comes from Keith Michael Housum of Northcoast Research. Please go ahead. Good morning, guys. Appreciate the opportunity. Sorry to harp on the memory issue a little bit more, but I appreciate, Nathan, the visibility through the first half of the year. But we are hearing more and more concerns along the industry that perhaps product shortages and limitations to sales in the second half of the year. Can you talk about any confidence you have that in regards to the price, Nathan Andrew Winters: you are going to have the availability there of the products? Operator: Yeah. Of course. Nathan Andrew Winters: Look, I think the team, as I mentioned earlier, the team has done a great job working with suppliers. Bill mentioned, I mean, part of this message through the channel with our partners is getting the visibility on those projects to what SKU, what product do you want, and getting that visibility early. It allows us to then shape demand. So it is really around, you know, a bit of can we get the product, as much as get the right memory for the right product that we need and making sure that those precious components are going to the right product families as we build out the pipeline. So that is where the team is really focused now, shaping demand, working with our customers around the particular SKUs they are looking for around projects maybe a bit earlier than normal, so that as we build the build plan, work back through our supply chain, we are getting the right memory through the pipeline. And then the other thing the team is working actively is moving to the higher density memory, with a lot of that capacity planned to come online in the middle of the year. So part of that is also shifting to the newer memory, which, again, we expect for that supply to increase as we go to the back half of the year. William J. Burns: I think, Keith, maybe I will just add really quick. Just strong supplier relationships is critical to this and that we know coming out of COVID, that is critical for our business. And we have worked really hard to make sure that we have got the right relationships in place with our suppliers and they are, quite honestly, guiding us through this, as Nate said. You know, months ago we had the conversation around moving to new memory that would be more readily available, and we have got early samples of that. We are working with William J. Burns: our other suppliers to go test that and make sure that we are ready. So we are doing everything our suppliers are asking us to go do to get the most access to memory we can. And those relationships really matter ultimately. We are working closely with them. And as Nate said, William J. Burns: on the other side of it, on the partner or customer side, to say, look, we do not want to build product and put memory in it that we do not need for customer demand. So we want to make sure we have got the right SKU, the right product, William J. Burns: the right timing around it, William J. Burns: and the analysis we have done so far is that we are going to mitigate the pricing, and we are going to have the supply we need. There is always some risk in that, but we feel good about where we stand today. The team has done a lot of work on this. Operator: Okay. Great. In terms of that memory, Operator: is it primarily the mobile computers that are at risk here? Or is it also point of sale of the Elo or the printers? Is that experiencing some of the same issues or is it really concentrated with mobile devices? Nathan Andrew Winters: Concentrated to mobile devices. Elo and the POS and kiosk business has, you know, similar, but it is predominantly in those two portfolios. But, again, the teams there are working closely together. Our supply chains are William J. Burns: you know, tied on exactly what we are doing from Operator: a pricing perspective, but also a supply perspective and leveraging William J. Burns: the strengths of both of our, you know, both Elo and William J. Burns: core Zebra to make sure we have got William J. Burns: supply across both. Operator: The next question comes from Andrew Edouard Buscaglia from BNP Paribas. Please go ahead. Operator: Hey, good morning, everyone. Good morning, Andrew. Nathan Andrew Winters: I just wanted to get William J. Burns: a sense of these kind of customer conversations you are having in terms of what they are thinking for 2026. Joseph Craig Giordano: It sounds like, I mean, you have a, it sounds like you have a healthy backlog and your Q1 guidance implies some, William J. Burns: you know, improving spending. But what are the customers saying in terms of the biggest, you know, impetus to spend here? Is it, like, in the past, you talked about clarity around tariffs. Is it, are they taking advantage of accelerating depreciation? And is there an upgrade cycle, maybe they just have not bought in so many years, and they have got to move forward this year. I would say that the, you know, William J. Burns: customer conversations are really around the idea that they are continuing to invest in their business, you know, and that is across all verticals. We have spent, you know, even though it is early in the year, a lot of time with customers, as I mentioned, at National Retail show, but, you know, our largest T&L customers, because T&L is so critical to retail also, were at that show. We have got Nathan Andrew Winters: you know, our healthcare show coming up in HIMSS over the next, you know, x number of weeks. So William J. Burns: we are preparing for that. So across all verticals, our customers are really talking about continuing to invest in their business and technology. I would say that William J. Burns: you know, we enter the year with a solid backlog and really a pipeline. We have got momentum, as Nate talked about, around Nathan Andrew Winters: you know, our core business overall, William J. Burns: you know, including scanning, printing, William J. Burns: mobile computing, but also, you know, manufacturing, you know, seeing more strengths in that, which has been a focus area for us. EMEA returning to growth. I would say that the demand remains strong for Elo, so we are certainly excited about that acquisition. You know, I think that the breadth and depth of our solutions portfolio, Operator: including the addition of Elo and William J. Burns: the new opportunities around our AI suite and the idea that customers are thinking about how they are deploying AI at the frontline of business overall. Those conversations continue, and I think that, you know, customers are really focused on how do they serve their customers better and get better experiences, whether that is omnichannel or it is self-service or point of sale. They are talking about driving efficiencies within their business. How do I use our solutions to go do that across RFID, machine vision, and others. And I think it is how do you increase inventory visibility, which is still challenging across our customer base, and that is everything from, you know, printing to scanning to our mobile devices. So I think that, you know, we are confident in delivering solid growth in 2026. And our customers seem to be really focused on continuing to deploy technology across their business. And I would say, kind of playing their game. Right? They have got a plan. They are executing on it. And there has been really no talk about kind of anyone holding back or others. It has all been kind of positive about, you know, what are their plans for 2026 and what are the opportunities we have to work closely together. Operator: Yeah. Joseph Craig Giordano: Yeah. Sort of on that note, you know, a lot of people, like, looking at things like the AI effect, and certainly, your customers are trying to find ways to leverage it and, you know, reduce cost and, you know, improve productivity. I am wondering, you know, years ago, you had this Windows-based device that was shifting to Android, which prompted a big upgrade cycle. I am wondering, do you sense, like, these new AI products you are talking about, you have been talking about them for a while, could have a similar effect in terms of prompting new spending or an upgrade cycle here. William J. Burns: Yeah. I would say that, you know, if you look at the portfolio overall in relation to AI, that, you know, we are uniquely positioned to where, you know, Zebra Technologies Corporation can position itself really to be the leading AI solutions provider for the frontline. And I say that in a couple of ways. One is that the Asset Visibility and Automation segment gives a digital voice to assets, to inventory, that is necessary to feed AI models if you are going to leverage those at the frontline of business. You have to give everything a digital voice and have visibility to be able to Joseph Craig Giordano: to leverage the AI model. William J. Burns: The second thing is you need something to deliver the output of the AI models, what needs to be done. You need to be able to connect that information to workers. And the way you do that is through mobile devices and our SaaS offerings like communication, collaboration, task management combined together take the output of the model and allow a worker to drive a behavior or do something: put inventory on the shelf, move something from backroom to front of room, pick up a pallet and move it to the next location, that drives ultimately the outcome in your business. That gets you to be more effective and more efficient. So it plays a critical role across our whole portfolio. Specific to mobile computing, the idea of, Joseph Craig Giordano: you know, our latest mobile devices certainly will support William J. Burns: memory, processing power, and others, and the software to support AI models on the device or in the cloud. And we are seeing, you know, customers move to those devices as their next generation devices, as they are beginning to refresh. So, yes, we are seeing that clearly AI will drive, you know, the upgrade of those devices ultimately. You know, higher ASPs on those devices with higher memory, and also will have an opportunity for us across the idea of Enablers and Blueprints and Companion we talked about to be able to drive AI software revenue for ourselves as well. Our next question comes from Piyush Avasthy of Citi. Operator: Please go ahead. Operator: Good morning, guys, and thanks for taking my questions. Nathan Andrew Winters: Good morning. Good morning. Piyush Avasthy: I think you mentioned the decline in gross margins due to lower service and software margins. Can we double click on software margin performance, like anything you want to call out? Is it just the investments that you guys are making that are pressuring the margins? And when we can expect that to reverse? And anything on the receptivity of the software offering that you are coming out with, like, how the customers are kind of, you know, buying or procuring those, that would be helpful. Nathan Andrew Winters: Yeah. For sure. I think if you look at the real driver within the service and software margin impact, it is primarily, and obviously it represents the vast majority of the revenue, in the service portfolio and the just higher repair costs that we have seen over the past couple of quarters. Now, the good thing is the overall margin rate improved in the fourth quarter from where we were in Q3. But this is really due to the age of the installed base, and we are starting to see that play out in terms of driving the overall number of repairs. We expect to see that level out here as we go through the year and see the overall margin for the services and software to be flat, kind of look at it year on year throughout 2026. Specific to software, you know, the two real areas the teams are working on: one is a lot of energy and efforts going over the last couple years in unifying the platform, bringing together the architecture to ultimately lower the overall support cost that will improve margins as we go really into the back half of this year and into next, as some of that effort is starting to come to a closure in terms of transitioning customers to the unified platform. And then, like anything, then it is about scaling on that in terms of as revenue grows, getting the scale to drive gross margins further. So those are the two aspects. If you look at that line, it is really driven by service, but within software, a lot of work over the past couple years around the platform and unifying the platform, and we are getting close to the end of that activity, which then gives us some runway to improve margin as we move forward. Piyush Avasthy: Gotcha. Helpful. And Americas was soft in Q4, and I understand that there were some really tough comps. Can you elaborate on the underlying demand environment and trends you are seeing in the region? And as you think of your 2026 guidance, based on conversations with your customers, how do you think Americas is contributing to your 2026 guidance? William J. Burns: Yeah. I think that I would say that overall, you know, we saw relative strength in fourth quarter in North America around small and midsized business. But as we talked about, cycling larger large order activity in T&L and retail in the fourth quarter. So I think we feel good about the pipeline of opportunities that is healthy in the business. I think it really is just cycling a compare. We did not see as many large deals, very large deals, in fourth quarter as, you know, we have seen in past years. Nate talked about that a little bit in the seasonality idea. So William J. Burns: that is really what it is about. We feel William J. Burns: we feel across North America that all vertical markets, product areas, we see no real challenges there other than a tough compare in fourth quarter. If you talk about the other regions, I would say return to growth in EMEA, really driven by strength in North and Central Europe. I would say double-digit growth we saw, you know, so strong growth in mobile computing, print, RFID, so broad-based. And we are seeing opportunities in Europe around retail with personal shopper refresh opportunities in new. So where the North America market is really Nathan Andrew Winters: more William J. Burns: self-service checkout and kiosk, where, you know, Elo plays, the European market is a combination of that as well as self-scan, which is a large opportunity for us both in new customers and refresh opportunities. So those continue to move forward in EMEA. Asia Pacific saw strong growth, 13%. Nathan Andrew Winters: Growth across most of the region. William J. Burns: Japan and India certainly were bright spots. Those are areas where we have been investing. Certainly, the amount of manufacturing investment happening in India. We changed our go-to-market model in Japan several years ago, continue to win opportunities in Japan. Latin America, strong growth in Latin America, broad-based. I would say, you know, Brazil and Mexico outperformed with large retail deployments, but broad-based growth across Latin America. So we are not concerned at all about North America. Really, it is just truly cycling a compare. And we feel good about broad-based growth across the regions and product areas as we enter 2026. The next question comes from James Andrew Ricchiuti of Needham and Company. Please go ahead. Michael Steele: Thanks. I know it is early. I am wondering what kind of assumptions are you baking in for the large project business this year. What kind of visibility do you have? It sounds like just based on what you are hearing and the concerns around memory that maybe these discussions are happening earlier. William J. Burns: I would say that, you know, given the installed base, right, certainly, Zebra Technologies Corporation’s installed base overall, these very large orders are really tied to refresh cycles and activity across our customer base. And that remains an attractive opportunity for us overall. We are assuming the same, you know, a similar level of refresh activity in 2026 that we saw in 2025. And I would say remember every customer's refresh cycle is different, right? It is really driven by things like supporting new applications, driving, you know, higher processing power or memory or new features like we just talked around on AI or new features like, you know, RFID being embedded in the devices. It is driven by, you know, obsolescence of OS or the security life cycle, it is driven by technology transitions, but everyone is on a different cycle. And I would say that, you know, when customers refresh, the opportunity for us is not just the refresh cycle, but they typically buy more devices because they are extending their use cases and putting devices more in the hands of more associates overall across all industries. When we look at things like retail, the refresh cycle has really normalized over the last several years and we are seeing some retailers spread their purchases over a longer time horizon. From a T&L customer perspective, I would say they refresh at a slower pace than retail, which is typically four to five years, driven by really the fact that the devices have higher durability and are using fewer applications than we see in retail. William J. Burns: But as you said, those discussions are, William J. Burns: you know, with large T&L customers are progressing. We are talking to them earlier about these refreshes, and the pipeline continues to grow for multiyear deployments that, you know, likely begin in 2027. So in 2026, we would see, you know, about the same level as we saw in 2025, but this is clearly an opportunity out there for us. And William J. Burns: we would see that, you know, as these conversations continue to progress, and progress earlier with challenges, things like memory, we get more and more visibility to time frame from our customers. Michael Steele: And you Operator: mentioned RFID several times. What kind of growth rate are you assuming in the RFID business this year? And are you seeing more of the activity coming from the emerging areas like food or Nathan Andrew Winters: the traditional areas logistics and Operator: retail. Nathan Andrew Winters: Yeah, we see 2026 high double-digit growth continuing in RFID. We had William J. Burns: a strong year over the last several years including 2025 and we see that continuing. The opportunities have really been broad-based all the way across the supply chain from retail to transportation and logistics to manufacturing, now opportunities in government. We are seeing, you know, clearly the move from retail apparel. We saw it move to broader merchandise inside retail. You mentioned fresh food inside grocery as a new opportunity in things like bakery and around the outside edge of the store, higher margin perishable items. We are seeing that opportunity there. Parcel within T&L remains a large opportunity. Quick-serve restaurants, you know, we think of automation always as, you know, but quick-serve restaurants are moving from pen and paper to RFID. You know, we are seeing healthcare and just broader track and trace across the supply chain. So I think that we are seeing broad-based growth. We have got number one share in fixed and handheld readers, we continue to have strength in our, we are the leaders in RFID printers, you know, across our labels business, we are seeing strength. So I think it is broad-based. I think we are continuing to see the adoption. It is why we are adding RFID capabilities to the majority of our new mobile computing devices is that customers continue to want to adopt RFID within their environment. So really broad-based and not driven by just one industry or segment, but, you know, across all the vertical markets we serve. The next question comes from Bradley Thomas Hewitt of Wolfe Research. Operator: Please go ahead. Operator: Good morning, guys. Thanks for fitting me in there. Nathan Andrew Winters: Good morning, Brad. So curious how you see channel inventories as they stand today and Bradley Thomas Hewitt: does the guide embed any meaningful changes in channel inventory levels as you progress through the year? Nathan Andrew Winters: Right. No. We have seen channel, as we exit, we are in good shape. Pretty similar to what we saw at the end of last year, so no meaningful change. You definitely see variability quarter to quarter, just, you know, whether that is timing of deployments on their end, prepping for year-end, etcetera. So quarter to quarter, you see some variability, but I think as we look at the full year picture, no major changes in terms of days on hand, you know, measuring it on days on hand. So how much are they carrying on a daily basis? And we do not expect a material change in that as we go through the year. Operator: Okay. Bradley Thomas Hewitt: That is helpful. And now that the tariff situation seems to have stabilized a little bit overall, have you guys seen any change in customer willingness to go ahead with projects versus three months ago? And to what degree is any macro-driven change in customer sentiment baked into your 2026 outlook? Thank you. Nathan Andrew Winters: I would say that, you know, customers were William J. Burns: on the retail side, you know, a bit concerned overall about just the secondary effect of tariffs as they have, you know, had to push that through, you know, on their inventory to their customers ultimately. But I think that we are really beyond that. That is all kind of flowed through their supply chains. And they have had to raise price in the places that they have. So I would say that, you know, again, these conversations with customers today, there has not been concerns of tariffs raised. There are always, you know, challenges. There may be future challenges around trade, but we do not see those as of today. The bigger challenge we talked about multiple times in the call is probably memory that we have, you know, we are going to mitigate in the year. So I think that, you know, I think tariffs have not factored into a lot of conversations with customers at this point. This concludes our question and answer session. I would like to turn the conference back over to Mr. Burns for any closing remarks. Nathan Andrew Winters: I would like to thank our employees and Michael Steele: for delivering solid 2025 results. We certainly William J. Burns: as we look ahead, are focused on advancing our portfolio of solutions and driving profitable growth across our business. Thank you, everyone. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Hello, and welcome to Albemarle Corporation's Q4 2025 Earnings Call. I will now hand over to Meredith H. Bandy, Vice President of Investor Relations and Sustainability. Thank you, and welcome, everyone, to Albemarle Corporation's Fourth Quarter 2025 Earnings Conference Call. Our earnings were released after market closed yesterday and you will find the press release and earnings presentation posted to our website under the investors section at albemarle.com. Joining me on the call today are Jerry Kent Masters, Chief Executive Officer, and Neal R. Sheorey, Chief Financial Officer. Mark Mummert, Chief Operations Officer, and Eric Norris, Chief Commercial Officer, are also available for Q&A. As a reminder, some of the statements made during this call, including our outlook, guidance, expected company performance, and strategic initiatives may constitute forward-looking statements. Please note the cautionary language around forward-looking statements contained in our press release and earnings presentation. That same language also applies to this call. Please also note that some of our comments today refer to non-GAAP financial measures. Reconciliations can be found in our earnings materials. I will now turn the call over to Jerry Kent Masters. Jerry Kent Masters: Thank you, Meredith. For the fourth quarter, we reported net sales of $1,400,000,000, up 16% year over year with double-digit volume growth. We also delivered adjusted EBITDA of $269,000,000, up 7% year over year, reflecting strong growth in energy storage and significant cost and productivity improvements. Turning to the full year. We achieved net sales of $5,100,000,000 and adjusted EBITDA of $1,100,000,000. As expected, these results were at or above our previous outlook considerations. Significant cost and productivity improvements, volume growth, and sales channel mix contributed meaningfully to our full year performance. We are providing an update to our lithium demand outlook to incorporate stronger lithium demand growth for stationary storage. As a result, our estimated range for global 2030 lithium demand is up 10% versus our previous forecast. That brings me to our new full year 2026 outlook. We are using the same methodology as we have the past two years, providing outlook ranges for various lithium market price scenarios. This year, those ranges reflect both our operational improvements and higher lithium pricing. We are also targeting additional cost and productivity improvements of $100 to $150,000,000 and stable capital spending in 2026. As a result, we see the potential for meaningful positive free cash flow at current lithium pricing. Since 2024, we have successfully executed actions to reduce cost and capital intensity, generate cash, and enhance financial flexibility. In 2025, we achieved approximately $450,000,000 in run-rate cost and productivity improvements and reduced CapEx spend by 65% year over year. In January 2026, we closed the sale of our stake in the Eurecat joint venture. We now expect to close the sale of a majority stake of Ketjen to KPS Capital Partners in the first quarter, slightly ahead of our initial schedule. Together, these transactions are expected to generate approximately $660,000,000 in pretax proceeds, improving financial flexibility, streamlining our operations, and enhancing focus on our core businesses. As we turn to Slide 5, yesterday, we announced the difficult but necessary decision to idle operations at our Kemerton lithium hydroxide plant to improve financials and preserve optionality. Unfortunately, recent lithium price improvements alone are not enough to offset the challenges facing Western hard rock lithium conversion operations. This action is expected to be accretive to adjusted EBITDA beginning in the second quarter with no impact to sales volumes. Our investments in top-tier mining resources at Greenbushes and Wodgina and our exploration interest in Western Australia remain important components of Albemarle Corporation's strategy and are not impacted by the decision to idle operations at Kemerton. I will now turn the call over to Neal R. Sheorey to discuss recent results and outlook. I will then cover recent market trends and growth before we open the call for Q&A. Neal R. Sheorey: Thank you, Kent, and good morning, everyone. I will begin with our financial results for the fourth quarter as presented on Slide 6. Net sales for the quarter of $1,400,000,000 increased from the prior year, primarily driven by higher volumes across all segments, particularly Energy Storage and Ketjen, which grew 17% and 13%, respectively. Adjusted EBITDA for the fourth quarter was $269,000,000, up 7% versus the prior year. This improvement was driven by higher lithium market pricing and increased Ketjen sales volumes. Our adjusted EBITDA margin decreased by approximately 150 basis points compared to last year, driven by less favorable FX and lower Specialties margins, partially offset by higher margins in Energy Storage and Ketjen. We reported a net loss of $3.87 per diluted share. Excluding charges, the largest of which included tax-related items and a noncash impairment related to the expected Ketjen transaction, our adjusted diluted loss per share was $0.53. Moving on to Slide 7 and the factors influencing our year-over-year adjusted EBITDA performance. We reported sales volume growth across all segments and higher pricing for Energy Storage. Equity income, net of foreign exchange impacts, decreased year over year due to the Greenbushes inventory lag. Turning to other segments. Ketjen delivered solid year-over-year adjusted EBITDA growth of 39% due primarily to higher sales volumes. Specialties EBITDA decreased slightly due to margin compression, notably in our lithium specialties business where prices began to adjust lower from previous peak pricing. The corporate adjusted EBITDA change primarily reflects unfavorable foreign exchange hedging impacts, largely driven by the strengthening of the Australian dollar and Chinese yuan. Turning to Slide 8. We are introducing our outlook considerations for 2026. As usual, we provide ranges of outcomes for our Energy Storage business as well as the enterprise, based on recently observed lithium market pricing. This year, we have updated our ranges to be inclusive of recent pricing trends. We have defined our scenarios using the following three observed market price cases: full-year 2025 average market pricing of about $10 per kilogram lithium carbonate equivalent, or LCE; January 2026 average pricing of about $20 per kilogram LCE; and the 2021 to 2025 five-year average price of about $30 per kilogram LCE. Within each scenario, we have provided ranges based on expected volume and product mix. All three scenarios assume flat market pricing across the year, in conjunction with Energy Storage's current book of business, of which we expect about 40% of lithium salts volume to be sold through our long-term agreements. Production volumes are expected to increase year over year due to growth from CGP3 and Salar yield improvement, offset by inventory drawdowns, which increased sales in 2025. As a result, we anticipate that Energy Storage sales volumes will be roughly flat year over year. In addition to the metrics we have shown historically, this year, we have included our expected average realized price for consolidated salts and spodumene sales for each scenario. This realized price is simply our net sales range divided by our sales volume expectation. Particularly in the $20 and $30 scenarios, you will notice a difference between market price and our average realized price. This is primarily due to product mix. For example, spodumene sales, which are growing, dilute our average realized price on an LCE basis. These scenarios also clearly demonstrate the impact of the cost and productivity improvements we made over the course of 2025 and remain focused on going forward. As illustrated in the $10 scenario, if lithium market pricing were flat from 2025 to 2026, we expect our Energy Storage adjusted EBITDA margin to improve from the 25% margin achieved in 2025. Turning to Slide 9. We provide Albemarle Corporation's company roll-up for each Energy Storage market price scenario. This outlook assumes the Ketjen transaction closes in Q1 2026, which, all else being equal, reduces full-year net sales and EBITDA versus the prior year. Here, once again, you will see that for the $10 scenario, we expect to deliver a slight improvement to our overall adjusted EBITDA margin due to improved Energy Storage margins and our focus on cost and productivity. As Kent mentioned, we achieved $450,000,000 of cost and productivity savings in 2025, a significant portion of which was delivered in the year as you see in our metrics. Going forward, a small portion of this savings run rate will carry over into 2026. This benefit is reflected in our scenarios. And of course, we also have significant upside potential as market pricing improves with total company margins lifting to the low 40% and mid-50% range for the $20 and $30 scenarios, respectively. Turning to Slide 10 for commentary by segment, starting with Ketjen. In January, we closed the sale of our stake in the Eurecat joint venture. We expect to close the sale of a controlling stake in Ketjen in the first quarter. Together, these actions are projected to bring in about $660,000,000 in pretax proceeds, and we expect minimal tax leakage on the transactions. As we have said before, we intend to utilize the proceeds for deleveraging and other corporate purposes. Operationally, Ketjen closed the year with a strong fourth quarter. Net sales were up 14% year over year and adjusted EBITDA grew 39%, driven by CFT shipment timing and higher FCC volumes. Full-year results also reflected year-over-year improvements, including adjusted EBITDA up 15%. I am pleased to highlight that 2025 represented the third consecutive year of adjusted EBITDA improvements at Ketjen as part of our multiyear turnaround plan for the business. Looking ahead, once the transaction closes, earnings for our remaining share of the refining catalyst business will be classified as equity income. Our share of the refining catalyst business and the retained PCS business will both be reported in Corporate. We expect the contribution from these businesses to be relatively immaterial to equity income and adjusted EBITDA going forward. Moving to Slide 11 for an overview of the Specialties business results. In the fourth quarter, net sales increased 5% year over year. Adjusted EBITDA declined 6% primarily due to margin compression in our lithium specialties business where we began to see pricing move lower following previous peak conditions. For the first quarter, we expect lower sequential sales and EBITDA due to a temporary production interruption at our JBC joint venture in Jordan following a major flooding event, which resulted in an estimated $10 to $15,000,000 in lost revenue. The site is now back to full operating rates. Looking ahead to 2026, we are introducing full-year outlook considerations for the Specialties business, including net sales of $1,200,000,000 to $1,400,000,000, adjusted EBITDA of $170,000,000 to $230,000,000, and EBITDA margins in the mid-teens. Bromine Specialties volumes are expected to be flat to slightly down, reflecting the early-year disruption at JBC. Adjusted EBITDA is expected to fall year over year due to product mix impacts driven by soft demand from the oil and gas and elastomers markets and lower pricing in lithium specialties. Moving to Energy Storage on Slide 12. Full-year volumes reached 235,000 tons LCE, up 14% year over year, exceeding the high end of our outlook of 10% growth. This was driven by record integrated production, strong spodumene sales, and inventory reductions. Q4 net sales increased 23% year over year. Adjusted EBITDA was up 25%, supported by higher lithium pricing and ongoing cost and productivity improvements. While we expect first-quarter volumes to be lower sequentially due to typical seasonality during the Lunar New Year, we expect both net sales and EBITDA to increase year over year, assuming current pricing persists for the remainder of the quarter. As Kent mentioned, idling Kemerton Train 1 will have no impact on volumes. We expect to meet customer demand for lithium hydroxide via our other conversion plants or tolling. The Kemerton action will benefit adjusted EBITDA beginning in Q2. Regarding sales channel mix, we expect approximately 40% of our 2026 salts volumes to be sold under our long-term agreements. Turning to Slide 13 and some new disclosure we will provide going forward. This table documents quarterly metrics for the Energy Storage business including average lithium market price observed, our net sales, our sales volumes, and our average realized price, which is defined simply as our net sales divided by our consolidated salts and spodumene sales volumes on an LCE basis. Going forward, this table will be included in the appendix of our earnings deck for easy reference. As you review this data, I will again remind you of the impact of spodumene sales in our mix, which dilutes our average realized price on an LCE basis. Slide 14 highlights our success in turning earnings into cash. We ended 2025 with an EBITDA to operating cash conversion of 117%, driven by our actions to manage working capital and receipt of a customer prepayment in January. Even after adjusting for the one-time benefits, we still estimate our underlying 2025 cash conversion to be at or above the top end of our long-term range of 60% to 70%. Additionally, we generated significant positive free cash flow of nearly $700,000,000 due to our solid cash conversion and our right-sized capital expenditures, which declined 65% year over year. Looking ahead to our cash generation and conversion in 2026, we are focused on our underlying cash improvements, but want to note select headwinds to our cash metrics in the year, including recognizing $88,000,000 in deferred revenue related to the customer prepayment we entered in 2025, which will benefit EBITDA but not contribute cash, and approximately $100,000,000 in cash costs related to idling Kemerton Train 1 and placing it in care and maintenance. Of course, pricing has a large impact on our ability to generate cash, and we expect measurably positive full-year free cash flow potential if current lithium pricing persists. I will now turn the call back over to Kent to detail our updated lithium demand forecast, capital allocation priorities, and our growth outlook. Eric Norris: Thanks, Neal. Jerry Kent Masters: Slide 15 shows our global lithium demand expectations. We are seeing a diversification of lithium end markets with stationary storage becoming an increasingly significant demand driver for lithium, in addition to strong electric vehicle demand growth, most notably in Asia and Europe. 2025 global lithium demand was 1,600,000 tons, up more than 30% year over year and in line with the midpoint of our previous forecast range. 2025 lithium demand growth outpaced supply growth, leading to tighter inventories and increased pricing by year-end. Now we are introducing 2026 global lithium demand expectations of 1.8 to 2,200,000 tons, up 15% to 40% year over year, driven by stationary storage and electric vehicle demand growth. We are also increasing our 2030 global lithium demand outlook to 2.8 to 3,600,000 tons, up about 10% from our previous range. This increase is driven by higher expected demand from stationary storage. Turning to Slide 16, let's take a closer look at each of these end markets starting with EVs. We continue to see EV demand growth globally in line with our expectations, with sales up 21% year over year with the highest growth in Europe up 34%. European EV demand was driven by continued policy support for electrification, which we expect to continue to drive similar growth in 2026. As expected, U.S. EV demand slowed in the fourth quarter following the removal of the 30D consumer tax credits. However, the U.S. is also the smallest of the regional market with just 10% of global EV sales. China remains the largest EV market with 60% of global EV sales and growth continues on trend as EV penetration reached approximately 50% during 2025. Slide 17 expands on the fast-growing stationary storage demand trends, up more than 80% in 2025 with strong growth across all geographies. China represented 40% of ESS shipments in 2025, growing 60% year over year with demand driven by policy support and strong economics for stationary storage projects. North America saw a 90% increase in shipments in 2025 to support grid stability as energy demand rises, in part due to increased demand from data centers and AI. European shipments more than doubled in 2025 to support renewables as an alternative to energy imports. Stationary storage demand continues to diversify globally. Demand outside of the three major regions represented more than 20% of stationary storage shipments and grew 120% year over year. This growth is due to strong demand across Southeast Asia, the Middle East, and Australia driven by policy support, the need for energy resilience, and growing international battery supply chains. Turning to Slide 18, thanks to our own disciplined cost and capital actions, as well as improving underlying markets, we closed the year with $1,600,000,000 in cash. In addition, in the first quarter, we expect to receive approximately $660,000,000 in combined proceeds from the recently closed Eurecat transaction and the soon-to-close Ketjen transaction. We repaid our €440,000,000 eurobond in November and are committed to maintaining our investment-grade credit profile. We continue to evaluate additional opportunities to delever, return capital to shareholders through our quarterly cash dividends, and make disciplined organic growth investments. Now turning to Slide 19. We reset the baseline for lower sustaining capital through capital efficiency, project selectivity, and scoping. Our 2026 sustaining capital is essentially flat year over year after assuming the sale of Ketjen in the first quarter. We are confident we will be able to maintain these lower levels of spend while also prioritizing health, safety, and environmental, continuity, and productivity projects. Cost reductions, portfolio simplification, and capital discipline also allow for targeted growth spending on our world-class resources, including investments in early-stage development at the Salar de Atacama and Kings Mountain. We are committed to being disciplined in our approach to value-enhancing growth while preserving optionality and solidifying our competitive position. As we look ahead on Slide 20, we are on track to deliver a five-year CAGR of 15% for Energy Storage sales volumes with minimal additional investment. This includes a 25% CAGR over the past four years, with growth expected to moderate as large projects complete ramp-up. Over the next two years, several projects provide growth with minimal incremental capital spending going forward. At the Greenbushes spodumene mine in Australia, the JV is currently ramping the CGP3 expansion which adds about 35,000 tons per year to our capacity on an LCE basis. We also see multiple opportunities to continue productivity initiatives at the Salar de Atacama based on results of the Salar yield improvement project. Finally, at Wodgina, the JV is currently operating about two to two and a half trains on average, and could potentially operate three full trains as ore availability continues to improve. We will also continue to evaluate longer-term growth opportunities to leverage our global footprint of world-class resources. Turning to Slide 21. Albemarle Corporation has a strong and differentiated competitive position, led by our growing lithium and long-lived bromine resources. The figures shown on the slide summarize the changes made to our mineral resources inclusive of mineral reserves as part of our annual SK 1300 report included in our 10-K filing. Our bromine resources decreased slightly year over year. At JBC, this was due primarily to updated modeling and sampling. Our JBC operations continue to produce some of the lowest cost bromine in the world, with significant long-term expansion options. Magnolia resources are down slightly due to reduced pumping rates. Albemarle Corporation benefits from large, low-cost bromine resources with resource lives in the multi-decade or even multi-century range. Our lithium mineral resources were up 10% year over year led by improvement at Greenbushes. At Greenbushes, we increased our reserves and resources due to mine design improvements and the inclusion of underground resource. At the Salar de Atacama, resource growth was mainly attributed to expanded hydrogeological drilling activities. We anticipate further enhancements in reserves and resources at this site. The DLE pilot plant has been fully commissioned and is now operational, yielding promising data for scale-up purposes. Additionally, by next year, the Salar yield improvement project is expected to have enough operating history to support upgraded mineral resource and reserves estimates. At Wodgina, our updated NPV materially increased, driven primarily by yield improvements. Kings Mountain just completed a successful drilling campaign with potential for updated resource next year. On Slide 22, I will summarize the actions we have taken to enhance our position and maintain our competitive edge to capitalize on the growth trends I have discussed. In terms of optimizing our conversion network, as I mentioned, we delivered strong full-year 2025 Energy Storage volume growth and record production, and we made the important decision to idle Kemerton. Looking ahead, we will continue to maximize the value of our resources and adjust product mix through conversion and tolling networks. We continue to improve cost and efficiency in 2025 with greater than 100% adjusted EBITDA to operating cash flow conversion. We are targeting an additional $100,000,000 to $150,000,000 in cost and productivity improvements in 2026 from a combination of projects across manufacturing, supply chain, and corporate. We see further opportunities for cost and productivity improvements as we simplify our processes and continue to embed technology and AI across our organization. As a reminder, we are targeting flat CapEx as compared to 2025, with a focus on disciplined investment that enhance our optionality and provide fast Eric Norris: returns. Jerry Kent Masters: And finally, we will continue to enhance our flexibility, building on the Ketjen asset sales in 2025 and strong free cash flow achieved during the year. Importantly, the actions we have taken and continue to take to optimize our portfolio, reduce cost, improve capital efficiency, and enhance financial flexibility are all geared towards preserving long-term growth optionality and supporting our strong competitive position. In summary, on Slide 23, Albemarle Corporation delivered strong fourth quarter and full-year 2025 results thanks to the actions we have taken to optimize our asset portfolio, reduce cost, and strengthen our financial flexibility. Looking ahead for 2026, these efforts are expected to continue to drive year-over-year margin improvement independent of price changes. Our durable competitive strengths, including our assets, expertise, and innovation, combined with the long-term secular growth opportunities around energy resilience, position us well for sustainable growth and value creation over the long term. We have the team and discipline to execute well and realize that potential. With that, I will turn it over to the operator to take your questions. Operator: We will now open for questions. As a reminder, that is star five to raise your hand. Also, bear in mind, this Q&A is limited to one question and one follow-up per person. First question is from David L. Begleiter with Deutsche Bank. Your line is now open. Neal R. Sheorey: Thank you. Good morning. And first, thank you for the additional disclosure, very helpful. Kent, on your lithium volumes, they will be flat this year in 2026. David L. Begleiter: How should we think about volume growth beyond 2027 in the 2027, 2028, 2029 timeframe? Thank you. Jerry Kent Masters: Yeah. Thanks. So I would say that we probably grew a little faster than we anticipated. It is kind of why we are running into a flat spot this year. That and I think the headwinds from pulling inventories down, so we were able to sell those last year and not this year. And we still have growth opportunities at Greenbushes, at Wodgina, and then we have longer-term growth from Kings Mountain and then the Salar de Atacama. So I think we will continue on a growth profile. We pulled back on our capital spending. So it is not as prolific as it once was. But I think we still continue that growth profile after 2027 and we will have to start investing once we see how the market looks for that. But we have opportunities. We have the fundamentals for it, the resources that we have. And the technology basis we have for that. It is just a matter of executing against that. David L. Begleiter: Understood. And just on Kemerton, Kent, how much higher cost is that asset than your Chinese conversion assets? And what lithium price would you need to see to restart Kemerton? Thank you. Jerry Kent Masters: Yeah. So in the Kemerton, I think you made it. We have idled the asset, not a shutdown. It is idled. So we keep it in a position where we can restart it if we get into those conditions. But the cost structure between China and, say, Western supply, but particularly Western Australia, it is across the industry. It is across areas like reagents, tailings disposal is a big difference. There is a big industry in China that kind of works through tailings, and we do not have that in the West. We have made progress in Australia with government support around taking those costs down, but it is still significantly different. Labor is higher, power. So there is a gap there between China and the West and Australia. It is probably $4 or $5, something like that. And that is going to have to be addressed if you are going to build out a Western supply chain. We either need differentiated prices to cover those costs from the West, and we have not been able to get that support so far. Operator: Next question will come from Jeffrey Zekauskas with JPMorgan. Jeffrey Zekauskas: Thanks very much. Can you comment on how much Chinese lithium capacity you think was closed down from about the 2025 today, because of various actions? And do you think that the Chinese government or steps the Chinese government took were key to that capacity coming offline. Jerry Kent Masters: So, if I can let Eric get into some of the specifics around maybe the mines or the capacity that comes around it. But I think there is, I mean, the Chinese government has been paying attention to this. I think it has had something to do with that. It is not all driven there. So you have had some capacity come on. We have also been surprised to the upside on demand. Particularly the fixed storage applications have been much stronger. So it is where supply did not grow as much as we had anticipated. It is still growing, but it is not as much as we had anticipated. And demand grew more than we thought. So that is where it is getting tighter. I think the Chinese government looking at environmental regulations and some of the permitting, they are getting a little bit tighter on it, and it has had, I would say, some influence. Eric? Eric Norris: Yeah. So Jeff, we would say that just a bit of an update. There are about seven petalite mines that continue to operate even while they await permits. So it is not that the petalite capacity in China has completely disappeared. There is still a good amount that is online. The one large facility you may have heard about is owned and operated by CATL that is still offline. In total, we think about 30,000 to 50,000 tons of capacity came off in 2025. We would expect that that is possible to come back on at some point in the coming year. In fact, effectively, we have modeled that. So to your question about the regulatory environment, there is an increased oversight on waste tailings generation and general environmental operating conditions in China. It is probably too early to say how that will play out. Safe to say if implemented, it would affect all operators and the cost position of all operators because it hits all elements of how to manage, handle, and dispose of mine tailings and environmental waste. Jeffrey Zekauskas: Great. Thank you for that. And then I guess on Slide 27, you have your forecast of Specialties adjusted EBITDA for 2026 which you put in a range of $170,000,000 to $230,000,000 versus 2025. What is behind that decrease? Eric Norris: So just to clarify, Jeff, this is Eric again. Your question is what is behind the decrease in Specialties year-on-year earnings? Eric Norris: Yes. For 2026. Eric Norris: Indeed. Okay. A couple of things that are there. Well, number one, as Kent described in the call, we are not getting much of a lift from demand growth year on year. It is not a helpful tailwind. Just to clarify that, the issues there are that in certain markets, as process chemical industries, oil and gas, elastomers, that is a part of your coverage universe. You know that that is an industry that is not particularly healthy. And that is impacting our demand growth in those areas. Now there are some offsets, pharma, semiconductors. Those are performing well. I think the big driver is lithium prices. Lithium specialties prices in particular. This is a business that does not contract or move like Energy Storage. It is not very commoditized. It is specialty, but it does echo the price curve of LCE over time. And we were successful in the past years of getting long-term contracts based upon very high price at that time, and those have now come off. And we saw a step down of that a little bit in the fourth quarter, and Neal mentioned that in his comments, and we are going to see more of that to come this year. Obviously, now that has turned but it is too early for the turn in LCE prices to affect a subsequent series of contracts. We will just have to wait and see. Operator: Your next question will come from Joshua Spector with UBS. Joshua Spector: Hi. Good morning. I wanted to ask on just your approach on how you are thinking about investing in this cycle. You guys did a lot of work over the last couple of years to get free cash flow to where it was last year. So how long do prices need to stay at the $20 per kilogram plus level before you think about starting spending? Or are you going to harvest cash for longer than what you might have in a prior cycle just given what we have learned here? Eric Norris: Yep. So we are Jerry Kent Masters: We probably will be a bit more conservative than you have seen us be in the past around that. But we do have projects. I mean, we have been mindful as we have cut capital, taken out some of the big pieces. We have tried to get our sustaining capital in a place where we think we can hold it, and we are investing in our assets, not overinvesting, but also looking for incremental projects, smaller capital, quick returns. You have heard us talk about that all in the past and over the down cycle, particularly focused on that. And then the growth programs are more incremental. Like we said before, you can see us ramping up CGP3, Greenbushes, for example. At Wodgina, we have got a third train there that when we get to better ore, we can operate that without significant capital. And then we can build. Salar de Atacama, the Salar yield project, is still ramping, but it is going very well and it is generating good data. So we think that is going to really help our efficiencies and recoveries as we go forward. So we have the opportunity to make smaller investments and still get some growth. The bigger ones are to come, Kings Mountain, some other projects, DLE, for example, in the Salar that would give us additional volumes are bigger investments. Those are on things like that. They are not right in front of us, so we will have the opportunity to see how the market responds before we make commitments. Joshua Spector: Okay. Thanks. So just quickly on, I mean, you talked about the $100,000,000 shutdown cost. Can you just go through other pieces? I guess, how quickly is the payback on that cost? And then are there any ongoing basically cost to keep the capacity idle? Jerry Kent Masters: So there are ongoing costs to keep it in a ready state, so to speak, idled. And they are not dramatic, but they are significant cost, and it is something we can do for a period of time. We do not want to, we cannot keep it here forever. But we can keep it here long enough to see if we can bring it back. The market changes and really the change we are looking for is probably a bifurcation where Western prices are different than prices in China. That is really what we are looking for and to see that that is sustainable over time to cover those costs. And the payback on that, I am not going to say exactly what the savings is around that, but it is a reasonable payback. Operator: Your next question will come from John Ezekiel Roberts with Mizuho. Thank you. Could you talk about the differences between China and ex-China lithium market pricing? I know you do not want to discuss your own contracts, but what is the market doing ex-China? Jerry Kent Masters: Well, I will make a broad comment. Eric, you can jump on that if you want. But there is not a big difference. For the most part, everyone wants the China price. There are some circumstances where you can get a little bit of a differentiation, but for the most part and the way it has been for the last several years, it is more or less the same price. There are some incentives in the U.S. where some of that will flow through to lithium from resources outside of China, or material outside of China, but it does not characterize the whole market, I would say. Eric Norris: John, this is Eric just adding. Structurally, you would know that in the past, when China has been a big producer of lithium, the general difference has been the 13% VAT. So price has been about 13% higher outside versus in. That is just a structural difference. I think, however, what Kent is alluding to is important. The market is dynamic, and it is changing. The growth and maturity of the GFEX futures exchange is increasingly becoming the benchmark. Given that it is traded every day, there is great transparency to that number, and one can see it very clearly. And outside of China, people have tended, even our contract relationships, to rely on PRAs, price reporting agencies. And with the dynamic change of what is going on with the GFEX, the challenge is are the PRAs keeping up with that rate of change. So I think there are some structural differences, my first point. Second point is there may be some inefficiencies because of that dynamic with the GFEX going on. John Ezekiel Roberts: And then I think you said you modeled CATL's capacity coming back this year. Could you share when you modeled that back online? Eric Norris: I think we have probably taken an assumption that it is metered in slowly. Again, John, we are talking about 30,000 to 50,000 tons. You look at the scheme of what is the demand growth, supply-demand balance, and where inventory levels are, I do not think it is going to make that much of a difference. Operator: Next question will come from Laurence Alexander with Jefferies. Good morning. Laurence Alexander: First of all, can you discuss whether there is any material difference in contract structures developing between stationary storage and automotive in terms of their degree of emphasis on reliability of supply or consistency of quality control or product formulation. Jerry Kent Masters: Yeah. So for us, the material goes through the same supply chain. So we are selling it into the same supply chain that we do for automotive and we do for fixed storage. Probably the biggest difference is, by definition, all the fixed storage is carbonate. And then hydroxide tends to go to the West, so those tend to be where our long-term contracts are. Carbonate tends to be more on the spot market and the China price. So that is the biggest difference, but it is really driven by the product mix that goes into fixed storage versus there is a combination for the EV market, and it is pretty much all carbonate and LFP for fixed storage. Eric Norris: Yeah. And just a couple of characteristics to add that make it important to maybe get at the root of your question, Laurence. For one, fixed storage is largely carbonate. That is largely LFP, and that is almost entirely China. And carbonate has a pretty harmonized spec. It is closer to being like a classic commodity than hydroxide. Hydroxide has a lot more requirements that the automotive producers put on it for the life of battery and the safety they are looking to get. And as a result, given the challenges of making consistent grade hydroxide, there is much more of a variation across producers. There is a more detailed qualification process there. Some of it is the user, some of it is the chemistry, I guess, is the point. And then Laurence Alexander: just on the, in terms of how you think about the lessons learned about balance sheet management against strategic imperatives or longer term. How are you thinking about the development of solid state as a solution in the battery market? And the potential competitive threats from sodium-ion batteries? Jerry Kent Masters: Yeah. So, ends of the spectrum there. On solid state, it is still lithium, and the driver will be EVs. So the lithium intensity for solid state goes up a little bit, so it gives us a kicker, but it is really driven by the EV penetration and that growth in that. So that seems, from our standpoint, it is a positive. It is going to grow that a little bit, but we are going to, again, we have got time because we do not see it becoming mass market immediately. So we have time to understand, allow the market to mature. We are early, probably earlier than we had anticipated from lithium. We think we have just been through the still immature second cycle since the advent of EVs. So that is from a commodity cycle perspective. So we are still watching that and learning and making sure we understand that. On fixed storage and sodium-ion, we think it is going to be relevant. It will be a technical player in the market, but it still has to develop technically, and it has to scale. So it is not impacting us, we do not think, much this year, in our forecast as we kind of build out the forecast. I think we built early on 10% sodium-ion in fixed storage and that growing to 15% maybe toward the end of the decade. Eric Norris: Just again, to add some context, I think it is important. One, as Kent said, solid state, a good news story. A solid-state battery has 2x the amount of lithium in it that a cell would for a lithium-ion battery. There is some different tech involved. There is a different supply chain involved, so it is going to take a while. Similarly, sodium is going to take a while as well, and that is obviously a drawback, and it is part of the reason we have such a variation in our ESS forecast in the deck that we presented, because there are some things that have to happen. Sodium-ion has to get more energy-dense to be cost competitive with LFP. At the range of prices we shared in these scenarios, LFP is always more cost competitive today than is a sodium-ion battery. So there has to be innovation. We expect innovation to happen. The second is scale, as Kent said. And then the third is it will be limited because in the end, it will never have the volumetric energy density that lithium would, whether that is lithium iron phosphate or lithium metal. So it is limited in storage spaces to where space is not an issue. Eric Norris: Think a cornfield versus New York City. New York City is not going to work so well. Cornfield will work out in Iowa. And then, obviously, EVs has the same limitation. Volumetric energy density is critical for EVs. We see very limited penetration there. So it is different ends of the spectrum, as Kent said, those are all the drivers. Operator: Our next question will come from Vincent Stephen Andrews with Morgan Stanley. Vincent Stephen Andrews: Just thinking through sort of shipments versus consumption. Early in the cycle, there tends to be a reload that helps prices move higher. And ESS obviously is a big driver, and some of the data would show that ESS shipments are moving kind of at 2x the level of ESS installations, which, to a certain extent, makes sense. It is a very growing part of the market. So as it grows, inventory needs to grow in between. But how do you assess sort of where customer inventory levels are and where customer behavior is as prices have gone up and then maybe come off the bottom as you think about what actual demand or consumption is going to be in 2026. Jerry Kent Masters: So, look, there are a couple different supply chains you have to think through. But, I mean, across the board, we think inventories are at a pretty low level. Particularly from a lithium side that is sitting in batteries everywhere. The inventory levels are pretty low. Now we are in the Lunar New Year period, and as we come out of that, that is where we will get information to see exactly what the demand is going to look like this year, but everything seems to be pointing in the right direction. And we see installations on fixed storage kind of continuing the trend and keeping up. We follow that versus what goes in. So the batteries are probably where we ship is probably six months ahead of where it gets shipped to the installation, six months to a year before an installation happens. And we see that reasonably balanced. So it looks pretty real from our standpoint. Vincent Stephen Andrews: That is very helpful. Neal, could I ask you to fill us in on some of the other cash flow statement items on working capital. Just thinking through, you have got higher prices, your inventory is at low levels. But what should the makings of AP, AR, inventories look like in 2026 just given what is happening from a price perspective, both for your revenue and your spodumene cost? Neal R. Sheorey: Yeah. Hi there, Vincent. Thanks for that question. So maybe I will not go through every line of working capital, but I will say, first of all, on inventory, obviously, we saw very strong demand at the end of the year of last year, and we capitalized on that and were able to bring down our inventories a little bit. As you can expect in 2026, our production levels are up. Some of that will go towards restocking our inventories and making sure that we have the right amount of inventory to supply the demand. But in a rising price environment, you do bring up a good point that in a rising price environment, working capital could be a short-term cash flow headwind. The way we think about it is, generally speaking for the company, our working capital balance sits at about 25% of sales. That is usually a pretty good rule of thumb. So maybe that is helpful as you think about, in a rising price environment, how to model the working capital piece. Operator: Next question will come from Joel Jackson with BMO Capital Markets. Joel Jackson: Hi. I just want to follow up on Slide, I think it is 8. So you talk about your sensitivities and your margins. And if you look at Q1, you are talking to $20,000 per ton is about the spot. Right? You said that is what January price is. So should you be delivering mid-50s EBITDA margin in Energy Storage in Q1? Jerry Kent Masters: So you have to consider the lag on the way our contracts work. So we will get the benefit of the current market price on the spot business we do, but our contract volumes all kind of have about a couple of months lag, usually three months lag that works through. So we have to have the opportunity for that to work through our P&L. Otherwise, once we get that, that should be the case. Joel Jackson: Okay. Just following up on that then. So you should have been, if spot price is exactly where it is, just a bad question. And also, just clarifying, Kent, you should be achieving mid-50s EBITDA margin in Energy Storage in Q2. You talk about $4 to $5 a kilo of conversion cost now in Kemerton. Were you talking about that is your absolute cost you see that conversion cost for in Kemerton or Western Australia? Are you saying that $4 to $5 a kilo was how much higher the costs are in Kemerton versus China? Just a two-part second question, I think. Jerry Kent Masters: Yeah. So it was not a Kemerton answer. It was a general broader answer, and it was, like, a $4 to $5 difference between China, adder, I would say. To be clear. Operator: Your next question will come from Kevin McCarthy with Vertical Research Partners. Kevin McCarthy: Kent, I would welcome your latest thoughts on potential to acquire lithium capacity versus build it. It seems to me you have delevered the balance sheet quite a bit. You have got more cash coming in from Ketjen. We are talking about price recovery and positive revisions to ESS demand. So if we zoom out the lens and just think about where you are financially and where we are fundamentally in the cycle, might we see more inorganic growth from Albemarle Corporation in the years to come? Jerry Kent Masters: Yeah. So we would be talking down the road if you are thinking from that perspective because we still have, one, we want to make sure we have got really good footing, understand where the market is going as we go forward, because price has moved up. We just want to make sure that that consolidates, so to speak. And we also have pretty good opportunities within the portfolio for, I would say, incremental growth. It is lower capital than building greenfield facilities. And it is mostly around resources. And then it is incremental capacity at our conversion facilities, whether that is La Negra or in our conversion facilities in China, and then we also have tolling opportunities as well. So I think we have got good organic growth opportunities, but we will look at acquisitions as they come up, but that is not our focus. And we would have to see the right opportunities for that. The right fit at the right price, we would look at it, but that is not really our focus at this point in the cycle. Kevin McCarthy: Thank you very much. Colin Rusch: Rather than acquiring new assets, looking at optimizing your cost of capital on the balance sheet. You are really in a fundamentally different place from a balance sheet perspective, and I am curious about some of the instruments that you have, if there is real opportunities to streamline things. Operator: Your next question will come from Colin William Rusch with Oppenheimer. Yeah. I wanted to just follow up on the cash question. Neal R. Sheorey: Yeah. Hi there, Colin. Thanks for that question. This is Neal. So, yeah, I think one of the key things that we are focused on is making sure that we have the right kind of headroom to navigate through the cycle, and you saw in our capital allocation slide today that in addition to making sure that we meet our dividends, we are also focused on ensuring that we have a strong balance sheet, which is opportunities. So we are going to continue to look at that. If you are looking at other parts of the cap structure, look, the best thing I would say is we evaluate where is the best economic place for us to delever and strengthen our financial profile. And I think our comments today really highlight where we see the best opportunities. I really think the best opportunities are in the deleveraging space. But we do look at all of our options, and certainly, with our cash position where it is today, that is kind of our first and foremost priority right now. Colin William Rusch: Okay. Super helpful. And then, for Eric, I am really curious about customer behavior here. I mean, getting a deposit is a pretty big signal to the market about where folks see overall supply-demand balance on a multiyear basis. As you look at EV versus stationary storage and increasingly robotics end customers, can you talk a little bit about the different behavior and concerns around regional nuances, tariffs, and security of supply chains between those three buckets of customers. Eric Norris: Sure. Happy to, Colin. And it is a very dynamic time to be sure, and I think so much has happened so fast. It is going to be hard to draw hard conclusions right now at this moment. I would say that when it comes to the EV market, it depends on who you are talking to. If you have someone whose market is largely the United States, it is a very different picture than someone whose view is Europe or China. When it comes to grid storage, unanimously, that is an area of interest. Remember, though, that at some levels, it is the same customer to us, depending where we are in the supply chain. Obviously, we do have some contracts with OEMs. The balance of our contracts are with battery producers. We do a lot of spot business with cathode producers. So we see the whole supply chain through different eyes, and the further up you go, the more bullish you get because they are less focused on any specific end market. We have seen a lot of customer dialogues come forward with the rise in prices, but it is way too early to say where that is going to go. I mean, at this point, again, depending on who you are talking to, they have a very different view of their needs. And so we are just going to have to see how that plays out over the longer term in terms of our contracts. But right now, it is just too early to call. Operator: Thank you. That is all the time we have for questions. I will now pass it back to Jerry Kent Masters for closing remarks. Jerry Kent Masters: Thank you, operator. In closing, I want to thank you all for your continued support and trust in Albemarle Corporation. Our strong results this quarter, improved outlook for 2026, and ongoing focus on operational excellence position us well for the future. With our world-class resources, strong track record of cost and productivity improvements, leading process chemistry, and commitment to customer success, we are confident in our ability to create lasting value for our shareholders and seize opportunities ahead. We appreciate your partnership and look forward to connecting at our upcoming events. Stay safe, and take care. Thank you. Eric Norris: This concludes Operator: today's conference call. Thank you for your participation. You may now disconnect.
Operator: Good morning, and welcome, everyone, to the PHINIA Inc. Fourth Quarter 2025 Earnings Call. Today’s conference is being recorded. After the speakers’ remarks, there will be a question-and-answer session. To ask a question, please press 1 on your telephone keypad. If you would like to withdraw your question, press 1 again. At this time, I would like to turn the conference over to Kellen Ferris, Vice President of Investor Relations. Please go ahead. Kellen Ferris: Thank you, and good morning, everyone. We appreciate you joining us. Our conference call materials were issued this morning and are available on PHINIA Inc.’s Investor Relations website, including a slide deck we will be referencing in our remarks. We are also broadcasting this call via webcast. Joining us today are Brady Ericson, CEO, and Chris Gropp, CFO. During this call, we will make forward-looking statements which are based on management’s current expectations and are subject to risks and uncertainties. Actual results may differ materially from these statements due to a variety of factors, including those described in our SEC filings. We caution listeners not to place undue reliance upon any such forward-looking statements. I will now turn the call over to Brady Ericson. Brady Ericson: Thank you, Kellen, and thank you to everyone for joining us this morning. I will start with some overall comments on the fourth quarter and full year, discuss financials at a high level, and then provide some thoughts on our outlook for 2026. Chris will then provide additional details on our fourth quarter 2025 full year financials and discuss our 2026 financial outlook. We will then open the call for questions. We delivered a solid finish to 2025, with full year results in line with our expectations despite a dynamic and often uncertain macro and industry environment. What stands out to me as I look back on the year is the resilience of our business. Our diversification across regions, customers, end markets, and products continues to serve us well, with no single end market and region that defines PHINIA Inc. Our balance allows us to perform consistently even as conditions shift around us. Before we get started on numbers, you will notice some changes as we recast some numbers between the Fuel Systems and Aftermarket segments. As we have been driving operational efficiencies, a significant portion of the original equipment service, or OES, sales will now be distributed from the Fuel Systems segment and not the Aftermarket segment. We have also further enhanced our end market breakdown and have separated out our off-highway, industrial, and other sales, which includes construction and agricultural machinery, vocational vehicles, marine, industrial applications, power generation, aerospace and defense, and all other. Finally, we have also updated our calculation method for free cash flow conversion to be more in line with industry standards. There is no change in expectations around the strong cash generation of the business. Now let us jump into the fourth quarter results on Slide 4. For the third consecutive quarter, we delivered year-over-year growth in both the Aftermarket and Fuel Systems segments. Total net sales in the quarter were $889 million, up 6.7% from the same period of the prior year. Excluding FX impacts and the contribution of SEM, revenue was up 2.3%. We reported adjusted EBITDA of $116 million for the quarter, up $6 million and a margin of 13%. Total segment adjusted operating income was $112 million and a 12.6% margin. The Fuel Systems segment delivered a strong quarter with sales of $560 million, up 7.9% and adjusted operating margin of 10.7%. The Aftermarket segment had sales of $329 million, up 4.8% with adjusted operating margin of 15.8%. Adjusted earnings per diluted share, excluding non-operating items, was $1.18 for the quarter compared with $0.71 in the same period of the prior year. Our balance sheet remains solid with cash and cash equivalents of $359 million, and $859 million of total liquidity. We have reduced our debt by $24 million and our net leverage ratio came down from 1.4x to 1.3x, all while returning $40 million to shareholders via dividends and share repurchases. The fourth quarter performance underscores the durability and resilience of our business amid a complex and uncertain operating landscape. It reflects the advantages of being a diversified industrial company by serving a broad mix of regions, customers, end markets, and products. Moving to Slide 5. We continue to win new business across our core and adjacent markets. Throughout the year, this included multiple wins in light vehicle, commercial vehicle, off-highway, industrial, aerospace, and alternative fuel applications. A few key Fuel Systems segment wins in the fourth quarter included securing our third aerospace and defense contract for a post-combustion fuel valve, highlighting our proven capabilities and strengthening our position in the sector; key contract extensions with global commercial vehicle OEMs, reaffirming the strength and longevity of our strategic partnerships; and a new business win in India with a leading OEM for port fuel injectors used with compressed natural gas, underscoring our dedication to lower-carbon mobility and commitment to alternative fuels. Now to Slide 6. The Aftermarket segment remained a steady and resilient contributor throughout the year. Demand continued to be supported by an aging global vehicle fleet and expanding portfolio. Our strong brands and service continue to resonate with customers and distributors. We are winning both new business and expanding relationships with existing customers. Importantly, these wins were across diverse geographies, further strengthening our position in the PHINIA Inc. aftermarket. We also continue to accelerate the pace of expanding our offerings and coverage by adding approximately 5,800 new SKUs across our portfolio. Slide 7 highlights the diversification of our business across regions, customers, and end markets. This is supported by manufacturing facilities close to our customers in all key regions. We also benefit from the flexibility to redeploy manufacturing and human capital across these opportunities. As noted earlier, we provided additional end market granularity by splitting out CV and other into medium- and heavy-duty on-highway CV, and off-highway, industrial, and other. This shows the progress we have made in expanding our presence in this end market as it now represents 6% of our sales. Moving next to capital allocation on Slide 8. We remain disciplined and balanced in our approach to capital allocation while remaining opportunistic about M&A. Since the spin, we have repurchased 9,800,000 shares which is roughly 21% of our original share count. In total, since the spin we returned over $500 million to shareholders via share repurchases and dividends. We accomplished all this while maintaining net leverage below our target level, sustaining robust liquidity, closing on an opportunistic acquisition, and supporting the organic growth needs of the business. We also announced a few weeks ago an 11% increase in our dividend and a $150 million increase in our share repurchase program. Needless to say, our capital allocation decisions will always be based on how we can maximize long-term shareholder value. Moving to Slide 9. We had some significant milestones in 2025: completing our first acquisition, receiving our aerospace quality certification along with our first program launch, and delivering strong financial performance in a volatile market. Also of note, 2025 is the first full year without the impact of PSAs and contract manufacturing with our former parent. Investors have been rewarded with a total shareholder return, which includes share price appreciation and dividends, over the two-year period of 2024–2025, of 140%. Looking forward to 2026, we expect our journey to continue on the path we set from the beginning: differentiating via product leadership, focusing on markets that will support our goal of sustainable growth, maintaining our financial discipline, and remaining focused on delivering long-term value for our shareholders. Finally, I want to thank our team for their outstanding execution through fiscal 2025. Their hard work and dedication enabled us to successfully navigate dynamic market conditions while driving meaningful growth and operational improvements. I will now turn the call over to Chris Gropp to discuss our financial results in more detail and introduce our 2026 financial outlook. Chris? Chris Gropp: Thanks, Brady, and thanks to all of you for joining us this morning. As a reminder, reconciliations of all non-GAAP financial measures that I will discuss can be found in today’s press release and in the presentation, both of which are on our website. Chris Gropp: Our fourth quarter and full year results met our expectations even as we navigated a range of challenges, from tariffs and macroeconomic instability to geopolitical tension and a shifting policy landscape. Despite these headwinds, we grew our top line and delivered a solid bottom line. Chris Gropp: In addition, as Brady mentioned, we made meaningful progress on the priorities we set at the start of the year: strengthening our core businesses, entering new markets, and positioning PHINIA Inc. for long-term profitable growth. Fourth quarter financial results were solid and include a full-quarter contribution from SEM. The external environment has not changed dramatically from the prior quarters; however, we saw some strength in Asia and the Americas, partially offset by lower sales in Europe within Fuel Systems. Aftermarket sales were also higher, primarily driven by aftermarket pricing and tariff recoveries, offset slightly by lower commercial vehicle sales in the Americas. Let me now bridge our revenue and adjusted EBITDA for the fourth quarter which you can find on pages 11 and 12 in the presentation. Specifically during the quarter, we generated $889 million in net sales, an increase of 6.7% versus a year ago. Compared to Q4 2024, our top line benefited from favorable foreign exchange tailwinds of $25 million as the dollar weakened mainly against the British pound and euro. Revenue in the quarter also rose on tariff recovery of $15 million. Overall, volume and mix contributed $8 million as we saw strength in sales in Asia and the U.S., with higher LPD sales, partially offset by lower sales in Europe. SEM contributed $12 million in the quarter. Excluding the FX impact and the SEM contribution, sales were up 2.3% in the quarter. Moving next to the bridge on Slide 12. Adjusted EBITDA was $116 million in the quarter, with a margin of 13%, representing a year-over-year increase of $6 million and a 20 basis point decline in margin. Corporate and other costs, primarily R&D savings, were a $6 million tailwind. Net tariff recoveries, supplier savings, and other overhead cost savings measures combined were another $5 million. These benefits were partially offset by unfavorable product mix in Asia and the Americas. Overall results were healthy. The margin percentages were diluted as a result of FX, inclusion of SEM, and negative mix. Let me now bridge our adjusted revenue and adjusted EBITDA for the full year, which you can find on pages 13 and 14 in the presentation. Once again, starting with adjusted sales, where the drivers were similar to the fourth quarter. Total revenue was approximately $3.5 billion, an increase of 3%, excluding the final contract manufacturing sales from our former parent in 2024. FX was a tailwind of $45 million as the dollar weakened mainly against the British pound and euro. Adjusted sales also benefited from tariff recovery of $38 million. Volumes of base business were flat for the year, but boosted with the inclusion of $20 million in sales from SEM. Excluding the FX benefit and contribution from SEM, revenue was up 1.1% for the year. Moving next to the bridge on Slide 14. Adjusted EBITDA was $478 million, flat year over year, with a margin of 13.7%, representing a 40 basis point decline in margin. Supplier savings and other cost-saving measures of $26 million were offset by unfavorable product mix, a slight increase in employee costs, and net tariff pass-through. Margin was negatively impacted by the dilutive impact of both tariff and FX, each of which resulted in an approximately 20 basis point decline in margin. Moving next to discussion of the individual segments’ full year performance. Note that in 2025, we made a strategic decision to shift a significant portion of our OE service business previously reported in the Aftermarket segment to the Fuel Systems segment. This change is a result of creating a streamlined process for the sales structure and distribution of these sales, thereby reducing the related administrative burden. Our reporting segment disclosures have been updated accordingly, including recast of prior periods in all our reported financials. Moving next to Fuel Systems on page 15. You can see that revenue for the full year increased 3.3% with a 40 basis point increase in adjusted operating margin. Segment revenue was impacted materially by changes in FX of $33 million, the addition of SEM of $20 million, and tariff recoveries of $13 million. Full year segment AOI of $244 million is an increase of $16 million with solid supplier savings, partially offset by negative volume and mix. Compared to 2024, our Aftermarket segment sales were up 2.7% for the full year, primarily due to customer tariff recovery and favorable FX. Aftermarket segment margins of 15.2% were down 30 basis points, primarily due to the dilutive impact of tariff recoveries. Moving on to a discussion of our balance sheet and cash flow. We continue to effectively execute our disciplined capital strategy, successfully balancing significant cash return to shareholders with strategic M&A and other investments. Cash and cash equivalents were $359 million while available capacity under our credit facilities remained at approximately $500 million for a resulting liquidity of $859 million. Cash flow from operations was $312 million for the year, and adjusted free cash flow came in above guide at $212 million, enabling us to continue returns of capital to our shareholders through regular dividends and buybacks. Share repurchases represented a primary use of capital totaling $30 million in Q4 and $200 million for the full year. We paid $10 million in dividends in Q4, bringing full year dividend payments to shareholders to $42 million. We remain confident in our ability to generate strong free cash flow to support our future capital allocation priorities. This is evidenced by the strong performance of the business in 2025, enabling dividends back to shareholders, share repurchases, a small bolt-on M&A transaction completed solely with cash, and the settlement of $24 million in debt. We made meaningful progress on lowering our tax rate in 2025, moving from a full-year adjusted effective tax rate of 41.5% in 2024 to 32.5% in 2025. Cash taxes paid also reduced to $61 million in 2025 from $94 million in 2024. Although it should be noted that there were one-off reductions in 2025 cash taxes paid. Without these one-off items, we would have expected a cash tax outlay in the approximately $75 million to $85 million range. While we expect improved trends to continue in the coming years, rate of improvement and rate of change is not linear for either ETR or cash taxes paid, and, therefore, we expect rates and cash outlays to change at differing levels each year as various structuring projects are enacted. Before moving to Slides 17 and 18 for a discussion of our 2026 outlook, I also want to take a moment and thank and congratulate all our employees for delivering great 2025 results. Despite any market turmoil or chaos that ensues, our teams understand how to calmly assess situations and react appropriately. Let me briefly discuss the drivers behind our outlook for 2026. Industry volumes are expected to be flat to slightly down globally, inclusive of battery electric vehicle sales. We expect to offset these market changes through continued share gains in Aftermarket and increased gasoline direct injection products, off-highway, industrial, and other end markets. Taking these factors into account and at the midpoint of our net sales outlook of $3.5 to $3.7 billion, we would expect an increase in sales in the mid-single-digit range, inclusive of FX. Excluding expected FX, our growth is projected to be in the low-single-digit range. We are therefore guiding adjusted EBITDA to be $485 million to $525 million with an EBITDA margin of 13.7% to 14.3%. We believe the business is well positioned to continue generating meaningful cash flow, and our 2026 outlook for adjusted free cash flow is, therefore, $200 million to $240 million. The adjusted effective tax rate should be in the 30% to 34% range. Overall, we expect to deliver strong results in 2026, as we continue to drive operational efficiencies and search for new areas of growth for both segments. Note that our outlook does not include any possible impact related to future policy changes by any government, which could affect our operations or technical centers. This includes additional tariffs, tax, or any other policy that could inflate or deflate revenue or affect our cost base. Fiscal year 2025 was marked by complexity and resilience—a tale of navigating global headwinds while making strategic progress. We are entering the next chapter of growth and look forward to continued success in fiscal 2026 and beyond as we continue our focus on revenue growth, product innovation and new markets, business wins, disciplined capital allocation, and delivering shareholder value. We want to thank all of you for joining us on the call today. Operator, please open the lines for questions. Operator: If you have dialed in and would like to ask a question, please press 1 on your telephone keypad to raise your hand and join the queue. We will take our first question from Bobby Brooks at Northland. Hey, good morning, guys. Thank you for taking my question. Bobby Brooks: The first one I had just on guidance—Chris, you gave a great breakdown of the guidance, and I was just curious, that Slide 17, when you are talking about mid to upper single digits for commercial vehicle for Europe, right? Is that the industry overall, or is that what you are expecting to see? Chris Gropp: That is the industry overall. I think down below, you will see kind of what our expectation is. I mean, we have seen, I think it is part of the from the October S&P kind of update. And, again, we saw that commercial vehicle kind of ended last year in Europe relatively stable. And we are also seeing some positive signs from our customers in that region as well. Bobby Brooks: Thank you for clearing that up for me. And just sticking with the guidance, turning to adjusted EBITDA margins. I would have thought if revenues would grow 6% that you would see a bit more margin expansion. So I just wanted to maybe double click in here what might be sort of the hurdles preventing more robust margin expansion with better growth? Chris Gropp: Well, we are showing margin expansion of 20% incremental, which for us is a good rate to go through. And it is actually higher than that if you take out some of the FX and the tariff. We are assuming that we are also going to grow on tariffs and FX, which are basically hollowed out. There is not going to be a big increase in the tariffs if they stay stable from last year. But there is a, you know, a reasonable amount of FX in there. But 20% is really a good number, we feel. Bobby Brooks: Got it. I guess I was not looking at it like that. And it was really exciting to hear you guys won your third aerospace and defense supply contract. And I was just curious to hear, is this with the same customer from the first two, or is this a new customer? Chris Gropp: Same customer. But there is momentum in other areas as well. Bobby Brooks: Got it. And maybe just the last one is, so I know you started production on the first A&D supply contract in the fourth quarter, right? And is not that second project slated to start beginning now in the first quarter? And any insights on when that third supply contract might start to kick off? Chris Gropp: Start until, I think it is July 2027. Bobby Brooks: Got it. Alright. Thank you, guys. Congrats on the great quarter. I will turn it to queue. Chris Gropp: Yep. Thanks. Thank you. Operator: We will move next to Joseph Spak at UBS. Joseph Spak: Thanks. Good morning, everyone. Chris, just want to make sure I have it right, because I was doing some of the same math on incrementals, and I think there might be some factors that are, you know, sort of weighing that a little bit down. So it sounds like in your revenue guidance, you are assuming about two points from FX. Anything there—can you give sort of further breakdown, like what the contribution from tariffs or if there are any recoveries or other pass-throughs in that revenue guidance? Chris Gropp: I mean, we are assuming on tariffs that we will come out even. So that is why it is a bit dilutive on the tariffs. There is not a lot more tariffs. Remember, we had three quarters of tariffs. We are just assuming the carry forwards that you would have additional tariffs in the first that were there last year. So that is additional. But, yeah, overall, we just assume that our tariffs are going to be breakeven, which does not give you a lot of room for growth on margins. Joseph Spak: Yeah. I mean, so the tariffs are, what, the $10 million to $15 million range, I think, the one extra quarter at no margin. FX is helping. Chris Gropp: It adds revenue. And most of that is coming in the first quarter because, again, remember the dollar started weakening at the end of the first quarter last year. A lot of that was coming into the first quarter. So that FX is not great conversion? Joseph Spak: Yeah. So it is basically at margin. So, again, if you take a look at the total number, if you go mid, you know, the 2025 to the midpoint of 2026, you are looking at, what, $130-some million of revenue and $27 million of EBITDA, you know, which is a 20% conversion with those additional headwinds of no conversion on a quarter to a third of it. Operator: Okay. Joseph Spak: Yeah. That is alright. So we can start back into what margins would have been otherwise. I guess just on another point, I am curious if, you know, if anything is rebating here as well. Like, we have obviously been seeing metal and other input prices move higher, and they have been a little bit volatile of late. Can you just remind us again of the most important inputs and just contractually how that flows through your financials? Yeah. I mean, we have got mostly, it is copper. Copper and aluminum are probably going to be the two, as well as some stainless steels. But, again, material content, you know, of our overall revenue is not a significant percentage. Chris Gropp: Yeah, because we are buying nicely already-finished components that have it built in. And where we do have any kind of commodity, we get pass-through. It is not perfect because it is usually an adjustment at the end of the quarter to go either positive or negative overall. But there is nothing meaningful in our guide from commodity pass-throughs or commodity impacts. Operator: We will go next to Jake Scholl at BNP Paribas. Jake Scholl: Guys, can I ask about the quarter? Within that, you know, appreciate you guys breaking out the 6% industrial mix. Within that, are there any particularly rapidly growing areas—anything you guys really want to call out in there that should be a growth driver over the next few years? Brady Ericson: Yeah. I mean, I think we have seen it in some of the press releases or in our earnings calls as far as the new business. I think you will see a lot of marine applications, some off-highway, some gensets in there, ag and construction. So I think it is obviously aerospace and defense. And so it is all been growing really good for us, and we have had a nice uptake in customers there. Order of magnitude, I think we will give some more color on the details and those markets at the Investor Day later on in a couple weeks or two. Jake Scholl: That is great. And then, you know, you guys finished the year hopefully within your leverage range. You are generating strong free cash this year. How should we think about your capital allocation priorities? Are there any areas where you are looking to build out your portfolio through M&A? Or do you expect to, you know, keep deploying most of that towards buybacks? And then just quickly, can you quantify where you expect the transaction costs within the free cash to adjusted free cash bridge to fall out? Thank you. Brady Ericson: I think I will hit the first question—capital allocation. Right? I mean, as we kind of told you, we are always going to sit down every quarter and kind of take a look at where we are on cash and where some M&A is and where our share price is, and try to make decisions that we think are in the best interest to maximize shareholder value. And so, obviously, with share price appreciation and our multiple going up, it may make M&A look better. But, again, we are not going to force ourselves to do M&A. You know, we still think that, you know, our business is made up of—and the diversity of our business makes us look very much like a diversified industrial, and we kind of know where some of those comps are. So we still think that share repurchases are still going to be part of our cap allocation policies, which is why the board also came out and increased our share repurchase program to give us some additional flexibility there, and continue to be opportunistic. We like our business. We like the portfolio of our products right now. And we like the trajectory that we have. So, you know, we upped our dividend as well, 11%, because our share count keeps coming down. And so we will continue to make those decisions to maximize shareholder value. Now on the cash conversion, I think it was your question there. Can you reframe that one again, Jake? Because I did not even type— Chris Gropp: I think both of us got a little confused. Jake Scholl: A quick question on the transaction costs to bridge from, like, you know, traditional free cash to adjusted free cash? Chris Gropp: Oh, I mean, we are just going from doing it from net income, which we felt was a little bit odd and squirrely, and moving it to adjusted EBITDA. Jake Scholl: Why did it go from net to adjusted cash flow? To adjust—We say adjusted cash flow. It is net. Yeah. Like, credit—Is that your question? Operator: Yes. Thanks, Jake. So, like, on Slide 25, in the adjusted free cash bridge, there is the separation-related transaction costs. And that is the only difference between what you guys report as adjusted free cash, but some things. But, you know, what is true, like, kind of traditional free cash flow number? I am just trying to bridge that. Separation. Chris Gropp: Are you asking what the separation costs are? I mean, that still relates back to the original spin transaction. And those go down. There is still a little bit of noise coming out of that from the settlement with BorgWarner and the finalization of some of the old transactions as we clear out some of the old statutory things. So those are the numbers that are there, and you can see it on page 25 in the bridge. Brady Ericson: I think those will continue to come down. Chris Gropp: That will come down. Yeah. I think it will, as we get through that. Jake Scholl: Thanks, guys. Operator: We will take our next question from Bobby Brooks at Northland. Bobby Brooks: I guess, you know, kind of broad question, but a lot of good things happening in the business. You guys are doing a great job expanding outside of just being an auto supplier. You have got your Investor Day coming up in two weeks. You know, just kind of wanted to give you the floor to what might be the focuses of the Investor Day and maybe just any hints of what is to come. Thank you. Brady Ericson: Sure. I think one of the things we are obviously going to do is we are going to go through a lot of our technology and the products and services that we think differentiate us and give us strong relationships with our customers that makes us a good partner for them. From our products to our services and support and software and calibration, we will take you through that. We will go through and deep dive each of these end markets that we have now highlighted and kind of share with you some of the applications and technologies and the market opportunities that we see in each of those markets. And, finally, we will kind of give an outlook on where we think we are going to be in 2030 and beyond as we continue to shift our business more and more towards, you know, commercial vehicle and off-highway and service applications and how that is going to further support our growth beyond 2030. And so we will have some nice displays there as well as some of our unique manufacturing and proprietary processes that we have in our manufacturing facility that also helps put some walls up around our business and protects us from kind of individual players out there. So we think it will be a nice deep dive. And in some ways, it is going to be, you know, more of the same. We are going to continue to be financially disciplined. We are going to continue to lead with product leadership. And we are going to continue to allocate capital in the most efficient way possible. And so it is just a continuation of the journey for us. Bobby Brooks: Great to hear. Really looking forward to it. I will turn it to you. Operator: We will move next to Drew Estes at Banyan Capital Management. Drew Estes: Hey there. Good morning. So my question is about 2026 volume assumptions. We are seeing what seems to be a refocus on ICE and hybrid vehicles among OEMs, especially in the U.S. And you are still assuming light vehicle volumes to decline low single digits in the Americas. And I am just curious, what would it take for light vehicle volumes to turn positive in the Americas for you all? Thank you. Brady Ericson: Okay. This is the market numbers. It is kind of the latest and greatest is that North America, the Americas, is going to be relatively flat to down a little bit—not a whole lot, I mean, from the number standpoint. And that includes, you know, EV or battery electric vehicles in that number. And so we do still see some battery electric vehicle penetration kind of flat to maybe a little bit of growth. But for us, we have got a good market. We continue to see market share gains in GDI. Penetration rates increasing. Again, the GDI goes across both hybrid and plug-in hybrid applications that have combustion engine in them. So that is a good thing for us. You know? So for us, in general, the market may be flat to down, but we continue to see good penetration rates for our business. As we kind of highlighted there on Slide 17, the overall global internal combustion, which includes hybrids and just standard combustion vehicles, you know, is going to be flat to down next year for us. But we are still showing growth. And that is because of our continued market share gains. And so we are outgrowing the market by maybe, you know, 400 basis points, 500 basis points, you know, on a year-over-year basis based on our market. And that, I think, is a testament to our technology and a lot of new business wins that we have been announcing over the last few years. So, you know, from our perspective, you know, the down 1% or 2% is kind of noise. And we will continue with our market share gains. We will continue to see growth. Drew Estes: Okay. Thank you. And just a quick follow-up on that. You know, a lot of your competitors had de-emphasized, you know, their GDI platforms and anything ICE-related. Are you seeing any change in their behavior? Maybe a refocusing on some of those programs, or have they not really changed anything? Brady Ericson: No. Not really. I mean, there are still, you know, there are just two other major players out there other than us. We continue to gain share. I think the smaller players have already kind of started to wind down things. So there is not a huge change there. Drew Estes: I think you will continue to see— Brady Ericson: —ours first to market with a 500 bar type system. We are doing a lot with alternative fuels, both natural gas, E100s, that I think puts us in a strong position. And we continue to launch, you know, more hybrid applications with GDI as well. So, again, what we benefit from is that, you know, we are truly focused. It is our key market for our company. Where some of our competitors, it is just a small percentage of a very big company. And they are allocating their capital, and they are focusing on a lot of different things. So I think there are benefits for us being a little bit smaller and more focused and dedicated to this space. Operator: Okay. Thank you. And that concludes our Q&A session. I would like to turn the conference back over to Brady Ericson for closing remarks. Brady Ericson: Great. Thank you. We really feel we delivered a solid finish to the year. 2025 results were in line with our expectations, reflecting the resilience of our diversified portfolio. The progress we made during the year underscores the strength of our strategy and successful execution, and has us well positioned in the coming year. With our strong foundation in place, we are excited about the opportunities ahead and remain confident in our long-term growth outlook and our ability to create long-term value for our shareholders. And as mentioned earlier, we are going to be hosting our Investor Day on February 25 at the NYSE. Please go to our Investor page to sign up to join us either in person or via livestream. So, again, thank you everyone for joining us this morning. Have a great day. Operator: This concludes today’s conference call. Thank you for your participation. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to the Alnylam Pharmaceuticals, Inc. Q4 and Full Year 2025 Earnings Conference Call. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press 0 for the operator. This call is being recorded on Thursday, 02/12/2026. I would now like to turn the conference over to Christine Lindenboom. Please go ahead. Good morning. I am Christine Lindenboom, Chief Corporate Communications at Alnylam Pharmaceuticals, Inc. With me today are Yvonne L. Greenstreet, Chief Executive Officer; Tolga Tanguler, Chief Commercial Officer; Pushkal P. Garg, Chief Research and Development Officer; and Jeffrey V. Poulton, Chief Financial Officer. For those of you participating via conference call, the company slides can be accessed by going to the Events section of the Investors page of our website. Christine Lindenboom: investors.alnylam.com/events. During today's call, as outlined in Slide 2, Yvonne will offer introductory remarks and provide some general context. Tolga will provide an update on our global commercial progress. Pushkal will review pipeline updates, clinical progress, and upcoming milestones, and Jeff will review our financials and guidance before we open the call to your questions. I would like to remind you that this call will contain remarks concerning Alnylam Pharmaceuticals, Inc.’s future expectations, plans, and prospects which constitute forward-looking statements for the purposes of the safe harbor provision under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in our most recent periodic report on file with the SEC. In addition, any forward-looking statements represent our views only as of the date of this recording and should not be relied upon as representing our views as of any subsequent date. We specifically disclaim any obligations to update such statements. With that, I will turn the call over to Yvonne. Yvonne? Yvonne L. Greenstreet: Thanks, Christine, and thank you everyone for joining the call today. Alnylam possesses a truly unique profile in the biotech industry, underpinned by our established and sustainable innovation engine, coupled with commercial excellence driving durable long-term growth. We are the leaders in RNAi therapeutics with a proven organic product engine and a reproducible and modular process for developing our medicines that has resulted in outsized historical success rates. We also have a high-yielding pipeline with over 25 programs currently in active clinical development. There are now six Alnylam-invented medicines on the market that are collectively generating several billion dollars in annual revenues and treating hundreds of thousands of patients around the world. This broad execution across all areas of the business was clearly evidenced in 2025, which was a transformational year for Alnylam. In terms of commercial and financial performance, we achieved a landmark approval of Amvuttra for ATTR cardiomyopathy, and driven by the success of that launch, delivered nearly $3 billion in combined net product revenues, which was 81% growth compared to 2024. Importantly, we met or exceeded all of our ambitious Alnylam P5x25 goals. And with today's announcement, we can now officially declare that we have achieved GAAP profitability for the 2025 full year and expect to sustain profitability going forward. On the pipeline and platform side, in 2025, we initiated three Phase 3 studies and our clinical pipeline with four proprietary CTAs in addition to five that were filed by our partners. We also developed and launched a potential best-in-class enzymatic ligation-based RNAi manufacturing platform called Cyrillis. We believe this platform will enable us to greatly expand our capacity and bring RNAi therapeutics to more patients around the world while reducing the cost of goods. While 2025 was a defining year for the company, we are now focused firmly on the future, harnessing our success to accelerate innovation and scale impact. To that end, we are excited to have recently shared our new set of five-year goals, Alnylam 2030. And these goals rest upon three strategic pillars, starting with achieving global TTR leadership while building a durable TTR franchise. We aspire to lead this market in revenue by 2030 and across the period, and to launch nuceresiran in 2028 for polyneuropathy and 2030 for cardiomyopathy. The next pillar is growing through sustainable innovation, where we plan to deliver two or more transformative medicines beyond TTR that have blockbuster potential. We also aspire to achieve delivery of RNAi to 10 tissue types, and have a pipeline of over 40 clinical programs by 2030. The high-yielding platform and outsized historical probability of success combined with our rigorous and disciplined approach to portfolio management, we believe this is the right place to focus our efforts and resources. And we expect to invest approximately 30% of our revenues in non-GAAP R&D across the period to accelerate organic internal innovation and selectively access external innovation. Given our expertise and leadership in this space, we believe this is a prudent allocation of capital that has the potential to deliver significant growth in the future. The final pillar of our 2030 goals is scaling with discipline and agility to drive sustained, profitable growth. This includes striving to achieve over 25% revenue CAGR through 2030 and to deliver a non-GAAP operating margin of 30% across the period. It is important to note that this operating margin goal is only through 2030, which is the year we aim to achieve regulatory approval for nuceresiran in ATTR cardiomyopathy. And if nuceresiran is successful in demonstrating the best-in-class profile that we expect, we believe it would drive swift patient uptake and, given the lack of any royalty obligations for nuceresiran, potentially drive our operating margins to the mid-40s post 2030. Through these goals, I hope you can appreciate that we are building on Alnylam for the future, delivering continued long-term growth underpinned primarily by our RNAi innovation platform. With that, let me now turn the call over to Tolga for a review of our commercial performance. Tolga? Tolga Tanguler: Thanks, Yvonne. Good morning, everyone. It is a pleasure to show how we are continuing to bring Alnylam’s transformative therapies to patients around the world. Q4 represented another quarter of strong growth for Alnylam. We delivered $995 million in combined net product revenues, representing 121% growth year over year and 17% growth versus prior quarter. While our TTR franchise remains the primary growth engine, we are also seeing continued momentum in our rare disease business. Let me start there. Our rare disease portfolio continues to deliver meaningful impact for patients and consistent performance for our business. In Q4, our rare franchise generated $136 million in net revenue, up 26% versus the same period last year, driven by increased patient demand and favorable order timing in partner markets. As a result, GIVLAARI and OXLUMO together became a $500 million franchise in 2025, reflecting continued growth more than five years post launch. With that, let us turn to the TTR highlights. Q4 was another robust quarter for our TTR franchise, continuing the strong launch trajectory we saw in Q2 and Q3. Global TTR net revenues reached $858 million, up 18% versus the prior quarter, and representing 151% growth year over year. In the U.S., net revenues for our TTR franchise grew 20% compared with Q3 2025 versus 222% versus Q4 2024. The quarter-over-quarter growth was primarily driven by a continued increase in U.S. patient demand, partially offset by an increase in gross-to-net deductions and an unfavorable inventory channel impact. Outside the U.S., revenues grew 13% versus the prior quarter, and 47% year over year, underscoring continued global momentum. We continue to be very pleased with the early signs in Japan roughly six months into the cardiomyopathy launch as we continue to track in line with leading launch analogs in the industry. In Germany, we recently aligned pricing for Amvuttra for the ATTR cardiomyopathy opportunity, reflecting the significantly larger prevalence of the cardiomyopathy indication relative to the polyneuropathy indication. As expected, this will create a modest near-term impact on total TTR revenue in Q1, but importantly, it positions us to compete effectively and participate in a substantially larger cardiomyopathy market in Germany. Yvonne L. Greenstreet: As we have previously mentioned, Tolga Tanguler: we anticipate launching Amvuttra for ATTR cardiomyopathy in additional international markets throughout 2026 following the completion of local pricing and reimbursement reviews. Yvonne L. Greenstreet: As we continue to launch across ex-U.S. markets, Tolga Tanguler: we are building global momentum that we expect to carry through 2026 and beyond. Finally, Yvonne L. Greenstreet: our international performance reflects the continued strength Tolga Tanguler: of our hereditary ATTR polyneuropathy legacy business, which remains robust despite competition. Broader engagement in the category is expanding awareness and diagnosis, ultimately benefiting patients and reinforcing Alnylam’s leadership role in shaping the field. Now let us turn to the U.S. ATTR cardiomyopathy-specific dynamics. Looking back on 2025, our confidence in the size, growth, and continued under-penetration of the ATTR cardiomyopathy category has been reinforced. Despite approximately 40% volume CAGR over the past six years, the majority of patients with ATTR cardiomyopathy remain untreated. Against that backdrop, we are highly encouraged by Amvuttra’s early momentum. In its first few quarters, performance relative to relevant specialty analogs supports the potential for a breakout launch, reflecting strong customer demand, the value of Amvuttra’s differentiated profile, and disciplined commercial execution. When we look at the early launch data, what is most encouraging is not just the pace of uptake, but where Amvuttra is being used and why. Yvonne L. Greenstreet: First, Tolga Tanguler: Amvuttra is rapidly establishing itself as an important choice in new treatment starts. By just the second quarter post launch, Amvuttra approached parity with tafamidis in share of new starts based on available estimates. While these available data will continue to evolve, the early signal is clear. Prescribing dynamics in ATTR cardiomyopathy are shifting. Second, we are gaining traction in first-line patients. Establishing Amvuttra as a first-line option remains our strategic priority, and we are making meaningful progress. In parallel, Amvuttra has quickly become the preferred option for stabilizer progressor patients, consistent with its differentiated and orthogonal mechanism of action. Third, this momentum is underpinned by broad and durable access. Following completion of our 2026 payer policy discussions, we can look ahead with increased confidence to even broader patient access for Amvuttra in 2026 versus last year. Over 90% of payers now provide first-line coverage, with the large majority of patients able to initiate treatment without step-through requirements. Most patients incur zero out-of-pocket costs, and approximately 90% can access treatment within 10 miles of their home, supported by a broad, well-established network of sites of care. As we enter 2026, we remain clear-eyed about where we are. The ATTR cardiomyopathy launch is still in its early stages, just three quarters in, and there is important work ahead. At the same time, we have established the foundations for durable growth, underpinned by a strong value proposition, broad access, and steadily increasing customer demand. Looking forward, we see meaningful opportunity to further expand the category by improving diagnosis and treatment rates, and we are investing accordingly through targeted efforts in education and awareness, evidence generation, and diagnosis enablement to ensure sustainable, long-term impact for patients. We look forward to sharing more details at our upcoming investor webinar where we will mark the one-year anniversary of Amvuttra’s U.S. FDA approval for ATTR cardiomyopathy on 03/24/2026, and highlight our progress for patients and the long-term growth and durability of our TTR franchise. With that, I will hand over to Pushkal. Thank you, Tolga, and good morning, everyone. As Yvonne highlighted earlier, 2025 was indeed a year of substantial pipeline progress and platform innovation for Alnylam. First, we initiated three Phase 3 studies in 2025. Pushkal P. Garg: ZENITH is our event-driven cardiovascular outcomes trial for zalesiran in patients with uncontrolled hypertension at high CV risk. We aim to enroll approximately 11,000 patients and, if successful, plan to launch around 2030. TRITON-CM is our event-driven outcomes trial for nuceresiran in ATTR cardiomyopathy. Approximately 1,200 patients will be enrolled in this study with launch also expected in 2030, if successful. And TRITON-PN is an open-label study of nuceresiran in approximately 125 patients with hereditary ATTR polyneuropathy. If successful, approval in this indication is expected in 2028. We also expanded our clinical pipeline, taking four new Alnylam-led programs into the clinic: ALN-2232, our first RNAi therapeutic directed to an adipose target, ACVR1C, with the potential to lead to durable weight loss, particularly reduction in visceral fat that is associated with poor cardiometabolic health; ALN-5288 targeting MAPT or tau for Alzheimer’s disease and other rare tauopathies; and two new programs for which we are not yet disclosing details due to competitive reasons, ALN-4285 and ALN-4915. Our partnerships also continue to generate progress with five new partner-led programs entering the clinic in 2025 across a range of indications with significant unmet need. We are also excited for our partners at Regeneron, who remain on track to submit a U.S. regulatory application in the first quarter for cemdisiran in generalized myasthenia gravis with potential approval anticipated later this year or early 2027. And finally, as Yvonne mentioned, we also launched Cyrillis, our proprietary enzymatic ligation manufacturing platform. As a result, we ended 2025 with a pipeline of over 25 clinical programs spanning multiple therapeutic areas across rare, specialty, and prevalent indications, representing a tremendous opportunity for improving patient health and creating value in the years ahead. Among these many programs, there are several that represent the next wave of transformative near-term RNAi therapeutics from Alnylam, each of which has multibillion-dollar potential. In the cardiovascular metabolic space, we are excited about zalesiran, targeting angiotensinogen with the aim of achieving continuous control of blood pressure with just two doses per year. For metabolic diseases, we see compelling opportunities to address substantial unmet medical need and gaps in treatment left by GLP-1s in both overweight/obesity and type 2 diabetes. And in neuroscience, valesiran targets amyloid precursor protein for the potential treatment of cerebral amyloid angiopathy and Alzheimer’s disease. APP is a genetically validated target for both of these diseases and CAA in particular represents a blue ocean opportunity. ALN-HTT02 employs a unique exon 1 targeting approach with the potential to address Huntington’s disease, a disease with no approved therapies, through deep and widespread lowering of the huntingtin protein in the brain. And in hematology, ALN-6400 offers an exciting opportunity for a pipeline-in-a-product, targeting plasminogen to address a wide range of bleeding disorders with a unique approach that has the potential to reduce bleeding without increasing the risk of thrombosis. Our first indication is hereditary hemorrhagic telangiectasia, which affects approximately 70,000 patients in the United States. We will share important updates across many of these programs over the year, as outlined in our 2026 pipeline goals. In the first half of the year, we plan to complete enrollment in the CAPRICORN I Phase 2 trial of marvesiran in patients with CAA, and initiate three Phase 2 trials. The first of these has already been achieved, which is a Phase 2 study of ALN-4324 in patients with type 2 diabetes. This study is now actively enrolling patients. For marvesiran in patients with Alzheimer’s disease, and another for ALN-6400 in a second bleeding disorder. Importantly, we expect to have clinical de-risking data this year on several of the programs I just mentioned. Specifically, we expect to share Phase 1 and 2 results from the ALN-6400 program and Phase 1 data on both our Huntington’s and ACVR1C programs in the second half of the year. And with that, let me now turn it over to Jeff to review our financial results and 2026 guidance. Jeff? Thanks, Pushkal, and good morning, everyone. Jeffrey V. Poulton: I am pleased to be presenting a summary of Alnylam’s full year 2025 financial results and providing our comprehensive financial guidance for 2026. Let us begin with a summary of our P&L results for the full year. Total global net product revenues for 2025 were nearly $3 billion, or 81% growth versus 2024, driven by a more than doubling of revenue in our TTR franchise, primarily from the strong performance in the U.S. following our Q2 launch of Amvuttra in ATTR cardiomyopathy. These full year results were more than $800 million above the original 2025 product sales guidance we provided last year, a testament to the strength of our ATTR cardiomyopathy launch performance. For the full year, collaboration revenue was $553 million, or 8% growth compared with 2024, and included a $300 million development milestone in Q3 associated with the dosing of the first patient in our ZENITH Phase 3 cardiovascular outcomes trial for zalesiran. Royalty revenue for the full year was $104 million, representing a 90% increase compared with last year driven by higher Leqvio sales from Novartis. Gross margin on product sales was 77% for the full year, representing a 4% decrease compared with 2024. The decrease in margin was primarily driven by increased royalties on Amvuttra, as higher revenues in 2025 resulted in an increase in the average royalty rate payable to Sanofi compared with the prior year. Our non-GAAP R&D expenses of approximately $1.2 billion increased 17% compared to last year, primarily driven by costs associated with the initiation of three Phase 3 clinical studies, including the ZENITH Phase 3 cardiovascular outcomes trial for zalesiran and the TRITON-CM and PN studies for nuceresiran. Christine Lindenboom: Non-GAAP SG&A expenses of approximately $1.0 billion increased Jeffrey V. Poulton: 22% compared to last year, primarily driven by increased investments in support of the Amvuttra ATTR launch in the U.S. We achieved full year non-GAAP operating income of $850 million, representing a $755 million increase compared with last year, driven primarily by the strong top-line results that I previously highlighted. I am also pleased to share today that we achieved profitability on both a GAAP and non-GAAP net income basis both in the fourth quarter and for the full year 2025, more than delivering on our P5x25 non-GAAP profitability goal. I would like to take a moment to thank the Alnylam employees who made this milestone possible through their active engagement and scaling our business with discipline over the past five years. Finally, we ended the year with cash, cash equivalents, and marketable securities of $2.9 billion compared with $2.7 billion at the end of 2024. The primary drivers of the $200 million increase in cash during the year include improved operating performance and proceeds from the exercise of stock options, partially offset by net proceeds utilized during our convertible refinancing in Q3. Now I would like to turn to our financial guidance for 2026. Starting with net product revenues, we are reiterating the combined net product revenue guidance for Amvuttra, ONPATTRO, GIVLAARI, and OXLUMO that we communicated in our J.P. Morgan press release dated 01/11/2026. We anticipate combined net product sales for our four commercial products will be within a range of $4.9 billion to $5.3 billion, representing combined full year growth compared to 2025 of 71% at the midpoint of the guidance range, or more than $2.1 billion in growth. On a franchise level, the guidance is broken down as follows. Total rare, $500 million to $600 million, representing full year growth compared to 2025 of 10% at the midpoint of the guidance range. Total TTR, $4.4 billion to $4.7 billion, representing full year growth compared to last year of 83% at the midpoint of the guidance range. As Tolga noted in his prior comments, it is still early days in the ATTR cardiomyopathy launch but we are pleased with our initial momentum and the strong fundamentals which support the long-term growth potential of our TTR franchise. As we highlighted at the J.P. Morgan conference, the 2026 TTR product sales guidance is underpinned by three key assumptions. First, we anticipate U.S. TTR category growth will remain brisk and consistent with prior years. Second, in the U.S., we continue to expect a modest decrease in net price as our cardiomyopathy business continues to scale. Specifically, we forecast a mid-single-digit net price decrease for Amvuttra in 2026. Third, given the impact on our polyneuropathy business associated with lower cardiomyopathy launch pricing in international markets, we expect international TTR revenue dollar growth in 2026 will be consistent with 2025. I would also like to provide some color on Q1 phasing assumptions associated with our full year TTR revenue guidance. For Q1, we expect considerably lower quarter-on-quarter TTR revenue growth compared with the $134 million of TTR growth that we delivered in Q4 2025. The lower growth expectation in Q1 is driven by a variety of factors, including the following: first, unlike in Q4, when our international markets contributed $23 million in quarterly TTR revenue growth, we are expecting an approximate $25 million reduction in Q1 international revenues, with the primary driver of the decrease attributable to our cardiomyopathy launch in Germany; second, modest quarter-over-quarter TTR growth in Q1 compared with the $111 million of U.S. quarterly growth achieved in Q4 due to fewer product shipping weeks in Q1 and the expected impact of annual insurance reauthorizations. Beyond Q1, we expect higher quarterly growth for the balance of the year in the U.S., and we remain confident in our full year TTR product sales guidance. Now returning to our full year 2026 financial guidance. Our collaboration and royalty revenue guidance range is $400 million to $500 million, representing a decrease of 38% compared to 2025 at the midpoint of the guidance range, driven by the one-time $300 million zalesiran development milestone achieved in 2025 that I previously mentioned that will not recur this year. We expect the collaboration revenue associated with our partnerships with Roche and Regeneron as well as Leqvio royalties from Novartis will drive the majority of our collaboration and royalty revenue this year. Our guidance for combined non-GAAP R&D and SG&A expense is a range between $2.7 billion and $2.8 billion, with the midpoint of the range representing 26% growth versus 2025. Growth drivers for R&D expense this year include increased investment in clinical studies, including the continuation of pivotal Phase 3 studies for zalesiran and nuceresiran, as well as early pipeline investment to deliver three to four new INDs and support expansion of delivery into new tissues. Growth in SG&A will primarily be driven by ongoing launch activities to support Amvuttra for ATTR cardiomyopathy in the U.S. and select international markets. Let me now turn it back to Christine to coordinate our Q&A session. Christine? Christine Lindenboom: Thank you, Jeff. Operator, we will now open the call for questions. Please limit yourself to one question each, then get back in the queue if you have additional questions. Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the one on your touch-tone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star followed by the two. If you are using a speakerphone, please lift the handset before pressing any key. One moment for your first question. I have Paul with Fifth. Please go ahead. Jeffrey V. Poulton: Good morning. Can you hear me okay? Yvonne L. Greenstreet: Yes. We can. Thank you. Tolga Tanguler: Okay. Great. Good morning. Thanks so much, and appreciate you taking my question. Jeffrey V. Poulton: I was wondering if you could just comment on what you are seeing so far in 2026 in terms of new patient adds and the mix of first line for vutrisiran versus tafamidis switches and how you see that evolving over the course of this year and what is assuming guidance? Pushkal P. Garg: Thank you. Yvonne L. Greenstreet: Yeah. No. That is a great question. I think it is important just to underscore how pleased we are with the Amvuttra launch so far. Coming out of the gate strong, we are building towards an analog-beating launch and really building a long-term franchise that is incredibly important. All the fundamentals are in place to drive continued Amvuttra growth, which I think is underscored by our 2026 guidance and our 2030 goals. But, Tolga, maybe you will speak specifically to Tolga Tanguler: Yeah. I mean, how you see the market. Thanks, Yvonne. Good morning, Paul. Look. As Yvonne highlighted, what really drives our confidence in reiterating the guidance is the fundamentals. If you think about it, we have actually improved our first-line access. We are clearly seeing a strengthening physician and patient preference, and even more importantly, category growth with more patients entering the market. Those trends were in place heading into J.P. Morgan and have continued to build, and that is why we remain confident in the year. Great. Thank you. Yvonne L. Greenstreet: Next question, please. Tolga Tanguler: K. Your next Operator: question is from Salveen with Goldman Sachs. Please go ahead. If I Christine Lindenboom: just follow up on the confidence here in the guide for the year for the TTR franchise. Just speak to the choppiness that we are seeing coming out of the scripts for the first quarter to date and then how you think about the pricing dynamics as you look to a new potential market entry this year or next year, as well as the growth dynamics in Europe. Thank you. Yvonne L. Greenstreet: Hey, Tolga. Yeah. So let me take the pricing question Tolga Tanguler: first. We feel very well positioned from an access standpoint for this year. The large majority of patients have already first-line access without required step edits, and most patients are continuing to pay zero out of pocket, partly supported by our value-based agreements. And, in fact, utilization within those agreements has been rather minimal to date. In terms of on our pricing, our net price declined mid-single digits in 2025, and our 2026 guidance assumes a similar mid-single-digit decline, and that dynamic is fully integrated into our outlook. Now in terms of 2027, obviously too soon for us to be able to provide specific guidance, but we felt really well positioned as we entered 2026. Yvonne L. Greenstreet: Thanks, Tolga. Next question, please. Operator: Your next question is from Kostas with Oppenheimer. Please go ahead. Tolga Tanguler: Congratulations on the strong year. A question on seasonality from us. Have you seen any seasonality during the fourth quarter, potentially patients who pushed the injection to the next quarter because of the holidays and whether this can be a tailwind to 2026? Thank you. Yvonne L. Greenstreet: Maybe, Tolga, that question for you. And I think we only spoke to, you know, Q1 phasing, and that is actually kind of very typical in the industry. But, Tolga, do you want to Tolga Tanguler: Right. So I would actually really step back and start thinking about rather than on monthly fluctuations, looking at the quarterly, you know, the total growth of this category. If you think about historically, while quarterly growth has fluctuated, the longer-term category trend has been one of robust and really well-sustained growth on the order of about 40-plus over the past several years. So even within Q4, we have seen momentum improve as we exited the quarter. Now as Yvonne highlighted, Q1 has been rather specific across the industry in terms of the seasonality. We are certainly seeing some of that, but we believe that from that seasonality, it is really not impacting the underlying momentum that we are building in the category. Thank you. Yvonne L. Greenstreet: Next question, please. Operator: Your next question is from Ritu with TD Cowen. Please go ahead. Good morning, guys. Hi. Good morning. Thanks for taking the question. I wanted to ask about the gross-to-net pattern over 2026. Tolga, you mentioned mid-single digits. Is that going to be sort of a stepwise adjustment in Q1 and then flat through the rest of the year, or is it going to be gradual? Basically, I am asking are all the access discussions for the full year done? And also, if you can comment about Christine Lindenboom: per Salveen’s question, whether Operator: potential longer-term competitive dynamics are factoring into how you are thinking about gross to net over the year. Thanks. Yvonne L. Greenstreet: Maybe, Jeff, you start on the general gross-to-net question, and Tolga, you may have some additional perspectives. Yeah. Ritu, again, the guidance for the U.S. market for pricing this year is a mid-single-digit Jeffrey V. Poulton: net price decrease similar to what we did in 2025. And that would be expected to be gradual over the course of the year rather than sort of all upfront in the first quarter, gradual. Tolga Tanguler: Yeah. And in terms of the 2027 outlook, as we highlighted, it is really too soon for us to make any comments at this point. We do not know what their data is going to look like. We do not know what their label is going to look like. But what I can say is given how well we are positioned in terms of Part D versus Part D, we believe we are really well positioned in terms of being able to manage our growth. And, in fact, if you think about the guidance that we provided, or I should say our objectives from 2030, we are assuring that our 2030 CAGR growth of 25% certainly incorporates some of that thinking. We believe we are going to be able to preserve and increase the value of this category. Operator: Thank you. Alright. Thank you. Your next call comes from Maury with Jefferies. Please go ahead. Jeffrey V. Poulton: Hi. Good morning. Thanks for taking my question. You commented a little bit on this at J.P. Morgan, but just wondering for the five-year strategy, you mentioned the select external innovation as part of the approximate 30% revenue R&D spend. Can you just elaborate on that? Should we anticipate additional partnerships like the Roche one with zalesiran? Or other forms of licensing? And is there anything more on timing, size, scope of an external BD deal? Yvonne L. Greenstreet: Yeah. No. Thanks for that question. Look. I think it is important to highlight that we really are focused on our rich internal pipeline, which is truly spring-loaded for growth. But, given our strengthening financial position, it does make sense to start to become open to select innovation that could provide access to technologies and earlier-stage medicines that are complementing our existing commercial portfolio and our R&D pipeline. And I think important also to state that we have a very high science and financial bar, both for our internal innovation, but also as we look to assess opportunities externally as well. Thank you. Next question. Operator: Alright. Your next question comes from Tazeen with Bank of America. Hi, good morning. Thanks for taking my question. On nuceresiran, you talked about the time that you could potentially launch at the beginning of 2030s, let us say, 2030-ish. How should we be thinking about the impact Christine Lindenboom: to your operating margin once that product becomes available? And just practically speaking, even if it might have the better profile that you described as less frequent dosing, Operator: how long do you think it would take for patients to appreciate something like that, be it the base, switching from vutrisiran to nuceresiran when it becomes available? Christine Lindenboom: Thanks. Yvonne L. Greenstreet: So there are a couple of questions here. I will just reiterate maybe the remarks that I made earlier, which is, we are really excited about nuceresiran. We believe that this is, if it is successful, which we have high conviction in, it is going to have a best-in-class profile which is going to lead to swift patient uptake. And this is going to be without the royalty obligations for nuceresiran. So, clearly, this will have a significant positive impact on our margins post 2030. And as I said, we are looking at potentially driving margins to the mid-40s by Tolga Tanguler: 2030. And just to Jeffrey V. Poulton: tack on to that, if you look at what consensus gross margins are for our business out to 2030, Tazeen, it is mid-70s, and I would say the vast majority of that is related to the royalty that we pay Sanofi. So that tells you about the opportunity to improve margins post 2030 if we have the kind of profile that we expect with nuceresiran. Tolga Tanguler: Great. Yvonne L. Greenstreet: Thank you. Next question, please. Operator: Your next question is from Luca with RBC Capital Markets. Please go ahead. Pushkal P. Garg: Oh, great. Thanks so much for taking my question. Congrats on the progress. Maybe if I can pivot to the pipeline, Yvonne L. Greenstreet: Pushkal. Could you just talk a little bit about Huntington’s? Again, Pushkal P. Garg: assuming that maybe later this year you will show us some initial pharmacodynamic data on the mutant and the CSF. But we all know that huntingtin is a relatively slow progressive disease. So I am assuming that the clinical data like cUHDRS is going to be pretty preliminary. Would that be fair? And if so, are you willing to start the pivotal Phase 3 trial with just target engagement data in hand? Are you going to wait before doing so until you see a clear functional signal there? So I guess the question is, maybe walk us through what kind of go/no-go decision Jeffrey V. Poulton: to start a Phase 3 trial for Huntington’s. Thanks so much. Yvonne L. Greenstreet: Wow. That is a great question, and thank you for asking a question about the Huntington’s program. It is a program that we have high conviction in for addressing what I think we all know is an incredibly devastating disease, but there is quite a lot in that question. Pushkal. Pushkal P. Garg: Yeah. Luca, happy to address it. As I mentioned, as you highlight, the unmet need in Huntington’s, I think, is undisputable. We are very excited about the approach we have. We have an siRNA that targets the overall huntingtin protein, but specifically also targets this exon 1 segment that is thought to be necessary actually for disease propagation, and so we think we have a very unique approach. Unfortunately, prior approaches have not really addressed this. Interestingly enough, the one approach that does is the approach, and we have all seen some recent data coming from there that suggests potentially, through natural history data, there may be a favorable trend there emerging in terms of efficacy. So we are very excited about the approach. We are in a Phase 1 program right now in Huntington’s patients where we are really trying to see convincing evidence of lowering of huntingtin as well as safety. You will recall that prior efforts in this space have been challenged because they cannot get the high levels of knockdown, beyond about 20%, and then they have been associated with safety concerns: NfL increases, ventricular enlargement, etc. So I think those are the first two things, Luca, that we are going to be looking for. Can we get to good levels of knockdown? We would like to get to over 50%. And can we do that durably and safely for a period of time? As we have mentioned, we will put out some data at the end of this year. You are right that I would not expect a lot in terms of clinical data at that point in terms of cUHDRS. This is a relatively modest number of patients, and so we are hoping that, again, if we see those two signs, then to your second part, look, given the unmet need, this is a program we are very much going to try and accelerate as quickly as possible. We want to do that in a responsible way, but you will look to us to see what anything we can do to bring this forward to patients as quickly as possible, and we will keep you posted on that. Yvonne L. Greenstreet: Thanks, Pushkal. Thanks so much. Next question, please. Your next question Operator: is Miles with William Blair. Please go ahead. Pushkal P. Garg: Hi. Thanks for taking the questions. Another one on the pipeline for obesity. Gena Wang: Just what is the rationale for prioritizing the ACVR1C asset over something like INHBE in your Phase 1 trial? And then is the target product profile for that that is going to come out of that data, is it something that is equivalent to what we are seeing from your peer in Arrowhead, or are you going for something superior on the efficacy side? Thanks very much. Pushkal P. Garg: Straight for you. Yeah. Thanks, Miles. We see a tremendous opportunity in the overweight/obesity space and the diabetes space. GLP-1s have obviously revolutionized that space, but we think we all recognize there is a lot of unmet need to aid in weight loss, A1c reduction, without the muscle loss and the tolerability issues that happen with GLP-1s. We have prioritized ACVR1C because both in our preclinical work, based on the genetics, preclinical models, as well as some of the emerging data that you are seeing coming from Arrowhead, you see that ACVR1C appears to be the more potent target, and so we have certainly prioritized that. We are interested in INHBE, but we think ACVR1C is more interesting. I think when you look at the Arrowhead and Wave data, there are questions about the monotherapy magnitude of weight loss they can deliver. And I think this is a space where we are going to have to be particularly thoughtful. We are uniquely positioned to be thinking about unique patient segments that we might be able to target, looking at unique combinations that can bring disproportionate benefit to patients within this space. That is the reason for prioritizing ACVR1C. And, as I said, we expect to have some results to share at the end of the year. Tolga Tanguler: Thank you. Christine Lindenboom: Next question. Operator: Your next question comes from Mike with Morgan Stanley. Please go ahead. Jeffrey V. Poulton: Good morning. Thanks for taking the question. Maybe I could Gena Wang: ask a question just on cardiomyopathy and trends there, particularly for market share. Obviously, you have had some great share gains in the second-line setting and also Jeffrey V. Poulton: positive trends in the front line. Just Teraesa Vitelli: curious, particularly in frontline as we move through the year, do you expect those share trends to continue to increase? Thanks. Yvonne L. Greenstreet: Yeah. No. We have been very pleased by the broad and balanced kind of access that Teraesa Vitelli: we are seeing. Yvonne L. Greenstreet: Tolga? Tolga Tanguler: Yeah. I mean, as you saw, Mike, in the data we shared particularly around new-to-brand dynamics, we are approaching near parity with tafamidis. The goal and intent was to demonstrate that in a growing and increasingly competitive category, we have been able to make meaningful and rapid headway. Now in terms of 2026, obviously, we reiterated our full year 2026 guidance. What gives us the confidence is the continuous progress we are making in terms of first-line access, rising physician and patient preference, and also, importantly, healthy category growth. Those were the drivers heading into J.P. Morgan, and we continue to see them strengthened. That momentum supports our outlook for 2026. Yvonne L. Greenstreet: And, of course, we are going to be having the investor webinar in March, which will be an opportunity to rethink about how we are building this very exciting franchise for the future. Thanks for that plug. Okay. Tolga Tanguler: Next question. Operator: Your next question comes from Ted with Piper Sandler. Please go ahead. Teraesa Vitelli: Great. Thank you very much. And just maybe digging a little bit deeper in terms of the external partnering. Should we be more thinking complementary technology then from your comments earlier, Yvonne? Whether that be delivery types or other RNA mechanisms? Thanks. Yvonne L. Greenstreet: Yeah. No. I think that is absolutely correct. We are looking at areas where there is good strategic fit. Some opportunities are complementary to what we are doing. You touched on delivery. That is one potential approach to consider. We have a very exciting internal pipeline, so we are going to be very judicious about what external innovation actually helps us accelerate our internal innovation and also complements our current portfolio. But, Pushkal, do you want to add anything to that? No. I think you have covered it, Pushkal P. Garg: I think we are going to be looking at that landscape of things that are complementary from a technology perspective that help bring medicines to more patients more rapidly. Tolga Tanguler: Great. Teraesa Vitelli: Okay. Yvonne L. Greenstreet: Thanks. Next question, please. Operator: Your next question is from Ellie with Barclays. Please go ahead. Hey, guys. Thanks for taking the question. Maybe just a big-picture one across the emerging early-stage pipeline. Which programs are you most excited about, or do you think are the most de-risked? And then a second question, you mentioned for the U.S., you expect a mid-single-digit net price decrease in 2026. What would you expect for 2027? Should we expect something similar or more or less with a new competitor? Thanks. Yvonne L. Greenstreet: Wow. I think it started off with trying to get us to say what our favorite programs are. Yeah. I mean, Ellie, I think Pushkal P. Garg: it is like choosing between your children. We have some very exciting opportunities. In terms of your question about which are most de-risked, obviously, nuceresiran is about as de-risked as possible. We have no doubt that TTR silencing aids in both polyneuropathy and in cardiomyopathy, and that drug will get to 95% silencing in twice-a-year dosing. Zalesiran has shown blood pressure lowering, compelling blood pressure lowering, in four studies now—Phase 1 and three Phase 2s of increasing stringency on top of background medicines with a durable profile. There is a wealth, as Professor Williams highlighted last year at ESC, of data that suggests that continuous control of blood pressure should lead to outsized benefits in terms of cardiovascular outcomes. I think that is fairly de-risked. As you look forward, we have a number of other programs where in the period of 2026 and 2027 we are going to get very compelling data that leads to de-risking. Think about data coming out on Huntington’s, or in CAA as I just mentioned in my comments to Luca, and we will get some proof-of-concept data on a number of different programs in overweight, obesity, diabetes, and a number of programs that we actually have not named. And then, of course, the plasminogen program where we have already seen convincing data that we shared last year at R&D Day in terms of proof of mechanism, that we are seeing clot stabilization, very strong genetics. I think that has been significantly de-risked. You see confidence in there. We have kicked off one Phase 2. We have talked about kicking off a second Phase 2, and we are moving rapidly with that program. I am excited about the opportunities that lie ahead and, as I said, the number of exciting potential to help patients and create value. Yvonne L. Greenstreet: Yeah. That is great, Pushkal. I think the really unusual story about Alnylam is we actually have a de-risked organic product engine, and this gives us tremendous leverage, helping us to accelerate the pace of innovation and allowing us to scale with this proven platform into what is going to be a multi-franchise growth company. As Pushkal highlighted, there are a number of near-term opportunities for us to really turn these programs into important medicines for patients. Just Tolga Tanguler: do you want to add any perspective? Jeffrey V. Poulton: On the pricing question, I think that Ellie had asked about. Again, what we have said consistently since we have launched in the U.S. with cardiomyopathy in the label is we have expected gradual net price reductions over time as the business scales. Again, we are entering year two. Year one was mid-single-digit price decrease. That is what we are expecting in year two. Over the longer-term guidance that we have given, 25% CAGR, that is the expectation across the period at this point. Yvonne L. Greenstreet: That is great, Jeff. Apologies. When we get these multipart questions, sometimes one of the questions slips off the list. Tolga, did you have something to multipart answer to that as well? Tolga Tanguler: To support Jeff’s point, in terms of how anticipating new competition may impact the pricing, as we reiterated, first of all, we are really well positioned from an access perspective. We have established credibility and durability of this franchise in 2026, and if you think about the potential emerging competition, we are already actually in that competitive field with the polyneuropathy indication, and we have been able to secure great access to the patients with limited copay. I would anticipate, and obviously we provided our goals for 2030 and that value growth of 25% CAGR remains, so we are comfortable with providing that perspective for 2027 as well. Good. Well, I hope we covered everything you asked. Next Yvonne L. Greenstreet: next question, please. Operator: The next question comes from Corey with Evercore ISI. Please go ahead. Jeffrey V. Poulton: Hey. Good morning, guys. Thanks for taking the question. I guess Michael Eric Ulz: it is related somewhat to what you were just talking about, but with the competitive silencer data obviously expected this year, I am interested in your latest views on potential for that asset to attain a differentiated label based on their trial, and how you think about that having a potential commercial impact on Amvuttra if it were to actually be the case? Thank you. Yvonne L. Greenstreet: Okay. That is both a commercial and a development perspective in that question. Tolga, do you want to make a few remarks, and then we will hand it Tolga Tanguler: I mean, it is obviously difficult to assess the impact without seeing their data, and it would be premature to speculate on the specific role they are going to play. That said, it is really important to highlight this category remains very large and significantly underserved. Additional entrants will certainly help drive diagnosis and treatment rates, which we believe ultimately will benefit patients and expand the category. From our perspective, we feel very well positioned. We have a head start given our rapid, deep, and sustained knockdown profiles, strong clinical data package, and, obviously, quarterly dosing. Jeffrey V. Poulton: So Tolga Tanguler: maybe, Pushkal, you can Gena Wang: Yeah. I think, Corey, we are looking forward to seeing the results, as obviously we do not have a magic crystal ball. We will see what the results are. Our expectation is the study will be positive. They have shown good knockdown that occurs over a period of some months, and so I would expect—and they have a large outcome study, both in monotherapy and in combination—so I would expect the results to be positive. We will be on the lookout for a couple of aspects of this. First, we will want to look at the safety profile that emerges. This is an ASO in a large population that is somewhat older and frailer, so it will be interesting to see how that emerges. And then on the efficacy side, I expect to see favorable impacts on the outcome parameters, as we have shown with HELIOS-B with vutrisiran. There is some speculation that they will have a stronger signal, for example, in the combination because they will have a larger number of patients on top of a background stabilizer. My hypothesis would be I do not see any reason why the treatment effect size would be any different than what we have already established in HELIOS-B. They may have a tighter confidence interval or stronger p-value in that subgroup, but in terms of the effect size, I do not expect it to be materially different, and I think it would be consistent with what we saw. Your question is the most critical one, which is how is that going to impact the label? I would just point out that our label already provides data for both on and off a stabilizer, and it specifically points out that the treatment effects were consistent in both populations, so we have a very broad label. I do not foresee how the label would be materially different based on the statistical significance in that one subgroup, but that remains to be seen. That is how I would map it out. Teraesa Vitelli: Very helpful. Thank you. Next question. Operator: Next question. Next question comes from Danielle with Truist. Please go ahead. Gena Wang: Hey, guys. This is Alex on for Danielle. Thanks for taking the question. Just a question on Amvuttra access in community centers. Do you have a sense of how much of the market is not currently accessible due to the high cost of Amvuttra and potential hesitancy to stock the drug? Just curious if you have a sense of what proportion of new diagnoses are coming out of the community centers versus what proportion of Amvuttra patients are actually being managed in the community settings. Thanks so much. Tolga Tanguler: Let me just take that very quickly. As we highlighted from a payer perspective, first and foremost, because I think you highlighted whether there is an access issue, we feel really well positioned from an access standpoint. Again, the large majority of patients have first-line access to Amvuttra, and that is regardless of where those patients are. In terms of accessing the medication, as we highlighted, our experience is that it is very broad and balanced. In terms of the community setting patients, we have been able to secure alternative site-of-care agreements where 90% of the patients already have Amvuttra injection within 10 miles of their residences. We are continuing to expand that network, but I think we reached that critical mass already within 2025, and we continue to work on that. Yvonne L. Greenstreet: Perfect. Well, I believe that was our last question. I would like to thank everyone for joining us today. Clearly, 2025 was a remarkable year in which we delivered a blockbuster launch of Amvuttra in TTR cardiomyopathy, we made significant advancements across our pipeline, and we achieved sustainable profitability. As we begin this next chapter of our story, we look forward to executing on our 2026 goals and the broader 2030 strategy to both accelerate innovation and scale impact. Thanks to everybody who joined the call, and have a great day. Operator: Ladies and gentlemen, this concludes today’s conference call. Thank you for participating, and you may now disconnect.
Operator: Hello, ladies and gentlemen. Welcome to Himax Technologies, Inc. Fourth Quarter and Fiscal Year 2025 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. As a reminder, this conference call is being recorded. I will now turn the conference over to Karen Tiao, Head of IR/PR at Himax. Ms. Tiao, please go ahead. Everyone. Karen Tiao: My name is Karen Tiao, Head of IR/PR at Himax. Joining me today are Jordan Wu, President and Chief Executive Officer, and Jessica Pan, Chief Financial Officer. After the company's prepared comments, we have allocated time for questions in the Q&A section. If you have not yet received a copy of today's results release, please email hx_ir@himax.com.tw or himx@mzgroup.us, or download a copy from the Himax website. Before we begin the formal remarks, I would like to remind everyone that some of the statements in this conference call, including statements regarding expected future financial results and industry growth, are forward-looking statements. They involve a number of risks and uncertainties Karen Tiao: only Karen Tiao: for those described in this conference call. A list of risk factors can be found in the company's latest SEC filings, Form 20-F, in the section entitled “Risk Factors,” as may be amended Karen Tiao: Except for Karen Tiao: the company's full year 2024 financials, which were provided in the company's 20-F and filed with the SEC on 04/02/2025. The financial information included in this conference call is unaudited and consolidated and prepared in accordance with IFRS accounting. Such financial information is generated internally and has not been subjected to the same review and scrutiny, including internal auditing procedures and external audits by independent auditors, through which we subject our annual compiled consolidated financial statements, and may vary materially from the audited consolidated financial information for the same period. Karen Tiao: On today's call, Karen Tiao: I will first review Himax’s consolidated financial performance for the fourth quarter and full year 2025, followed by our first quarter 2026 outlook. Jordan will then give an update on the status of our business, after which we will take questions. You can submit your questions online through the webcast or by phone. We will review our financials on an IFRS basis. We are pleased to report that our Q4 profit was at the high end of the projected range issued on 11/06/2025, while sales and gross margin were both in line with the guidance. Fourth quarter revenue registered $203,100,000, representing a sequential increase of 2%, better than our flat quarter-over-quarter guidance. Gross margin was 30.4%, in line with our guidance of flat to slightly up from 30.2% in the previous quarter. Q4 profit per diluted ADS was $0.036, at the high end of the guidance range of $0.02 to $0.04. Revenue from large display driver came in at $21,700,000, representing an increase of 14.2% from the previous quarter, outperforming our guidance range of a single-digit increase sequentially. This was primarily due to the rush order for both the TV and notebook IC legacy products from panel makers. Karen Tiao: Customers’ restocking of Karen Tiao: TV and monitor IC products, along with new notebook TDDI projects entering mass production during the quarter, contributed to the sequential increase. Large panel driver IC accounted for 10.7% of total revenue for the quarter compared to 9.5% last quarter and 10.5% a year ago. Revenue from the small and medium-sized display driver segment totaled $139,100,000, reflecting a slight decline of 1.3% sequentially. Q4 automotive driver sales, including both the traditional DDIC and TDDI, increased approximately 10% quarter over quarter, largely driven by widespread adoption of our market-leading within TCP technology among major customers across all continents. Despite softness in the global automotive market, our automotive driver IC sales for the full year 2025 grew single digit year over year, outpacing the broader market. Meanwhile, revenues for both smartphone and tablet IC segments declined quarter over quarter, as customers pulled forward purchases in prior quarters. Karen Tiao: Let's Karen Tiao: small and medium-sized display driver IC segment accounted for 68.5% of total sales for the quarter compared to 67.8% in the previous quarter and 70.3% a year ago. Q4 non-driver sales reached $42,300,000, a 7.9% increase from the previous quarter, primarily attributable to increased ASIC TCON shipments to a leading projector customer, along with robust TCON demand for automotive application. TCON, Himax continued to hold on to its undisputed leadership position with a dominant market share in automotive TCON. Karen Tiao: TCON business Karen Tiao: accounted for over 10% of total sales, with notable contributions from automotive TCON. Also during the quarter, our automotive OLED on-cell touch IC entered mass production with a leading brand, marking another milestone and strengthening the foundation for future growth. Non-driver products accounted for 20.8% of total revenue, as compared to 19.7% in the previous quarter and 19.2% a year ago. Fourth quarter operating expenses were $54,900,000, a decrease of 9.6% from the previous quarter but an increase of 11.6% compared to the same period last year. The sequential decrease was mainly attributed to a reduction in the annual employee bonuses and the depreciation of the NT dollar against the US dollar, partially offset by an increase in payroll expenses. As part of our standard company practice, annual cash and RSU bonuses are granted at the end of September each year, leading to higher IFRS operating expenses in Q3 than in other quarters. The year-over-year increase was primarily driven by the increase in tape-out expenses. Salary expenses and appreciation of the NT dollar against the US dollar were also behind the year-over-year increase. Amid the ongoing macroeconomic challenges, we continue to emphasize strict budget and expense controls. Karen Tiao: Fourth quarter operating profit, Karen Tiao: was $6,800,000, representing an operating margin of 3.4% compared to negative 0.3% in the previous quarter and 9.7% for the same period last year. The sequential increase was the result of the increased revenue and higher gross margin as well as the lower operating expenses. The year-over-year decline reflected the lower sales and gross margin, coupled with higher operating expenses. Q4 after-tax profit was $6,300,000, or $0.036 per diluted ADS, compared to $1,100,000 or $0.006 per diluted ADS last quarter and down from $24,600,000 or $0.14 in the same period last year. Now let us quickly review the financial performance for the full year 2025. 2025 was a challenging year for the global economy, shaped by tariffs and geopolitical uncertainty, and the customers generally maintained a conservative and late order strategy with a lean inventory level. While consumer electronics demand remains soft, automotive and AI-related applications where Himax has strong exposure proved resilient. Despite disciplined expense control, Karen Tiao: our full year 2025 operating expenses increased by 1.1% as we successfully invested in select non-display Karen Tiao: IC areas with compelling long-term growth potential, some of which are poised to ramp meaningfully starting in 2027. Karen Tiao: Refreshed market conditions Karen Tiao: our 2025 full year revenue totaled $832,200,000, a decline of 8.2% compared to 2024. Karen Tiao: Revenue from large Karen Tiao: panel display driver IC totaled $90,700,000 in 2025, a decrease of 28% year over year and representing 10.9% of total sales as compared to 13.9% in 2024. Small and medium-sized driver sales totaled $575,100,000, reflecting a decrease of 8% year over year and accounting for 69.1% of our total revenue, as compared to 59% in 2024. Non-driver product sales totaled $156,400,000, an increase of 7% year over year and representing 20% of our total versus 17.1% a year ago. Karen Tiao: Gross margin Karen Tiao: in 2025 was 30.6%, slightly up from 30.5% in 2024. Operating expenses in 2025 were $210,200,000, a slight increase of 1.1% from 2024, primarily due to the increase in tape-out and salary expenses as well as the appreciation of the NT dollar against the US dollar in 2025, partially offset by the lower employee bonus compensation compared to last year. 2025 operating income was $44,100,000, or 5.3% of sales, as compared to $68,200,000, or 7.5% of sales in 2024. Our net profit for 2025 was $43,900,000, or $0.25 per diluted ADS, a decline from $79,800,000 or $0.46 per diluted ADS in 2024. Turning to the balance sheet. We had $286,200,000 of cash, cash equivalents, and other financial assets as of 12/31/2025. This compared to $224,600,000 at the same time last year, and $278,200,000 a quarter ago. Q4 operating cash inflow was $15,800,000 compared to an inflow of $6,700,000 in the prior quarter. We had $28,500,000 in long-term unsecured loan, with $6,000,000 representing the current portion at the end of 2025. Our year-end inventory was $152,700,000, an increase from $137,400,000 last quarter, but lower than $158,700,000 a year ago. Accounts receivable at the end of December 2025 was $200,900,000, little change from last quarter, but down from $236,068,000 a year ago. DSO was 88 days at the quarter end as compared to 87 days last quarter and 96 days a year ago. Karen Tiao: Fourth quarter capital expenditure Karen Tiao: was $4,000,000 versus $6,300,000 last quarter and $3,200,000 a year ago. Fourth quarter CapEx was mainly for R&D related equipment for our IC design business. Total capital expenditure for 2025 was $20,100,000 as compared to $13,100,000 in 2024. The increase was primarily due to the construction in progress for the new preschool near our China headquarters built for employee children, with completion expected by 2026. As of 12/31/2025, Himax had 174,400,000 ADS outstanding, little change from last quarter, and on a fully diluted basis. Karen Tiao: The Karen Tiao: total number of ADS outstanding for the Karen Tiao: Now turning to our first quarter 2026 guidance. Karen Tiao: We expect Q1 revenues to decline 2% to 6% sequentially. Gross margin is expected to be flat to slightly down, depending on product mix. Q1 profit attributable to the shareholder is estimated to be in the range of $0.02 to $0.04 per fully diluted ADS. I will now turn the call over to Jordan Wu to discuss our Q1 2026 outlook. Jordan, the floor is yours. Jordan Wu: Thank you, Karen. Overall, market conditions remain under pressure from ongoing macroeconomic uncertainty. Recent shocks, price increases in memory further weighed on the market sentiment for electronic products. However, compared with consumer products, the automotive segment, which accounts for over half of Himax's total sales, is more immune to memory price fluctuations. That said, our visibility for the whole year outlook of the automotive sector remains limited amid the backdrop of uncertain government policy and consumer sentiment. However, we expect the first quarter to be the trough of the year with sales rebounding in the second quarter and business momentum continuing to improve into the second half, supported by lean customer inventory levels and new projects for automotive customers scheduled to enter mass production later in the year. In addition, continued growth in our non-driver IC businesses, particularly TCON and the WiseEye AI, should provide incremental support. In the automotive display IC business, we remain optimistic about our long-term business outlook. Jordan Wu: Back Jordan Wu: by our leading new technology offerings and strong design win pipeline. In DDIC and TDDI, we have already secured hundreds of design wins, commanding 40% market share in automotive DDIC Jordan Wu: and over half Jordan Wu: in the global TDDI market, and a substantial lead over competitors. Concurrently, Himax has also established strong technology leadership in all emerging automotive display areas, including automotive TCON with advanced local dimming functionality, LTDI for large size automotive displays, advanced TCON solutions for advanced head-up displays, automotive OLED panels, and micro-LED technology. Jordan Wu: The growing number of customers Jordan Wu: are accelerating the adoption of these advanced display technologies in new vehicle models, driving new growth momentum for Himax's automotive display IC business in the years ahead. The automotive market still offers significant asset potential driven by rapid innovation and ongoing advancements. Jordan Wu: In Jordan Wu: smart cabin, this refers to more visible, vivid, intuitive, immersive displays such as head-up display, curved display, large size SUV or windshield, micro-LED for both interior and exterior of the vehicle. Jordan Wu: And Jordan Wu: despite the economic uncertainty, beyond our main business of display IC solutions, we continue to expand into areas such as ultra-low-power AI for endpoint devices, front video cross-cycle display, and waveguide for AR glasses, and WLO for co-packaged optics. All these technologies are seeing exciting ideas. Jordan Wu: Driven Jordan Wu: by the recent Jordan Wu: breakout Jordan Wu: of AI. As adoption continues to broaden, some of these technologies have already begun translating into real-world applications, with more expected to follow suit in the near future. We expect these initiatives to become new meaningful growth drivers, while also improving our product mix and overall profitability. Some of these advanced technological capabilities were showcased through multiple live demonstrations at CES earlier this year. First, on ultra-low-power AI, we are differentiated in the market, offering total solutions that integrate in-house AI processor, CMOS image sensor, and algorithm, helping customers streamline development and accelerate time to market. Himax's industry-leading WiseEye AI features industry-leading ultra-low-power design with power consumption at just single-digit milliwatt levels, combined with the compact form factor, on-device AI inference, and 24/7 always-on image and voice sensing. WiseEye is empowering battery-powered endpoint devices across a wide range of new AI applications. Jordan Wu: For use cases requiring Jordan Wu: real-time voice and vision sensing, WiseEye also serves as an ideal perceptual front end for large tandem with LLMs to enhance the device’s ability to perceive and understand real-world context and deliver more intelligent responses and low-latency human-machine interaction. This is reflected in applications such as kiosk buttons for AI PCs and environmental awareness and sensing in smart glasses. Jordan Wu: At CES this year, Jordan Wu: Himax showcased a broad portfolio of WiseEye-powered endpoint applications, including smart home, security and surveillance, automotive, smart city, access control, AI PC, and smart glasses. One notable example in the field of security applications is the newly introduced WiseGuard solution, a significant technological innovation for next-generation security applications. WiseGuard features Jordan Wu: high Jordan Wu: accuracy AI sensing even in low-luminance Jordan Wu: device. Jordan Wu: Proactive key events Jordan Wu: capture, all while consuming nearly milliwatt-level power, thereby extending battery life for end devices. I will elaborate on this later. All these demonstrations reinforce WiseEye's growing relevance across multiple end markets. After many years of R&D and promotion, we see very strong growth Jordan Wu: although WiseEye business, Jordan Wu: starting from this year. Jordan Wu: Turning to smart glasses, Jordan Wu: one of our prime strategic focus areas, we are uniquely positioned as one of the few companies with both microdisplay and low-power AI capabilities, both critical for the success of AR glasses. With the advancement of AI, the smart glasses market is undergoing a strong resurgence, creating significant new opportunities for WiseEye AI and LCoS micro Jordan Wu: displays. Smart glasses Jordan Wu: developers can leverage Jordan Wu: WiseEye’s ultra-low-power AI capabilities Jordan Wu: to enhance device interactivity, supporting both outward-facing environmental awareness and object recognition as well as inward-facing Jordan Wu: ID authentication. It allows smart glasses to simultaneously Jordan Wu: understand user intent and external surroundings, delivering a more natural and seamless human-machine interaction experience. The microdisplay, Himax's latest proprietary front-illuminated LCoS display, achieves an optimal balance among size, weight, power consumption, resolution, and cost, while meeting the stringent optical performance requirements of next-generation see-through AR smart glasses. Jordan Wu: Solution is Jordan Wu: a four-color microdisplay, which can be configured for a high-brightness, low-power, green-only mode, and switched back, upon command from the central processor, seamlessly covering both indoor and outdoor instances. Jordan Wu: Himax is working closely with multiple waveguide partners across China, Europe, Israel, Jordan Wu: Japan, Taiwan, and the US on the integration into complete display systems for AR glasses, with several joint achievements demonstrated at CES. Jordan Wu: Before turning to our segment outlook, I would like to highlight our progress Jordan Wu: in CPO. Himax continues to make solid progress in collaboration with our strategic partner, ForeSee. Our main goal for 2026 is to Jordan Wu: complete Jordan Wu: mass production readiness with just small quantity shipment for the year. In addition, we are actively advancing multiple future generations of high-speed optical technologies and advanced CPO architectures. Jordan Wu: These efforts Jordan Wu: are Jordan Wu: focused on high Jordan Wu: fiber channel density and more sophisticated optical designs to support the increasingly demanding requirements. Jordan Wu: Specifically, Jordan Wu: in collaboration with a leading global customer and partner, Himax and ForeSee are finalizing the manufacturing process of a state-of-the-art design supporting 6.4T transmission bandwidth. Jordan Wu: We Jordan Wu: expect strong Jordan Wu: positioning for the AI data center market with the biggest volume potential while demanding the highest transmission bandwidth. Jordan Wu: Recently, ForeSee successfully completed an equity rights issue Jordan Wu: of NT$3,160,000,000 to fund equipment purchases and prepare for CPO mass production. Jordan Wu: Himax Jordan Wu: participated in the share subscription, demonstrating our continuous support for our partner and further strengthening the collaboration between the two companies. Jordan Wu: Himax expects Jordan Wu: CPO to become an important contributor to both revenue and profitability over the next few years. Jordan Wu: With that, I will now begin with an update on the large panel driver IC business. Jordan Wu: In Q1, large display driver IC sales are expected to increase single digit sequentially, mainly driven by continued replenishment of TV IC products from Chinese panel customers, carrying over from Q4 last year. Looking ahead, our focus in the notebook market is on premium models Jordan Wu: featuring Jordan Wu: OLED displays and touch functionality. Jordan Wu: This trend is Jordan Wu: being reinforced by recent rising memory prices, which have put pressure on lower-end notebook models and further accelerated the shift towards higher-end devices. Himax offers a full spectrum of IC solutions for both LCD and OLED notebooks, including DDIC, TCON, touch controllers, and TDDI. Jordan Wu: This broad product coverage allows us to address diverse panel architectures Jordan Wu: and system designs while increasing our content per device. During the first quarter, we began mass production of our touch IC for OLED notebooks with a leading notebook vendor, marking a milestone for another key application for our OLED on-cell touch technology beyond automotive. Jordan Wu: By leveraging proven touch integration capabilities, Jordan Wu: from automotive applications and extending them into consumer electronics, we are creating new growth opportunities in premium Jordan Wu: OLED, Jordan Wu: IT devices. Jordan Wu: TCON solutions are a key pillar of our notebook display IC portfolio, playing a critical role in image enhancement and system-level integration, strengthening our ability to provide customers with a comprehensive one-stop solution. Jordan Wu: We continue to expand our notebook TCON portfolio to address diverse customer design requirements and cost considerations. Our solutions Jordan Wu: support Jordan Wu: a wide range of panel resolutions, refresh rates, and gaming-oriented applications, while delivering high value-added features with a strong focus on power efficiency, which is becoming increasingly important Jordan Wu: for Jordan Wu: thin and light notebooks. Jordan Wu: Turning to the Jordan Wu: small and medium-sized display driver IC business. Jordan Wu: In Q1, small and medium-sized display driver IC business Jordan Wu: is expected to decline single digit from last quarter. Jordan Wu: Q1 automotive driver IC sales, including TDDI Jordan Wu: and traditional DDIC, Jordan Wu: are set to decline Jordan Wu: quarter over quarter, following two consecutive quarters of order replenishment. Jordan Wu: This decrease also reflects typical seasonal softness related to the Lunar New Year holidays, along with the tapering effect Jordan Wu: of automotive subsidy programs Jordan Wu: in major markets such as China and the EU. That said, our long-term competitive position remains solid, Jordan Wu: supported Jordan Wu: by hundreds of design wins already secured across TDDI, DDIC, TCON, and an expanding OLED portfolio. In addition, our diversified foundry footprint enables supplier feasibility and allows us to better navigate shifts in customer demand. We continue to lead the global automotive display market with a 40% share in DDIC, over half in TDDI, and even higher market share in normal dimming Jordan Wu: TCON. Himax also continues to lead Jordan Wu: in automotive display IC innovation by pioneering solutions across a wide range of panel types while addressing diverse design needs and cost considerations. For example, in ultra-large touch displays, we introduced the industry's first LTDI solution back in 2023, Jordan Wu: which Jordan Wu: has already been mass produced in several vehicle models. Design activity continues to expand across continents, and after several years of sustained effort, we expect meaningful revenue contributions starting this year. For smaller displays with form factor and budget constraints, Jordan Wu: we provide Jordan Wu: single-chip solutions that combine TDDI and local dimming TCON, an attractive choice for customers as it can significantly reduce cost Jordan Wu: and improve Jordan Wu: power efficiency. Jordan Wu: Looking ahead, Jordan Wu: OLED panel adoption in automotive displays is expected to accelerate, creating an opportunity for Himax to further strengthen our leadership in the automotive display market. Our ASIC OLED driver and TCON solutions have already been mass production for a few years, and we now offer new standardized products to support broader and more scalable deployment. At the same time, we continue to collaborate with leading panel makers for new custom ASICs to meet diverse customer requirements. Jordan Wu: Together, these efforts position Himax to capture Jordan Wu: increasing semiconductor content as premium automotive display technologies evolve from LCD to OLED. Jordan Wu: Complementing our OLED portfolio, Jordan Wu: for automotive applications, we are also a leader in advanced OLED touch ICs, featuring industry-leading signal-to-noise ratio performance Jordan Wu: that ensures Jordan Wu: reliable operation even under challenging conditions, such as gloves or moist finger use. Jordan Wu: Our OLED touch ICs Jordan Wu: entered mass production in 2024 and continue to see a growing design pipeline globally, many of which are scheduled to enter mass production in the coming quarters. Jordan Wu: Moving to smartphone IC sales, we expect Q1 smartphone Jordan Wu: revenue, covering both LCD and OLED products, Jordan Wu: to increase quarter over quarter, testing OLED solutions with mass production with a leading panel maker for leading smartphone brands' mainstream models. Jordan Wu: For tablet ICs, joint sales, Jordan Wu: are also expected to grow sequentially, Jordan Wu: driven by Jordan Wu: the commencement of IC shipments for customers’ new premium OLED tablet. Moving forward, we are advancing new technologies that enable value-added features such as active stylus, ultra-slim bezel design, higher frame rate, and power-saving architectures, positioning Himax to capture more semiconductor content in next-generation premium tablets, which reinforces our competitive edge. Jordan Wu: I would like to now turn to our non-driver IC business updates, Jordan Wu: where we expect Q1 revenue to decrease single digit Jordan Wu: sequentially. For the update on our TCON business, Jordan Wu: we anticipate Q1 TCON sales to decline by a single digit quarter over quarter, Jordan Wu: primarily due to the absence Jordan Wu: of ASIC TCON shipments to a leading projector customer that occurred in the prior quarter. The sequential decline also reflects a moderation in automotive TCON shipments following several quarters of solid growth, which we view as normal seasonality rather than a change in underlying demand. For the full year 2025, our automotive TCON sales still grew approximately 50% year over year, backed by hundreds of secured design wins. This momentum provides a strong foundation for subsequent growth. TCON for monitor, Jordan Wu: notebook, Jordan Wu: and TV products Jordan Wu: is expected to increase sequentially, primarily as a result of customers Jordan Wu: replenishing Jordan Wu: inventory for high-end products. Meanwhile, head-up displays, or HUD, are poised to become a central element of next generation Jordan Wu: smart cockpit, Jordan Wu: a trend clearly highlighted at CES where numerous panel makers and automakers, with our IC solutions, showcased their latest trendy and innovative HUD concepts. HUD for automotive is rapidly evolving from simple text and symbols to high brightness, high contrast, AI-enriched visuals integrated into automotive displays. This shift is driving demand for sophisticated TCON solutions in the area where Himax is in a leadership position in automotive display TCON solutions. Jordan Wu: To address this trend, Jordan Wu: we introduced a multifunctional Jordan Wu: TCON featuring Jordan Wu: the industry’s first full-area selectable local dimming capability, combined with Himax’s Jordan Wu: marquee Jordan Wu: on-screen display technologies, offering the flexibility to meet diverse design and cost requirements while simplifying overall system integration. This new TCON continues to deliver exceptional contrast performance, effectively eliminating the so-called postcard effect in SUVs. Jordan Wu: The common issue caused by light leakage Jordan Wu: in conventional TFT-LCD panels. Jordan Wu: Our industry-leading OSD function Jordan Wu: is also integrated, ensuring that critical safety information remains visible Jordan Wu: even Jordan Wu: when the main system is powered down, thereby enhancing overall driving safety. Jordan Wu: The new type TCON solution Jordan Wu: supports a broad range of HUD architectures, including windshield HUD, augmented reality HUD, and panoramic Jordan Wu: HUD. Multiple customer projects are already underway Jordan Wu: with tier-1s, panel makers, and projector players, reflecting strong market recognition of our vast HUD technology. HUD TCON technology product. Switching gears to the WiseEye product line, a cutting-edge ultra-low-power AI sensing turnkey solution targeting Jordan Wu: endpoint Jordan Wu: device markets. Jordan Wu: As AI advances Jordan Wu: at an unprecedented pace, WiseEye stands out Jordan Wu: with context-aware on-device AI inference Jordan Wu: that combines Jordan Wu: industry-leading power efficiency, consuming only a few milliwatts, Jordan Wu: with a compact form factor and robust industrial-grade security, Jordan Wu: and pretrained low-code/no-code AI algorithms, enabling easy deployment across a broad spectrum of applications. This powerful combination unlocks advanced AI capabilities in endpoint devices that were once limited by power and size constraints. This is driving innovative new product concepts across a broad range of applications Jordan Wu: from notebooks, surveillance, Jordan Wu: and access control to smart home, smart retail, and more recently, smart glasses, which the industry widely expects to become the next breakout market. Jordan Wu: Starting with notebooks, Jordan Wu: WiseEye human presence detection is seeing expanding adoption among leading global brands, Jordan Wu: driven by its ultra-low power consumption, instant Jordan Wu: responsiveness, and privacy-centric Jordan Wu: design. Jordan Wu: We are aligned with the industry's move towards always-aware AI-driven PCs. Jordan Wu: Building on this foundation, Jordan Wu: additional feature enhancements are being developed to address more complex real-world scenarios while preserving exceptional power efficiency and improving user convenience. One example is gesture recognition that emulates C4 inputs, enabling users to scroll pages without touching the keyboard. Jordan Wu: Another advanced feature currently under development Jordan Wu: for next-generation laptops is a voice-activated keyword spotting function. Jordan Wu: Here, Jordan Wu: WiseEye acts as an ultra-low-power front end that continuously monitors Jordan Wu: audio and performs Jordan Wu: wake word detection, activating the main CPU only when the designated trigger phrase is recognized. Jordan Wu: This advanced feature Jordan Wu: enables continuous audio monitoring even in noisy environments while maintaining minimal impact on overall system power consumption. Jordan Wu: In the surveillance domain, at the recent CES, we introduced our latest Jordan Wu: WiseGuard endpoint AI solutions, highlighting the versatile deployment of WiseEye AI in security applications. Jordan Wu: WiseGuard is a turnkey solution Jordan Wu: capable of accurately detecting and tracking multiple individuals, including their presence, location, and movement. Its proactive and continuous sensing capability enables security systems to anticipate and capture important events in advance, Jordan Wu: providing more forward-looking protection than traditional reactive security solutions. WiseGuard performs always-on sensing and AI processing at single-digit milliwatt Jordan Wu: levels, enabling up to five years of battery life and reliable low-maintenance operation in compact battery-powered devices. At the same time, detection at distances Jordan Wu: of up to 10 meters and under extreme low-light environments. Immediately after its debut, WiseGuard has attracted strong market interest, driven by its competitive advantages for scalable smart home and security systems. Jordan Wu: Meanwhile, from a module perspective, Jordan Wu: WiseEye technology is seeing expanding adoption across a wide range of domains, Jordan Wu: including leading brands’ upcoming smart home applications and various surveillance applications. Notably, our PalmVein module has had a strong design pipeline covering smart access, workforce management, smart door locks, and more recently, computer monitor and automotive applications. In the domain of AR and AI glasses, WiseEye delivers fast responsiveness for a wide range of AI functions while maintaining exceptional power efficiency. It enables intelligent context-aware vision sensing in next-generation wearables and smart glasses through both outward- and inward-facing capabilities. Our sensing supports environmental awareness, object recognition, and spatial mapping. For inward sensing, it enables iris authentication and tracks eye movements, gaze direction, and pupil dynamics for natural, intuitive human-machine interaction. WiseEye is gaining strong traction in smart glasses with a growing number of design-in engagements underway among global tech leaders, solution-type providers, and smart device specialists. Certain advanced smart glasses are poised to enter mass production later this year. For WiseEye in the smart glasses market, that concludes my report Jordan Wu: for this quarter. Thank you for your interest in Himax. We appreciate you joining today's call and are now ready to take questions. Yes. Thank you, Jordan. And ladies and gentlemen, we will now open for questions. If you would like to ask a question, please press the star key and number one on your telephone keypad, and you will enter the queue. After you are announced, please ask your question. If you find that your question has been answered before it is your turn to speak, you may press the star key and number two to cancel the question. In addition to submitting questions via phone, you may also submit your question through the webcast system, where the checkbox is available on the right-hand side of the screen. Thank you. To ask a question, you may press the star key and number one on your telephone keypad or submit your questions through the webcast system. Thank you. If you would like to ask a question, please press the star key and number one on your telephone keypad. Thank you. Operator: Now, we will have our first question. Operator: Thank you for the question from Morgan Stanley. Go ahead, please. Karen Tiao: Yeah. Thank you, Jordan and Karen, for taking my question, and congrats on the great results. Yeah. So my first question is on first quarter gross margin. May I know why the margin would be flat to down quarter over quarter? And in first quarter, is it because of product mix or are we seeing elevated pressure coming from like the increasing material cost and also the offset cost. Thank you. And I have a follow-up. Operator: Thank you, Tiffany. Jordan Wu: Actually, we are only guiding for a flat to slight decline only, so Jordan Wu: we are not seeing material change Jordan Wu: from the Jordan Wu: gross margin of last quarter. Jordan Wu: And the difference is really the product mix Jordan Wu: change. Jordan Wu: We are seeing, proportion-wise, slightly less auto shipment in Q1 compared to last quarter. Jordan Wu: And you pointed out about the material price increase, which is obviously a factor, and it has been a factor for, like, Jordan Wu: a pretty long time, as we all know. As we know, gold prices have been increasing over the years, and now on top of that, we are seeing foundry capacity tightening and ASPs appear to be rising. Jordan Wu: And Jordan Wu: for that reason, we, I mean, with our foundry vendors, we are in discussion with them Jordan Wu: on how to get our Jordan Wu: delivery support, while in the meantime hoping for a Jordan Wu: manageable price increase. Jordan Wu: From that. And at the same time, we are also Jordan Wu: in active discussion with our customers Jordan Wu: about the possibility for a product price increase to reflect our cost. So both are ongoing. We do not have any conclusion yet, but I think Jordan Wu: you know, Jordan Wu: so far this is all pretty recent, and so far, we are seeing our customers Jordan Wu: all kind of recognize the fact that, as we all know, memory demand Jordan Wu: squeezes out the Jordan Wu: supply of other types of ICs, and therefore demand appears to be rising for other kinds of non-memory IC products because our supply is being squeezed, and prices are rising. So again, we are in discussion with both our customer side and vendor side. That does not really quite, that is not really quite a factor for our Q1 gross margin guidance. If anything, I think that is going to become a factor starting from Q2 and onward. Well, thank you for your question. Karen Tiao: Alright. Very clear. Thank you. So my second question would be regarding CPO. Could you give us more details or maybe some guidance for the CPO revenue in maybe 2026 and 2027? As I think investors are very excited about the momentum and progress in this area. Thank you. Operator: Thank you. Actually, we are also online getting a few questions regarding CPO. So I will try to kind of address them together. Again, we said that in last quarter's earnings call, and I am going to repeat that now: the main goal of 2026 for us and also for our partner, ForeSee, is to complete the validation Jordan Wu: of both our Gen 1 and Gen 2 products with Jordan Wu: partners. So with the validation being the target, the revenue contribution will be limited for 2026 because we will be talking about sample shipments Jordan Wu: only. Notably, while I am commenting on 2027, Jordan Wu: in close collaboration with Jordan Wu: our Jordan Wu: anchor customer and partner, we are close Jordan Wu: to finalizing the Gen 2 product, which targets Jordan Wu: production readiness, Jordan Wu: targeting bandwidth of greater than 6.4T. For this Gen 2 product, we can potentially see meaningful top and bottom line contribution starting from 2027, even before the official MP gets started. Jordan Wu: The reason why I emphasize this is because Jordan Wu: when and how this CPO product will start mass production is really a call Jordan Wu: which can only be made by the customer. We do not really know. And a reminder that it is actually a complex and lengthy ecosystem Jordan Wu: run by our customer. Right? So Jordan Wu: it is not a matter of when we are proven to be ready, Jordan Wu: the customer can just click a button and then go into full-volume production. It is not going to happen that way. So we do not Jordan Wu: have full visibility on exactly when and how the mass production ramp will take place. Our Jordan Wu: current view is that Jordan Wu: it is likely to be 2027 or 2028. We do not know. However, even before the official ramp, official MP—let’s say it is 2027 or 2028—because prior to the official MP, there will be further sample shipments for various purposes, with a certain quantity, which will be greater than 2026. So even before the official MP gets started, just from pre-MP shipments, based on internal count, the contribution can be already pretty meaningful for Himax in terms of our total revenue and also for our total profit. Right? So I guess that addresses your issue about 2027. And again, I want to emphasize, Jordan Wu: this Jordan Wu: product targeting 6.4–6.5T bandwidth spec Jordan Wu: is Jordan Wu: done in close collaboration with our anchor customer and partner. It is not that we are closing our doors and trying to think of a product and push it to the customer. No. From the beginning to now, it has been a joint development Jordan Wu: by our direct customer, direct partner ForeSee, and Jordan Wu: Himax, and the so-called 6.4T transmission product spec targets the AI data center market with the biggest volume potential while demanding the highest transmission bandwidth—meaning you are talking about the GPU market, Jordan Wu: which Jordan Wu: requires a very high Jordan Wu: transmission rate. Jordan Wu: So I guess that, Tiffany, Jordan Wu: kind of addresses your question directly. And also, people ask about Jordan Wu: what is the volume potential or revenue potential Jordan Wu: when it starts MP. For this, I will kind of repeat what I mentioned earlier Jordan Wu: in our earlier Jordan Wu: session: even in what I call early stage of mass production—meaning far from reaching full penetration, full deployment, and so on and so forth—in early stage mass production, Jordan Wu: for Himax, Jordan Wu: we will be talking about hundreds of millions of dollars of sales. So it is going to be very, very significant, based on what the customer is telling us, based on how we price it, and based on our internal calculation. And I am still holding the same view now. The good news is we do have existing WLO capacity to support and manage a pretty big volume of production for that kind of scale—hundreds of millions of dollars of annual sales. Okay. So I guess that kind of summarizes my answer for all questions related to CPO right now. Operator: Thank you. Thank you. Jordan Wu: If you would like to ask a question, you may press the star key and number one on your telephone keypad. Thank you. Operator: I do have a question Jordan Wu: from online inquiry: Our OLED sales is going to be huge in 2026. Is price at a price premium versus conventional panels? Actually, as we said in our prepared remarks, we started, for smartphone, shipping in mass production volume Jordan Wu: actually a bit in last quarter and certainly this quarter. Jordan Wu: But the sales contribution from the smartphone OLED for Himax, Jordan Wu: and if you combine the smartphone OLED for Himax together with IT and automotive all this together, Jordan Wu: our Jordan Wu: expected sales contribution for 2026 is still less than 10% of our total sales. So I would say probably high single digits of contribution. Jordan Wu: To the Jordan Wu: ramp age, the real ramp age is going to be 2027. Jordan Wu: In a minute, I will get back to your question about margin. For Himax, Jordan Wu: the OLED products gross margin for smartphone is actually lower than our corporate average. So to be honest, we are not very, very keen. I mean, we recognize the fact that our peers are already ahead of us and probably shipping bigger volume than us. So it is already a very competitive market with low margin across the board. That is for smartphone. However, I would say something very different for automotive OLED and IT OLED. The ICs in these two areas are our focus area right now, and they both enjoy much better gross margin compared to our traditional LCD products. Also, on a per-panel basis, the IC content is materially higher Jordan Wu: than LCD products. So I would probably describe our status separately for auto and IT. First on auto, we are in strategic partnership with top-tier Korean and Chinese panel makers, and this is a market which is now being Jordan Wu: led by the very best, and we are the Jordan Wu: prime IC partner for both Korean panel makers Jordan Wu: and, I would say, Jordan Wu: Chinese leaders. We expect to see breakout demand from 2027, mainly because it is actually now the Korean makers leading the charge in terms of aggressively promoting the OLED market, which up to now has been, bottom line, has suffered from two main factors. One is cost, and the other one is reliability. Through many years of effort across the ecosystem, the reliability has improved. So it is an issue of yesterday, no longer an issue. So the real issue is now cost. But Korean makers, they have a lot of legacy OLED capacity which can only do rigid displays. So they are taking advantage of those capacities which are fully depreciated, running with very good efficiency and so on and so forth, to Jordan Wu: price their products aggressively, Jordan Wu: to the extent that the OLED prices for automotive products in certain specs are already approaching the levels of LCD products already. And certainly, OLED enjoys better quality and lighter weight and so on—a few very good benefits. So when you start to see prices approaching those of LCD, Jordan Wu: we are in the middle of very, very busy design activities with our panel makers and Jordan Wu: tier-ones Jordan Wu: at the moment, with a lot of design win projects going on, many of which are slated for mass production in 2027. So this year, while we do ship some volumes, we think, hopefully, 2027 volume will be much, much bigger than this year. For this, we offer our standard products including driver IC and timing controller to both leading panel customers for both TCON, timing controller, and driver IC. On top of that, we also offer discrete touch IC, where we are now leading the pack in performance compared to their old vendors. So we are winning a lot of new design projects right now for our touch controller, with mass production already taking place with a few Jordan Wu: leading Jordan Wu: international and Chinese names. So that is for Karen Tiao: automotive. Jordan Wu: For IT, slightly different story, but very similar timing—2027 is likely to be the breakout year. Now for IT, you need larger panel sizes. So you do require a Gen 8.5 or 8.6 to be mass producing IT products effectively. Korean panel makers led the charge a couple of years ago. They have completed their 8.5 Gen production line. But Chinese are catching up. Jordan Wu: So Jordan Wu: across the board, quite a few Chinese panel makers are starting mass production for their Gen 8.6 lines, all targeting IT products, mainly tablet and notebook. And, likewise, we are going through very, very busy design stages at a few such customers. The story here is that when you have new Gen 8.6 OLED lines coming into production around the same time—2027—it is likely to bring price pressure, and that certainly, for market demand from notebook makers, is good news. And, again, Jordan Wu: you know, Jordan Wu: OLED panels enjoy lighter weight, better contrast, better brightness, and good power consumption—benefits we all know. The major issue stopping OLED panels from high penetration is cost. The fact that quite a few Chinese Gen 8.6 lines are coming online starting 2027 is likely to trigger the demand. So, again, we are going through design stages right now. Any other question? Yes. Okay then. Thank you, Jordan. And we do not have further questions at the moment. We thank you for all your questions, and I will pass the call back to Jordan. Thank you. Thank you. As a final note, Karen Tiao, our Head of IR/PR, will maintain investor marketing activity and continue to attend investor conferences. We will announce the details as they come about. Thank you, and have a nice day. Yes. Thank you. And ladies and gentlemen, this concludes Fourth Quarter 2025 Earnings Conference. You may now disconnect. Thank you again. Goodbye.
Operator: Greetings. Welcome to Rollins, Inc. 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. Please note this conference is being recorded. I would now like to turn the conference over to Lyndsey Burton, Vice President of Investor Relations. Thank you. You may begin. Thank you. In addition to the earnings release that we issued Lyndsey Burton: The company has also prepared a supporting slide presentation. The earnings release and presentation are available on our website at www.rollins.com. We have included certain non-GAAP financial measures as part of our discussion this morning. The non-GAAP reconciliations are available in the appendix of today's presentation as well as in our earnings release. The company's earnings release discusses the business outlook and contains certain forward-looking statements. These particular forward-looking statements and all other statements that will be made on this call, excluding historical facts, are subject to a number of risks and uncertainties. Actual results may differ materially from any statement we make today. Please refer to yesterday's press release and the company's SEC filings, including the Risk Factors section of our Form 10-Ks for the year ended 12/31/2025, which will be filed later today. On the line with me today and speaking are Jerry Gahlhoff, President and Chief Executive Officer, and Kenneth Krause, Executive Vice President and Chief Financial Officer. Management will make some opening remarks, and then we will open the line for your questions. Jerry, would you like to begin? Thank you, Lyndsey. Good morning, everyone. Jerry Gahlhoff: Fiscal 2025 was another solid year for Rollins. Jerry Gahlhoff: As we achieved a milestone of $3,800,000,000 in revenue. As Ken will detail, we delivered double-digit revenue, earnings, and cash flow growth but we did have a tougher finish to the year in the fourth quarter. Early winter weather caused demand to soften especially in the Midwest and Northeast, which impacted one-time and certain seasonal projects across all three business lines. Revenue from one-time business in the quarter declined by almost 3% compared to year-to-date growth through the first nine months of the year, of 4%. Erratic weather patterns hindered demand for one-time projects and at times made it difficult for us to service the demand that did come through. Organic growth in the recurring portion of our business and ancillary services, which represent over 80% of total revenue, was above 7% for both the quarter and the year. Our underlying markets remain healthy, customer retention rates are strong, and we are confident that nothing has fundamentally changed with respect to our end consumer. Lower volumes in the quarter did hamper profitability which can happen in shoulder seasons, particularly when weather gets choppy. It is important that we maintain healthy staffing levels ahead of peak season so that we are not hiring, training, and onboarding a large number of new teammates at the same time seasonal demand ramps up. We have learned that extreme ramp-ups in hiring drive teammate turnover rates higher and that will not yield the optimal experience for our customers. This can impact productivity in the short term as it did in the fourth quarter. But it is the right decision for the business long term, as it sets us up to capitalize on peak season demand that is right around the corner. Moving on to some highlights. This year, we prioritized getting better as we become bigger, and made a number of investments throughout our business to support our teammates and enhance our customer experience. In support of our efforts around the Rollins Way, we are making significant investments to support the future growth of our company and establish consistent leadership behaviors across the enterprise. Our talent and development team has designed a program called the CoLab for all people managers. Servant leadership is the foundation of these sessions, which are designed to help leaders enhance skills for personal development, team development, and business growth. Our efforts here are intended to create a culture of cross-brand collaboration and cross-functional talent where teammates can seamlessly transfer between brands, divisions, our home office, and field operations. This will further enhance career opportunities for our teammates and create a robust pipeline of future leaders who can not only sustain our growth, but also help us reach our full potential. Operationally, we remain committed to hiring and developing top talent. The hiring environment was healthy in 2025, as we put significant energy into onboarding the right people, in both support functions and the customer-facing side of our business. We are proud of the tenure and experience of our team, as well as their engagement level and commitment to both our company and our customers. While overall teammate retention has been consistently healthy, we have made encouraging progress in improving retention of our newer teammates, specifically those who are with us for one year or less. While there is still work to be done here, we saw teammate retention in this category improve by approximately 8% in 2025 and it has improved nearly 18% since 2023 thanks to our ongoing efforts. In 2025, we closed the acquisition of Sela, and completed 26 additional tuck-in deals. The performance of Sela has continued to exceed our expectations and integration has progressed very smoothly, thanks to the efforts of our collective teams. We have a robust M&A pipeline with a number of opportunities that we are actively evaluating to drive additional growth. As we look ahead to 2026, we are encouraged by the opportunities that are in front of us across all aspects of our business. We remain committed to providing our customers with the best customer experience, and investing meaningfully in our team to drive growth both organically as well as through disciplined acquisitions. We are pleased with where our business stands today and what lies ahead of us in 2026. And I want to thank each of our 22,000 plus teammates around the world for their efforts and contribution to our success in 2025. I will now turn the call over to Kenneth. Thanks, Jerry, and good morning, everyone. Our results for the quarter and the year reflect continued solid execution by the Rollins team. Let me begin with a few highlights for 2025. First, we delivered robust revenue growth of 11% for the year, with strong growth across each of our service offerings. Organic growth was 6.9% for the year, while acquisitions continued to be a meaningful part of our growth profile. Second, despite making significant growth investments, adjusted EBITDA grew by 10.8% to $854,000,000. And finally, we delivered operating cash flow of $678,000,000 and free cash flow of $650,000,000, up 11.6% and 12.1%, respectively, versus last year. Cash flow was negatively impacted by an out-of-period tax payment of $22,000,000 associated with the disaster relief measures that allowed us to defer our payment in the fourth quarter of last year to the first half of this year. Excluding this, free cash flow growth was approximately 20% for the year. Our strong cash flow performance enabled us to execute a balanced capital allocation strategy, deploying over $880,000,000 of capital in 2025 with a focus on investing for growth, while returning cash to shareholders through our growing dividend and share repurchase. Turning to our fourth quarter performance. Revenue in the fourth quarter was up 9.7% and organic growth was 5.7% versus last year. In the fourth quarter, residential revenue increased 9.7%, commercial pest control increased 8.7%, and termite and ancillary was up 11.9%. Organic growth was 5.7% in the quarter across all services. Organic growth was 4.4% in residential, 6.4% in commercial, and 7.6% in the termite and ancillary area. Growth across each category was negatively impacted by softer one-time revenues. Unpacking organic growth further, it is important to look at the recurring and related ancillary service area versus our one-time business. Recurring revenue and ancillary services, which represent over 80% of our business, grew at over 7% organically. The remaining part of the portfolio, primarily one-time work, declined almost 3% in Q4 after growing 4% through the first nine months of the year. This business has more recently grown at approximately 1% to 2% annually. Weather was erratic in the quarter and had an impact here. Demand for one-time services and the ability to service this related demand was particularly subdued in November and December due to early winter weather in the Eastern Half of the United States, where we have significant location density. We see the slower growth in one-time as transitory, while the stability of growth in our recurring and ancillary areas gives us confidence in our outlook, which continues to be anchored to 7% to 8% organic growth. Gross margin was 51% in the quarter, a decrease of 30 basis points. Looking at our four major buckets of service costs: people, fleet, materials and supplies, and insurance and claims, fleet expenses were higher as a percentage of revenue primarily due to timing of vehicle gains compared to last year. This represented 80 basis points of headwind in the quarter. Deleverage from people costs was driven by lower volume in the quarter. These pressures were partially offset by improvement in margins associated with insurance and claims as well as materials and supplies. SG&A costs as a percentage of revenue increased by 50 basis points versus last year. We continue to be bullish on our markets and related position and are making investments in our business that will enable long-term value creation despite the lower volumes we realized in the quarter associated with the one-time business. This had a negative impact on SG&A as a percentage of revenue in the quarter. Fourth quarter GAAP operating income was $160,000,000, up 6.3% year over year. Adjusted operating income was $167,000,000, up 8.1% versus last year. Quarterly EBITDA was $194,000,000 and EBITDA margin was 21.2%. The effective tax rate was 24.7% for the quarter versus 27.3% last year and 24.9% for the full year period versus 26% in 2024. The 2025 rate was lower primarily due to the great work our tax team has done to continue to improve our effective tax rate. Quarterly GAAP net income was $116,000,000 or $0.24 per share. For the fourth quarter, we had non-GAAP pretax adjustments associated with acquisition-related and other items totaling approximately $6,000,000 of pretax expense in the quarter. Considering these adjustments, adjusted net income for the fourth quarter was $121,000,000 or $0.25 per share, increasing just under 9% from the same period a year ago. Turning to cash flow and the balance sheet, operating cash flow decreased 12.4% in the quarter to $165,000,000. As a reminder, cash flow in Q4 2024 benefited from a disaster relief measure granted to those with operations impacted by Hurricane Helene that allowed us to defer an estimated $22,000,000 tax payment, which was paid here in 2025. Free cash flow conversion, the percent of income that was converted into free cash flow, was 137% for the quarter. We generated $159,000,000 of free cash flow on $116,000,000 of earnings. We made acquisitions totaling $21,000,000 and we paid $88,000,000 in dividends in the fourth quarter. Dividend payments increased 11% from the prior year and are at a healthy and very sustainable rate. Including the recent increase announced in Q4, we have raised our regular dividend by more than 80% since 2022. Additionally, we have invested approximately $200,000,000 in share repurchases in the quarter, affirming our long-term view on the value of our company. Our leverage ratio stands at 0.9 times. Our balance sheet remains very healthy and positions us well to continue to execute our balanced approach to capital allocation: reinvesting in the business, growing our dividend as earnings and cash flow compound, and pursuing share repurchases opportunistically. Throughout our history, we have managed this business through an investment grade lens, and we will continue to do so in the future. We are committed to maintaining a strong investment grade rating with leverage well under two times. We are encouraged as we look to 2026 and are focused on delivering another year of double-digit revenue, earnings, and cash flow growth. We continue to expect organic growth in the range of 7% to 8%, with additional growth from M&A of at least 2% to 3%. While we may see weather impacts on the business from time to time, we remain committed to our long-term growth outlook. Additionally, we are focused on improving our incremental margin profile while investing in growth opportunities. We anticipate that cash flow will continue to convert at a rate that is above 100% again in 2026. With that, I will turn the call back over to Jerry. Thank you, Ken. We are happy to take any questions at this time. Operator: Thank you. We will now open for questions. Our first question is from Timothy Michael Mulrooney with William Blair. Please proceed. Good morning. Jerry Gahlhoff: Good morning, Tim. Timothy Michael Mulrooney: Thanks for all the detail around the one-time sales and the recurring base of business. It is all very helpful to understand how the underlying business is performing. But I am curious if you could expand a little bit more on that 7% growth that you are seeing in the recurring and ancillary business. Like, you know, how do you get comfortable that that level of growth is heading into 2026? Like, can you provide any details on retention rate or net gains or customer wins? You know, any of these underlying metrics that might help shed some additional light for us? Jerry Gahlhoff: Tim, this is Jerry. I will walk you through a few of the main points on my mind and maybe Ken can add a little color to it. There is I think there is a lot of data points that we have that give us that comfort, if you will, about the future. In the fourth quarter, we looked at our price increase data and we monitor that throughout the year and we look at what the consumer health is like. For example, we have really super low impact of things like percentages of rollbacks and things along those lines. That gives us a great deal of confidence that our consumer is still healthy. It also indicates to us that we affirm our plan to continue to move forward with our pricing initiatives that we have laid out for ourselves to continue to use price as a lever as we move into 2026. So we are very comfortable there. If you look at the customer retention side, it is very stable and we have also had some areas that have improved. And looking specifically, Orkin, for example, at the net gain of the customers they carried in at what they had at the end of the year compared to the beginning of the year, they had the best performance in growing their customer base that they had since the COVID era. So that first year of COVID was everyone at home and signing up for services and they saw that big net gain there. And this is the best year since then. We look at things and monitor things like our close rates on customers calling in, and that also tells you a little bit about the health of the consumer, you know, the health of our pricing programs, things like that. We look at the leads and our closure rates, the closure rates, it is up. It is not down. So we are also seeing, for example, on ancillary business, our customers are not overly price sensitive. And we have financing options that give them the ability to get the much needed work that they need done, to give them peace of mind and allow them to pay over time. So we see all those. Those are the things that we look at every single day. And it just gives us a lot of comfort. That is why I said what I said fairly emphatically in my opening remarks is that there is nothing fundamental about our business that has changed. We are going to keep doing what we do, and trying to deliver the best service that we possibly can for our continuing growing customer base. Because that is the most important part of our business is the recurring piece and that is where we want to spend our marketing dollars, is creating recurring base and that is how we want to continue to invest in our business. And just to add on to what Jerry had mentioned there, another couple of points. If you look at the recurring organic business, without ancillary, right, if you actually look at it even and unpack it even further, you actually saw 10 basis points more of growth in Q4 versus Q3. And so you are actually seeing that business hold in. If anything, it strengthened a little bit between Q3 and Q4. The ancillary business still growing strong, high teens, mid-teens double-digit. That business normally grows in that 20% range. When you cannot get people on the roof safely and you cannot get them out into the worksite, you will feel the pain and you will feel the impact there. But that business, again, growing at mid to high teens, very healthy, that is the big ticket. That is the nine shots on goal that I have talked about quite frequently with investors. Is that we have all these opportunities and we continue to see good demand there. So I think those two things give us a sense that the business is holding in there, especially that recurring revenue, which is 75% of our business, strengthening by ten or so basis points between Q3 and Q4. And I think too, Ken, you think about 2024 was our best 2024. We were having to lap that in some little more challenging conditions. And we knew starting the year that it was going to be a tougher comparable for us year over year and certainly was a little bit of a headwind for us the last couple of months of the year. Timothy Michael Mulrooney: Yes. Tough comps, definitely. That is definitely another aspect of this whole thing. So that is all great color. Thank you. And I think I am more comfortable with the fact that the underlying business is fine. This is all weather related. Can you dive into this weather disruption by segment? Like, was it more on the, I am thinking about it more like hey, it would be on the resi and termite side more, but your resi business actually held in better than what I was expecting given the comp situation. But then I look at the commercial side, and I saw Ecolab’s fourth quarter results. Their commercial pest business was fine in the fourth quarter. It does not seem like they saw that disruption that you saw. So I am just trying to reconcile all that. Can you talk a little bit about impact by segments from that weather? Kenneth Krause: Yes. I will take that and then Jerry will add on to that as well. But I think just starting with commercial. And looking at the commercial business, commercial recurring business grew at 7.3%. And so again, we continue to see good demand there. The challenge was again one-time business even in the commercial setting, which is roughly 15% of that business. And so you certainly saw the one-time impact on the commercial. You saw it in the residential. I mean our residential recurring business is holding in there and is strong and we feel good about it. But the one-time business, the wildlife business and things like that, certainly felt the impact of the slower, the challenging weather patterns. And then on the termite, you are spot on. The termite, the pretreat, that sort of work you saw some weakness. The recurring, the base in the recurring business, continues to do very well. It continues to be a very healthy growth pace for us. But some of the pretreat one-time termite you saw a little bit of weakness. And so I think when you frame it, we feel good about, again, all of the businesses in the recurring businesses coming through. Feel like the fact that we could not get out, we could not service, we could not get that work done, that is what caused the most significant impact on our revenue growth in the quarter. And Tim, in looking at the commercial side in particular, it was the commodity fumigation business that on the tail end of the year had, that is the one that is all one-time work. And year over year, we had a comp there that was more challenging for us. And so again, while our recurring base in commercial continues to grow, the one-time in the isn’t the one-time necessarily selling to our existing customer base on programs and services. It was driven very heavily through commodity fumigation. And then when you look at the residential side, a lot of that is wildlife and some of the seasonal pests that we did not have as long of a window of time to get at some of those seasonal pests that take the fall pests, box elder bugs and stink bugs and these kinds of things that are seasonal things that come up that we kind of rely on and get those one-time calls to go take care of them or general pests just seeking indoor shelter. That season was just a little shorter. And it was really more in the East, Eastern Seaboard, parts of the Midwest. We did not see as strong of a trend in that out West and California and some of those other markets that remained very strong. So again, that just tells us that the underlying business is still pretty strong. It was there, but we were just impacted by this choppiness. Timothy Michael Mulrooney: Understood. Commodity fume, I had not even considered that, that fully explains it on the commercial side as well. So thank you for all the color, guys. This is very helpful. Jerry Gahlhoff: Great. Operator: Thank you. Our next question is from Manav Patnaik with Barclays. Please proceed. Yes, I was hoping you could just put some numbers by segment as well, how you gave us the plus 4% year to date and then down 3% for fourth quarter. Manav Patnaik: Just by segment as well? And also, what is the margin profile of this one-time business just to consider that as well? Kenneth Krause: Yes, that is a great question, Manav. And thank you for asking that. The margin profile on this one-time business is oftentimes better than the margin on our recurring business. Because we are pricing that business assuming that it is not coming back. And so you are going to a customer knowing you are going one time, you might get $200, $300, $400 for a service. The cost is not necessarily that different than it would be on a recurring service that you might be getting $150 or $200 for, for example. So you see a much better margin profile on the one-time business. That has an impact on the overall results. And I think it is, again, it is only 15% of the business, so I do not want to overstate how much of an impact that had on margins, but it certainly is margin accretive to our overall business. And I would say there is some impact in every category. I think the residential side was probably hurt a little bit more, especially in things like wildlife and rodent work and things along those lines. And ancillary and termite side, some of that softness we are able to get back because that just creates a workload maybe we could not get to and we sell it and still have some backlog that we carry into January, we carry it into January, things along those lines on some of that kind of work. But some of it, you just never really make up, you are not going to make it up. Manav Patnaik: Got it. And then just, you know, just so we are not surprised in the next quarter as well. I mean, your full-year guide is 7% to 8% but just you talked about spillover into January. Just thoughts on what 1Q might look like relative to the rest of the year? Kenneth Krause: Yes, it is always hard to, it is such a short-cycle business, which can change on a dime. But what I would say is we still are firmly anchored in a 7% to 8% organic growth for the year. I would not be surprised if it is a little bit slower to start the year. Manav Patnaik: Because January we had more branches Kenneth Krause: Closed in January than we did a year ago. Because of some of the weather that we endured. But I do firmly believe the business still is going to be, for the year, at that 7% to 8% pace of growth. Manav Patnaik: Okay. Thank you. Operator: Our next question is from Ashish Sabadra with RBC Capital Markets. Please proceed. Hi, thanks for taking my question. Ashish Sabadra: Maybe just a question on the margins. Are there any puts and takes to be cognizant of as you think about incremental margins in 2026? Those margins of 25% to 30% are still below the midterm targets. How should we think about the tailwinds not just in 2026 but going forward to drive it closer to the midterm targets? Thanks. Kenneth Krause: Yes. Thanks for the question, Ashish. When I look at the overall margin profile, I think about 2026, I will take you through a few thoughts. One, pricing remains very healthy. The 3% to 4% pricing is very realistic to expect. That is what we are introducing across the portfolio, just like we had here in the past couple of years. Second, two thirds of our cost of services is our people cost. Ashish Sabadra: And we are really doing a lot better job at onboarding and training and Kenneth Krause: Keeping those new hires with us. That turnover in new hire is really expensive. And we are seeing improvements there. That will be a tailwind for us as we go into 2026. Third, fleet cost. Second, another large item on cost of services. When we think about fleet in the 2025 financials, Ashish Sabadra: Was about a $17,000,000 headwind. Six of that was in Q4 alone. Kenneth Krause: Associated with the sale of leased vehicles. That should not be as much of a concern for 2026 as it was in 2025. And so when I think about the gross margin, I think there is a lot of reasons to be optimistic in our ability to lift margins and improve margins in 2026. And then when I go down the P&L and I look at SG&A and back office and all the work there, there continues to be great opportunities there. We are launching a company-wide systems implementation around our financial processes in 2026. We will start to see some benefits of that as we go throughout the year and into next year. So we remain very optimistic and confident in our ability to deliver that 25% to 30% margin profile. Ashish Sabadra: That is great color. And then maybe just on the competitive environment, a question that we get quite often is have you seen any change from a competitive perspective? Obviously, the strength in recurring revenue seems to suggest that things are trending really well. But any color on that front will be helpful. Thank you. Jerry Gahlhoff: We, this is Jerry. We have not seen or heard too much in that arena. We are very internally focused and we have lots of great competitors and new ones that pop up all the time. That keeps us on our toes and we wake up every day ready to fight another daily battle in competitive space. It is a competitive industry and there are just so many out there and it can be local, it can be regional. And so I would not characterize anything that we have seen really throughout 2025 as having any significant shift in the competitive environment, right? I mean, we continue to invest in the business in Q4. You saw that. And it is not that we are out allocating large amounts of capital to the digital side, but we continue to put more feet on the street. We continue to fund our door knocking areas, which are our fastest growing areas. And so we continue to be bullish about our position in our overall markets. Ashish Sabadra: That is great. Got it. Thank you. Kenneth Krause: Thanks. Operator: Our next question is from Greg Parrish with Morgan Stanley. Please proceed. Greg Parrish: Hey, good morning. Thanks for taking our, good morning. I just wanted to double click on 1Q and apologies for that. But just given many of us have been snowed in here for a few weeks, Kenneth Krause: I know you said slower start, but maybe will the weather impact be kind of similar to what you saw in fourth quarter? Will it be worse? I know. It is like Greg Parrish: A similar pace to fourth quarter. Is that a Kenneth Krause: Decent way to think about 1Q? I guess, any further color I think would be helpful for us. Our weather forecaster cannot get the forecast tomorrow right. And we do not play, we do not, we try not to manage our business around that. It is our job to get our work done and continue to move forward and do everything we can despite that. And what I can assure you is that our team is going to work really hard despite whatever those headwinds are to get through that. It is really hard to say because just as we saw, you look at November, December, and some of the areas we mentioned earlier where you had two weeks where it just got frigid cold and then next thing you know, Thanksgiving you are wearing shorts. And it is just, these things just surprise us and that same thing can happen here. It could be really bad for a longer, we could have a two-week spell in late February or a late start to spring. So we cannot predict today or tomorrow. So I think it is really hard for us to think about those impacts. What I can tell you though is that our team is engaged and we are going to do our darnedest to fight through that. Okay. That is helpful. Yeah. Yeah. Greg Parrish: I appreciate it. Had to try. Maybe just for my follow-up, maybe talk about some of the ancillary opportunities. I know you have a lot of shots on goal, a lot of things you are excited about. Maybe in 2026, what are you most excited about in terms of Kenneth Krause: Gaining traction or Greg Parrish: Maybe picking up a little bit versus the prior year? Operator: Thanks. Kenneth Krause: I think when you look at that business, what I consistently say, Greg, is that we have got a number of opportunities. We are not necessarily excited about just one opportunity. We have got so many different opportunities that we will avail ourselves to with our customer base. Greg Parrish: And Kenneth Krause: It continues to be a very low penetration rate. Greg Parrish: You know, we estimate that less than Kenneth Krause: 3% or 4% of our customers are using those ancillary services. And quite frankly, it is predominantly all in our Orkin brand. It is not in our specialty brands. So we are doing a lot of work to really get out, as Jerry indicated in his prepared commentary and commentary, improve collaboration across the brand portfolio to enable us to see some improvements in this area with some of our specialty brands. Really important area of growth for us, growing, you know, for the year, growing at 20%. Greg Parrish: Really exciting. And it is a good area to continue to invest in because we are seeing great, great results Kenneth Krause: Coming out of that area. There is just so much upside. The runway is so long to continue to drive that. And much when we talked about the Rollins Way and collaboration between our brands, the opportunities that we have also, we have some brands, say like HomeTeam, that do not do certain other services. And how do we leverage our other brands and then passing certain types of ancillary business that maybe they do not do, but somebody else does, over to their sister companies. There is so much for that and we are getting more and more mature in that space, using both with technology and really just bringing people together so that we are one big family all working together, taking care of each other. So that part is, we are watching that come together and come to life, is what excites me the most. Great. That is helpful color. Thank you. Operator: Our next question is from Tomohiko Sano with JPMorgan. Please proceed. Tomohiko Sano: Good morning, everyone. Kenneth Krause: Good morning. Operator: Thank you for taking my questions. Could you give us more colors on Sela’s revenue and EPS contribution in Q4? And if you could give us some more color on pipeline for M&A in 2026, it would be great. Thank you. Kenneth Krause: Certainly. Thanks for the question, Tomo. Sela is performing exceptionally well. Just like Fox did two years ago. Sela contributed upwards of $16,000,000 in the quarter of revenue. I think year to date, we bought it in April, and year to date, it has contributed $55,000,000. We have actually seen $0.02 of non-GAAP or adjusted EPS accretion. That is really difficult to do in the first nine months of owning an asset, especially with the cost of financing where it is. Albeit, our team is doing an exceptional job with our commercial paper program and bond market. So with that said, Sela continues to perform well. Really good to have that group of teammates as part of our organization. Kenneth Krause: I am really excited about what we can do in that area going into 2026. Operator: Thank you. And any colors on M&A pipeline in 2026 to get to 2% to 3% please? Thank you. Kenneth Krause: Certainly. Yes, thanks for that question. I missed that. But the M&A continues to be very healthy. We firmly believe at this point that 2% to 3% is very realistic and reasonable to expect. We are carrying over a point or so, slightly above that, of growth from M&A. And we have got a very full pipeline that we are continuing to evaluate. We have invested, over the last three years, we have invested almost $900,000,000 in acquisitions and bringing new teammates and new brands into the portfolio. We expect to continue to invest in 2026 and add 2% to 3% of revenue growth from acquisitions again in 2026. Tomohiko Sano: Thank you very much. Thank you. Operator: Our next question is from Joshua K. Chan with UBS. Please proceed. Joshua K. Chan: Hi, good morning, Jerry and Ken. I guess maybe on the quarter, you mentioned that most of the weather effects were in the eastern side of the U.S. So is it true that the West and the South are basically the non-impacted regions grew at a Joshua K. Chan: Similar rate as Q3, just some ways that maybe kind of ballpark or ringfence the weather issues, I guess. Kenneth Krause: Yes. They absolutely did. So they had strong performance in the fourth quarter, generally speaking. And again, that is what gives us some of that reassurance. Now some of that Texas, Northern, South Central area, going up into Tennessee certainly got a little more impact in January. But in the fourth quarter, those areas performed to plan. They just could not exceed plan enough to offset some of the challenges that we had in other parts of the country. Joshua K. Chan: Yes, that makes sense. And then on the Q1 kind of comment, I know that, you know, freezes are typically not the greatest thing and there seems to be more freezes in this Q1 than normal, I guess. So is that a potential concern when it comes to spring selling season? Like, how are you thinking about that? Kenneth Krause: When we have the ice storms, the sleet and things like that, that is what shuts down branches. And when you cannot safely drive on the roads, you cannot safely access homes. And so we had some of that in January. And all things considered, we continue to fight through that. And so, yes, we have to prepare for that. And a lot of that is operational. Operationally, hey, when the sun is shining and the weather is good, we have to be as productive as we can possibly be because you do not know what is going to happen two days from now, right? So how do we front-end load our work? How do we make hay when we can make hay? And sometimes that requires us working weekends and things along those lines, but we have to do our best to get ahead of that and prepare and plan in order to perform as best as we possibly can in the first quarter. When you look back and you think about it, weather is always going to be a factor. It is just part of the business. Sometimes, it is more of a factor than others. But when the recurring revenue continues to perform and our ancillary business, our additional work with existing customers, continues to grow and we are able to grow those businesses north of 7%, we feel really good about our position. We feel really good about our ability to continue to grow earnings at double-digit pace and cash flow also at a double-digit pace. We certainly endured a January with weather but that is one month out of three. We still have a couple of months left in the first quarter and so we are not giving up yet on the first quarter. We have a lot of reasons to be optimistic because I think the team is highly engaged and focused on delivering exceptional results again here in 2026. Joshua K. Chan: Great. That is good color and thank you both. Yep. See you, Joshua. Operator: Our next question is from Jason Haas with Wells Fargo. Please proceed. Jason Haas: Hey, good morning and thanks for taking my questions. Curious if you could talk about how digital leads have been trending? And if you plan to make any changes to your marketing strategy? Thank you. Jerry Gahlhoff: We make changes to our marketing strategy every day, every Jason Haas: Week. Jerry Gahlhoff: Digital leads, we are still constantly fighting increases in the price of that, the cost of generating digital leads, and we have to reallocate and adjust those plans all the time. We do not necessarily or responsibly go spend into the market just to get leads. We have a budget. Having that budget forces you to manage within it and allocate resources to drive the best results we can to drive new recurring customers into our portfolio of brands. So, that continues to be the focus. Digital is a channel. It is not our only channel. We have brands that acquire customers lots of different ways. So we are not overly reliant on that. I love that about our business. But that has been a challenging, evolving, for I guess as long as we have been in digital, except it is just changing even faster these days. And I think our team does a really good job adjusting to that. I think the broad diversification of the brand portfolio is certainly a competitive advantage. As I had mentioned earlier, the door knocking business, Sela, but also Fox, you go back to Fox in 2023, that business is growing exceptionally well. And so our ability to pivot and maneuver and change, to be agile as market conditions change, is certainly advantageous for us and helping us continue to deliver some solid financial results. Jason Haas: Got it. Thank you. Makes sense. And then as a follow-up, are you able to talk about when you get one-time business, Jason Haas: How often does that translate into a recurring relationship with a customer? Jason Haas: Is that like a source of new customers and you are able to build that recurring relationship from those one-time calls? Jerry Gahlhoff: Sometimes. Certainly that happens. What you do not want to do is sell somebody who really wants a one-time service and is not fully committed to recurring services, sell them a recurring service because it usually results in somebody that is not happy. What we do find, this is really true, we have done the research on this over the years, particularly at Orkin, we have a lot of what we call recurring one-time customers. These are customers that come back to us year after year. They get one or two services a year and they are willing to pay more for those one or two services a year, but they do not want to get, say, four to six services. It is just not their model. But yet they trust Orkin, they trust the brand, they know they got results, they come back. So we know there is certainly a portion there. But we also have a balance of not providing something to someone that they do not really want. That just sets the relationship up for failure. Jason Haas: Got it. Very helpful. That makes sense. Jason Haas: Thank you. Operator: Our next question is from Peter Jacob Keith with Piper Sandler. Please proceed. Peter Jacob Keith: Hey, thanks. Good morning, everyone. I wanted to just dig into the incremental EBITDA margin which was below 20% and make sure I understand it. So I guess the weaker sales came in, but is it that you were still hiring and training and investing in those people costs? And then Peter Jacob Keith: If that is right, just how does that inform your thinking around budgeting and Peter Jacob Keith: Those costs in Q1, with also some potential for sales weakness? Kenneth Krause: Yes, certainly. We continue to invest. Markets continue to be very healthy. Recurring business continues to come in. New customers continue to come in, Peter. And so we continue to see really good demand for our services. Peter Jacob Keith: When I Kenneth Krause: Impact the margin in Q4, certainly, the volume had an impact. When you look at that volume, call it $12,000,000 to $15,000,000 of additional volume, probably $7,000,000 to $8,000,000 of additional profitability from an incremental perspective, as that business is a little bit more profitable than our other business. And then the other thing that I called out, which should help us here as we go into 2026, is the fleet cost and the gain on vehicle sales. We had a headwind of, I believe, $6,000,000 in Q4 associated with this. That was roughly 80 basis points of headwind. So I think those two items are certainly impacting, they impacted the Q4 results. I certainly expect fleet to improve. And I also expect that one-time business to improve as we move throughout 2026. And I would not say we are still hiring a lot in the fourth quarter. What I would say is we have more people that we brought on earlier in the year, have carried through the year. Have them Peter Jacob Keith: Trained, experienced, Kenneth Krause: And as long as they are performing, they are going to stay through those, call them the late fall and winter months, so long as the performance is good. And so more than anything, we just have more people on staff that we brought in earlier. Now those people having gone through a season as we get into February, March, April, as we turn the corner and get into season, these people are put in a much better position, much better experience to be able to serve our customers quite optimally. Peter Jacob Keith: Okay. That is very good feedback. Thank you for that. Peter Jacob Keith: And then I wanted to circle back on one of the comments about what you are most excited about for 2026 and driving that cross-collaboration amongst your brands. There is also potential for maybe a CRM database upgrade. And I am wondering just on the IT front, are there any that need to be made or any sort of structural changes to the CRM infrastructure to help drive that collaboration? Kenneth Krause: We are evaluating that. We have had a lot of recent meetings about that and those are really ongoing discussions. More than anything, we are really talking about the use of AI because most of these CRMs are heavily driven on just the customer database. So how do we use AI to link all these systems together and orchestrate them irrespective of exactly which CRM they are on. So we are having those conversations now and making some decisions around particularly how we invest in AI to help us do that. More so than just strictly making, we will have some brands and some places that may need some CRM changes to help us make this work. But that is on our radar screen. It is still, we are still probably in the first inning of those discussions. Kenneth Krause: Yes. When you look at Kenneth Krause: When you look at the capital needs, we do not see a major change in capital outlay with respect to CapEx in 2026. We are making investments. I mean, I commented earlier around our enterprise-wide financial systems that we are putting in place to help enable improvements. That is going to take some investment, but not anything I do not believe that will be noticeable and disrupt our cash flow profile. And there is nothing that is an overhaul of anything. It is more of what do we layer on top to enable and get systems talking to each other better. Right? How do we streamline it? How do we continue to modernize all the things that we are doing and improve the tools that our teammates are using to improve the collaboration across brands. Okay. Very good. Thanks so much. Operator: Our next question is from George Tong with Goldman Sachs. Please proceed. George Tong: Hi, thanks. Good morning. You mentioned that you expect 1Q one-time revenue performance to be similar to 4Q. George Tong: You talk about what you expect for one-time revenues for the rest of the year? And how that will be supportive of your overall 7% to 8% organic revenue growth outlook? Kenneth Krause: Yes. We have not put a number out there in terms of what we expect in Q1 with one-time revenue. The business is, what I did say in my prepared comments is it is growing at, if you go back over time, 1% to 2%. It might have a quarter where it jumps up 2% to 3%, then you have a quarter like Q4 where it was declining 2% to 3% or so. And so the business does jump around a little bit. It is 15% or so of our business. But I think if we get, when I think about the growth algorithm, if I can get seven plus percent, 7.5% of growth from recurring and ancillary and I can get 1% to 2% from this other business, George Tong: It is very acceptable. And it allows us and enables us Kenneth Krause: To grow our overall portfolio organic growth at the 7% to 8% and allows us to get that double-digit earnings growth to come through the model. So that is kind of how I view it. That is how I look at it, and that is what I would hope to continue to deliver. George Tong: Got it. That is helpful. And then related to that, are there certain indicators or metrics that you can use to track how one-time revenue performance is performing? Any leading indicators or KPIs can give you confidence or visibility into performance in the coming quarters? Operator: That is a good question. I think the one thing Kenneth Krause: That as we look at it, again, it is such a small business, like it is not a major business. It does not move with economic cycles. So it is hard to pull a macro factor and say, hey, when this does this, if industrial production does this, we do this. That is just not the case. We are not tied to purchase managers. We are not tied to industrial production. It is very much one-off business. But when you look at weather patterns, you look at the average temperature. I mean, when you look at the Northeast, you look at the Midwest, in November and December, the weather was much colder than it was a year ago. And it is quite frankly that simple. If you cannot get out on the road, if you cannot get safely on a building to a house, we are not going to send our people out. And so that certainly has an impact on the business. But again, it is such a small business in terms of overall portfolio size that it is hard to tie that to any macro factor. George Tong: I look, I think about over the years, Ken, Jerry Gahlhoff: Over the last fifteen years since bedbugs have had their resurgence in the U.S., there have been years when bedbugs suddenly shoot back up. Right. And it is all over the news and you know, people bring them home from hotels and it is a lot more. Then all of a sudden, there could be a year where it is soft and instead something else is there. So all those types of various pests that cause that one-time business to come and go have been in our business over decades, and it will continue to be that way. And when one thing kind of goes away, another issue arises or some invasive pest comes. So it is really hard to predict. Right? And we do not use it. We do not use that measure to determine how healthy our business is. Yes. That ebbs and it flows. It is just extra business that comes in. And so our measure and our metric for determining how healthy our business is is our revenue from recurring contracts and recurring arrangements with customers, and then the nine shots on goal, the ancillary business. I mean, that is what the business I believe is valued upon, and that is how we measure the health of our business. Very helpful. Thank you. Thank you. Our next question is from Brian Christopher McNamara with Operator: Canaccord Genuity. Please proceed. Brian Christopher McNamara: Hey, good morning, guys. Thanks for taking the question. So I am curious about the new tech Brian Christopher McNamara: Retention. You guys have mentioned that. You outlined that in New York in early December. Operator: And Brian Christopher McNamara: You mentioned newer teammate retention improved, I think, 8% in the prepared remarks. So I am assuming that is first-year techs. Does that mean you had to hire 8% fewer new techs? Or what does that 8% specifically measure? And then, yes, I think you mentioned it in December, you had mentioned a kind of a $5,000,000 to $10,000,000 in savings number expected for the year. I am curious where that landed and what is embedded in your 2026 expectation there? Thank you. Kenneth Krause: Yes. The last number I saw was approaching us hiring, having to hire, about 600 fewer people year over year as a result of our improvements that we made in retention. And that certainly has an impact on payroll margin, helped us the first, especially the first nine months of the year, which is more the time when you are actually hiring. We still have room to go there to continue to improve that and our team has done a really good job sort of blueprinting the first-year journey of our people so that we know if we can keep you here for a year, we can have you fall in love with this business and you will stay an awful lot longer. So our team has really put forth some plans and kind of a model for us to follow that first year. We, January, we had our leadership meeting with all our region managers. We had 250 people in the room and this was part of our breakouts and part of our teachings that we did to ensure that we are driving these best practices down through our business because this continues to be such an opportunity for upside to, it is not only to improve our retention, we know this will be a direct correlation to help us improve our customer retention in the end. I mean, when we look at it, you know, 600 people, $10,000 to $15,000 of onboarding cost is between $5,000,000 and $10,000,000 of savings. And we hire a lot of people every year, and we lose way too many. And 600 is just a small fraction of those people. And we are focused on this because we feel like this is tens of millions of dollars of opportunity. And it also is an opportunity to help influence growth. Because what we know is turnover in technicians is tied to turnover in customers. And so if we can do a better job at onboarding and keeping people, we are going to do a better job of keeping customers. Brian Christopher McNamara: Helpful. Thank you. Brian Christopher McNamara: Thank you. Operator: We have reached the end of our question and answer session. I would like to turn the conference back over to management for closing remarks. Jerry Gahlhoff: Thank you, everyone, for joining us today. We appreciate your interest in our company, and we look forward to speaking with you on our first quarter earnings call in just a few months. Operator: Thank you. That will conclude today’s conference. You may disconnect your lines at this time and thank you for your participation.
Niina Ala-Luopa: Hello, and welcome to Vaisala's Fourth Quarter and Full Year 2025 Audiocast and Results Call. I am Niina Ala-Luopa from Vaisala's Investor Relations. And today in this call with me are President and CEO, Kai Oistamo; CFO, Heli Lindfors; and Chair of the Board, Ville Voipio. We have today published our financial statement release, and Kai will first go through the results, and then we have time for questions. Kai Öistämö: Thank you, Niina, and welcome for everybody from my side as well. So as the headline says, strong performance in 2025 and on a highlight in the fourth quarter really being the orders received improving and -- if we look at the actual, what happened in the year in the quarter, maybe I'll start with kind of just if we were to teleport ourselves into beginning of 2025, just to remind you what kind of a year we were kind of thinking that we would face and what was the reality. So we had a plan as a company to grow on the renewable energy on the back of kind of many years of good success, building on that, and the outlook, albeit a little bit more muted growth on renewable energy investments, but nevertheless, continuing the growth. Then U.S. elections have happened, but the speculations on trade wars, import duties, things of that nature on the scenarios, but not the most likely ones still in early January. And then there was really, I think, not really much of a speculation, which is hard to have the speculation on how volatile the currency exchange rates became during the year. And what a roller coaster ride in 2025. First thing is what happened was the renewable energy market for us really plummeted quite a bit, creating a big hole from a get-go in the year, remembering that this had been one of the growth drivers for the company and a very profitable one as well. So that kind of went away from the beginning of the year. We've quantified about EUR 20 million or even a little bit over EUR 20 million as a hole that it created from a get-go. Then in, during the year, the -- with twists and turns getting to 15% import duties between U.S. and Europe. And then in the second half of the year, U.S. -- actually, the euro appreciating vis-a-vis not only U.S. dollar, but many other currencies, Chinese yuan, Australian dollar, Canadian dollar and so on and so on. So it's clearly a broader event than just the import duties between kind of 2 continents or 2 countries. And in this environment, I think we can be, as a company, very proud of how we performed. We were able to continue on our growth journey. If I look at in kind of our long term -- first reminding that our strategic goal was growing the net sales by average 7% over long term. And we were clearly above that if we -- as we should be measuring that in constant currencies, 7.4% year-on-year growth rate during 2025. We were able to mitigate the import duties on Industrial Measurement side, that meant increasing prices the day after where the import duties were clear with no visible impact on the demand. And on the Weather side, actually pre-shipping into U.S., avoiding the tariffs and giving us time to negotiate as the business on that side is based on longer-term contracts and especially public side. So it takes time to negotiate, but happy to report that we've been able to actually during -- like during that time that we bought for the second half, we've been able to actually come to terms and agree with the customers that we are going to be -- are now able to pass also in Weather side, the import duties to our customers. And then thirdly, the fluctuation on the currencies, the strong appreciation of dollar during -- of euro during the second half of the year, obviously, then created headwind, which is a lead into when we look at the fourth quarter in this environment where we were kind of during the quarter in $1.18, $1.16 range in terms of a euro-dollar ratio comparing to the year before where we were $1.02. That gives you kind of a flavor of what kind of a headwind one would face. And despite that, essentially a flat net sales year-on-year. And that obviously kind of creating challenges on some parts of the businesses even more than other ones. Xweather being very highly dollar-based. We are talking about clearly over 60% of the sales in USD, obviously creating even more headwinds than in some other parts of the business. That being said, also the -- then when we look at the order intake in fourth quarter, that's really a positive highlight, I think, in the fourth quarter. The order book increased 10% in terms of constant currencies, really driven by Industrial Measurements, but also in Weather and Environment, clearly improving to the level the year before, marking kind of a significant change when we go look at sequentially first quarter, second quarter and third quarter, really kind of like changing, kind of significant change in that trend. When looking forward, the market uncertainties continue. I think that's one thing that is kind of for sure as an expectation for this year. What are exactly the uncertainties, what are exactly the things that we are going to face? Nobody knows. But I am actually convinced when we're going to have this year from now -- this call a year from now, and we do also -- again, the kind of the exercise of teleporting ourselves back to this date, we will find ourselves how many changes and what kind of rapid changes in the marketplace have happened. In all this, based on the good strong performance in 2025, the Board of Directors also yesterday or today decided to propose EUR 0.86 as the dividend for AGM to decide. Now before going into like specific numbers and more details in the performance itself, maybe good to look at kind of more of a kind of a strategy perspective, highlights on the 2025. It really is about technology leadership. It's about climate action. I think we can be very proud of Xweather and subscription sales growing 50% year-on-year. We can be very proud of actually meeting and exceeding our long-term growth target as a company. But on top of that, maybe a couple of other things that you might not be as familiar with. The work that we have been doing very systematically in the company to improve the health and safety to the level that I am super proud on where we are today, the TRIR being 1.15. Some of you might not know what exactly that means. It means that we are kind of the top of the range industrial company in terms of health and safety. We really have been able to create this to be a safe working place where everybody gets home safe -- comes safe to work and gets home safe as it should be. And this is something that we, as a company, we as employees of the company, we are very, very happy, and we continue on this journey. Then another recognition on our sustainable growth journey this time by Time. And then we continued on our strategy execution, continuous improvement and flow of new products and services in all parts of the business. We continue to invest also into our operations, which is a key part of our success formula. And clear milestone on this was the completion of the automated logistics center here in Finland and taking into full use, now giving us benefits going forward on multiple different levels. Then into the financials. And starting with overall as a company. As said, orders received improved in fourth quarter, driven by very good performance in Industrial Measurements and a clear improvement on Weather side. Orders received increased by 5% year-on-year in reported currencies and 10% in constant currencies, bringing the order book to EUR 185.8 million. That puts us below what the level was at the beginning of last year or end of December 31 of 2024. But at the same time, it puts us clearly above what the order book was at the same time in year 2023. And the year 2024, as you know, was not a bad one for Vaisala. And I think this order book level gives us a good comfort at least on the starting of the year on both sides of the business. Net sales in fourth quarter slightly decreased. And if you look at constant currencies being flat. And this you have to remember again, the 2024 being exceptionally strong fourth quarter. So the comparable was quite strong on what we compare ourselves to. Gross margin, slight decline. And here, I would kind of pick up 2 things. When we say that we compensated fully the import duties, the way the math works on that, that means in terms of a relative profitability in terms of gross margin, there's about 1 percentage point, a little bit over 1 percentage point headwind caused by that. And then also, as I said, we had an extremely difficult year on the renewable energy side. And when we compare to previous year, that was kind of a clear creative business in terms of our profitability for the company turning into a more of a -- much more of a drag to the profitability. And no news is good news in cash conversion. So as we have been showing as a track record for many years now, cash conversion continued to be strong. Looking at the Industrial Measurement side, I've said multiple times, the record high orders received and net sales in 2025, I think, is something that we can be super proud of. We look at the year as such, orders received increasing by 13% year-on-year and especially in the constant currencies, 21% at we really can be proud about it and it feels very good. And this growth was driven by Americas despite all the talk about the trade wars and everything else, continued our success in the U.S., especially. And net sales increasing by 1% in terms of reported currencies, but 7% in constant currencies, which I think really reflects our real underlying performance. And there, obviously, the headwinds caused by the depreciation of not only U.S. dollar, but also Chinese yuan and other -- several other currencies impact, obviously, the reported orders received and net sales as discussed already earlier. Gross margin stayed on the same level despite the headwind, as I said, from mitigating the import duties. And then on EBITDA side, a slight decline. And this was really driven by on the OpEx side, one-offs and some investments into sales and marketing and commercial excellence and a couple of maybe words on that. So when I say investments in sales, that means in the digital channel and building the digital channel capabilities, which we are going to be benefiting in the coming years. And then also kind of a clear investment into commercial excellence, which we are running as a program in Industrial Measurement, which we also expect to be improving the performance even further in the coming years. Then on the Weather and Environment side, highlight of the year, I think, is really how the year developed and especially in the fourth quarter, the orders received on the previous year level and really the increased demand coming from meteorology and aviation segments. And maybe some of you have been somewhat worried about the volatility and the changes of the demand in meteorology and aviation segments. I think this is a good reminder how cyclical. And it changes between the quarters and between the years. But the market itself, when looking at it as we will talk about it in grand scheme of things, is a strong -- continues to be a good market. Order book somewhat below the level -- clearly below the level of end of the previous year. But at the same time, as I said for the entire company, similar story actually also for Weather and Environment. If we compare the order book that we start this year with actually is on a good level compared to what we ended in 2023 or kind of what we started 2024 with. Then gross margin, headwinds there, clearly lower, and this is back to what I now said multiple times, the significant decline on the high-margin renewable energy business, clearly visible on the gross margin. Obviously, the exchange rate impacts and then the impact also from the U.S. tariffs as discussed previously. Despite all that, EBITDA -- the headwinds and the challenges that we faced in the year, the EBITDA level stay in a good level of close to 15% EBITDA. Looking at the cash flow, I said, strong cash flow continued, and we actually increased the cash flow from operating activities over EUR 10 million compared to the previous year and mainly really as a good work on improving the net working capital by the company, yielding the cash conversion to 1.1. So I understand that there was a break in the Internet connection, and I assume we are back. So just as a summary for 2025, not sure where you dropped off, so I'll start at the top of the slide. So a reminder that net sales grew in line with our long-term targets. We grew over 7% in constant currencies. And if I kind of pick a couple of highlights on this slide, the subscription sales were up by 50%, boosted by the acquisitions that we did at the very end of the previous year on WeatherDesk and Speedwell Climate now being fully integrated and bringing when you exclude the WeatherDesk and Speedwell Climate on constant currencies, the organic growth well in double digit. On gross margin, a slight decline due to several headwinds exchange rates impacts, the proportional impacts of the U.S. tariffs, as I discussed earlier, and then the strong decline in the high-margin renewable energy business. EBITDA being roughly on the same level as year before and the earnings per share slightly below the year before. The financial position for the company remains strong. Again, no news is good news. And when we were preparing these slides, we should for the next quarter, maybe count how many quarters we have had the same heading. And I am super proud to have the same heading on this slide. It gives us kind of very, very solid ground, obviously, and it's a testament on low leverage on the balance sheet and the asset-light business model that we have as a company, strong cash flow generation that we have as a company. And now with the automated logistics center completed, that obviously kind of takes -- kind of gives us another leverage going forward as well. Moving on to the market and business outlook. The market outlook for -- as we see it for 2026. We see growth in industrial, in life science, in power markets -- power and the markets for Xweather subscription sales. And then stable market outlook for meteorology and aviation as well as for renewable energy. And on the renewable energy, obviously, now stable on a clearly lower level where we started a year, 1.5 years ago. And what does it look then in terms of business outlook for this year, we estimate that our full year net sales will be in the range between EUR 600 million to EUR 630 million and our operating result in terms of an EBITDA will be in the range of between EUR 95 million to EUR 110 million. With that, I'll conclude the prepared remarks and happy to answer any questions that you may have. Operator: [Operator Instructions] The next question comes from Nikko Ruokangas from SEB. Nikko Ruokangas: This is Nikko Ruokangas from SEB. Sorry, there was some technical error in the line, so I lost or didn't hear anything for a couple of minutes. So I'm sorry if I am repeating something. But I have 3 questions, and I'll start with order intake for the Industrial Measurements. So you showed very strong 21% FX adjusted order intake growth in Industrial Measurements, and you, for example, mentioned there data center orders and so on. So were there something extraordinarily strong in this quarter? Or does that kind of describe or reflect the current strong trends overall in Industrial Measurements? Kai Öistämö: So the only thing I think that is maybe a little bit more pronounced this year than last year and certainly the year before has been the kind of longer-term orders from Chinese companies. You may recall, if you have followed us a little bit longer that we have had for a long time a year-end early in the year orders, kind of full year orders, blanket orders from our customers in -- especially in China. They became almost absent in 2022, 2023 when there was a -- 2023, 2024 when there was more of an uncertainty in the market driven by uncertainty in economic development in China. So I think it is a very positive news that at least the confidence of our customers seems to be there in a higher level than in the previous years. But that's only a portion of this. And a big part of it is release, as we said in the release as well that in release driven by the demand of our products and remembering that we are, as we have been saying, well-situated vis-a-vis the megatrends. There's lots of growth industries that we serve that are sizable for us, be it life sciences, be it data centers, as you said, Nikko, be it semiconductor and the power are good examples, just mentioning a few. Nikko Ruokangas: Okay. I understand. So that you would have had also significant FX adjusted growth even without those orders? Kai Öistämö: Correct. Nikko Ruokangas: Good. Then my second one is on the order or potential order from Indonesia. So you mentioned in the report that the Indonesian Airport order will be included in orders if the client receives financing in H1. So can you open that situation a bit more so does it mean that if they don't receive the financing, so you will lose this order totally? And then are you kind of including that order in your guidance assumptions? Kai Öistämö: Yes. So a couple of things on that. So good question. Thank you, Nikko. So it is not included in our order book or the guidance, so it's -- as we don't do anything, which are this kind of orders, bigger orders, especially from emerging markets where timings of such orders is extremely difficult to predict even in the year. So that's one. Then the, why the wording was as it was. The background is that, as you know, it's been for a while announced publicly where it actually was done by our customer who wanted to publish it even before we had the final commercial agreement done. And this is -- the Indonesian order is one of these MICD projects where it's based on public financing. And the public financing rules are when these kind of projects are done, the public financing vehicles are guaranteed for a period of time and then needs to be for good governance, a backstop on when they kind of expire. And when they expire, then obviously, then you would have to kind of restart the kind of building the financing package if that kind of a case were to happen. So that's what the wording is reflecting. The customer from -- kind of the customer feedback is that they absolutely want this to happen. Now sometimes these kind of things have quite a bit of red tape in both timing -- reflects back to my comment on the timing itself. So again, the predictability is hard. Nikko Ruokangas: Yes, totally understand. My last question on U.S.A. and the public client side. So have you now seen kind of a stabilization there in demand? And did you have any impact from the U.S. government shutdown in Q4? Kai Öistämö: Good question. Thank you. So very happy to actually give you color on this. So we now have verbal insight on, for example, the budget for National Weather Service, and it seems to be on a good level. The cuts really in the end did not materially occur in the end in National Weather Service, in some other agencies much more so. And the budget is, like I said, on a good level. And on the -- regarding the fourth quarter government shutdown, in the end it actually did not affect our sales. We were able to cope with it. Operator: The next question comes from Waltteri Rossi from Danske Bank. Waltteri Rossi: It's Waltteri Rossi from Danske Bank. A few questions. Maybe first, I'll ask about the semiconductor segment that you say is also driving the growth currently in the Industrial Measurements. So could you open a bit how Vaisala products are used in the semiconductor segment? Kai Öistämö: So we sell -- so first of all, let's define what semiconductor. When I say semiconductor, what it means for us. It actually is we are present from different types of memory processes to commodity silicon to really the leading edge compute nodes in terms of fabs, in terms of manufacturing equipment and so on. So we sell to the semiconductor environment via multiple different ways. So our equipment may be sold sometimes directly into the fab itself, sometimes through an OEM that is creating the environment in the fab, sometimes to the equipment that are actually used in the production of the different types of silicon products. And we are present in all around the world. So it's much broader kind of a coverage when typically when talked about semiconductor. Waltteri Rossi: All right. Then about the metrology and aviation segments, which you expect to be stable going into '26. Does that mean 0 growth? Or could it be a small positive number still? Kai Öistämö: When we have said stable and we've said stable for the long term as well, stable -- if I take a little bit longer-term view averaging things out, it's inflation-corrected stable. It's not a market that is declining in real terms. It's actually stable in real terms. Now then how does they behave between -- kind of as you saw last year, between different quarters and so on, the nature of that business is somewhat volatile. I'll give you a little bit more color on. For example, we just talked about with Nikko, the Indonesian order is a great example. It's a sizable order that would even impact the entire market size when it happens. But predicting which quarter it comes is super hard. Waltteri Rossi: Good addition. Still few questions about Xweather. So first, what is driving the growth in that business? You expect it to grow this year, but any indication here, could it mean double digits or more like 5%? Kai Öistämö: Our ambition is to continue to grow double digit this -- the business itself. That being said, when I say double digit, I can really talk about in constant currencies in -- given the currency exchange rate, speed of the currency exchange rate changes and the fluctuation that -- especially in this business where the exposure to non-euro currencies is larger than anywhere else that we have. The impact also is the biggest on euro reported numbers. Waltteri Rossi: Yes. Great. And can you say anything about what's driving the growth here? Where are you potentially getting new customers and so on. Kai Öistämö: Yes, yes. So we are strong on several customer segments. So finance and insurance, renewable energy and transport. And we see kind of both more usage from existing customers and then clearly a potential in getting more customers. So we see that there's a kind of opportunity to go grow both ways that it's kind of more usage, more -- and wider usage for existing customers as well as then kind of getting new customers. And then obviously, we are looking at the adjacencies at the same time, that's kind of a further growth initiative. Waltteri Rossi: Great. And lastly, on the Xweather profitability, as we know, the profitability should improve once you lower the investments in the growth. So kind of 2 questions. What are you actually investing in right now at the business that is still keeping the profitability down? And what is your kind of ambition level on the profitability during this strategy period for Xweather? Kai Öistämö: So first comment is that the profitability improved significantly last year. And so the direction is -- we're super happy with the direction on the profitability. And then where are we investing today? It really is about growth. So it's sales and marketing. Like think about this as a recurring software subscription business. And there, the investment into -- like it's relatively easy to kind of measure the impact of sales and marketing impact, both to new leads, qualified leads into then conversions from qualified leads into sales. So the, really, the focus is driving growth and therefore, the focus on the investment side is increasing the reach of sales and marketing. Waltteri Rossi: And about the kind of your target level on the profitability during the kind of... Kai Öistämö: We have not said any concrete target level on Xweather during the service period. But I'll just repeat what I said earlier that super happy on the development that we had last year. Operator: The next question comes from Joonas Ilvonen from Evli. Joonas Ilvonen: It's Joonas from Eli. Your Industrial Measurements product sales were -- grew only 1% year-on-year. So I think that was -- that seemed like relatively low. So was that only like a timing issue? Kai Öistämö: Less of a timing issue. So you are talking about the fourth quarter, I assume. Joonas Ilvonen: Yes, yes, yes. Kai Öistämö: That's more of a -- think about it the kind of significant headwind in terms of the currency exchange rates. So that's kind of the biggest impact on it. Joonas Ilvonen: So on constant currency terms, how much would have these product sales then grown? Kai Öistämö: Let me get back. Net sales growth fourth quarter on 7%, on year, that's the year -- annual number and then quarterly number, it's between timing, as you said. Joonas Ilvonen: But nothing really special happening there. Kai Öistämö: No, no, no. Joonas Ilvonen: I guess we can just assume that basically the volumes are growing at around 5% to 7% or so. Niina Ala-Luopa: And we don't -- we report the constant currencies, the net sales growth, only the total net sales in Industrial Measurements, but not on products or service sales level. Heli Lindfors: But they are fairly the same. So you can apply the same percentage gap to the kind of the below items roughly. Niina Ala-Luopa: Correct. Joonas Ilvonen: All right. That's clear. And then Weather and Environment on the cost side, so you've implemented these cost adjustments, and I think they were already quite well visible in the Q4 figures. So do the Q4 figures already like fully reflect all these cost adjustments that you have recently made? Or can we expect even more to be visible in 2026? Kai Öistämö: We already announced cost savings that to a very large extent, they are visible in the fourth quarter already. So they were done in the third quarter, in the third quarter, and they are a very large extent already visible there. Heli Lindfors: Yes, mostly done. as we recorded also the one-off cost already in Q3, so. Joonas Ilvonen: Okay. That's clear. And then could you remind us of the gross margin outlook for Industrial Measurements and to Weather and Environment for 2026? Kai Öistämö: I can't remind you because we don't give it. Joonas Ilvonen: Okay. Okay. But can you like describe some of the drivers that might -- I mean, impacted this year? What might change in that respect? Kai Öistämö: Sure, sure. Yes. So obviously, if you look at -- from a gross margin side, similar impacts, obviously, on -- as in a typical year. But if I take weather side first, the project sales, like if you look at the individual quarters, how was the extent of the project sales versus product sales that has a big impact on gross margin on an individual quarter and sometimes even in a year to some extent, at least. And then last year, we had a significant headwind from the renewable energy into the gross margin as well in Weather Environment. And as we are fixing that business, obviously we can't kind of completely fix it since it's now inherently on a lower level than it was kind of in 2024. We kind of -- we are working on that side. And then, of course, the creative thing in gross margin in Weather Environment is ex-weather where the bigger that gets to be and that clearly has a kind of a creative -- like very creative gross margin in the Weather Environment numbers. And then on BIM side, there it's like -- again, if I look at the quarterly side, some fluctuations between quarters based on product mixes that happen to be sold in a quarter, that's less so when you look at on an annual level. And then it continues to scale like we have been in the past. As the business continues to grow, that should be bringing leverage, not only on the profitability but also on the gross margin side. Joonas Ilvonen: Okay. And finally, could you remind us of the geographic sales, I mean the big picture. So [ IN ] should grow this year quite a lot, and it's mostly driven by the U.S. and Europe, but like the big picture, are there any -- anything to highlight from a geographic... Kai Öistämö: U.S., like if I look at overall, actually last year U.S. grew more than any other Americas, as we say, but it really is U.S. grew much more than other regions. And kind of reflected also the industrial activity and the growth of industrial activity in the U.S. I think that the -- overall, when you look at the geographic mix, it reflects the -- often the industrial activity and investments into industrial activity in different geographies. And I would expect that the U.S. continues to be probably ahead of Europe. I think that's a safe bet. And then a positive dynamic in China, short term at least, but we will see, we will see. Important events, for example, like the Trump-Xi meeting now in April, we'll see how that impacts on in the U.S.-China relationships and maybe positive, maybe negative. Operator: There are no more questions at this time. So I hand the conference back to the speakers for any closing comments. Niina Ala-Luopa: Thank you, everyone, for joining the call. Thank you, Kai, for the presentation. And next in our financial calendar, we have the Annual General Meeting on March 24 and then the first quarter results sharing on April 24. But now, thank you very much, and have a pleasant week.
Operator: Good morning, and welcome to the Restaurant Brands International Inc. Fourth Quarter 2025 Earnings Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. All callers will be limited to one question, and please note this event is being recorded. I would now like to turn the conference over to Kendall Peck, RBI's Head of Investor Relations. Please go ahead. Kendall Peck: Thank you, operator. Good morning, everyone, and welcome to Restaurant Brands International Inc.'s earnings call for the year and quarter ended 12/31/2025. Joining me on the call today are Restaurant Brands International Inc.'s Executive Chairman, Patrick Doyle, CEO, Josh Kobza, and CFO, Sami A. Siddiqui. Following remarks from Josh, Sami, and Patrick, we will open the call to questions. Today's discussion may include forward-looking statements, which are subject to risks detailed in the press release issued this morning and in our SEC filings. We will also reference non-GAAP financial measures, reconciliations of which can be found in the press release and trending schedules available on our website. Please note that franchisee profitability referenced on this call is based on unaudited self-reported franchisee data. As a reminder, organic adjusted operating income growth excludes results from the Restaurant Holdings segment. In addition, on 02/14/2025, we acquired substantially all the remaining equity interest in Burger King China from our joint venture partner. Burger King China was classified as held for sale and reported as discontinued operations in our financial statements for 2025. That said, BK China KPIs continue to be included in our international segment KPIs. A breakdown of BK China's KPIs and its impact on our 2024 financial statements can be found in the trending schedules available on our website. For calendar planning purposes, our preliminary Q1 earnings call is scheduled for the morning of May 6, 2026. I will now turn the call over to Josh. Josh Kobza: Kendall. Good morning, everyone, and thank you for joining us today. Josh Kobza: As I began my fourth year as CEO, I want to start with a brief reflection on what worked well in 2025. When we stay focused on the basics, make the right long-term investments, results tend to follow. And this year was another example of that. Our brands delivered solid results, reinforcing the strength of our portfolio and the impact of our continued focus on delivering quality, service, and convenience to guests. This year, we also took decisive action to position us well for the next phase of growth. In China, we temporarily took control of our Burger King business, built a strong local leadership team, elevated marketing, optimized the restaurant portfolio, and strengthened operations, driving three consecutive quarters of positive same-store sales. Importantly, we attracted an engaged local partner, CPE, and established a strong foundation for long-term growth. At Popeyes, we took important steps to refocus the leadership team and begin returning the brand to the level of performance we know it is capable of delivering. And at Burger King in the US, we continue to invest in operations, marketing, and modern image, while also beginning our refranchising efforts two years ahead of schedule. Over the past few weeks, Tom and I spent time in the field together, road tripping from DC to Philadelphia, visiting restaurants, sitting in on Royal Roundtables, and checking in on remodeled SIZZLEs. These restaurants are a great example of getting all of the basics right. Operations are dialed in, teams are energized, managers are focused and engaged. As a result, these stores are delivering annualized average restaurant sales of nearly $3,000,000, a clear tangible illustration of what strong execution looks like in practice. That same focus on the fundamentals was evident across the business in 2025. For the full year, we delivered comparable sales growth of 2.4%, net restaurant growth of 2.9%, and system-wide sales growth of 5.3%. We translated those top line results into organic adjusted operating income growth of 8.3% and nominal adjusted EPS growth of over 10%. It is now our third consecutive year of delivering roughly 8% organic adjusted operating income growth, a level of consistency that remains differentiated within the industry. I am proud of how our teams and our franchisees showed up. Our three largest businesses, Tim Hortons, International, and Burger King, all outperformed their respective categories this year. Tim Hortons Canada and International have now each delivered 19 consecutive quarters of positive comparable sales. And Burger King US made visible progress executing Reclaim the Flame. While 2025 represented a low point for our consolidated net restaurant growth, we believe we have turned the corner and are excited to reaccelerate growth in 2026. Stepping back, this year reinforced the resilience of our model and the progress we have made strengthening our brands. We delivered solid top line growth and on-algorithm adjusted operating income growth amid a tougher consumer backdrop, strengthened the quality and durability of our earnings, and exited the year ready to build on that momentum in 2026. Lastly, I would like to provide a quick reminder of our upcoming Investor Day on February 26. This year marks the midpoint of our long-term growth algorithm, and our Investor Day will serve as a check-in on our progress and an opportunity to address some of the biggest questions we get about the business. Tom will provide an update on Reclaim the Flame, and I will spend time discussing our path to 5% plus net restaurant growth. Sami will walk through our plans to return to a 99% franchise business model and discuss capital allocation. And you will hear from Patrick and our brand presidents with additional time for Q&A. As a result, today's call will largely focus on our quarter and year-end results, and we will address most of our forward-looking plans at Investor Day. We look forward to seeing you there. With that, let us turn to our segment highlights, starting with Tim Hortons, which represents roughly 42% of our operating profit. 2025 was another year that underscored the strength and durability of Tim Hortons. We started the year amid macro uncertainty and weaker consumer sentiment in Canada, yet Tim’s delivered solid performance by staying focused on executing against the basics, delivering great experiences for our guests. That consistency carried through the fourth quarter, with comparable sales in Canada growing 2.8%, outperforming the broader Canadian QSR industry by nearly two points. Brand health continues to be a key advantage, with Tim’s leading in affordability, trust, and relevance with guests. That connection to the communities we serve was evident during our Holiday Smile Cookie campaign, which raised approximately C$13,000,000 across Canada and the US for local charities and our Tims Foundation Camps. During the quarter, we kept a disciplined balance between innovation and core offerings. Breakfast food sales grew 3.5%, supported by innovation like our 100% Canadian freshly cracked scrambled eggs, alongside strength in our core such as our Farmer’s Wrap. Baked goods grew 2% driven by seasonal offerings like the Biscoff Boston Cream doughnut and croissant. In the PM daypart, main foods grew modestly, supported by our holiday meal offering. PM remains an important long-term opportunity for the brand. We continue to refine the menu, value platforms, and execution to drive growth. Q4 beverage sales grew 3.2% year-over-year, with strong guest response to seasonal offerings like our Biscoff and brown sugar beverages. Cold beverages remain a standout, growing 8.6% despite colder than usual temperatures in December, reaching nearly 27% of total beverage sales in Q4, the highest fourth quarter mix on record. This growth was largely driven by our iced espresso-based beverages platform, including iced chai lattes and protein lattes. We also began rolling out our new espresso machine to support improved quality and consistency for this growing category. Tim’s ongoing industry outperformance would not be possible without Axel and his team’s constant focus on delivering a great guest experience. Speed of service improved across dayparts in 2025, and guest satisfaction reached record levels, including in the PM. Digital engagement also continued to build, with digital ordering and payments reaching all-time highs in Q4 and kiosk expanding to over 800 restaurants. We are excited to give guests even more reasons to engage with Tim’s and accelerate loyalty adoption through the launch of our partnership with Canadian Tire later this year. On development, Tim Hortons returned to net restaurant growth in Canada for the first time since 2021. As expected, growth this year was measured and targeted, capacity-constrained markets, and urban densification focused on suburban developments. This represents a positive step forward for the system; with a strong pipeline, we are confident in our ability to accelerate development again in 2026. Josh Kobza: Meanwhile, in the US, Tim’s delivered its Josh Kobza: highest level of new restaurant openings in the past decade, reflecting continued progress in both existing and new markets like Florida and Virginia. Lastly, I would like to touch on franchisee profitability in 2025. In Canada, Tim Hortons delivered solid top line sales performance, which helped offset headwinds from tariffs and increased operating commodity costs, including coffee. While cost pressures impacted P&Ls, average four-wall EBITDA grew resilient at approximately C$295,000, underscoring the strength of the Tim Hortons business and the durability of its franchisee economics. Overall, the fourth quarter capped another year of steady performance for Tim Hortons, supported by strong brand fundamentals, delicious menu innovation, and consistent execution. That foundation positions the business well as we move into 2026. Turning now to International, which drives about 27% of our operating profit. 2025 was a standout year for this business. Across a diverse set of markets, our teams and franchisees executed a balanced operational and marketing playbook that led to another year of double-digit system-wide sales growth. While International is often viewed as a unit growth story, it is worth highlighting that this segment has also delivered strong comps and double-digit system-wide sales growth for years, with a mid-single-digit average royalty rate that flows efficiently to AOI. For the full year, comparable sales grew 4.9%, including 6.1% in the fourth quarter, and net restaurant growth was 4.9%, driving system-wide sales growth of nearly 11%. Performance was strong across several of our largest markets, reflecting the quality of our brands and the effectiveness of our local strategies. In France, Burger King delivered another strong quarter, led by the DuoMystère Box, where guests receive a surprise duo for €5, and our Stranger Things activation. In Australia, the launch of Jacked Up Sodas, which is Hungry Jack’s take on dirty sodas, helped drive record beverage incidents. And in Brazil, our King em Dobro platform continued to resonate by delivering compelling core value. Q4 was also an important quarter for Burger King China, with comparable sales growing 9.2%, driven by improvements in restaurant fundamentals, growth in delivery, and refreshed marketing. Most importantly, during the quarter, we announced a joint venture with CPE, an experienced Chinese investment firm with a proven track record of scaling consumer brands in China, under which CPE would take majority ownership of the business. The transaction closed on January 30, and CPE injected $350,000,000 of primary capital to fund growth. Together, we share an ambition to roughly double Burger King China’s restaurant footprint to at least 2,500 units by 2030. I could not be more excited to welcome CPE to the RBI family. I am looking forward to sharing more about their vision for Burger King in China at our upcoming Investor Day. We also made progress at Popeyes China, opening 55 net new restaurants in 2025, as we continue to build brand awareness. With a clear path to accelerate development in 2026, we remain focused on scaling this business thoughtfully and look forward to eventually getting it into the hands of a long-term local operator. Reflecting on 2025, International stands out as one of our strongest growth engines, a clear competitive advantage. We have now built five $1,000,000,000 businesses in Burger King Spain, Germany, Australia, Brazil, and the UK, along with a $2,000,000,000 business in Burger King France. We are also seeing consistent success in markets just outside our top 10 that we do not always highlight, like Burger King Japan, where we have beaten the industry for eleven straight quarters, delivering 22% same-store sales in 2025 on top of 19% same-store sales in 2024, and adding 84 net new restaurants this year. Or Popeyes Turkey, which more than doubled its store count in the last four years, ending 2025 with nearly 500 restaurants. In addition, we are scaling newer markets like Popeyes in the UK or Tim Hortons in Mexico, where we crossed $201,100,000,000 in system-wide sales respectively, as brand awareness and market adoption continue to build. While these markets are diverse, they are winning by executing the same fundamentals: locally relevant marketing, disciplined development, and consistent operations, all managed by strong local operators. These fundamentals give me confidence that International is well positioned to deliver durable growth in 2026 and beyond. Turning now to Burger King, which represents roughly 18% of our operating profit. US comparable sales grew 1.6% for the full year, including 2.6% in the fourth quarter. We have now outperformed the burger QSR industry in nine out of the last 12 quarters, demonstrating how Reclaim the Flame is strengthening the brand and its relative value proposition for guests. Marketing and menu innovation played an important role during the quarter. In December, we launched the SpongeBob SquarePants menu, featuring the Krabby Whopper, an iconic square yellow bun alongside Cheesy Bacon Tots, a Strawberry Shortcake Pie, and a Frozen Pineapple Float. The activation drove strong guest engagement and brought families back into our restaurants, with Kids Meals reaching their highest incidence level in the last ten years. It is an exciting proof point as we think about the potential of our family business. Importantly, we were able to retain traffic after the promotion ended, with new SpongeBob guests coming back to Burger King in January. This innovation was supported by our consistent value platform, $5 Duos and $7 Trios, which remained on the menu all year. Duos and Trios continue to perform well by offering guests choice, price certainty, and consistency. In a year when there was significant noise across the industry around value, this dependable platform allowed us to focus our marketing behind Whopper-led innovation and family partnerships that attracted new guests to the brand. Looking ahead, we will continue executing this balanced strategy. But that sales momentum only translates into sustained traffic when it is supported by solid operations. Throughout the year, the team remained focused on improving execution. Tom and his team are completing their fourth annual Royal Roundtables, bringing together every restaurant manager in the country to sharpen operational focus across the system. We see the impact of consistent operations, speed, and service quality reflected clearly in the performance of our A operators, who outperformed the system average profitability by nearly $50,000 in 2025. In addition to improving operations, we remain dedicated to modernizing the asset base, and ended 2025 at 58% modern image, up from 51% in 2024. While we previously discussed reaching 85% modern image in 2028, the current cost environment is influencing the pace of remodel activity, and as a result, will take a bit longer to reach that level. This does not change our strategy or the role of remodels in Reclaim the Flame. Remodels continue to deliver compelling uplifts and the teams are in control, reinforcing our confidence in the program. We will continue to make steady progress alongside our franchisees. We also continue to modernize Carrols, completing roughly 60 remodels in 2025, including 54 SIZZLEs. Comparable sales grew by 2.4% in Q4, slightly behind the rest of the system as Carrols restaurants were more heavily impacted by weather given their geographic concentration in the Northeast. Finally, franchisee profitability was about $185,000 in 2025, down from about $205,000 in 2024. This was driven primarily by beef costs, which Sami will discuss shortly. While 2025 was a step back, we are well ahead of where we were just a few years ago. Fundamentals continue to strengthen, and we are confident profitability will expand as beef costs normalize. Overall, I am encouraged by the progress Tom and team made in 2025. Burger King executed compelling marketing, offered consistent value, improved operations, and continued to make progress on modern image, helping the brand once again outperform the burger QSR industry and reinforcing my confidence in the brand's trajectory as macro pressures ease. I am excited for you to hear from Tom directly on February 26 about how we plan to further elevate the brand moving forward. Now turning to Popeyes, where net restaurant growth of 1.6% was more than offset by comparable sales down 3.2% for the year, resulting in system-wide sales growth of negative 0.7%. As a result of softer sales this year, franchise profitability declined to roughly $235,000, which remains a healthy level, but one we are focused on improving. Our performance this year reinforces a clear reality. While the chicken category remains competitive, Popeyes’ biggest opportunity is improving restaurant-level execution and reengaging with our core guests. We know Popeyes is capable of much more, and we are taking decisive action to put the brand back on the right path while supporting our franchisees to deliver stronger results at the restaurant level. In November, we announced that Peter Perdue, former COO of Burger King in the US, would step into the role of President of Popeyes US and Canada. Peter has a clear mandate to raise operational consistency, and he is moving quickly, resetting his leadership team and engaging with our franchisees. At its core, the chicken business is a service business, and winning requires consistent speed, accuracy, and reliability in every restaurant every day. To support that, we are expanding field engagement and providing targeted support to our lowest-performing restaurants. We have increased our field operations team by approximately 75%, launching in-restaurant coaching visits and hosting our first-ever Restaurant General Manager Experience rallies across the US this spring. Alongside operations, we are also sharpening our core product focus, prioritizing offerings that define Popeyes and resonate with both new and legacy guests, including our incredible hand-battered and fried bone-in chicken, tenders, and sandwich. I am excited for Peter to share more detail at our upcoming Investor Day. In the meantime, I want to reiterate my confidence in the underlying strength of the Popeyes brand. We have a great group of engaged franchisees, a relatively modern asset base, solid unit economics, and some of the best chicken in the industry. With disciplined execution and sustained focus, I am very confident Popeyes will return to the level of performance it is capable of delivering. Finally, Firehouse Subs had a solid year, with comparable sales of 1.1%, including 2.1% in the fourth quarter, and net restaurant growth of 7.7%, driving 8% system-wide sales growth. As a result of this growth, franchisee profitability grew to over $100,000. Importantly, Mike and the team opened 104 net new restaurants across the US and Canada and accelerated net restaurant growth from approximately 6% in 2024 to 8% in 2025, led by Canada. In fact, Firehouse is one of the fastest growing QSRs in Canada in 2025. I am excited about the growing momentum of this brand, and I am looking forward to even more success in 2026. I will now turn the call over to Sami. Sami A. Siddiqui: Thanks, Josh, and good morning, everyone. 2025 was a year of execution-driven performance which translated into solid top line results, 8% organic AOI growth, and double-digit adjusted EPS growth, with performance improving as we went through the year. We also took important steps to simplify the business and strengthen our foundation for future growth, announcing a new partner for Burger King China, beginning refranchising the Burger King US ahead of schedule, and maintaining disciplined investment behind the initiatives that matter most Sami A. Siddiqui: for long-term value creation. As we exit 2025, the fundamentals of our business are stronger, our portfolio is more focused, and we have improved visibility into earnings and cash flow growth, all of which give me confidence in our ability to build on this momentum in 2026. Today, I will focus on our full year 2025 financial results and I will touch on a few modeling-related items for 2026. As Josh mentioned, the bulk of our forward-looking commentary will be reserved for our Investor Day on February 26. Now on to our results, beginning with our financials. For the full year, we delivered comparable sales growth of 2.4%, net restaurant growth of 2.9%, and system-wide sales growth of 5.3%. We translated that to organic AOI growth of 8.3% and nominal adjusted EPS growth of 10.7%. Compared to our long-term algorithm, comparable sales came in modestly below target, though we continue to outperform the industry. Meanwhile, net restaurant growth of 2.9% was roughly in line with our full year guidance. Importantly, we believe 2025 represents a low point for NRG, and from here, we expect to ramp back towards 5% unit growth by the end of our algorithm period. In 2026, we expect to see modestly positive NRG from Burger King China following our portfolio cleanup and the transition of the business to our new local partner, CPE. For reference, returning Burger King China to neutral NRG would imply a positive impact of 70 basis points on our consolidated 2025 unit growth. We look forward to providing more color on our future development outlook during our Investor Day. We continue to translate system-wide sales growth into even stronger earnings growth, delivering our third consecutive year of roughly 8% organic AOI growth. There were some specific puts and takes in 2025 that I will walk you through now, all of which we have discussed on our prior calls. Operator: First, Sami A. Siddiqui: we lapped over the roughly $60,000,000 BK Reclaim the Flame ad fund contribution. In 2025, those expenses moved over to the P&Ls of our franchisees and our company restaurants, which was a tailwind to our organic AOI growth. Second, moving the other direction, we did not recognize revenue from Burger King China in 2025 as we recorded results from the business in discontinued operations. As a result, the International segment saw a $37,000,000 revenue headwind in 2025. Of course, we expect these results to phase back into our P&L prospectively, which I will touch on shortly. Third, segment G&A stepped down by $38,000,000 year-over-year in 2025. This reduction was primarily driven by lower stock-based compensation and headcount efficiencies identified during the first half of the year, in addition to continued cost discipline. We believe our business is at a healthy level of G&A which will grow modestly with inflation over time. Operator: And last, Sami A. Siddiqui: net bad debt expense totaled $21,000,000, modestly lower than $24,000,000 in 2024. Together, these factors enabled us to translate 5.3% system-wide sales growth to organic AOI growth of 8.3%. Now turning to EPS. For the full year, adjusted EPS grew 10.7% to $3.69 per share. EPS growth was driven by our AOI growth, as well as a $43,000,000 year-over-year decrease in adjusted net interest expense, reflecting the benefits of our 2024 refinancing activities and our cross-currency swaps. Our adjusted effective tax rate was 18.6% in line with our guidance and our expectations for 2026. Now turning to cash flow and capital allocation. We generated nearly $1,600,000,000 of free cash flow this year, including the impact of $365,000,000 of CapEx and cash inducements and a $138,000,000 cash benefit from our swaps and hedges. We also returned $1,100,000,000 of capital to shareholders year through our dividend. In 2026, we are increasing our dividend target Operator: To refranchise 50 to 100 Burger King restaurants in 2025 and I am pleased to say we slightly exceeded that guidance. Now before shifting to 2026 financial guidance, I would like to touch on two additional modeling items: Burger King China and beef costs. As a reminder, throughout 2025, Burger King China was classified as held for sale, its results were reported under discontinued operations and excluded from our International segment P&L. Following the close of our joint venture transaction with CPE, royalties from Burger King China are once again being recognized in our International segment P&L. For reference, in 2024, we recognized $32,000,000 in royalty revenues from Burger King China at a full royalty rate. In 2026, the royalty rate will begin a couple points below our standard 5% rate for traditional Burger King International locations and will ramp to 5% over time. Next, I would like to discuss beef costs. Burger King US saw approximately 7% commodity inflation in 2025, largely due to beef, which increased over 20% for the full year. This drove the year-over-year decrease in average four-wall profitability which would have been roughly flat year-over-year if beef prices stayed around where they were in 2024. As previously discussed, we believe these pressures are cyclical as the increase is largely tied to US herd rebuilding coupled with tariff impacts and upstream labor shortages. Importantly, the key to reaccelerating franchisee profitability growth will come from driving strong top line results, and we continue to work closely with our franchisees to drive improvement in areas that are under our control. Now finally, I would like to discuss our 2026 financial guidance. Most importantly, in 2026, we are committed to delivering a fourth consecutive year of on-algorithm 8% AOI growth. This is supported by a strong top line and continued flow-through to earnings. A couple points to note. First, we expect segment G&A, excluding Restaurant Holdings, of about $600,000,000 to $620,000,000, representing modest inflation relative to $594,000,000 in 2025. Second, we expect net adjusted interest expense to stay at approximately flat year-over-year in the $500,000,000 to $520,000,000 range, based on a mid-3% SOFR rate which flows through to approximately 15% of our debt. Third, we expect 2026 CapEx and cash inducements, including capital expenditures, tenant inducements, and incentives, to be around $400,000,000 compared to $365,000,000 in 2025. This increase is primarily driven by higher CapEx associated with Tim Hortons development and renovation as well as acceleration in Carrols remodels. Fourth, we expect Tim Hortons supply chain margins to be roughly in line with 2025 levels. From a seasonal perspective, we expect Q1 margin to be the softest of the year, more or less in line with 2025. And last, there are a couple things to keep in mind for Restaurant Holdings, which, as a reminder, is not included in our AOI algorithm guidance. BK Carrols restaurant-level margins will continue to be impacted by commodity inflation, primarily related to elevated beef costs. For 2025, BK Carrols full-year restaurant-level margin was 11.1%, and we expect similar full-year margins in 2026. For 2026, we expect total RH AOI of roughly $10 to $20,000,000, with favorability in beef costs bringing us towards the higher end of that range. The expected year-over-year decline in RH AOI reflects the impact of Carrols restaurant refranchising and incremental investments in our International start-up businesses, Popeyes China and Firehouse Brazil, that we expect to continue until we transition ownership to new local partners. To wrap up, stepping back, 2025 demonstrated the strength and resilience of our business model and the benefits of the strategic investments we have been making over the past several years. We spent much of the year talking about how our business was at peak complexity, and I am pleased to say that we are entering 2026 with a simpler, more focused portfolio and visibility into future earnings. That positions us well as we move into the next phase of growth and work to deliver another year of 8% organic AOI growth in 2026. With that, I will turn it over to Patrick. Patrick Doyle: Thanks, Sami. 2025 was my third full year at Restaurant Brands International Inc., and I would like to take a step back and talk about what this year taught us about the health of our business and the progress we have made strengthening it. 2025 was a demanding year for restaurant operators. The consumer was under pressure. Costs were elevated. And macro and geopolitical uncertainty weighed on confidence across many of our markets. Taken together, it was the kind of environment that served as a pretty good test of the fundamentals of a restaurant business. And in that context, our performance demonstrated that the underlying fundamentals of our portfolio are not only resilient, but improving, with our brands continuing to strengthen their competitive positions despite a challenging backdrop. Of course, the most important metric we look at is franchisee profitability. While profitability was down in parts of the system in 2025, a closer look tells an important story about the strength of our portfolio. At Tim Hortons, despite elevated coffee costs and tariff-related headwinds that weighed on consumer confidence in the first half of the year, average four-wall EBITDA held at around C$295,000. While we are always striving to drive growth in franchisee profitability, we believe this is a healthy outcome given the context and reflects the consistency of Tim Hortons’ business, strength of its restaurant owners, and benefits from its continued outperformance versus the broader QSR industry over the course of the year. And while we do not report franchisee profitability at International given its scale and structure, it is fair to say that with mid-single-digit comparable sales growth and net restaurant growth of 7%, excluding BK China, our International franchisees are doing quite well overall and continue to see attractive economics. At Burger King, we faced a meaningful headwind this year from over 20% inflation in beef, our largest commodity, which caused franchisee profitability to step back year-over-year. But what is important to me is what did not happen. Even in an environment with a lot of value noise, we did not need to rely on deep discounting to drive top line results. The core business continued to improve, and the system showed far more resilience than it would have four years ago before Tom and the team launched Reclaim the Flame. The investments we and our franchisees have made in operations, marketing, and modern image have fundamentally strengthened the system, and that showed up clearly this year. There is absolutely still work to do. But relative to much of the burger QSR category, I think it is fair to say that our franchisees are feeling pretty good about where they stand and our ability to grow from here. We have also been disciplined about growth and capital. In a year like this, the wrong response is to push development or investment faster than the economics support. Instead, we have prioritized protecting franchisee balance sheets, pacing remodels thoughtfully, and placing restaurants in the hands of operators who can execute at a high level. Simplifying the business and moving toward a more purely franchise model are part of that same mindset. At Popeyes, we also saw a step back in unit economics year-over-year, and this is a different situation. We have been very upfront that sales are not where they should be, and you saw us make leadership changes in 2025 and earlier this year as a result. I am confident that the steps we are taking, particularly the renewed focus on operations, consistency, and brand standards, will translate into better performance over time. Average profitability of roughly $235,000 is not where the system can or should be, but Popeyes has a strong franchisee base, and there is real engagement and momentum around the changes Peter and the team are leading. And lastly, at Firehouse, we saw average profitability grow to $100,000, reflecting the steady progress Mike and the team are making despite some lingering category headwinds. Given Firehouse’s lower cost inline build model, that level of profitability supports attractive paybacks on new openings and positions the brand well to continue accelerating unit growth. I mentioned earlier that a year like this can serve as a real test of a restaurant business. And when I look at how we performed, I think our overall grade is pretty strong. We outperformed the industry across our three largest businesses, including by two points at Tim’s Canada and three points at Burger King US. Tim Hortons Canada and International each extended their multiyear streaks of positive quarterly comparable sales. And our teams delivered over 8% organic operating income growth and double-digit EPS growth for shareholders. That marks the third year in a row of roughly 8% organic adjusted operating income growth. That is the type of consistency we want to continue to deliver moving forward. This combination of industry outperformance, margin discipline, and earnings growth does not happen by accident. It reflects improving fundamentals, strong execution, and real partnership across the system. I am proud of what our teams and franchisees delivered this year, and I feel good about the progress we have made strengthening this business for the long term. With that, I will turn it over to the operator for questions. Thank you. As a reminder, if you would like to ask a question on today’s call, please press star then one. And our first question will come from Danilo Gargiulo from AllianceBernstein. Kendall Peck: Danilo, please go ahead. Your line is open. Great. Thank you. What is very encouraging is to see solid sales momentum in US and Canada in the quarter despite the tough backdrops we are describing. I am wondering if you can maybe talk about how you are thinking about the comparable sales evolution and trajectory in 2026. Which anchor points may provide upside gains for Tim Hortons and Burger King? And specifically to Tim Hortons, you seem to have achieved great results with the beverages, with the PM skewls growing a little bit more modestly. So what is the next evolution to drive greater PM expansion? Thank you. Josh Kobza: Morning, Danilo. Thanks for the question. You know, I think in terms of the same-store sales, I agree it was a very good year and I think a positive Q4. And I think that sets us up well as we step into 2026. I think importantly because the reason that we were achieving those same-store sales is we are delivering on the fundamentals across all of the businesses. So I think that is a great setup, and you know, I think our expectation is for a similar consumer environment in 2026 to 2025, and we will keep focusing on building on those basics. You know, the one thing I would call out for in 2026 that I am sure anybody in Toronto or New York is aware of is that it has been a bit of a tough weather environment so far in 2026. So I think that is important to flag. You know, that should normalize as we get out of the next couple of months, and we look forward to building back another great year. In terms of the Tim’s same-store sales, you know, I think you characterized it well. I think we made a ton of progress across cold beverages. It was a big highlight throughout the year. And as I mentioned in the prepared remarks, even in Q4, which is not traditionally the strongest time of the year for cold beverages, we had our highest incidence ever, which tells you we are really building a better portfolio of offerings, and we are building new habits with our guests. So that is something we are very mindful of, and I think you will see us bring even more exciting innovation. I think you will see that cold bev mix keep ticking higher as we move through the year. In terms of PM foods, I do think we have made good progress there. We have expanded the portfolio and introduced some really great offerings. And we are going to build on that in 2026. We have got a whole calendar planned out of initiatives that build upon what we did in 2025, but I think brings some exciting additional innovations that will help us to build that habit with PM food. And I think we have always viewed our efforts to move into the PM as a long-term initiative, something that will take a lot of years. That is a big new front to open up for a concept that historically was really focused in the morning in that kind of 6 AM to 10 AM time window. So that kind of shift, it will take a number of years to build those habits, to build those product portfolios. I think we are well on the way to doing that. We are making good progress, not just on the product portfolio, but also on operations and making sure that we are delivering the same great experience through lunch and in the afternoon that we deliver in that morning daypart. Axel and the team have been really focused on that. I think that as much as the product innovations are going to be critical to making Tim’s a destination for folks in the PM, I think we are going to make some more progress on that in 2026 and also in the years beyond. Thanks. The next question comes from Brian Bittner from Oppenheimer. Brian, please go ahead. Your line is open. Kendall Peck: Thanks. Good morning and congratulations on Josh Kobza: a strong 2025. The important International segment really seems to be hitting on all cylinders recently, over 6% comps in the fourth quarter in the face of much stiffer comparisons. Kendall Peck: Burger King and Popeyes seem to be the standouts in the International segment, and I know this segment covers a lot of geographies, and you touched Josh Kobza: on a few in your prepared remarks. But generally speaking, can you just unpack for us how much of this momentum internationally is being driven by a healthier backdrop that you are operating in versus perhaps share gains that you are taking or what you are doing from a bottom-up perspective at Burger King and Popeyes? Thanks, Brian. I think it is a bit of all of the above. You know, I will walk through a few pieces. I think the backdrop has been decent in a lot of our markets, especially the European and Asia Pacific markets. And I think our brands benefit from a few different structural tailwinds in those markets broadly. You know, we have talked about it a lot, but there is a lot of structural growth in those markets. As you have more folks moving into the workforce, you have more folks getting into the middle class, you have more formalization of the restaurant segment. A lot of those markets, especially in places like India, where we are very early in what I think will be a long road of growth, decades to come. So I think you have got a really supportive structural market. And within that, our brands are also well positioned. You know, we have got modern assets. We are new in those markets. The brands are more aspirational. We are highly digitally enabled, and we have really great operations that are Josh Kobza: consistently driving Josh Kobza: same-store sales, and as you mentioned, I think same-store sales that have exceeded many of our competitors in a lot of those markets. You know, if you look across the regions, I would tell you EMEA in particular has shown consistent strength across a lot of our biggest markets. So that has been a consistent tailwind for us. And then in Asia Pacific, things have really gotten a lot better the last year or so. You know, obviously, we have talked a lot about China where we went from negative same-store sales to meaningful positive same-store sales. So that was a very intentional set of steps we took that moved a big market there. But I also mentioned, you know, markets like Japan that are not historically huge growth markets for folks. You know, we are doing double-digit comps on top of double-digit comps and growing the restaurant base there. So we have got a lot of markets in Asia Pacific that are really performing well over the last year or so. I think our team has been doing a really nice job out there, and some of that has allowed us to outperform the competition. Patrick, I would add just one other thing to kind of highlight. In calendar year 2023, our system sales for Popeyes outside of the US were $927,000,000. Last year, they were $1,700,000,000. We did a half billion in the fourth quarter, so we are already at a run rate of $2,000,000,000. It is a stunningly great business outside of the US, and really excited about what we are going to be able to get done with the Popeyes brand. And I will just add a couple more things on some of these International markets that are doing well. You know, I think if you go see our business in a place like France, it is really fantastic. We have wonderful locations, beautiful new assets, highly digital. The product quality is great. Alexis Simon and the team are truly passionate about the product quality. I think that is why we have driven tremendous growth there. And I can go to the other side of the world and go to Japan and I will tell you, if you are in Tokyo, I think you will have one of the best Whoppers you are going to eat anywhere in the world. And so these markets are really doing a great job at the fundamentals. And that translates to a great business model as well, which is driving growth. So lots of good reasons that International business is doing well. Josh Kobza: The next question comes from David Palmer with Evercore ISI. David, please go ahead. Your line is open. Josh Kobza: Great. Thanks, guys. I wanted just to follow up on Brian’s question about sort of walking around the world here. And, you know, I think a lot of us really know the US market in terms of the fast food consumer and the fast food market trends here. In the US, we know them less well in Canada, less well in Europe. It feels like Europe in general, and I am really focusing on this developed market side of things in this question, it feels like Europe is remarkably strong when it comes to fast food, particularly when you contrast it with some of the CPG commentary that we get in consumer staples world in regards to the European consumer. And then you pro looks like you are gaining share in a lot of these markets. So maybe just kind of Josh Kobza: sort of summarize, contrast, Josh Kobza: what you are seeing in the US. It feels like Canada is maybe a little weaker, maybe more like the US. And just how you think about the setups for key markets and help us get comfortable with that the strength can continue in markets like Europe. Josh Kobza: Thanks. Josh Kobza: Dave, thanks for the question. So I will maybe comment on both the EMEA markets and particularly Western Europe and a little bit on Canada as well. So if you look across the big Western European markets, so places like France, Spain, Germany, Great Britain, you know, every one of those markets was positive, low to mid-single digits. So we had a lot of consistency of positive performance across those markets, and I think that is what you see in the results. We also within EMEA, I mentioned this about Popeyes having a fantastic year in Turkey. Burger King in Turkey also was a standout performer, so a lot of unit growth and tremendous same-store sales growth. So we had a really good year across the board in Turkey. So I think it is that consistency across all of the biggest markets within EMEA. You know, they almost across the board had a positive year and quarter. That is driving the results that you see. And then if you go to Canada, you know, I think with around 3% same-store sales in the quarter, that is a pretty good result, I think, for a pretty developed business in a mature market. And I think importantly, within those results, we saw positive sales growth across all dayparts and all categories of the menu. So it was pretty broad-based, and I think that illustrates a pretty healthy business across the board. Josh Kobza: Next question comes from Dennis Geiger at UBS. Dennis, please go ahead. Your line is open. Great. Thanks, guys. I wanted to ask a little bit more about BK US given Sami A. Siddiqui: the continued industry outperformance in the quarter and your execution against plans despite the difficult environment. Anything more at a high level to talk about as it relates to opportunities for growth and share gains in ’26? And perhaps any thoughts you can share on franchisee sentiment right now and if that has got any implications for your confidence in the Carrols restaurant refranchising trajectory that you are thinking about? Thank you. Josh Kobza: Morning, Dennis. You know, I would tell you I am really proud of the work that Tom, Nico, Joel, the whole BK US team are doing. You know, it has been three or four years of working on the fundamentals, improving operations. We have come so far, improving the franchisee base, remodeling restaurants. You know, they have been doing all the basics, and I think for us, it was really interesting to watch what we did with SpongeBob in the fourth quarter. And, you know, I think that Joel and the marketing team did such a nice job on all of the elements of that, the IP, the products that they developed, the packaging, and then we executed it well at the restaurant. And I think, really, it was great work. But it delivered great results because of all the underlying work that we have done in the business. And it really told us that I think we are ready to take this business to the next level and really elevate the brand based on the work that we have done and the fundamentals. And I mentioned it in the prepared remarks, but we saw both a lot of new folks coming into the restaurants and then we saw them come back. And that tells me they had a good experience. And they really enjoyed what they saw. They were surprised by the Burger King that they found, the changes that we have made. And I think that is what we are so excited about as we go into ’26 is we think we have got the fundamentals to a place where we can now get really on our front foot and go bring a lot of new folks back in the restaurant. People who love Whoppers, bring families back. I think it really opens up the doors for us. And, you know, I think our franchisees feel that. They have seen that improve, they have seen those improved fundamentals. They have seen us doing a nice job on the marketing side. I think they are pretty excited about the direction that we are planning to go in the coming year. Sami, do you want to touch on the refranchising? Yeah. I can take that. Good morning, Dennis. And actually, you know, similar to what Josh was touching on, I think you see that excitement in the calendar and innovation. You see that translate into excitement around refranchising. When we first spoke about the Carrols transaction, we talked about refranchising really beginning in earnest in years three through seven. We started actually refranchising much ahead of schedule in year one. We said we would do about 50 to 100 refranchised restaurants in the first year. And we exceeded that. We actually did a little bit over 100. So I think that reflects a lot of the interest and excitement from local owner-operators in the Burger King brand. You know, to step back, and we have talked about this a lot on previous calls, the most critical thing is that we get the restaurants into the right hands, the hands of local owner-operators who are going to be aligned to driving great guest experiences. And we are seeing that in all of our conversations, and we look forward to actually accelerating that number here in 2026. Patrick Doyle: I will actually add one thing, which is, you know, the partnership with the franchisees is working because they know that we are focused on their success. We have been doing that now for a number of years, and they are seeing that what we have said we are going to do, we have done. And, you know, the remodels are generating a good lift in sales for them as we have been talking about for a couple of years. But we still have a lot more to do, which will continue to drive sales as we get more done. The service improvements that they are driving in their restaurants are giving guests a better experience, which means we are seeing things like Josh talked about. We do SpongeBob, and not only does that increase sales, but we see increased retention of those customers who have tried us because of it, because they had a good experience driven by our operators, driven by our franchisees and in our Carrols restaurants. You know, you see our improved marketing working and the focus that we are putting in there. So, you know, I can look at the glass half full, which is the things we have been doing are what have been driving the results that we are seeing in BK. And I can look at the glass half empty, which is we have still got so much more to do, and we know exactly what we need to do and what we are going to be doing over the course of the next couple of years. And that is what gives me confidence that we are going to continue to generate good growth and hopefully outperform the category and all of that being done with just consistent value that our customers can count on. We do not have to play around with a bunch of price points. We know what works, and we are doing that consistently. And their ability to count on that is a real value for our guests. Josh Kobza: The next question comes from John William Ivankoe from JPMorgan. John, please go ahead. Your line is open. Josh Kobza: Hi. Thank you. The question is on Popeyes US. And if I were to go back in history, you launched an incredible sandwich line in August ’19. I had to use the Internet to check that. In 2019, fried chicken is a great category. I mean, there are so many different people that want to be in the category and, quite frankly, have been successful in the category. And yet, you know, your results have really slowed down in the past couple of years, including some, you know, fairly low numbers in the fourth quarter of ’25. So I really want to go a couple places. So what do we kind of learn from the experience in the last couple of years, for example? What could you have done differently? In other words, what will you do differently to allow success? And then, really, I guess, maybe the bigger part of the question is, you know, a large franchisee declared bankruptcy in the Popeyes system. And, you know, looking at the comps, looking at that franchisee, are we kind of at the point at this point where we should stop thinking about new unit expansion and perhaps should even consider contraction until we get the franchise system and just the brand and the operating platform in the right place where it can materially grow again? Because I am sure me, like many others, had unit growth expectations for that brand ’26, ’27, ’28 for the Popeyes US business. Thank you, and hopefully, you absorb that question. Sami A. Siddiqui: Thanks, John. I will try to get through as much of that as I can, and feel free to add, Josh. It is a big topic to address regardless. So Patrick Doyle: for sure. Josh Kobza: So just to start off, I agree with you. I think the chicken category is amazing. It is a great category to be in, and I think we have a wonderful brand, both for the US and around the world. That said, as you pointed out, we have had weaker performance than we would like over the last few quarters. And that is why you saw us make a change in leadership. And I think Peter is exactly the right person for what we need to do. And I am super confident in both what he is already starting to do and where he wants to take the brand. I think if I would break down the learnings into two simple buckets that shape where we are going to be focused: one is making more progress on the consistency of operations. You know, the leading players in the chicken category on average have very good operations. And we need to make more progress on that front. Peter’s background is in operations, and that is exactly where he knows how to make progress. So I am very confident in what we are going to do there. And then I think on the marketing and product side, you know, we spent more time in categories that were a bit more non-core over the last year, year and a half. And I think we are going to bring that focus back to the core. We are going to bring it back to the things that made Popeyes great, you know, our hand-battered and fried bone-in chicken, our tenders, and our sandwich. So we are going to narrow the focus a little bit that I think is going to help us to bring back our core customers and to execute at a much higher level. So, you know, you will hear more from Peter directly here at our Investor Day on Feb 26. I encourage you to kind of hear from him directly because I think it is very compelling. But I would give you that outline of overall where he will generally be focused. In terms of your question on the franchisee situation, obviously, we did have a filing from one of the large franchisees. I would tell you that the rest of the franchisee system across the US is actually in a quite good place. Leverage levels are in a healthy place even though EBITDA stepped back a little bit. So I do not think that is at all representative of the rest of the system. As a result of that, while NRG has stepped back already, I think we will continue to see growth in the Popeyes US business over the next couple of years. You know, just one last stepping back, John, and you kind of pointed out at the beginning. In terms of stepping back and looking at the history, you know, we acquired this business about nine years ago. It has been a tremendous run. It has had a little bit of some ups and downs along the way, but it has really been great both in the US and around the world. If I actually go back to when we got involved in the business in 2016, what created that opportunity was a bit of a wobble in the business at that time. And, you know, that created an opportunity to acquire a brand in one of the most attractive, if not the most attractive segments in the entire world. And after that point in time, we managed to produce an incredible nine years of growth. I think we have tripled or quadrupled that business. And I hope we will do that again now under Peter’s leadership. Very helpful. Good job. Kendall Peck: Thanks, John. Josh Kobza: The next question comes from Brian Mullen from Piper Sandler. Please go ahead. Your line is open. Josh Kobza: Thank you. Just a question on Tim’s in Canada. I wanted to ask about Patrick Doyle: speed of service. I believe that has been a tailwind for some time now. I am just wondering if you still see opportunity Josh Kobza: to continue to improve from here. And then separately, can you just talk about the loyalty program, your efforts to continue to grow membership in that program, which we know is important. It correlates with higher visitation and spend. Thanks. Morning, Brian. I will take both parts of that question. So on speed of service, we have mentioned, I think, repeatedly over the last few quarters or years, we have made good progress there. I think Axel and Naira and the team are doing a very nice job. We are awfully fast in the morning. You know, the cars just fly through that drive-thru, sometimes every 20 seconds, which is remarkable. So it is pretty impressive that we continue to make progress there, and we will continue to seek to do so. There are a couple things that we are doing there that help. One of the big ones is actually the remodels. So I think we mentioned we have been ramping up the pace of remodels. And one of the big things that we do in those remodels is we rework the back of house in a way that accommodates some of the new things that have come in the restaurants—think about cold beverages—and allow us to enhance the speed of service in the morning. The other prong I would say there that is really important is our speed of service in the PM. And that is where historically we have not been as fast as the AM side of the business. And I think that will be a place where we can make maybe even more progress than we can in the AM over the next couple of years. In terms of the loyalty program, you know, we have made a lot of progress. We have got that up to about a third of the business. And we will continue to push adoption through everything from some of the events that we put out there, the things like Roll Up The Rim where we drive more digital engagement. But there is a new direction we are going with that as well, which I mentioned in my prepared remarks, which is partnerships. And we announced recently that we are going to do a loyalty partnership with Canadian Tire. We think it is a really obvious and very logical partnership for the brand. Two of the most iconic retailers in Canada coming together to tie together their loyalty programs. We think that brings even another compelling reason for Tim Hortons guests to become part of our loyalty program. And we will see how that goes. We are quite excited for it, but it opens a lot of doors to further places we could take that loyalty program to cause an even higher percentage of our guests to engage directly through our digital channels with us in the future. Brian, I will just add a couple stats here on the loyalty program, just because they are really incredible stats. What we are seeing is about 33% of sales came from loyalty members in 2025, which is incredibly strong. 7,000,007 active members. And our active members are spending more than 50% sort of post-joining versus pre-joining, and they visit more often than nonmembers. So a lot of good things to highlight in the program. And Josh brought up strategic partnerships that we think will further drive that business. And we also think that member-only offers through the app and the loyalty program are also going to help drive more penetration. So we are really pleased about the future of the loyalty program, and I think it is just the beginning. Josh Kobza: Next question comes from Andrew Michael Charles at TD Cowen. Andrew, please go ahead. Your line is open. Josh Kobza: Okay, great. You talked about your confidence in achieving 8% AOI growth in 2026, and I know you are saving the forward-looking commentary for the Investor Day. The release reiterated a 3% plus system same-store sales as part of the long-term algo. Wondering about your confidence this level can be achieved in ’26 and what you described as similar consumer backdrop domestically as ’25. Maybe said differently, is your belief in 8% AOI growth in ’26 contingent on reaching 3% same-store sales? Andrew, I will take that question. And Josh, feel free to chime in here. I think, look, first off, we are very pleased to have delivered three consecutive years of roughly 8% AOI growth and are excited, I think, to work again towards that target in 2026. Typically, kind of as we think about budgeting for the year and our targets for the year, we do target around that 3% same-store sales level, which is kind of consistent with our algorithm. I think as we think about that 3% comp and the unit growth kind of building towards system-wide sales, obviously the unit growth was a little bit lighter in 2025, though I think that still sets up a strong backdrop for system-wide sales. You know, rough math, if you are assuming around a 3% comp and just the math of it of around that unit growth from 2.9% unit growth from 2025, it equates to a top line of around 6% system-wide sales. Then I think there are a couple other puts and takes that kind of bridge to that 8% AOI growth. I think we have done a really good job on the G&A side. We have done a fantastic job in terms of adding discipline and really setting a new baseline for the business at $594,000,000 of G&A in 2025. We expect that to grow slower than the top line, so you will see operating leverage through the P&L from that. And then you will also see the Burger King China royalties come into the P&L in ’26, you know, at a couple points lower than our standard rate, but still kind of coming back into the P&L. When you take all of that together, I think that gives us confidence around the 8% organic AOI growth for a fourth consecutive year. Josh Kobza: The next question comes from Christine Cho with Goldman Sachs. Christine, please go ahead. Your line is open. Sami A. Siddiqui: Thank you so much. I really appreciated the color on beef Christine Cho: prices as well as the impact on franchisee profitability at Burger King. And you have mentioned that you expect improvement as these costs normalize. But beyond that, are there any organic cost and margin opportunities you have identified across the P&L that could help strengthen the four-wall economics as we look into 2026? Thank you. Josh Kobza: Hey. Morning, Christine. I can take that question. I think, look, you know, the beauty of being a multi-branded organization and having the size and scale we have all over the world is we are able to share best practices between all of our partners around the world and ultimately drive franchisee profitability. And there is a variety of things that we are working on when you think about from procurement and our global procurement scale, to thinking about digital contracts, to thinking about operational efficiencies. We like to share those best practices across our brands and ultimately that is kind of what helps drive franchisee profitability, be it at Burger King US or Tim’s in Canada. I would say particularly on the beef prices, obviously, we have seen beef prices be at record highs over the last year or so. And any of those levels have sustained. This is very regular and kind of normal in the market, and I think if you look at the beef market over many decades, the herd rebuilding cycles are a very common sort of pattern in this industry. We anticipate there will be relief at some point, though I think likely if there is relief on that side of things, it is likely closer to the second half of the year on beef in particular. So, but look, I think stepping back, as you think about franchisee profitability, it was down year-on-year for the Burger King system. Though I think we see, you know, when you normalize for those beef prices, actually roughly flat to even slightly positive year-on-year when you kind of incorporate the step to the ad fund contribution as well. The only other thing I would add, Sami, is, you know, the best possible way for us to grow the franchise profitability of Burger King is through growing sales in a profitable manner. I think that that is what is front and center with Tom and the franchisees is how do we do a great job growing the AUVs of this business in a profitable way. And I think the stuff that we are focused on, things like making the Whopper as amazing as it can be and bringing families back into the restaurant with awesome IP partners, those are great in that they bring more guests into the restaurant, they drive more sales. And it is very profitable traffic for the franchisees. So I think the sales, you know, we are always looking at cost opportunities, but I think the sales part is just as or more important. Josh Kobza: Our final question today comes from Brian James Harbour at Morgan Stanley. Brian, please go ahead. Your line is open. Patrick Doyle: Yes, thanks. Good morning, guys. Josh Kobza: I am curious where Patrick Doyle: new unit paybacks are. I guess I will focus my question on North America for sort of the unit growth brands. Do you think those are where they should be? How do you think it compares to some peer concepts? Or what else do you think you need to drive those besides obviously driving AUVs like you just mentioned? Sami A. Siddiqui: Yeah. Brian, I can take that one, and Josh can jump in as appropriate. I think as we think about, obviously, new unit paybacks are very tied to the franchisee profitability metrics that we disclose. And, you know, when we think about new unit paybacks, I think it is also important to think about who is developing. And so really critical across all of our brands is that we are developing with strong operators, A operators. And if you actually look at A operator, you know, we typically are disclosing averages, but the A operator profitability is typically much higher than that. So when we are looking at new unit paybacks and the investment case for building units, particularly in the home market, you see actually pretty compelling paybacks across the A operators. I would say some of the most compelling, if you kind of tick through the brands, certainly continue to be at Tim Hortons in Canada. You know, at around $300,000 in four-wall profitability, and, you know, often with us with the corporate contribution on real estate. When you think about the paybacks the franchisees typically are looking at, you know, investing in FF&E equipment packages, and with us sitting on the head lease, that typically creates very strong payback on the order of, like, three years in Canada. When you kind of come to the US, and I will tick through—actually what was nice to see is the fastest growing US brand being Firehouse. When you think about the Firehouse payback, you know, that is a totally different development model. It is an inline development model. It is very scalable, and the increases in profitability combined with some of the great work that Mike and the team are doing. That is also leading to around three-ish year paybacks on new, three to three and a half year paybacks on new Firehouse units. And so, you know, the two faster growing in our home markets are very strong payback. You know, at Burger King, as we have talked about extensively now, we have a little bit of work to do on the profitability side. Josh said it best when the best thing we can do is drive sales and drive top line to improve those ROIs. But we do still have a lot of our franchisees who are developing—those A operators. They are seeing compelling returns with their higher average profitability. I would say the same thing on Popeyes as well. You know, our A operator profitability at Popeyes is still close to $300,000 of four walls. So when you think about payback, they are still quite strong. Josh Kobza: I will now hand the call back to Josh for any closing comments. Josh Kobza: Great. Well, thank you everyone for joining us today, and importantly, thank you very much to our teams all around the world and our franchisees for a great year in 2025. We look forward to seeing many of you on the call here in Miami in two weeks, and wish you all a great day. Thank you very much. Josh Kobza: This concludes today’s call. Thank you very much for your attendance. You may now disconnect your lines.
Operator: Ladies and gentlemen, thank you for standing by. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome you to the Lincoln National Corporation fourth quarter 2025 earnings webcast. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question at that time, simply press star then the number 1 on your telephone keypad. And if you would like to withdraw that question, press star 1 again. Thank you. I would now like to turn the conference over to John Mutheng, Head of Investor Relations. John, please go ahead. John Mutheng: Good morning, everyone, and welcome to our fourth quarter earnings call. We appreciate your interest in Lincoln National Corporation. Our quarterly earnings press release, earnings supplement, and statistical supplement can all be found on the Investor Relations page of our website, investors.lfg.com. These documents include reconciliations of the non-GAAP measures used on today's call including adjusted income from operations and adjusted income from operations available to common stockholders, adjusted operating income to their most comparable GAAP measures. Before we begin, I want to remind you that any statements made during today's call regarding expectations, future actions, trends in our businesses, prospective services or products, future performance or financial results, including those relating to deposits, expenses, income from operations, free cash flow or free cash flow conversion ratios, share repurchases, liquidity and capital resources, as well as any statements regarding our 2026 and medium term outlook and future strategic initiatives are forward-looking statements under the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from our current expectations. These risks and uncertainties include those described in the cautionary statement disclosures in our earnings release issued earlier this morning as well as those detailed in our 2024 Annual Report on Form 10-K, most recent quarterly reports on Form 10-Q, and from time to time in our other filings with the SEC. These forward-looking statements are made only as of today, and we undertake no obligation to correct or update any of them to reflect events or circumstances that occur after today. Presenting this morning are Ellen G. Cooper, Chairman, President, and CEO, and Christopher Michael Neczypor, Chief Financial Officer. After their prepared remarks, we will address your questions. I will now turn the call over to Ellen G. Cooper. Ellen? Ellen G. Cooper: Thank you, John, and good morning, everyone. Thank you for joining our call today. Our fourth quarter performance was strong, with adjusted operating income increasing 31% year over year and our full year adjusted operating income increasing to its highest level in four years, underscoring the progress we have made as we advance our strategy with discipline and focus across Lincoln National Corporation. This was also our sixth consecutive quarter of year over year adjusted operating earnings growth with solid performance across the business aligned with our objective of further diversifying our mix. These results were supported by the continued advancement of our strategic realignment, operational execution, and a more resilient capital foundation. Before I walk through the quarter's highlights, I want to step back and reflect on what we have accomplished since we began this journey at the 2023. Over the course of the past several years, we remained focused on executing against the strategic priorities we laid out to evolve the direction of the company with a focus on increasing our risk-adjusted return on capital, reducing the volatility of our results, and growing our franchise. The fundamental principles of foundational capital, a more efficient operating model, and our efforts to drive profitable growth are coming through in our results with clear evidence of building broad-based momentum balanced against a strategic awareness of where more work needs to be done. With that context, I will briefly frame our progress against the three priorities that continue to guide our strategy. Following several years of strengthening the balance sheet, our capital foundation remains durable and resilient. Capital levels remain well above our established buffer, and our leverage ratio has meaningfully improved. With this foundation firmly in place, we remain focused on continuing to improve returns on capital and to manage capital with greater flexibility over time. We also made meaningful headway in optimizing our operating model, creating a more efficient and scalable organization. We have sustained expense discipline, combining prior firm-wide actions with continued targeted initiatives this year. And we see additional targeted opportunities ahead while continuing to invest strategically to support our long-term priorities. We are also making operational enhancements, streamlining processes to support employee productivity and efficiency, enhancing digital and automated capabilities to better serve our customers, and evolving our distribution strategy to strengthen our go-to-market approach. Our investment strategy has been further refined, expanding our asset sourcing capabilities and leveraging our external partnerships to enhance ongoing risk-adjusted yield. The role of our Bermuda affiliate expanded over the year and we will continue to leverage it to enhance capital efficiency in support of our broader strategy. Collectively, these actions build upon the more stable foundation we have established, reinforcing more efficiency and sustainability of performance. Lastly, over the course of the year, we advanced profitable growth across the enterprise with clear progress across each business. Some businesses are further along in their strategic realignment and their performance reflects that while others are at earlier stages. Across the company, our emphasis is on products and segments with higher risk-adjusted margins, more stable cash flows, and greater capital efficiency to strengthen the resilience of the business over time. The cumulative impact of these actions is translating into stronger core capital generation for the company, which in turn supports capital deployment that sharpens our competitive advantages, reinforces our strategic moat, and supports long-term free cash flow generation. Results may not be linear, markets can be volatile, and the economic backdrop could change, but we remain steadfast in our commitment to deliver results that drive long-term value. Our momentum continues to build, our progress is increasingly evident, we remain focused on the path ahead. Let me turn to our businesses where I will walk through our results and how we are positioning each to continue building on our progress in the years to come. Starting first with annuities. We are a leader in this market, offering a broad set of products across RILA, fixed, and variable annuities both with and without living benefits, enabling us to meet customers across different needs and market environments. Our deep, longstanding distribution relationships and consultative approach continue to broaden our reach and strengthen our position. Over the past two years, we have built important infrastructure to support this business including our Bermuda affiliate, expanded investment platform, and enhanced product features. These capabilities support our go-to-market strategy and position our annuities business for sustained success in an evolving market. In 2025, we delivered strong annuity sales with total volumes up 25%. Approximately two-thirds of those sales came from spread-based products consistent with our strategy to evolve toward a more balanced and less market-sensitive mix over time. Full year RILA sales increased 35% in 2025 reflecting our differentiated product features that continue to resonate with customers. Fixed annuity sales increased 11% underpinned by the capabilities we have built to support a consistent presence. Full year variable annuity sales increased 27% year over year, as our product offerings coupled with the favorable market environment supported sales growth in variable annuity, with and without guaranteed living benefits. 2025 sales volumes in part reflected a strong market environment and customer demand. In 2026, we remain focused on balancing profitability, capital efficiency, and lower market sensitivity over time, prioritizing profitable growth over top-line sales growth. I will speak to each of our annuity product segments to provide additional context. For variable annuities, we expect 2026 volumes to be intentionally lower and more closely aligned with pre-2025 levels as part of our effort to reduce exposure to market sensitivity over time. In fixed annuities, we are now retaining 100% of sales following the exit of the external flow reinsurance treaty. Looking ahead, sales levels will continue to reflect market dynamics as we advance our profitable growth priorities and we expect our fixed annuity account values to increase relative to 2025. Within the fixed annuity category, we see attractive growth opportunities in fixed indexed annuities where differentiated crediting rate strategies and product features support our return objectives and allow us to compete beyond price. In RILA, customer demand continues to expand alongside increasingly competitive dynamics. Our approach remains anchored in disciplined target return thresholds and differentiated product features, factors that directly inform where we choose to compete. As a result, and a deliberate focus on more profitable segments of this market, sales levels may remain broadly consistent with the past two to three years as we see greater longer-term growth opportunity in fixed annuities relative to RILA. Importantly, our position as a leading annuity provider with a diversified set of chronic capabilities supported by a broad distribution footprint gives us the flexibility to reallocate capital efficiently toward the opportunity set offering the most attractive returns as market dynamics evolve. We also remain focused on broadening our distribution partnerships across the annuity market, aligned with a disciplined focus on segments that support higher risk-adjusted returns on capital and profitable growth. At the same time, we are expanding our product offerings and continuing to build digital tools and capabilities that enhance the value we deliver to our partners, particularly in areas where we see the strongest opportunities and can compete beyond price. Taken together, these dynamics underscore a disciplined framework for allocating capital across the annuity platform toward higher risk-adjusted return opportunities supported by product breadth, distribution strength, and prudent capital deployment. Turning to life. We continue to make meaningful progress repositioning the business over the course of the year. Our efforts have been focused on improving the performance of the in-force block and pivoting the new business franchise toward accumulation and protection products with more balanced risk profiles that support stable cash flows. At the same time, we have advanced the modernization of our infrastructure to get closer to the point of sale and further optimized our distribution footprint. The strength of our distribution platform has enabled us to deepen relationships with key partners and expand our reach into markets where we see attractive growth opportunities. These actions are supporting both improved financial outcomes and stronger sales momentum. For the full year, excluding the impact of our annual assumption review, earnings improved meaningfully. Sales for the year were up approximately 50% versus the prior year. Full year core life sales, which exclude executive benefits, increased 4% compared to the prior full year. It is worth noting that fourth quarter's core life sales included some larger cases, which can vary from period to period. We expect core life sales to grow in 2026 but from a baseline more in line with the earlier quarters of 2025, as we continue to prioritize profitable growth for the business. Executive benefits had a record year with sales of $265 million up from $59 million in 2024, reflecting the foundational investments we have made in this business centered around product capabilities, distribution relationships, and our service model. While large case activity will naturally vary, we are encouraged by the trajectory we are building in this segment and expect to have a consistent presence in this market going forward. From a franchise perspective, we continue to strengthen the new business momentum across our targeted product lines. Execution against our strategy remains focused on repositioning sales towards solutions with more favorable risk characteristics, improving the financial professional experience through digital tools and operational excellence, and expanding distribution reach through targeted product launches. Together, these efforts are reinforcing the trajectory of the life business and supporting a more consistent contribution over time. Overall, we are pleased with the progress we made in life this year, and where this business is positioned heading into 2026. In Group Protection, we continue to execute effectively against a targeted strategy to deliver value across three distinct market segments: local, regional, and national, with an emphasis on the fastest growing markets, local markets, and supplemental health. Group delivered another outstanding year with strong earnings and premium growth and full year sales largely in line with the prior year. Full year earnings, excluding the impact of our annual assumption review, increased 16% year over year. Full year premium growth of nearly 7% was broad-based, with growth across all products and segments driven by strong sales and persistency along with disciplined pricing. Full year sales, as mentioned previously, were roughly in line with last year's results with growth in local and regional markets, supplemental health sales increasing over 40%, further diversifying the book. Overall, this strong performance reflects deliberate choices in how we are tailoring products and services by segment, supported by continued investment in the capabilities and infrastructure that support our customers to manage their benefits more effectively. As we look to 2026, we expect to build on this momentum as we continue to diversify the business with growth increasingly driven by strong persistency and disciplined premium growth. With that context, I will walk through how this translates across our local, regional, and national segments. In local markets, where we see the strongest margin profile, we are focused on accelerating growth by delivering bundled solutions that emphasize ease of doing business, leveraging our focused local distribution footprint. In regional markets, we are reinforcing stronger strategic broker partnerships and expanding our technology integrations and digital capabilities to better support employers and their benefit decisions. In national accounts, where clients demand robust capabilities, we are tailoring products and services enabled by our integrated technology and streamlined processes, leveraging both our market-leading leave management expertise and deep broker relationships. And across all of our segments, supplemental health remains a key priority. Across each segment, the focus remains on disciplined execution and serving customers while supporting sustainable growth over time. Overall, the fundamentals of this business remain strong, and Group is well positioned as we move forward. Turning to Retirement Plan Services. For the full year, earnings were relatively steady with modest pressure reflecting ongoing headwinds, including participant outflows. At the same time, we continue to see strong sales and total deposits, underscoring that our value proposition is resonating with customers and that our focus on participant outcomes is gaining traction. As we begin the next phase of our realignment work, our focus is on sharpening where and how we compete. We see opportunity to build on our strengths in the more profitable parts of the market, including leveraging our distribution footprint and supporting growth in higher margin areas such as the small market segment. Looking ahead, our priorities are centered on improving the earnings profile of the business over time by expanding revenue sources within the existing customer base, broadening products and services where customer demand is strongest, and taking targeted actions to improve operating efficiency. We also see opportunity to further optimize the investment strategy to support our stable value offerings. While this work will take time, the momentum we are seeing with customers reinforces our confidence in the strategic direction and our ability to steadily improve the quality and durability of earnings in this business over time. Stepping back, we are pleased with the progress we have made. Today's results demonstrate disciplined execution as we continue to shape the enterprise, strengthen the earnings profile, and improve the durability of the business. At the same time, we recognize there is more work ahead. We are operating from a position of strength, which gives us the flexibility to invest where we see the greatest opportunities while remaining disciplined in how we deploy capital across the enterprise. As we enter 2026, we do so with clarity on our priorities, momentum in our results, and confidence in what we are building. We remain focused on delivering against our objectives and continuing to build long-term shareholder value over time. I will now turn the call over to Christopher Michael Neczypor to discuss our fourth quarter and full year results and our outlook. Chris? Christopher Michael Neczypor: Thank you, Ellen, and good morning, everyone. Christopher Michael Neczypor: Our fourth quarter results represent another quarter of strong execution and meaningful progress on our strategic priorities, delivering adjusted operating income growth for the sixth consecutive quarter. Christopher Michael Neczypor: For the full year, 2025 marks our third consecutive year of growth with each of our businesses contributing to a result that reinforces the broader momentum we have built across the enterprise. Alongside solid earnings, we continued our emphasis on free cash flow generation and capital efficiency, reinforcing Lincoln National Corporation's ability to deliver attractive risk-adjusted returns and positioning the company for sustained long-term success. This morning, I will focus on three areas. First, I will review our fourth quarter and full year results including our segment level financial performance. Second, I will provide an update on our investment portfolio. And third, I will offer an update on our capital position and our outlook. Let's begin with a recap of the quarter. This morning, we reported fourth quarter adjusted operating income available to common stockholders of $434 million, or $2.21 per diluted share. There were no significant items in the quarter. Our alternative investments portfolio delivered an annualized return of nearly 12% for the quarter, or $124 million. On an after-tax basis, this was approximately $16 million above our target, or $0.08 per diluted share. Excluding the impacts of significant items in each year, full year 2025 adjusted income from operations available to common shareholders was over $1.5 billion, a 23% improvement compared to 2024. This result reflects strong execution across our businesses with year over year earnings growth driven by favorable underwriting experience in Life and Group Protection, continued spread expansion, and the benefit of higher equity markets. Turning to net income for the quarter. We reported net income available to common stockholders of $745 million, or $3.80 per diluted share. The difference between GAAP net income and adjusted operating income was driven primarily by the positive movement in market risk benefits amid slightly favorable interest rates and modestly higher equity markets. Our hedge program continues to perform in line with expectations. Now turning to our segment results, starting with Group Protection. Delivered another strong quarter, capping a record year. Fourth quarter operating income was $109 million, up from $107 million in the prior year quarter, and the margin was 7.9%. Modest improvement in earnings year over year was driven by the disability loss ratio, improving to 73.6% from 75% in 2024. Improvement reflected favorable new claim severity partially offset by lower recoveries and smaller average resolution amounts. As discussed last quarter, we typically experience seasonal pressure in our disability loss ratio from the third to fourth quarter, and that did materialize within expectations. However, the favorable severity in our new and in-force claims more than offset the seasonal headwinds, ultimately resulting in a decreasing sequential loss ratio. Partially offsetting the improved disability result was a normalization in our group life loss ratio. The fourth quarter life loss ratio of 67.9% was higher than the record low 64.7% we delivered a year ago, though it remains favorable compared to historical experience and reflects the continued benefit of our disciplined pricing actions. Touching briefly on the full year, excluding the impact of our annual assumption review, Group delivered operating earnings of $493 million, up 16% from $426 million in 2024, and the margin improved to 9% from 8.3%. The improvement was broad-based, driven by premium growth of 7%, continued favorability in both life and disability experience, and meaningful growth in our supplemental health business. As we look to 2026, we expect to sustain the momentum we have built. Two years ago, we outlined an objective of achieving an 8% margin by the end of 2026. We have now achieved that target in each of the last two years, and our goal remains to continue operating at 8% or above. External factors may create some variability from quarter to quarter, but the fundamentals of this business are strong. We expect continued earnings growth supported by disciplined execution of our strategy including pricing discipline on new business and renewals and diversification into higher margin market segments and products. Overall, Group's 2025 results continue to reflect the strong progress in our strategy to expand this business into a larger and more profitable part of our enterprise. Now turning to annuities. Annuities delivered operating income of $311 million for the quarter. Normalizing for approximately $8 million of favorable payout annuity mortality experience, underlying earnings were approximately $303 million, broadly in line with the prior year quarter. The result reflects higher spread income and higher average account balances, partially offset by continued traditional variable annuity outflows and higher expenses associated with retaining 100% of our fixed annuity flows following the exiting of our external flow reinsurance agreement in September. The sequential expense impact of full retention was roughly $5 million in the quarter. Ending account balances net of reinsurance reached a record $175 billion, up 7% from the prior year quarter with growth across all products. Turning to spreads, spread income continued to grow, spread-based products now representing 30% of total annuity account balances net of reinsurance, up from 27% a year ago. RILA account balances increased 15% over the prior year quarter, representing 22% of total account balances net of reinsurance. Fixed annuity account balances increased 20% year over year, reflecting the first full quarter of retaining 100% of our fixed annuity sales. From a net flows perspective, net outflows improved year over year as net flows into spread-based products exceeded $1 billion for the quarter. Variable annuity net outflows continued at a pace consistent with recent quarters, with higher equity markets contributing to higher account balances available for withdrawal. On a full year basis, annuities delivered operating earnings of approximately $1.2 billion, modestly higher than the prior year, driven primarily by higher average account balances. This result came despite the ongoing shift in business mix towards spread-based products, which carry a lower ROA but more stable earnings over time than traditional variable annuities. Continued shift towards spread-based products, combined with the full retention of our fixed annuity, Christopher Michael Neczypor: economics Christopher Michael Neczypor: builds the in-force base that will support durable earnings and free cash flow generation over time. As we look to 2026, in the first quarter, we expect sequential pressure on earnings due to two fewer fee days and the resetting of favorable mortality experience from this quarter. Additionally, as part of our annual review of allocations, beginning in 2026, we will reallocate net interest income earned on collateral posted in connection with our index credit hedging strategies from annuities operating income to nonoperating income. As our RILA business has grown, so have the associated collateral balances, making the related net interest income more meaningful. Moving this income to nonoperating income provides a cleaner view of underlying annuities operating performance. While this item can be variable over time given the nature of the underlying collateral balances, as a frame of reference, had this reallocation been in place during 2025, it would have shifted $50 million of annuities operating income to nonoperating income on an annual basis. Importantly, this is an allocation refinement. There is no change to underlying economics or free cash flow. Overall, the underlying trajectory of the business remains sound, and we remain confident in our ability to deliver stable, attractive returns over the long term. Retirement Plan Services reported operating income of $46 million for the quarter, up from $43 million in the prior year quarter. The improvement was driven by favorable equity markets and spread expansion, partially offset by pressure from outflows over the past twelve months and higher expenses. Account balances benefited from equity market performance, with average balances increasing nearly 9% year over year to $124 billion. Base spreads were 110 basis points, up from 101 basis points in the prior year quarter. The expansion reflects the benefit of deploying new money at rates above the existing portfolio yield. Net outflows totaled approximately $1 billion for the quarter, primarily driven by participant withdrawals and pressured by known planned terminations, the majority of which were not meeting our profitability targets. We remain focused on retaining profitable business and maintaining pricing discipline on both new and recurring business. Turning to full year results. Retirement Plan Services delivered operating earnings of $163 million, flat compared to the prior year. While outflows earlier in the year created headwinds, these were largely offset by favorable equity markets and spread expansion. As we look to 2026, we expect net flows to remain negative as we continue to prioritize profitability over retention of business that does not meet our return targets. We see opportunity to improve returns through targeted expense efficiency actions and investment portfolio optimization. We remain confident in our ability to deliver sustainable earnings growth in this business over time. Christopher Michael Neczypor: We Christopher Michael Neczypor: Lastly, turning to Life Insurance. Life delivered operating earnings of $77 million for the quarter, a meaningful improvement compared to an operating loss of $15 million in the prior year quarter. The improvement was broad-based, driven by improved mortality, higher alternative investment returns, and the execution of our captive consolidation. Mortality results for the quarter were in line with our expectations. You may recall that 2024 was pressured by elevated mortality driven by an outsized impact from severity in our universal life block. We saw that dynamic normalize this quarter, which was the primary driver of the year over year improvement. Turning to expenses. Despite stronger sales and higher variable compensation in the quarter, the actions we have taken over the course of the year allowed us to hold expenses flat year over year. Maintaining expense discipline remains critical to supporting earnings improvement in this business. Touching briefly on the full year, excluding the impact of our annual assumption review, Life delivered operating earnings of $146 million compared to an operating loss of $71 million in the prior year, an improvement of over $200 million. The improvement was driven primarily by favorable mortality compared to unfavorable mortality in 2024, higher alternative investment returns, and the expense discipline we have maintained throughout the year. These results reflect the ongoing progress we have made in stabilizing and improving the trajectory of this business. As we look to 2026, we expect continued progress. As a reminder, the first quarter is typically our lowest earnings quarter for Life, reflecting unfavorable mortality seasonality and a step down from the higher fee income we earned in the fourth quarter. You will see these seasonal patterns outlined in our earnings supplement. Beyond those near-term dynamics, we are focused on rebuilding sales momentum with an emphasis on products that generate more stable cash flows and attractive risk-adjusted returns. And we will continue to optimize the free cash flow profile of this business by remaining disciplined on expenses, optimizing the investment portfolio, and the potential for external risk transfer. We are confident in the trajectory of this business, as we continue working towards positive underlying free cash flow. Turning now to expenses. As we signaled last quarter, fourth quarter G&A expenses increased both sequentially and year over year. The sequential increase was primarily driven by higher variable compensation reflecting the strong sales volumes we achieved during the quarter. On a year over year basis, the increase also reflects continued investments in our businesses, including in annuities where we are now fully retaining our fixed annuity flows, and in Group Protection, where we continue to execute on our technology roadmap including modernizing our claims platform. Looking ahead, expense discipline remains a strategic priority across the organization. We have made meaningful progress over the past two years, and we see continued opportunity to drive efficiencies as we advance our transformation. This includes ongoing focus on organizational simplification, leveraging technology to improve productivity, and ensuring our expense base is appropriately sized to support our strategic objectives. We are committed to maintaining a disciplined approach to expenses, balancing the investments needed to drive growth with a relentless focus on operational Christopher Michael Neczypor: efficiency. Christopher Michael Neczypor: This will remain a critical area of focus in 2026 and beyond. Turning to investments, our investment portfolio delivered solid results in the fourth quarter reflecting disciplined management and continued execution of our strategic asset allocation initiatives. Portfolio credit quality remains strong with 97% of investments rated investment grade and below investment grade exposure near historic lows. Overall credit performance for the full year was solid. New money was invested at a yield of 5.3% for the quarter, approximately 65 basis points above the portfolio yield. For the full year, new money yields averaged 5.7%, approximately 110 basis points above the portfolio yield. Alternative investments generated a return of 3% for the quarter, or 12% annualized, above our target of 10%. For the full year, alternative returns of approximately 10% were in line with our annual return target. We continue to make progress on our general account optimization efforts, executing on new money strategies across a variety of asset classes to support our spread-based growth initiatives. These efforts remain an important component of our broader strategy to enhance investment returns and support product competitiveness. Before turning to the outlook, I wanted to highlight three capital actions that occurred in the fourth quarter. First, we completed the consolidation of several life insurance captive entities. This simplifies our legal entity structure, reduces reserve financing costs, and supports improved free cash flow within the Life business. Second, we received a $75 million dividend from Alpine, our Bermuda-based affiliated reinsurance entity, demonstrating its strong capitalization and profitability. We expect Alpine's contribution to grow as we expand its role across additional products. Third, holding company liquidity ended the year at approximately $1.1 billion, which includes $400 million of prefunding for our senior notes maturing in December 2026. Net of prefunding, holding company liquidity is approximately $655 million, above our historical $400 to $500 million operating range. With the debt maturity later this year, the preferred securities becoming redeemable in 2027, and as we move closer to increasing capital return to shareholders, this increased liquidity provides the financial flexibility to act on multiple fronts over the next few years, reflecting the progress we have made in strengthening cash flow to the holding company and positioning us well to execute on the capital priorities ahead. Lastly, I would like to provide an update on our financial outlook. We began this journey in 2023 with a focus on fortifying the balance sheet, transforming the company to one with a more balanced mix of earnings, and profitably growing. Over the past few years, we have made considerable progress on these efforts, building momentum that positions us well against the goals we set out at the end of 2023. We have provided a number of updates in the outlook section of the investor supplement released this morning that helped to frame the progress we have made as well as some goals over the medium term, which we defined in the supplement as potential ranges over the next two years. Stepping back, what is clear is that our business mix is evolving, with Group Protection now approximately 25% of business unit earnings, up from 18% in 2023. Spread-based annuity account balances net of reinsurance are now 30%, up from 25% in 2023. And our Life business is showing considerable momentum in pivoting their franchise to a product set with more stable cash flows and increased risk sharing. Additionally, as you can see on slide 14, we are ahead of schedule on delivering on our financial commitments. From a balance sheet perspective, we restored capital to levels above our 400% target, built a 20% risk buffer on top of that target, and ended last year well in excess of that buffer. With that growth in capital, our leverage ratio has declined 500 basis points since 2023 and is now back at our long-term target, providing greater financial flexibility and capital support for the future. At the same time that we have been pivoting our mix and strengthening our balance sheet, we have been growing both our earnings base as well as our ability to convert those earnings into free cash flow. In 2023, our adjusted operating income was $908 million, and we converted 35% of those earnings into free cash flow. Last year, our adjusted operating income grew to over $1.5 billion, or 69% higher than in 2023. Importantly, at the same time as our earnings base was growing, so was our ability to convert those earnings into free cash flow, with a 2025 conversion ratio of 45%, 10 points higher than 2023. So over the last few years, we have made progress on shifting our mix to more capital efficient and less volatile businesses. We have rebuilt our capital to levels well in excess of our targets, and we have grown both our earnings base and, importantly, our ability to convert those earnings into free cash flow. As we think about the next few years, we would expect the momentum to continue. As we leverage our foundation to profitably grow our franchise, maximize value, and increase free cash flow. We have a number of levers available to support us on this journey, as shown on slide 15. For example, we will continue to focus on our operating model, with targeted actions on expense efficiency, and continued optimization of our investment strategies. We will also continue to evaluate potential for external and affiliate reinsurance transactions with a diligent focus on reducing risk and generating economic value. And lastly, we will continue to strategically grow in products and businesses where we can achieve attractive risk-adjusted returns while shifting our capital allocation should market or competitive dynamics change. When we look out over the next two years, the culmination of these efforts should translate into continued growth in capital generation and free cash flow, which should in turn lead to higher dividends from the operating companies to the holding company as shown on slide 18. As this excess capital builds at the holding company, we would eventually then be in a position to increase capital return to shareholders. We continue to see a clear path of opportunity ahead. With a leverageable foundation in place, an increasingly optimized operating model, and disciplined strategic capital allocation, we are positioning Lincoln National Corporation for durable value creation in the years ahead. We thank everyone for listening. I will now turn it back to the operator. Operator: Thank you. We will now open for questions. Again, press 1. We do ask that you limit yourself to one question and one follow-up. For any additional questions, please requeue. And your first question comes from the line of Joel Hurwitz with Dowling and Partners. Please go ahead. Christopher Michael Neczypor: Hey, good morning. So, Chris, first, wanted to touch on capital return. Joel Hurwitz: If I look at your medium-term guidance, it is for $400 to $600 million plus of capital return to shareholders. Just given the dividend should be around $350 million this year, is that implying at least $50 million of buybacks in 2026? I want to make sure I am thinking about that correctly. Christopher Michael Neczypor: Hey. Good morning, Joel. So thanks for the question. What I would say is when you look at the way that we have presented the information in the outlook, we are really talking about a potential range over the next two years. And so, if you think about our capital deployment priorities, the first priority has not changed. And, frankly, we are going to continue to hold buffer capital in our operating entities, and we will continue to invest incremental free cash flow that we generate where we see opportunities. That said, our free cash flow continues to improve. You can see that we have moved more of the free cash flow that we generated this year to the holding company. That is a good sign. It is something you would expect. But the point is the first priority will continue to be to maintain an excess within our operating companies and invest where we see attractive returns. The second priority continues also to be the same, which is we are preparing for the optimal way to deal with the preferred when it is redeemable next year. As you move more capital to the holding company, that gives you more optionality. At the same time with our leverage ratio back to where it is, we have got some more flexibility in how we think about it. So we are still working through what the optimal way to handle the preferred will be. I would imagine we would continue to study that over the course of this year. And then when you think about the fact that even on top of that, you have built the excess capital and the buffer in LNL and Alpine and so forth. We are moving more capital to the holding company as we deal with the preferred, we will still be in a position where we are generating significant free cash flow and excess capital. And our priority would then be to increase the capital return to shareholders. So we are not going to give you a 2026 versus 2027, but the good news is all of the signs that would support increasing capital return to shareholders continue to move in the right direction. Joel Hurwitz: Got it. Joel Hurwitz: That is helpful. I guess just sticking on capital, if I take the remittances in that medium-term outlook less the holding company expenses, that implies like $800 to $900 million of excess cash. If I just take that versus the capital return, is it sort of largely for the to manage the preferreds and the calls next year? Is there any other potential uses of that capital at the holding company? Christopher Michael Neczypor: No. I think that is right. If you are, at its simplest form, assuming that you are moving all of the excess capital that you are generating in the year up to the holding company, that would be the difference between those two items, your remittances and your expenses at the HoldCo, which you could think about as your debt interest, your preferred coupon plus or minus any NII you might earn. But the sum of those two, you should think about under those constraints as being your free cash flow. And then as we build cash and think about deploying it for the preferred in 2027, the other usage of it would be increasing capital return to shareholders. Joel Hurwitz: Awesome. Thank you. Operator: Your next question comes from the line of Thomas Gallagher with Evercore ISI. Please go ahead. Thomas Gallagher: Good morning. Yes, appreciate slide 18. I think that clarifies a lot in terms of where the cash flow is going in terms of the components. So, Chris, is the best way to think about this, I heard what you are saying about the prefs, and that makes a lot of sense over the next few years. But if the $1.2 billion of sub remittances is a number that is probably going to grow somewhat, and then assuming you either refinance or pay down the prefs, then we would be looking at a lower HoldCo interest expense bogey heading into, call it, 2028–2029. So we are looking at, when I think about where this is going, and I am not asking for specific numbers, I want to make sure I am understanding conceptually where this is going. You probably have something better than $1.25 billion coming in for remittances, and you will have a lower HoldCo bogey, assuming your interest expenses go down. And then we could be talking about something north of a billion dollars of the amount that is available annually for shareholders unless there is some other component to it that I am missing. Does that all line up or are there other pieces here to consider? Christopher Michael Neczypor: Tom, if you are looking for 2028 and 2029 guidance, I will have to get back to you. But that being said, yes, I mean, if you think about the fact that you redeem, and whether you redeem with all capital or you refinance a piece of it, etcetera, etcetera, that will be a 2027 event, which exactly to your point, there is a $90 million coupon associated with that. So then starting in 2028, your holding company net expense would come down. I would expect over time, as we continue to execute on all the things we have been talking about, really thinking about the longer term, after the two-year sort of range that we give here, you would expect remittances to grow. But we are focused right now on 2026 and 2027, but I think the way conceptually you are thinking about over the long term are the right drivers. Thomas Gallagher: Okay. Thanks for that. And then my follow-up, I guess just a question on this redefinition of NII. I heard what you said about the hedging. What kind of prompted that change? Is it just that RILA is becoming larger and it is like a materiality issue and you looked at the way peers are treating this? And I presume also, since you are redefining earnings a bit lower, on an apples-to-apples basis, that would, at the margin, make your cash flow conversion better, all things equal. Christopher Michael Neczypor: So on that last point, yes, but I think that is just definitional. Right? I mean, we are focused on the absolute dollars of free cash flow. When you are comparing it to the GAAP number, yes, that would have a slight positive to it, but that is just, call it, optics. I think at the end of the day, every year we look at allocations. There is another component which we show in the back where you look at your operating expenses and depending on how some of the drivers move, there is corporate overhead allocations and things like that where the allocated expenses to the businesses might move around. But that will net to zero from an operating income perspective. On this specific issue, yes, that is exactly right. As RILA has grown over time, there is a component. The majority of the investment income and or expense related to the collateral is in nonoperating, and there was a piece of it that we had looked at that was more specific when we went through how to think about 2026. And as we have committed to, we are trying to be transparent and give all of the clarity as it relates to how we think about the operating income. And this was just a natural part of that. But you do this every year, you look at the different pieces. What I would tell you is it was not a big driver year over year as it relates to growth for 2025. So I think the annuities growth number was not significantly impacted. But as you look out over the longer term and you think about some of the things that we have talked about wanting to do around giving more explicit spread margin information for annuities, we want to be able to provide the cleanest view possible as it relates to NII and interest credit and so forth. Thomas Gallagher: Gotcha. Thank you. Operator: Your next question comes from the line of Wes Carmichael with Wells Fargo. Please go ahead. Wesley Collin Carmichael: Good morning. My first question was on the Life Insurance business. Chris, I think you mentioned some captive consolidation and reducing reserve financing costs. Just wondering if you could talk a little bit more about those actions you have taken, if there is more to do there and the impact on earnings and free cash flow. Christopher Michael Neczypor: Sure. Good morning, Wes. So we alluded to this last year. But if you step back, the bigger picture comment here is we have been doing a lot over the past couple of years to improve free cash flow profile of the legacy Life block. And so we have taken out, we did the Fortitude transaction, and we have alluded to a number of other projects that we are looking at with the idea of being, on an internal perspective on an organic basis, we do think that there is a lot we can do to improve the profile there. The captive consolidation was one of those projects. We completed it in the fourth quarter of this year. And essentially what it is is historically you have a number of legacy life captives and they can be product specific, you might have some term captives, you might have some GUL captives and so forth. And so we have seen this across the industry, but as you think about consolidating those captives, there is a financial benefit given the high financing fees relative to the years-ago contracts that were signed. So by consolidating and restructuring the way those captives work, you are able to save on the finance piece of it. As specifically for GAAP in fourth quarter, it was about a $10 million benefit to Life. So if you think about 2026, you should get, call it, another $25 to $30 million in improvement to the Life GAAP earnings. And then I would tell you that on a free cash flow perspective, it will be an incremental benefit on top of that $40 million, call it, GAAP run rate, given the fact that you do have some capital optimization when you combine some of those blocks. So I hope that helps. It is in line with the sort of bigger picture projects we have talked about. And as it relates to going forward, we think that there is more that we can do. Ellen G. Cooper: And, Wes, just to add, in addition to all of the in-force actions that Chris just mentioned, I also want to reiterate some of the comments that we made earlier around all that we have done to completely revamp the new business franchise so that as we think about the ongoing trajectory of the Life business over time, we also firmly believe that we will continue to see profitable growth there. So just as a reminder, across the products, we have significantly revamped as we have shifted into, for example, accumulation and more limited guarantee products. And you really start to see that coming through if you look year over year, for example, at our IUL and also at our accumulation VUL from a sales perspective. We have talked quite a bit about executive benefits. That is another example. And part of that success is also really leveraging our distribution. So we have talked about getting closer to the point of sale. We are targeting new channels there such as the producer group and the agency channel. And then additionally, as we think about this business going forward, we have also done a lot as it relates to technology, automation, supporting our producers around e-delivery, pre and post sales, etcetera. So we are excited about what we see. We have made significant improvements to the in-force, and we also see some bright spots over time as it relates to Life new business going forward. Wesley Collin Carmichael: Thank you. That is all very helpful. My second question, I guess, was just about dynamics in the annuities market. It sounded like, Ellen, from your comments that RILA maybe is becoming more competitive and maybe pushing you towards fixed and indexed annuities a bit more. So just curious what you are seeing there and maybe the outlook for 2026. Ellen G. Cooper: Absolutely. So I am going to step back for a moment, and I will talk about all three segments. So first of all, as you know, we are a leader in the annuity market. We have got a broad product portfolio. We are across all the major segments. And we very much leverage the overall product portfolio and our distribution. So some of what we have been talking about, it is a couple of things. Number one is that we have been focused on lowering our market sensitivity over time. And I will get to the VA point in a moment. And at the same time, we are focused on balancing profitability, capital, and capital efficiency, and really growth as well and really thinking about those three components. So what we have seen, and you see this coming through in our sales, and I have to say that our sales in 2025 were strong. We were very happy with the overall volumes. We were very happy with the returns across each of the product segments, and we also are continuing to just evaluate market dynamics as we go forward as well. So specifically in RILA, as you know, we were one of the earlier entrants into the RILA product. We have now significant experience overall in RILA. About eighteen months ago, we revamped and refreshed our product. It was very much needed. And you have seen increasing sales there over time. The addressable market has grown, but the competitive landscape has also grown, and we see that increasingly growing as it relates to its competitive nature. For us, given our strong overall annuity platform, part of what we are focused on there, and we talked about the fact that we can expect in 2026 to see sales growth that would be in line with what we have seen over the last, call it, two to three years. What we are doing is we are really leaning into places where we have differentiated product, whether it is features, whether it is unique crediting features as well. And then additionally, along our distribution platform, which is so broad, we also have some places where we have select channels where VA is a good fit. For a moment, on some of the comments that we made around VA. So our product in particular is differentiated there. And so these are ways that we are competing beyond price, really focused again on this idea of balancing profitability, growth, and overall capital efficiency. And I will just make a mention on mix shift, and part of that is that we have continued to experience strong outflows so that the higher sales that we saw this year did not deviate from our goal of diversifying the mix. But in addition, some of the new product features that we launched about a year ago really supported some of the sales momentum that we saw in 2025. And then, of course, we saw this higher demand. So as we look to 2026, we are going to expect to see that growth moderate, as I mentioned, so that our sales will look more similar to pre-2025 levels. And then the last point that I will make is as it relates to fixed annuity. Fixed annuity is the one place where we really believe that we have runway to continue to grow. Leverage everything that we have talked about: Bermuda, investment strategy, expanding our overall opportunity there as we continue to have unique sourcing, and also expanding both our product capabilities and also distribution as well. Operator: Your next question comes from the line of Suneet Kamath with Jefferies. Please go ahead. Suneet Kamath: Great. Thanks. I wanted to go back to slide 18. If I look at the medium-term subsidiary remittances, if I take the midpoint, it is a pretty big jump from the $845 million you did in 2025. And I know that the range is over a two-year period, but can you unpack what would lead to close to a 50% jump, if I am thinking about it right? Christopher Michael Neczypor: Yeah. I think the central premise there, and by the way, good morning, Suneet. I think the central premise there is for the past, call it, three years, as we have grown our free cash flow, we have maintained the vast majority of it in the operating entities. Right? And so for all the reasons we have talked about, but going forward the expectation is, A, that the underlying free cash flow is growing, we have shown the ability to do that. We have talked about the levers that will continue to drive that. But also, with where we are from a capitalization perspective, LNL and Alpine and so forth, we would expect us to move that to the holding company. So I think that it is somewhat of a, we have done what we said we were going to do in terms of building back capital at the opcos, we are maintaining a buffer. You can see from the RBC slide upfront that we ended the year at 439%, and by the way, that excludes the remaining Bain proceeds that are earmarked for deployment next year. So you could just think about the fact that as we have been generating incremental free cash flow, you are seeing it come through from an RBC perspective and there is a similar dynamic in Alpine. So going forward, as the free cash flow continues to be robust, you would expect us to move that to the holding company. Suneet Kamath: Okay. That makes sense. And I guess, I do not want you to get too specific on it. But as we think about this $1.2 to $1.3 billion, does that have any of the levers in it that you guys have talked about in terms of reinsurance or anything like that? Or is it more sort of normal course and should we expect there to be a big difference between 2027 and 2026? Suneet Kamath: Thanks. Christopher Michael Neczypor: So I think on the first question, what I would say is all the things that we have been doing over the past couple of years to increase free cash flow, and we have talked about the big buckets there, dealing with the legacy Life block, optimizing the operating model, being more thoughtful around capital allocation, they have been big drivers and the vast majority of them should continue to be drivers to the growth in free cash flow over the medium term. We will continue to look at our operating model and optimize the strategic asset allocation. We will continue to look at expenses. We think there is more we can do with Bermuda. From a capital allocation perspective, as we talked about, that is both at a business unit level. If you think about how much Group has grown, as well as inside the business unit. So think about the repositioning in Life. So those dynamics should continue to be tailwinds to free cash flow. What we are not including, Suneet, to your specific question, are any other sort of big external things that we have done in the past. And so, to the degree that we, for example, look at another external risk transfer deal, that would not be what is implied in the remittances. So it is the natural evolution of the things that we have talked about. We continue to see runway to obviously both grow earnings, but then more importantly, the ability to convert those earnings into free cash flow. And then if we were to do something else, that would be sort of incremental to these numbers. Suneet Kamath: Okay. Thanks. Operator: And that concludes our question and answer session. I will now turn it back over to John Mutheng for closing comments. John Mutheng: Thank you for joining us this morning. We are happy to discuss any follow-up questions you have. Please email us at investorrelations@lfg.com. Operator: Ladies and gentlemen, this does conclude today's call. Thank you for joining and you may now disconnect.
Tuukka Hirvonen: Good afternoon, and welcome to Orion's Full Year 2025 Results Webcast and Conference Call. My name Tuukka Hirvonen, I am the Head of IR here at Orion. In a few moments, our CEO, Liisa Hurme, will present the results for the full year and Q4 last year, after which you will have the possibility to ask questions from Liisa and also from our CFO, Rene Lindell. We will be first taking questions through the conference call lines. And after that, we will turn to the webcast. So through the webcast, you have the possibility to type in your questions through the chat function of the webcast. Just before I let Liisa take over, I'd like to draw your attention to this usual disclaimer regarding future forward-looking statements. And with this short note, it's my pleasure to invite Liisa to the podium. Liisa, please. Liisa Hurme: Thank you, Tuukka, and welcome on my behalf as well. I'll start with the Q4 and with some highlights during the last 3 months of last year. It's my pleasure to say that all our business divisions had a strong quarter and performed extremely well. Also, we received EUR 180 million sales milestone from Bayer related to Nubeqa. And we were able to proceed with our clinical pipeline by initiating Phase II program with ODM-212, a molecule in our oncology pipeline. And also our partner Tenax, in the United States, initiated Phase III trial called Level 2 with levosimendan for pulmonary hypertension. And Q4 highlights, the base business during Q4 compared to the previous year grew 18.5% and 60% when we include the previously mentioned milestone. And operating profit growth was 59% and including the milestone, 254%, bringing us to 47% operating profit margin in Q4. Operating cash flow per share was slightly lower than previous year, and that's mainly due to the timing of royalty payments from Bayer. The net sales bridge is almost masked by Nubeqa and Innovative Medicines as it includes the EUR 180 million milestone. But it doesn't shadow the extremely good performance of other divisions, Branded, Generics and Animal Health. Of course, the divisions are smaller, so the growth in euros is also smaller. And this all resulted us to -- brought us to EUR 695 million during Q4. In the operating profit, we, of course, see the EUR 180 million, but a very good development on our royalties, close to EUR 50 million and also sales volumes brought us EUR 28 million. Price development, COGS and product mix put us slightly down by EUR 12 million and the effect of exchange rate on gross margin was EUR 4.1 million. And other operating costs and fixed costs were also well handled. So nothing specific there. So our Q4 Operating profit was EUR 328 million. And now I move to 2025. This was an all-time high year for Orion Pharma, both with net sales and operating profit. And I want to take the opportunity here today to thank all my colleagues all around the world in Orion Pharma for this achievement. In all business divisions, in R&D, in operations, you couldn't achieve anything like this without a very, very good collaboration in the company. So in addition to euros, we also had lots of positive development in R&D; ARANOTE approvals, both in Europe and U.S.; several new license and collaboration agreements; license agreements for early-stage technology platforms in our innovative medicines and oncology, but also acquiring and in-licensing product rights for both branded products and generics. Also MSD, our other significant partner, expanded the opevesostat development to women's cancers, which is wonderful news, both for women suffering of these cancers and taking all the possible opportunities of this molecule and mechanism of action. And Board of Directors of Orion Pharma is proposing a dividend of EUR 1.80 per share. And this is proposed to be paid in two installments. For the full year numbers, 21% growth in our base business, 22.5%, including milestone. Operating profit, EUR 58 million, if I round it to 59% growth in base business and 52%, including the milestones. And for the full year operating profit margin, this brings us to 33.4% compared to the previous year's 27%. And of course, this is mainly due to the -- or partly due to the milestone that we received. And operating cash flow was slightly better than in '24, driven by good sales performance -- mainly by sales performance as the milestone will be visible in the cash flow in this year. And now I move to the divisions. Innovative Medicines, here, the net sales is really Nubeqa, either the royalties or royalties and the product sales. And the dark part here describes the sales and royalties, where the growth was close to 38%. Of course, there, the milestone also included brings us to 152% growth. And then between the full years, the growth was 60% for the base business and 55% with the milestone. And then there is the picture that we always want to have here to remind you of the very back-end loaded character of this business due to the tiered royalties from Bayer. And we can see it extremely well here in the Q4 '25, where the royalties jump up significantly from the previous quarter. The product deliveries and product sales between the Q3 and Q4 last year remained at the similar level. Branded Products continued in Q4, the 2-digit number growth with 11% and the full year growth was close to 10%. For the respiratory portfolio, the growth comes from the budesonide-formoterol combination product. For the CNS, it comes from Stalevo or the entacapone product family for Parkinson's disease and especially retaining the rights in Japan back to Orion Pharma, but also from some new products that we've been launching in Europe. And then a significant growth of our women's health portfolio. Generics and Consumer Health really did it last year. 5.7% growth during the Q4 is above all averages in this business. and 4.6% for the full year as well. And this is a result of a lot of activities. We've done more than ever of launches in our current territories. We've had some bigger launches also this year for the products that have -- where the patents have ended, and this comes also from all of our regions. Animal Health quarter 4 was more, how would I say, calm compared to the previous quarters with only 1% growth. And this is mainly when you see this type of changes on a quarterly basis in Animal Health, it's usually the delivery timing of products to our partners. And then again, it didn't have a big effect on the yearly full year sales where the growth is close to 10%. And in a similar way to generics, the growth really comes from a broad -- here, even a broad geographic region globally, but also from a broad portfolio, both on the livestock and companion animal business. This is a nice list of our 10 biggest products. Almost all the products are growing, some even with a very healthy 2-digit numbers. Then some are more or less at par like Animal Health, Dexdomitor and Burana. Maybe it's good to note here that the Divina series, the women's health portfolio, has now climbed to be the #4. So it has actually now climbed up and passed the Animal Health sedative portfolio. And this is only a very natural order of products here to have the innovative products, Nubeqa as the first fastest-growing product and then all the 3 main products from branded side as the next ones. And then we have biggest generic products represented here. Simdax, unfortunately, of course, declining. Fareston's decline, again, is a matter of delivery timing. I think the big message in this slide is that, to my recollection, this is the first year when Innovative Medicines is our biggest division. So this is clearly a kind of a landmark event for Orion. Generics still hold almost 30% or generate 30% of our net sales and Branded Products, 17%. And the 2 other divisions, Animal Health and Fermion are significantly smaller ones. No significant news on our key clinical development pipeline. I already mentioned that we've started Phase II for the ODM-212 in 2 different indications, mesothelioma and EHE, both are rare oncology indications. We were able to start this study already in the end of the last year. And are aiming to start a study with the combination of this molecule to some current oncology treatments during the first part of this year. And also, you can see here now 2 studies for levosimendan also the level 2. And this is a very nice slide on sustainability this time about diversity. Orion has been ranked as #3 in the Nordic Business Diversity Index, which means that if you look at the numbers here on this slide, how men and women are -- what is the share of men and women on different level of the organization. You can look at the Board of Directors where almost 40% of members are women in executive team, almost 45% of the members are women. And if you look at the whole personnel in Orion Pharma, there almost 56% of the personnel are women. And there are a lot of other information here, of which we are very, very proud. One that I can mention is the accomplishment of the Code of Conduct agreements with our suppliers, which is 98%. We provided our outlook for 2026 for this year already on January 14, and it holds. So we have stated that our net sales range for this year is from EUR 1.9 billion to EUR 2.1 billion, and our operating profit range is from EUR 550 million to EUR 750 million. And here are our upcoming events, and our Annual General Meeting will be held on 24th of March. I thank you for your attention at this point, and we are ready for your questions. Tuukka Hirvonen: Thank you, Liisa. [Operator Instructions] But first, let's turn on to the conference call lines, and I'd like to hand over to the operator at this point. Operator: [Operator Instructions] The next question comes from Shan Hama from Jefferies. Shan Hama: Just two from me, please. We can take them 1 at a time. So firstly, could you just outline how you expect OpEx to develop over the course of this year as when compared to 2025, what sort of levels of SG&A and R&D are we looking at as a sort of percentage of the top line? That's my first question. Liisa Hurme: I'll give this question to Rene. Rene Lindell: Of course, we are not giving a detailed guidance on within the guidance and OpEx levels, but we have been stating that we are initiating more activities in the clinical pipeline. We have ODM-212 that entered Phase II and are planning to expand. So R&D OpEx, you can imagine that we are planning to increase during the year. And then when it comes to sales and marketing, we have also been investing more in those efforts across our countries, especially in the Branded Products division. So also there, there is some growth during '26. Shan Hama: Got it. And then just for my second question, please. Are you able to provide us with some further guidance as to your agreement with Bayer and what that looks like following Nubeqa's patent expiries? I think you previously stated low level percentage royalties after the patent expiries. But what is the low level? And will that eventually go to 0 after 2035? Liisa Hurme: I think exactly as you pointed out, it's a low-level single numbers of royalty that we can receive from Bayer after the product has become generic. And maybe did you have something else in your mind regarding that, we can confirm that here. Shan Hama: Yes. And then will it go to 0 after 2035? I think that's when the last patent expires in Europe, if I'm not mistaken. Liisa Hurme: To my recollection, in a very general way as these agreements are done, it's a region-by-region agreement. Whenever patents expire, generic competition starts in a certain region, so then the new royalty rate kicks in. Operator: The next question comes from Sami Sarkamies from Danske Bank Markets. Sami Sarkamies: I have a couple of questions. We'll also be taking this one by one. Starting from the outcome for last year, it was a great year, but you didn't actually surprise against your own expectations around mid-'25, even though Nubeqa sales actually developed very strongly during the second half of the year. So why did we land at the guidance midpoint and not above it? My point is that Nubeqa probably reached some sort of blue sky scenario during last year, but in which areas that wasn't the case. So was it related to other products not selling that well or maybe costs becoming larger than anticipated? Rene Lindell: So if you look at the net sales, we landed pretty close to our upper range of our outlook. So that clearly was on the high side, not in the midpoint. Then on the operating profit, we were quite there, close to the midpoint. However, there as well, we had a little bit more of OpEx, but again, that we kind of expected. As I said, we had R&D investments last year that increased significantly year-on-year. And especially even if you consider comparable without the write-downs in '24, you can see that actually the ongoing activities increased even more. So in a way, you could say we really executed on the plan, both in the R&D side and also on the sales and marketing side, we went exactly as planned. So I think for us, we were quite at the mark. Sami Sarkamies: Okay. And then going back to the cost outlook that was also discussed. So is it so that the R&D cost increase will be quite a bit more material this year than sales and marketing cost increase? Rene Lindell: Not necessarily. So I think in both sides, we are investing. So we'll have to see, of course, how the year goes, sales and marketing. I think it's pretty clear what we have in the budget that it will increase, R&D as well increasing. But again, as you know, it's less predictable. So that's why also there is a variety in the outlook range that includes a big part, also plays a role of the R&D expense. Liisa Hurme: And maybe to continue from that, we are really, as you said -- as Rene already said, executing our plan. We were executing our plan for '25, and we are executing our strategy, which is to invest more in R&D. And you can already see it in '25 if you compare '25 numbers to the '24, and that is expected to continue. Sami Sarkamies: Okay. And can you still open up a bit the factors that are driving sales and marketing costs increase this year? And maybe also you're planning to have a presence in the U.S. market someday. When do you think those more material sales and marketing investments will happen? Rene Lindell: I think the largest factors would be in Branded Products and obviously, Easyhaler as being the biggest product. That's where we have the most activities. So logically, driving more sales there requires also activities in that regard. The U.S.A. establishing that platform, of course, that also plays a role, but still quite small in the big picture of things. But of course, we are step-by-step also taking activities there, but it's a very small scale, but it's all part of the total. Tuukka Hirvonen: And maybe to add -- and then of course, also the Endo royalties, which we are paying. As Nubeqa grows, of course, we are paying more and more royalties to Endo, and that is shown in the sales and marketing costs. Liisa Hurme: Thank you for Tuukka to remind about that. So that really grows as the Nubeqa sales grow. Rene Lindell: So that's why it is a variable, basically, expense with Nubeqa's growth. Sami Sarkamies: And then my final question would be on capital investments. You had quite an increase last year. You're guiding for a similar level this year. Where are you investing at the moment? Rene Lindell: If I single out the largest investments, those would be in Nubeqa production, especially in the API production. And then secondly, last year, we also had in Easyhaler. But of course, we are continuing of course across all our divisions. So as we are growing, we need more capacity for the products that we are producing on our own. So in a way, it grows also in line with the business. But naturally, one of the big things is really darolutamide. Operator: The next question comes from Iiris Theman from DNB Carnegie. Iiris Theman: Thanks for your presentation. I have three questions, please. So firstly, R&D costs were higher than I expected in Q4. Did those include any one-offs, for instance, related to ODM-105? This is my first question. Liisa Hurme: Well, mainly the R&D costs, I don't recall that. Maybe, Rene, you know the details, but I don't recall if they had any one-offs for 105. But of course, the R&D cost increase is really according to strategy, according to our plans. And as we have several biologics, already chosen candidates that we will hopefully bring to clinical development, at least one this year and the next in '27. The balance or the -- how the R&D costs are actually sequenced when you develop biologics? There are a lot more costs already before the clinical development when you need to have your final product, your final pharmaceutical product and commercial batches validated before you enter your clinical studies. So I do fully understand it might be difficult to understand where do we spend the money when you still see that there are not that many projects in the clinical phase. So those are actually quite expensive in the light of earlier pipeline molecules that we've had. And of course, we've been bringing ODM-212 into clinical phase and started the Phase II study last year. And that, of course, also includes kind of one-offs and payments for CROs. So nothing to do with 105 unless Rene says otherwise. Rene Lindell: Yes. Maybe just on the dynamics of the R&D spend. Typically, end of the year, there is a bit more bills for external CROs. They tend to be back-end loaded over the years. ODM-105, yes, there were a few, I would say, single-digit millions in terms of payments that we booked basically for things that are still being done to ramp down. And yes, as you said, then also starting up the new clinical trials, there's also upfront payments that came there. But all of these -- this is going to be probably the typical one that you have some fluctuations, but the big message is in a way that from -- if you look at the full year to full year, then we expect a steady growth of R&D. Iiris Theman: Okay. And still related to R&D costs. So is it fair to assume that your costs this year will be in your historical range of about 10% to 12% of sales? Rene Lindell: I would not promise that the history is the best predictor of the future. It will really depend on how the projects move forward. So we've been many years in the 11%. But as I said, the target is to move forward further in the clinics, and that might mean also that we exceed the clinical -- or the historical ranges, but we'll have to see how the year goes. Iiris Theman: Okay. And then secondly, what was the reason behind the flat Nubeqa product sales quarter-over-quarter in Q4? Liisa Hurme: Well, there is a lot of fluctuation. Generally, of course, the deliveries have been growing as the sales been growing, but as we've stated many times, so there are differences between quarters. It's a bit of the same thing as with other products to our partners, but it's really might be a timing of delivery between one day to another and then it ends up to a different quarter or even to a different year. Iiris Theman: Okay. And then my final question is related to R&D pipeline. So what is your expected pipeline news in the next 6 to 12 months? Liisa Hurme: Well, I think the next one will be the start of the ODM-212 in combination with some current oncology drugs that are used. As I said, we hope to start those studies before the summer, during the first half of this year. And from there on, during this year, we aim to bring one biologic product in clinical stage. And then going forward to '27, there should be results. And now I'm looking at Tuukka already from one of the Nubeqa studies. So are they both readouts in '28? Tuukka Hirvonen: The ARASTEP study for the BCR is due to readout in '27, then the DASL-HiCaP is due to readout in '28. And still during this year, so in the second half of '26, our partner, Tenax, is expecting to read out the first level Phase III trial in the second half of this year. Liisa Hurme: Exactly. So this year's events is really starting the combination study with 212 level study results and also starting the biologics clinical development. Iiris Theman: And do you expect anything related opevesostat in the next 12 months? Liisa Hurme: I think that's something that you would need to ask from MSD. Operator: The next question comes from Alex Moore from Bank of America. Alexander Moore: It's Alex Moore, on for Charlie Haywood, Bank of America. Two for me on Nubeqa. On the greater than EUR 1 billion guidance on net sales, can you confirm your assumptions around expansion into early line settings on the data due in '27, '28? And then secondly, just a clarifying question on the royalty post LOE. You mentioned that the royalty rate drops to a very low rate after generic competition has started on a country-by-country basis. Can you give a bit more color on timing, i.e., does this mean the royalty rate drops on the launch of the first generic competitor in a particular market? Or is there more nuance there? Liisa Hurme: Well, I think may I repeat your first question. So did you ask whether the early-stage indications with Nubeqa are included in the EUR 1 billion? Alexander Moore: Correct. Liisa Hurme: That was your question. Yes, they are. In a similar way as anything that Bayer is saying about Nubeqa, they include all the indications or all the studies that are ongoing that they should be successful to reach what they are planning. And then your next question was regarding the royalty rate after the loss of exclusivity and how that would go. Usually, the agreements are designed so that the royalty rate drops either when the first generic enters the market or the patent is expired region by region. Tuukka Hirvonen: All right. Thank you. We have now, for the time being, exhausted all the questions from the conference call line. Then we can turn into the webcast questions. We have a few of them here. Let's start with a few one from Matti Kaurola from OP Markets. So the first one from Matti is, what kind of reasons impacted on increased R&D and especially the sales and marketing costs in Q4? Rene Lindell: I think we already discussed the R&D cost. So I think I already answered that. We will not repeat it. So sales and marketing, again, maybe repeating what also Tuukka mentioned that Endo royalties was a big part of that. And of course, the EUR 180 million milestone was one big event in Q4, which also include Endo royalties. But then the other piece just added activities that we have. We have added more sales persons across our markets where we are seeing good momentum and growth, for example, for Easyhaler. Tuukka Hirvonen: Then we'll continue with the cost side, hot topic today. This is again from Matti. What should we think about especially sales and marketing costs in '26? Are they going to have similar seasonality as in '25? Or is Q4 level as the new normal, so to say? Rene Lindell: I think there is a fluctuation between the quarters due to various factors. So I think it also kind of might be a bit risky to take 1 quarter and multiply by 4, but rather look at the total year levels as we typically do, you get a more continuous picture of how that would develop. Yes, there is always some seasonality always there, typically also Q4, even in that space can have some extra costs that are backloaded, like in R&D. So I would also look at a bit more bigger picture of how the costs develop. Tuukka Hirvonen: Thanks, Rene. Then the final one from Matti is related to Fermion. Typically, Fermion sales has been decreasing due to increased Nubeqa production. So why did the external sales of Fermion increased during Q4? Liisa Hurme: Well, this is a good and nice question because this -- let's remember that these sales, as was pointed out, are the external sales for other pharma companies. And we were clearly able to deliver before the year-end more than we've been able to do earlier. So I think this is a result of good deliveries before the year-end. Tuukka Hirvonen: Thanks, Liisa. Then move on. This question comes from Viktor Sundberg from Nordea Markets. So just wondered if you could provide any details on what you assume in the high end and in the low end of your guidance ranges to get a better feel for the risks and uncertainties going into '26? Rene Lindell: Yes. Of course, I can't give you details within the range. But I think if we talk about broadly about the range, the biggest factors, of course, for this year is Nubeqa. That is growing at the rate as we're seeing. We expect it to do very strongly this year. It grows as its share of the total business naturally. That means also the range where Nubeqa lands and the impact on Orion is increasing. We mentioned already R&D OpEx, it is also increasing, but there is uncertainty over there as well that how projects move forward, how fast and how the spend is, plus then other factors, the U.S. dollar to euro FX starts to impact more because a lot of the Nubeqa sales, of course, is in U.S.A. So that is in there as well. Plus the other divisions bring their kind of normal variations as well. So it's kind of sum of all of these. And in the end, as we've been typically stated, when we look at the midpoint, that's kind of a base case where things move according to our plans. Tuukka Hirvonen: Thank you, Rene. Now we have exhausted also the questions from the webcast, and I can hear that there are no follow-ups on the conference call line. So at this point, I'll hand over to Liisa for any closing remarks. Liisa Hurme: Thank you for your attention. And again, thank you for everybody for this excellent year 2025. We are heading towards another good year of 2026. Thank you.
Operator: Greetings, and welcome to the Euronet Worldwide, Inc. Fourth Quarter 2025 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 the session, you will need to press star-11 on your telephone. If your question has been answered and you would like to remove yourself from the queue, simply press star-11 again. As a reminder, today's program is being recorded. And now it is my pleasure to introduce your host for today's program, Adam J. Godderz, General Counsel for Euronet Worldwide, Inc. Thank you, Mr. Godderz. You may begin. Adam J. Godderz: Thank you, and good morning, everyone, and welcome to Euronet Worldwide, Inc.'s fourth quarter and full-year 2025 earnings conference call. On the call today, we have Michael J. Brown, our Chairman and CEO, as well as Rick L. Weller, our CFO. Before we begin, I need to call your attention to the forward-looking statements disclaimer on the second slide of the PowerPoint presentation we will be making today. Statements made on this call that concern Euronet Worldwide, Inc. or its management's intentions, expectations, or predictions of further performance are forward-looking statements. Euronet Worldwide, Inc.'s actual results may vary materially from those anticipated in these forward-looking statements as a result of a number of factors that are listed on the second slide of our presentation. In addition, the PowerPoint presentation includes a reconciliation of non-GAAP measures we will be using during the call to their most comparable GAAP measures. I will now turn it over to our Chairman and CEO, Michael J. Brown. Thank you, and good morning, everyone, and thank you for joining us today. Our fourth quarter 2025 results reflect one of the more challenging operating environments that we have faced in some time. Immigration policy uncertainty and economic stress, especially amongst lower-income consumers, weighed on growth across all three segments with the most pronounced impact on Money Transfer and epay. That said, despite the external headwinds that pressured the quarter, we remain excited about growth initiatives underway across all our segments that will drive business momentum through 2026. We will discuss these items in detail throughout this call. Further, we remain confident in our competitive position, particularly in Money Transfer where underlying trends continue to outperform broader market Operator: dynamics. Michael J. Brown: I would be remiss not to highlight the resiliency of our EFT segment, which delivered solid growth and once again demonstrated its role as a stabilizing earnings engine. This business continues to evolve beyond its historical reliance on ATM ownership with an increasing focus on payment infrastructure and merchant acquiring. Stepping back and looking at full-year results, despite a difficult operating backdrop, I am proud to say that we delivered another year of double-digit EPS growth consistent with our history as a publicly held company. Looking ahead to 2026, we expect to continue that performance with adjusted EPS growth in the 10% to 15% range. Based on our track record and the investments we have made, we are now confident in our ability to deliver another year of double-digit earnings growth. Next slide, please. In periods of uncertainty, I believe that history does matter, and this chart on slide five shows our ability to consistently deliver top-line growth year over year. Euronet Worldwide, Inc. has more than three decades of experience in dealing with various economic cycles. We have navigated the economic downturn in 2008 and 2009, demonetization in India, the economic instability in Greece, one of our largest EFT markets, and, of course, we navigated COVID, just to name a few. In each of these periods, the diversity and durability of our earnings, our conservative balance sheet management, share repurchases, and thoughtful investment in growth initiatives allowed us not only to withstand the pressure, but to emerge stronger, more agile, and with greater market share. You will see these themes emerge as Rick and I talk you through the details of the quarter. In short, we do not view near-term uncertainty as a reason to adjust our long-term strategy. Instead, we rely on the same principles that have granted our success for decades: disciplined execution, evolution of our business model, thoughtful capital allocation, and a focus on building assets that compound value over time. Our 2025 execution shows how we put these principles into action. We generated $4.8 billion in adjusted earnings, which allowed us to return approximately $388 million in capital to shareholders in the form of share repurchases, which excludes the shares repurchased to offset the shares issued for the CoreCard acquisition. During the year, we also acquired Kyodai in our Money Transfer segment and we announced the acquisition of Credia Bank's merchant acquiring business. We expect both of these acquisitions to drive multiyear growth. Next slide, please. As I continue my comments on slide six, you can see a quick recap of some of our key accomplishments for 2025. We continue to invest in growth opportunities across all three segments, particularly in areas where we were accelerating our digital strategy. In addition to the acquisitions I previously mentioned, we signed a REN deal with one of the top three U.S. banks. We added Commonwealth Bank of Australia along with Citi to our Dandelion portfolio. We continue to expand distribution into digital wallets in epay. Not only will these deals contribute to our growth, names like these demonstrate that our products are being recognized as market leaders and drive value. The flywheel is definitely turning and gaining momentum. So while we have experienced some pressure from immigration and the economy, we have continued to keep our eye on execution of all our growth initiatives as we enter 2026. Next slide, please. With that perspective in mind, I want to step back and remind everyone how we think about Euronet Worldwide, Inc. at a higher level as illustrated on slide number seven. As we have discussed in prior calls, our business is built around two core revenue pillars: payment and transaction processing, and cross-border and foreign exchange. What is important is that these two pillars support a huge number of use cases across the globe that we can serve through our technologies and global network, and they also work together to combine payments, cross-border movement, and FX resulting in revenue generation which is meaningfully higher per dollar moved than the broad global payments industry. Despite global challenges like the ones I mentioned earlier, the bottom line is that people and businesses will continue to make payments. They will send money, move funds across borders. Our focus is on ensuring that Euronet Worldwide, Inc. remains well positioned to serve those needs wherever, whenever, and however they may arise. Now let us go on to slide number eight and we will talk about how we furthered this strategy in each of the segments, and, of course, I will start with EFT. I am on slide number eight now. During 2025, EFT continued to deliver consistent growth, earnings stability, and cash generation which was largely the result of the diversity of our products, geographies, and payment channels in the segment. During the fourth quarter and on the heels of another year of exceptional growth in our merchant acquiring business, where adjusted EBITDA grew 32%, we acquired Credia merchant acquiring business. This partnership with Credia Bank, which is the fifth-largest bank in Greece, adds to the diversity of products and services in the EFT segment, additional mix shift to our digital strategy, and is a perfect example of the breadth of services EFT can offer a partner largely due to our REN platform and its flexible, modern digital payments processing capability. This agreement will add another 20,000 merchants to our acquiring portfolio, or nearly a 10% increase, as we provide the banking infrastructure for financial services to Credia including credit, debit, and prepaid card issuing. We will also manage the outsourcing for the branch and off-branch ATMs and provide Credia customers with access to our leading ATM network. Before I wrap up, I would like to briefly touch on our recent acquisition of CoreCard, which we completed in October. This acquisition aligns well with our objective to expand into high-growth fintech areas such as credit card issuance and processing. We view CoreCard as a strong addition to our payments processing pillar, and we are encouraged by the early momentum into new markets along with its ability to serve a more diversified client base. Since the acquisition, we have seen an expansion in processing relationships across several new programs, including the recently launched and well-publicized Bilt 2.0 credit card focused on renters and homeowners that allow you to earn points on housing payment, and the Coinbase OneCard, which offers rewards paid in Bitcoin. These are just a few of the potential new customers that we are targeting with this innovative platform. As previously stated, our near-term focus is on integrating CoreCard into our product offering for international markets. Over time, this integration will enable a more and more comprehensive end-to-end client offering combining seamless credit card processing with our existing payment capability. Needless to say, at this point, we are pleased with the early customer response. I would like to pause here to specifically highlight one important point. Our EFT business is evolving from a model historically centered on ATM ownership to one increasingly focused on payments infrastructure. While ATMs remain an important and cash-generative component of EFT, partnerships like Credia and acquisitions like CoreCard accelerate our capabilities in modern issuing and processing allowing us to scale software-driven services that support digital transactions and real-time payment flows across our global network. Now let us go on to slide number nine and we will talk about epay. As I mentioned, epay's results were impacted by global macroeconomic pressures. However, despite these challenges, the underlying core epay business continued to perform well in a difficult environment. Throughout the year, we expanded and diversified epay's distribution footprint across both physical and digital channels. This included growth in our merchant payments processing business, the expansion of our digital content and gaming partnership, and the launch of our own open-loop product in a new market. The fourth quarter, we delivered strong performance in our gaming-related branded payments business which makes up 37% of our total branded payments margin. According to industry reports, the global video game market was approximately $290 billion in 2025 and is expected to grow at a 13% CAGR through 2031. We have strategically positioned our branded payment distribution to benefit from these strong growth trends in markets around the world. We also expanded our digital content distribution with Revolut to India and New Zealand as part of their loyalty program. We are now in 20 countries with Revolut and looking to expand further. Revolut is one of the fastest-growing fintechs out there which further demonstrates our global reach, good execution of our digital channel growth strategy, and customer demand for the epay products. Additionally, we broadened our partnership with Lidl Supermarkets adding digital branded payments in two markets, Italy and France. Finally, we continue to leverage our relationship with the merchants that distribute e-content to offer payment processing. This has allowed epay to grow its merchant payment processing revenue by 21% for the full year. As we move forward, we will continue to evaluate the business to ensure that epay operates at optimal levels while staying focused on our core strategic initiatives to drive growth across the segment. Now let us move on to slide number 10 and we will talk about Money Transfer. Operator: Slide 10. Michael J. Brown: As I mentioned in my opening comments, the Money Transfer segment faced headwinds, particularly in the second half of the year driven by macroeconomic uncertainty and the changes in U.S. immigration policy. While these external factors certainly impacted our business, they have impacted everyone in the industry. It has been tough for everyone, yet we continue to find ways to gain market share. Since we have acquired Ria, we have outpaced market growth. Despite the disruption in remittances, we have continued to expand our world-class network, to add more digital touch points, to operate in new send and receive markets, and to add world-class partners to our Dandelion network. To ensure the continuity and stability of our operations, our management team focused on what is within our control and in 02/2025, anticipating a softer environment, we proactively initiated a comprehensive results-based review of the Money Transfer business with an external management consulting partner. The goal was to improve our digital sales focus, together with the efficiency, scalability, and operating leverage of the segment. That work resulted in a set of structural actions designed to strengthen the business over time. Rick will walk you through the financial implications of those actions, but from my perspective, this was about fortifying and optimizing how the business focuses on digital customers and operates through AI and process automation. Because this work began well in advance, we are better positioned now and expect these proactive steps to support performance in the coming quarters and beyond. In parallel with the optimization effort, we continue to invest in key areas that will position Money Transfer for future growth. During the fourth quarter, we signed an agreement with WorldFirst, a U.K.-based fintech that is owned and operated by Ant Financial. WorldFirst will join Citi, Standard Chartered, HSBC, and others in leveraging our Dandelion network to offer best-in-class real-time cross-border payment flows to their customers. We also closed the year with strong performance in our Ria digital channel. In the fourth quarter, we expanded our digital reach with the launch of the Ria app in Greece, Romania, and the Czech Republic, which are exciting new markets that will support our ongoing digital growth. In the fourth quarter, our global digital channel delivered 31% transaction growth and 33% revenue growth including 33% new customer acquisitions in December alone. We also continue to expand our global distribution network by launching business operations in Colombia and Panama under our own licenses. These new markets are part of our geo-expansion efforts that will allow us to continue to expand our global TAM. We look forward to building strong inbound and outbound businesses in both countries. Finally, we continue to work closely with Fireblocks and our internal teams to launch our stablecoin strategy. This initiative, which we announced last quarter, will support use cases around the globe. So while we work through some market-driven challenges in 2025, we remain confident that our optimized operating model combined with our leading global network, which now reaches 4.1 billion bank accounts, 3.7 billion wallets, and 4.0 billion cards across 200 countries, will continue to support our ability to outgrow the market in 2026 and beyond. I will stop there, and I will turn it over to Rick L. Weller, who will walk you through the financial results for the quarter in more detail. Yes. Thanks, Mike, and good morning, everyone. I will begin my Operator: comments on Slide 12, which shows our fourth quarter and year-over-year Rick L. Weller: results on an as-reported basis. Most of the majority major currencies we operate in strengthened compared to the dollar. To normalize the impact of the currency fluctuations, we have presented our results adjusted for currency on the next slide, on slide 13. As Mike mentioned, adjusted EPS for the fourth quarter was $2.39 reflecting another quarter of double-digit year-over-year earnings growth, even as parts of the business faced pressure. With that context, I will start with the fourth quarter results and then move to the full-year performance. On a constant-currency basis in the fourth quarter, consolidated revenue increased 1% year over year, adjusted operating income declined 6%, and adjusted EBITDA was consistent with the prior year, reflecting macroeconomic and immigration-related pressures in Money Transfer and epay, partially offset by strong performance in EFT, where we delivered double-digit growth in both operating and adjusted operating income and EBITDA. EFT produced another strong quarter with revenue growing 8%, adjusted operating income increasing 12%, and adjusted EBITDA growing 13%. Money Merchant Services in the Greek business performed exceptionally well, delivering another strong quarter with adjusted EBITDA up 32% year over year on robust transaction volumes and continued merchant expansion. Results in the quarter also benefited from continued expansion in Morocco, Egypt, and the Philippines as we deployed additional ATMs, broadened service offerings, and deepened relationships with banks and fintech partners. In epay, revenue declined approximately 2% while adjusted operating income decreased 7% and adjusted EBITDA declined 8% reflecting product mix shifts, continued investment in proprietary offerings, and macroeconomic pressures. Promotional activity in our B2B channel was lighter year over year, while our core digital content and payment processing businesses remain stable. Money Transfer revenue declined 1% year over year with adjusted operating income down 6% and adjusted EBITDA down 5%. I want to put these headwinds in proper context. The declines we experienced in certain remittance corridors were driven primarily by macroeconomic conditions and immigration-related dynamics affecting senders, with more pressure in the United States and more specifically, Mexico. Financial pressure remains concentrated among low-income households which represents the majority of remittance customers. According to the Federal Reserve's most recent Survey of Household Economics and Decisionmaking, inflation and prices remain the top financial challenge facing U.S. customers, and a significant share of lower-income households report difficulty covering monthly expenses and absorbing unexpected costs. What that typically means in practice is not a sharp reduction in support for families abroad, but rather fewer transactions. When budgets are strained by essentials such as rent, food, fuel, and utilities, senders continue to remit but with less flexibility between paychecks. That shows up first in frequency rather than ticket size. While we saw pressure in transactions, average amount sent increased by 7% to 8% year over year in the fourth quarter. According to the Central Bank of Mexico, remittances into Mexico declined approximately 2% in the fourth quarter of 2025, following eight months of decline ranging from about 2% to 16% compared to the prior year, and were down roughly 5% for the full year. Our Money Transfer results tracked the industry in the fourth quarter, reflecting the same macroeconomic and immigration-related pressures facing U.S. senders. However, while the broader market contracted on a full-year basis, our business delivered a modest increase in remittance volumes for 2025. In our view, that outperformance reflects continued share gains driven by our expanding digital footprint, corridor diversification, and strong partner network demonstrating the durability of our platform even in a softer demand environment. Consistent with our discussions over the past few quarters, we are very focused on extending our digital strategy in each Operator: segment. Rick L. Weller: More specifically, in the Money Transfer segment, where we have consistently produced 30% growth rates in Ria Digital, and signed Dandelion agreements with leading financial and fintech institutions. To continue our focus on digital growth, about a year ago, we initiated a process to carefully look at what we could do to drive yet more focus on Money Transfer digital initiatives. This effort is expected to produce approximately $40 million in annual run-rate benefit, a portion of which will drop to the bottom line. In that regard, as you saw in our earnings announcement, we recorded a charge of $20 million related to driving the extension of our wholesale SME and consumer digital products, enhancing the end-to-end customer experience, and deploying targeted marketing investments to accelerate digital customer acquisition and engagement. The net benefit of this investment will meaningfully contribute to an expansion in the Money Transfer segment's operating margins by approximately 50 to 75 basis points in 2026. Moreover, we will continue to critically evaluate the opportunities to accelerate our Money Transfer digital revenue growth which will likely require additional investment. We expect that the net benefit of these investments will drive additional growth as well as contribute to an expansion of our operating margins. This focused approach to accelerate our digital product opportunities to operate and scale the business to fully leverage the company's strong capabilities, extensive global infrastructure, deep banking relationships, and regulatory expertise is all designed to translate our advantages into scaled sustainable growth in digital money transfer. We will share additional details regarding these initiatives in our upcoming quarters. Finally, despite the macroeconomic and immigration-related pressures impacting the fourth quarter, as Mike mentioned, we remain very confident in the underlying earnings power of this business. The momentum we see across EFT, early wins from CoreCard, and the structural cost actions we have taken across the business, including the ongoing optimization project in Money Transfer, give us increasing confidence going into 2026. As Mike mentioned earlier, based on our current operating trajectory and pipeline of growth initiatives, we anticipate adjusted earnings per share growth of 10% to 15% in 2026 with multiple levers to drive performance as volumes normalize and investments scale. I am on slide 14 now. Turning to the full year, we delivered revenue of $4.2 billion, adjusted operating income of $550 million, adjusted EBITDA of $743 million, and adjusted earnings per share of $9.61. Essentially, the difference between the fourth quarter and the full year was from the increasing pressure in the second half of the year due to macroeconomic conditions and immigration-related policy decisions across several markets. Despite these headwinds, the diversification of our portfolio, disciplined expense management, and share repurchases we executed during the year enabled us to deliver another year-over-year double-digit earnings growth. I would also highlight that consolidated operating margins expanded by approximately 30 basis points versus the prior year, and we expect that margin trajectory to continue into 2026. As Mike mentioned earlier, adjusted EPS of $9.61 represented another year of double-digit growth, consistent with our long-term track record. Let us now turn to slide 17 for a few brief comments on the balance sheet. Slide 17 presents a summary of our balance sheet compared to the prior quarter. As you can see, we ended the quarter with $1.0 billion in unrestricted cash and debt of $2.0 billion. The decrease in cash is largely due to stock repurchases and debt repayments, partially offset by cash generated from operations. From a capital allocation standpoint, Operator: our Rick L. Weller: our priorities remain consistent: maintaining a leverage profile aligned with an investment-grade rating, investing in growth opportunities tied to our digital initiatives, and returning excess capital to shareholders through disciplined share repurchases. In 2025, we repurchased $388 million of our shares, which represents essentially all of our adjusted earnings returned to shareholders through share Operator: buybacks. Rick L. Weller: This $388 million does not include the 2.6 million shares repurchased and then reissued for the CoreCard acquisition. We believe this balanced approach—managing our balance sheet while actively deploying capital for growth and shareholder returns—is central to our long-term value creation strategy. With this, I will turn it over to Mike to wrap up the quarter. Michael J. Brown: Thanks, Rick. Growing this business has never been easy. Over thirty years, we have regularly been met with certain macroeconomic, regulatory, and geopolitical challenges. Rick L. Weller: Even though in the second half of the year, we faced stronger macro Michael J. Brown: issues, we are not discouraged. We have entered the year with a lot of motivation and confidence. We will continue to focus on the areas that we can control including executing on the growth of digital across all three segments, continuing to grow merchant processing in both EFT and epay, enhancing our banking infrastructure products and services with REN and Operator: CoreCard. Michael J. Brown: Adding more branded payment products across more markets with epay, signing more partners and increasing transactions through our Dandelion network, expanding our digital money transfer presence, optimizing the business in all three segments, and generating free cash flow and deploying our capital where it makes most sense, whether to deliver growth through acquisitions or repurchasing shares. This strategy has served us well, highlighted by our ability to deliver our fifth consecutive year of double-digit adjusted EPS growth in a difficult environment. I am confident we can continue to deliver 10% to 15% earnings growth in 2026. With that, we would be happy to take questions. Operator, will you please assist? Operator: Certainly. And our first question for today comes from the line of Michael John Grondahl from Northland. Your question please. Michael John Grondahl: Hey, guys. Wanted to ask a little bit Michael J. Brown: you know, you have called out some macro issues at the lower end and immigration. Are you seeing the light at the end of the tunnel on any of those 3Q and 4Q at 1% constant currency growth, and did things pick up by the end of the year? Are they picking up in January at all? Just just kind of curious what you are seeing there kind of real time. Michael J. Brown: Well, I would say it is first of all, whatever happens in January does not necessarily reflect the rest of the year. We do see some positive trends in January, but I would not hang my hat on. We have to kind of see what happens. It is still a very difficult environment out there. We have got a very anti-immigrant administration here, which slows down my Money Transfer business. And so I would say we are cautiously optimistic, but I would be careful, you know, jumping to conclusions. Rick L. Weller: Yeah. I would add to that, Mike, you know, just a little bit of data. And, again, as Mike says, you know, I do not think you want to jump to, you know, any kind of quick conclusion here. But if we take a look at the transfers to Mexico as reported by the Bank of Mexico, we saw declines as sharp as 16%. Now this was back more in the summertime period. Okay? And those have consistently decreased. Those drops have kind of, they have had a bit of a sawtooth pattern to them, but let us say they have consistently decreased where actually in December, there was an increase year over year. Michael J. Brown: So, Rick L. Weller: you kind of see the momentum moving a bit more north here, and, you know, that you kind of take a look at that. You know that families are, you know, families in Mexico are dependent on the monies being sent back home for their daily needs. And so, you know, maybe there is something in that kind of underlying improving trend. But as Mike says, you know, let us not overthink it at this point. It is positive, I think. And, you know, we think that we are well positioned to take advantage of that because we have continued to grow and expand our network. We continue to put more emphasis in our digital business. And so from that standpoint, our operational execution is doing good. And if we really do see this, you know, kind of northerly movement out of what you are seeing in Mexico is reflective of a broader environment, you know, maybe that, you know, is more positive than you think. But at least those indicators, you know, and I will look more specifically to this Mexico stuff. You know, they look like they are moving in the right direction. Michael John Grondahl: Got it. And then secondly, it sounds like the Money Transfer review started a while ago. One, maybe what triggered that and then two, any thoughts on doing something similar in EFT or epay? Michael J. Brown: So, yeah, we started this about a about this time last year, maybe a little before. Gustavo Andre Gala: So, yeah, we have been thinking about it and kind of what triggered it. You have got to remember, Ria is an exceptional case of success. When we bought Ria, you know, eighteen years ago, it was, you know, it was doing $200 million in revenue and now doing $2 billion. You know? So we have grown a whole lot over the last decade. It has been, you know, we moved up to be from a very tiny player to the second-largest money transfer house in the world. And with that, we realized, you know, we need to take a hard look at how we are organized, what we are doing, to make sure that our organization matches the size of the opportunity and our customer base. So that is why we did it. It was not, I mean, you know, we were not doing it out of desperation. It was more like, boy, we have really grown. Let us make sure we are not leaving any money on the table. And Michael John Grondahl: you Gustavo Andre Gala: as we as Rick said and I Gustavo Andre Gala: and I said, we are really focusing on the digital aspect of Money Transfer, and you can see with the 30-plus percent growth rate that we have had for several years now, we want to continue to grow that digital business. Michael John Grondahl: Got it. And then, I guess, just any thoughts on a similar review at at Michael J. Brown: EFT? Gustavo Andre Gala: We are always doing that. We may do something like that in the others or we may self-review, but I would say that the growth in EFT has not been quite as quick over the last couple of decades as maybe Money Transfer, so that is why we wanted to make sure. And the focus there, of course, is moving our bricks and mortar to more digital. Michael John Grondahl: Got it. Okay. Hey. Thanks, guys. Operator: Thank you. And our next question comes from the line of Cristopher David Kennedy from William Blair. Your question please. Michael J. Brown: Yes. Good morning. Thanks for taking the questions. Can you give us a little bit more details on the merchant processing business Michael John Grondahl: understand it is split between epay and the EFT segment. Michael J. Brown: Yeah. But any more color on the growth of that and the opportunities going forward? Gustavo Andre Gala: Well, we are getting pretty much blown away by that growth is the kind of the bottom line. We probably do about 20% of that volume coming out of epay and the other 80% out of EFT. As you can see by those numbers in both of them, and the epay merchant acquiring business grew over 20%. Our merchant acquiring business in Greece and elsewhere that was run out of EFT has grown over 30%. Michael J. Brown: So Gustavo Andre Gala: you know, this is a big one for us. And it is now gotten to the point where the combined EBITDA of both of those endeavors is in the kind of $90-ish million. So it is not only growing fast, but it has size. So we are really excited about that. Cristopher David Kennedy: Great. Thanks for that. And then just a quick modeling question. Can you talk about free cash flow in 2025 and the prospects for 2026? Thank you. Gustavo Andre Gala: I will let Rick do that one. Well, as Michael J. Brown: you know, Mike said, we essentially generated about $400 million of Rick L. Weller: free cash earnings there. And so, you know, now that obviously was offset with things like share repurchases, did a couple little acquisition pieces there. We would expect 2026 to be, statistically, no different than our earnings improvement. Right? We expect our earnings to be going up 10% to 15%. That should be, we should see a similar kind of rhythm in our free cash flow. Now, you know, then, as Mike said, we will be thoughtful on how we then deploy that Cristopher David Kennedy: free cash flow, Rick L. Weller: our first objective would be to support and develop our internally developed products. And Mike mentioned a couple of those in his comments there. We are going to continue to have very strong focus on our digital initiatives across all three segments. You know, we have talked a lot about Money Transfer, but we have got initiatives going in all three segments, whether it is acquiring or it is gaming or it is Money Transfer. I mean, they are in every part of the business. And so to that end, you know, we will continue to look for opportunities on the acquisition side that would be helpful to promoting and extending those digital growth strategies. So, yeah, net-net, I would expect that that number will improve consistent with our EPS outlook for 2026. Michael J. Brown: Great. Thanks for taking the questions. Operator: Thank you. And our next question comes from the line of Peter James Heckmann from D.A. Davidson. Your question please. Gustavo Andre Gala: Hey. Good morning. Thanks for Michael J. Brown: the time. I had a few follow-ups. In terms of CoreCard, can you give us the approximate revenue contribution for the partial quarter in the fourth quarter? Rick L. Weller: Yeah. Yeah. It was, you know, in the ballpark of $10 million to $12 million. Operator: Okay. And that is helpful. And then just in terms of the Michael J. Brown: the pending Credia, merchant acquiring acquisition, can you give us maybe some brackets around potential purchase price and total revenue? Rick L. Weller: We, I would not put anything out there on the, I mean, we have not disclosed those kind of numbers. The purchase price was relatively small. And it really will be, and it will only, you know, happen once we migrate the parts of the business into our platforms. But, Gustavo Andre Gala: it is within the Peter James Heckmann: more like towards the last half of the year. Gustavo Andre Gala: Yeah. Rick L. Weller: It is in the few of millions of dollars rather than hundreds of millions of dollars. So, yeah, it is quite low on the few of millions of dollars scale. Operator: Okay. That Michael J. Brown: that is helpful. And certainly, that acquisition would lead us to believe that you just mentioned that the merchant acquiring business is generating strong growth, organically off the base of the Piraeus deal. Operator: Now you are adding in this tuck-in Michael J. Brown: Are there opportunities for other tuck-ins to continue? Gustavo Andre Gala: We are looking for them, Pete. And, you know, we have been looking for them since we purchased them three years ago, since we purchased the merchant acquiring business from Piraeus. So we are looking. When we find a good one, we will slip it in. But there is no guarantee to what you can find and what it will be priced at. You know? So but, I mean, all our growth up to this point, which probably has a compounded return of 30% over the last three or so years, has all been organic. So it is nice to be able to have a little inorganic tuck-in that we can also use some of our additional products on that they did not have themselves to help them grow faster. Rick L. Weller: And, you know, Pete, I would add to it. If we do see some across each of our businesses as opportunities. It is good to see that it appears that sellers are coming to their senses on valuation. I mean, the whole payments industry is being hit extremely hard in terms of valuation, and that is starting to kind of sink in with sellers out there. And I would also tell you kind of in terms of some of the things that we have seen, and I would even say on this Credia thing, is the economics we will get out of the deal will be as good or better than share repurchases. Operator: Right. So that will give you, you know, some perspective in terms of Rick L. Weller: the efficiency of the acquisition versus even using it for share repurchases. We will have as good or better economics than share repurchases. Michael J. Brown: Alright. Great to hear. I will get back in the queue. Appreciate it. Operator: Thank you. And our next question comes from the line of Rayna Kumar from Oppenheimer. Your question please. Rayna Kumar: Good morning, Mike and Rick. I just want to go back to CoreCard for a second. Could you talk about what your expectations are for CoreCard in 2026? And now that JPMorgan is going to be the issuer for Apple Card, is there a prospect for you to retain that Apple Card relationship? Gustavo Andre Gala: I, well, we will just say that we do not know that answer for sure, Rayna. But based upon JPMorgan's history of wanting to do things in their own shop, I would say long term, that would be doubtful. You know? I am not saying it is impossible. They may decide that because the CoreCard platform has a plethora of services and features that they do not have in their current platform, it might, they might find that it is better to use our platform for a while until they make those transitions. Or maybe they will not. But we, when we did the business model, we said this is a good buy if we can keep them through the end of their contract, which is 2027. And it may go further. Rayna Kumar: That makes sense. And anything you can say on just, like, the contribution of CoreCard in 2026? What you are estimating? Rick L. Weller: Well, you can see what they had in their publicly reported Operator: information. Michael J. Brown: You know, we will do Rick L. Weller: we will do that good or better. Yeah. And, you know, so we are not putting a specific number out there for CoreCard. But as Mike said, we are already seeing the wins show up on the ledger. And the one, yeah. I mean, the value that CoreCard brings to the table is they have got a great platform. They have got a great group of people that know this industry inside and out. Got a great reference customer that is better than anybody else you could probably have out there, and in Apple. Now you put that together with us that has global distribution. Just like we did with Money Transfer. When we bought Money Transfer, it was highly focused on the United States. We are now around the world with that business. Same thing with epay. When we got epay, it was focused on the U.K. We have got epay now around the world. That is the same kind of customer reaction that we are seeing on the CoreCard product. It is the leading quality product in the market. And now we are exposing it to the rest of the world. So we are excited on seeing what the customer reaction is. But I would say you can see what their publicly reported numbers are. Gustavo Andre Gala: We will do that that good or better. Rick L. Weller: And you can bet that we are driving it to be a heck of a lot better. But let us not, I do not want to overhype the expectation. Gustavo Andre Gala: But I will say, even though Rick is telling me not to overhype, the number of interested parties that have come out of the woodwork since this announcement has been phenomenal. So what we have got to do is move those interested parties to closure and then we will be cooking. Rayna Kumar: Okay. That is exciting, and I appreciate that. And then just, you know, one more if I can sneak it in. Just, like, any thoughts on, like, segment EBITDA contribution for 2026? Like, how we should think of the different growth rates by segment. And I, like, I know a competitor recently announced an exclusive relationship with Kroger's. Is there any impact there to your business? Thank you. Rick L. Weller: Well, first of all, the Kroger impact to us will be marginal at best. And, yeah. So it unfortunately was not a great success in that regard. So nothing there to speak of. As it relates to, you know, the growth rates in that by segment, I think we will kind of hold off on that. We have given you guidance for the EPS. You can kind of look at the, you know, what we have had historically as growth rates across those businesses. You know, what I would probably say, without putting numbers out there, you know, we would expect the growth rates out of EFT and Money Transfer to lead the way, with epay, you know, in a lesser growth kind of a profile as we see it right now. Although I know that, you know, Kevin is looking at a number of exciting products that, you know, hold out some opportunity. But, yeah, we will hold off on putting specific numbers out there by segment. If you remember, a couple of years ago, we went through an approach of using an earnings guidance for the bottom line. Because essentially what we were seeing, we were seeing is a dozen different numbers out there that if you meet, if you exceed one and you missed any one of the others, you know, you really get penalized for it. And so we are trying to get the investors to focus on the strength of our total business and really reward us for, again, this is the fifth year in a row with double-digit earnings growth. I looked at the Fortune 500 stuff the other day. And the expectations for the full year are something like about 12% growth. When you say, alright. Well, if that is what is out of the S&P 500, if that is out of the S&P 500, we did 12%, why are we not getting the same kind of trading? Okay? If you took the four or five leading valuation guys out of those numbers, their numbers were 9% in growth year over year. Yet we have produced again, Mike said, the fifth year in a row Gustavo Andre Gala: of double-digit Rick L. Weller: earnings growth, and we expect the same thing next year. So we have got a business that has great consistency. Michael J. Brown: Great continuity, Rick L. Weller: we have great diversification because we are not dependent upon any one market. You know, just look at Mexico, for example. If all of our business was going to Mexico, our results would not be anywhere to what they are now. They would be down significantly. But we are diversified in that we are not dependent upon Mexico. We would love to see better numbers come out of that market, but we have a great diversified business. And so we really try to, you know, want to try to get people to focus on the consistency and the reliability of double-digit earnings growth. And our earnings are durable. Gustavo Andre Gala: I mean, they have been here for a long time and they continue to be so. Rayna Kumar: Thank you for the color. Operator: Thank you. And our next question comes from the line of Daniel Krebs from Wolfe Research. Your question please. Rick L. Weller: Hi, thank you. This is Daniel Krebs on for Darrin. I would love if you could discuss the recent Operator: DXC Hogan partnership Daniel Krebs: you know, how you may think that can improve distribution of the issuer processing products and Daniel Krebs: maybe where those efforts are being targeted by client or region. Thank you. Did you say Hogan partnership? DXC. Gustavo Andre Gala: The DXC partnership. Daniel Krebs: I am sorry. I am unfamiliar with what that is. Okay. No worries. We can take that one offline. Yeah. Maybe switching back to Credia Bank then. I know we are not giving a lot of specifics on the revenue. It sounds kind of smaller than Piraeus. But if you could just compare and contrast the business relative to Piraeus when you got it, are we talking about a similar margin profile and growth profile as we look at combining those two? Gustavo Andre Gala: Well, we hope so. So they have got about 10% of our base of, you know, our number of merchants. So that gives you an idea of kind of its size. The one thing that has helped us grow that business, where we have gone from about 18% market share in Greece to about 24% market share over the last three and a half years, and that is in a highly competitive market. We have grown that market share because we have a really good product set. And we do more than just merchant acquiring. We do DCC at these things. We do tax refund. We have various credit kinds of deals going on with our merchants. So we continue to grow that business really quick. Really quickly. And I would expect that if we could add 20,000 more merchants, they should fall right there in lockstep with it. So we are pretty excited. Plus, we are not stopping. We mentioned too that we did, what, 7,000 plus merchants organically in the fourth quarter. So we are going to keep working organically, not just inorganically. Daniel Krebs: Right. Thank you. Operator: Thank you. And our next question comes from the line of Vasundhara Govil from KBW. Your question please. Vasundhara Govil: I guess just first one on the EPS guide of 10% to 15%. Maybe you could give us some color on sort of what the underlying macro assumptions are at the low end versus the high end, just given we are seeing some pressure there? Gustavo Andre Gala: I do not think we have a high end and low end assumption. We have our forecast Gustavo Andre Gala: that falls in that range. There is a lot of things that can happen positive and negative in a year or so, and we have been able to deliver that for the last five years. So we feel pretty comfortable with that range. I would like to beat it like we did year before last, like we did in 2024, but we are just going to put that out there to give people a little bit of a yardstick of where we think we are going to land. Rayna Kumar: Great. Thank you. And then, Mike, Vasundhara Govil: you talked about sort of diversifying EFT revenue mix away from the ATM business. You have obviously made a bunch of acquisitions to make that happen. Can you remind us what that mix looks like today? And sort of if you look out two to three years, what do you envision that mix could be? And then similarly on the margin profile, I am guessing it will be accretive to the margin profile, but any color on how we can see that evolve over time? Rick L. Weller: Yeah. Yeah. Can you repeat that for me? Gustavo Andre Gala: There is that quite the EFT revenue mix Vasundhara Govil: you guys have been making acquisitions, and you are talking about that mix, or diversifying away from the ATM business? So just looking for some color on what that mix could look like two to three years from now, just given that you are buying non-ATM businesses and some of them are going at a faster pace, and then also, like, what that means for margins over time. Gustavo Andre Gala: Well, Vasu, there is also another nuance here because you say diversifying away from the ATM business. What that assumes is that all we do is, you are kind of, we are probably referring to our owned ATM business. What we found is because of our scale and the size and our reach, we do a lot of banking infrastructure deals where we are being contracted by the bank to do their ATMs or provide them ATM services. So unlike our traditional tourist-focused ATMs where if a tourist does not walk up to the ATM, you do not make money. If he uses less cash this year than last year, you make less money. These are infrastructure deals. These are long-term contracts with banks. And so what we are finding now is you have kind of got to break out when you look at ATMs, you cannot, like, throw them all in one bucket because some of them, it really does not matter how much people are going to spend with cash. We are going to get paid the same or more. So and as far as what percentage, I will let Rick try to take a shot at that. But I just want to kind of educate people. Everybody wants to say, this is all ATMs. It is not all ATMs. Rick L. Weller: And, you know, we have shown you some charts and graphs before that show that the ATM business is slightly less than 20% of our consolidation there. And we have even put out a slide that said, you know, when you look out several years, you know, that number is anticipated maybe to be something like, you know, 13, 14, you know, kind of in that ballpark. Right? So we continue to see the mix shift to where we will not get rid of the ATM business. But we are not, as Mike said, we are not focused on it being a growth engine. We are seeing more of the growth come out of our digital strategy being either infrastructure support for banks or acquiring or like CoreCard where, again, which falls into that infrastructure piece. So that will continue to become a bigger and bigger part of it. And then as it relates to the margins, I would expect that we would see an improving margin structure. Today, in our EFT business, we have an operating margin that is just north of 20%-ish kind of percent. Okay? And if you kind of take a look at the acquiring business, it generally is going to be in a 25%-ish kind of ZIP code, the better. Okay? Michael J. Brown: You look at the, Rick L. Weller: the infrastructure or, like, the issuing business, it is going to be more in the 40% to 50% kind of range. And so we would anticipate seeing that mix will shift down for the ATM portion of it. And that will have better margins out of the EFT segment over time. Daniel Krebs: And I think, with Gustavo Andre Gala: yeah. Yeah. But it is nice to talk to you. And with everybody else, I noticed we are at the top of the hour, so we are going to close ourselves off. Appreciate your interest and look forward to talking to you in the future. Thank you very much. Operator: Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.
Nicholas Hawkins: Well, good morning, everyone, and welcome to our first half financial results presentation. I'm joined here today by our Chief Financial Officer, William McDonnell, and members of the group leadership team of IAG. And we're holding this briefing in IAG Sydney offices on the lands of the Gadigal people. We acknowledge the traditional owners of country throughout Australia, and we recognize their continuing connections to lands, waters and the communities. And I pay my respects to the elders past, present and emerging. My key callouts this half are the resilience of our business and our confidence for the future. The headline profit is a strong outcome and demonstrates our underwriting discipline and ability to absorb the seasonal weather impacts that we've experienced, of course, while putting our purpose into action. Our on-growth outcomes were good across the majority of our portfolios, particularly in retail, where the underlying growth across Australia and New Zealand is around 4%. We've maintained our focus on pricing discipline. And this is delivering results. Our strong, stable earnings funded the RACQ acquisition from organic capital generation, and we're in a position to announce an on-market share buyback today of up to $200 million. The outlook is strong. We're forecasting top line growth in high single digits and maintaining our FY '26 reported insurance profit and margin guidance despite the severe weather that Australia has experienced. When it comes to supporting our customers, the experience measures in our much loved brands are strong, and our retention rates continue to remain really high. Over the half and continuing into this calendar year, we've seen hailstorms, bushfires, flooding across Australia as well as terrible landslide in New Zealand, and I've spent time visiting impacted customers and communities. And of course, as always, I'm incredibly proud of our frontline teams and the role they play in supporting rebuilding efforts. Of course, this reinforces the critical role that we play as a shock absorber in Australia and New Zealand while also playing a leadership role in advocating for risk reduction, ensuring a sustainable and insurable future for Australia and New Zealand. And this slide is important. It really highlights the strategy of IAG in action. It demonstrates the quality of us and the success in delivering a more stable earnings profile, which is much less at the mercy of weather. The last 6 months have shown the strength of our model in a period that has tested the entire industry. Our proactive strategy to manage payroll's risks and maintain underwriting discipline is delivering clear results. We also attribute our success to the world-class customer franchises and leading brands, which are now supplemented with RACQ and to the operational improvements we have made right across our businesses. We have transformed our commercial businesses, and they're delivering valuable contribution. In Australia, this is well above the original $250 million target that we set. And our sophisticated reinsurance program provides a significant strategic advantage and materially improves the group's earning profile. Combined, these factors create much greater certainty around our future earnings in a world where there's increasing demand for the protection that we provide. Now turning to growth. Our retail businesses in Australia and New Zealand are delivering with solid underlying growth of around about 4% for the half, complemented by the strong margins they've delivered. In addition, we've strengthened our business with the RACQ acquisition, which contributed a 6% growth this half and will deliver around about 9% growth in the second half. Our commercial businesses, particularly in New Zealand, have some challenging market dynamics, and we've also seen the impact of a weak New Zealand dollar in the results. Our Australian commercial business delivered solid underlying growth of around 3.5%, and it benefits from the WFI rural business and greater focus on SME. So our business in Australia here is less exposed to the global capital that is impacting corporate insurance markets around the world. Going forward, we'll maintain our vigilance on pricing and underwriting disciplines, ensuring we can continue to deliver strong and sustainable profits. In relation to our margins, we're in a strong position coming into the result, and we continue the positive momentum over the last 6 months. Pricing capability, underwriting disciplines and claims supply chain initiatives are driving and improving our claims ratios across IAG. Our comprehensive reinsurance arrangements supported the margin by keeping the perils allowance relatively stable and delivering an increase in profit commissions. And disciplined cost management is providing a material benefit through an improved expense ratio. The sustainable and ongoing underlying benefits have offset the temporary reduction in investment returns and some one-off impacts from RACQ in the half. And so as we head into the second half of the year, investment yields have rebounded strongly and the RACQ portfolio is now protected by our comprehensive reinsurance arrangements, delivering the targeted synergies. If I sort of turn now into the divisions, I'll start with our Australian retail business, which has delivered top line growth of 14.4%, which does include 4 months of RACQ, building on underlying growth of that business of around 4%. Within all of that, the underlying growth is around 7% in our home portfolio, where we've been growing both customers and policy numbers ahead of system. So we've taken a little bit of share across Australia. Underlying growth is lower in motor at around about 1.5%. And we're here, we chose to maintain discipline when pricing new business in the highly competitive market, particularly here in New South Wales, but importantly, our retention in our motor book continues to remain really strong. That said, we have responded to some of the competitive challenges. Changes made -- the changes we've made in the last quarter within our New South Wales business are improving new business volumes, and we're seeing that occur in January and in fact, in the month -- in the weeks of February already. Our Australian retail business continues to generate strong financial results and high levels of customer trust. Before RACQ, the retail business delivered an insurance margin of 14.7% and an underlying margin that's actually increased half-on-half from 15.2% to 15.9%. When we incorporate RACQ into that, the Queensland weather events are affecting the headline and the underlying result with a reported margin for retail of 7.4% and underlying of 13.4%. RACQI's integration is on track, and all the costs associated with that are reflected above the line result -- in the above-the-line result, and we're well protected, as I mentioned before, from our comprehensive program from 1 January. Beyond the financials, Julie and the team are ensuring Australia -- our Australian retail business remains set up for success. Key customer metrics, such as TNPS, have improved further from our already strong starting point. And NRMA Insurance has again been rated the most trusted insurance brand by Roy Morgan and continues to climb in ratings by brand strength and brand value. NRMA Insurance continues to support climate resilience through the establishment of the NRMA Insurance Help Fund and will continue to position NRMA as a leading help company as we attract new customers in 2026. Turning to our New Zealand retail business, where Amanda and the team have delivered strong results in a challenging economy. We have reset the strategy and brand positioning and the benefits I demonstrated in the results delivered. The AMI connected customer strategy and roadside motor support initiative are delivering above-market growth in policies. Our headline growth was 3.4% in New Zealand dollars, and it's good to see volume growth contributed to the majority of that 3.4%. Reported insurance margin continues to be strong at over 28%, with an improved underlying margin of 26%. And we achieved this through improved capability. Our scale and targeted claims initiatives are driving improvements in our cost to repair, and our pricing capability enabled by the rollout of the retail enterprise platform is delivering improved underwriting profitability. Our new Chief Executive, Phil Gibson, joins the business on 23rd of February, and we're looking forward to welcome him into the leadership team. Our Australian intermediated business is showing the benefits of disciplined execution of core underwriting, pricing and expense management strategy. This is clear -- there is clearly a soft market in some commercial lines. So it's pleasing to be able to report underlying growth in this business here in Australia of 3.5% and our strong reported margin of 17.5%. That reported margin, though, was boosted by $86 million of prior period reserve releases, demonstrating the strength and prudence of our reserving approach, which continues to deliver value. Notably, Jarrod and the team have delivered a strong improvement in the expense ratio, realizing the benefits of last year's revised operating model that we put in place. We're driving our technology transformation towards a continued investment in commercial enterprise platform. Based on the successful implementation so far and confident in the benefits that have already been achieved, we are accelerating this program to complete 12 months earlier than what we previously anticipated. From an operating perspective, our rural and regional businesses, WFI, has improved its NPS to 63, and our investment in the brand is continuing to strong premium and earnings growth. Looking ahead, we're confident this business will continue to deliver improved financial returns powered by strong foundations and ongoing investment that we're making in capability. And then finally, our New Zealand Intermediated business, NZI, which has demonstrated its resilience, maintaining strong discipline in what is clearly a soft market. In local currency terms, premiums was down 10.4%, while the stable underlying insurance profit of $78 million reflects the discipline that we're putting in place. The reported profit was also strong at $86 million with a margin of 20% and you'll see on the chart, the prior corresponding period did include the benefit of benign perils environment. In the soft New Zealand market, our core strategy is to leverage our strong customer relationships, combined with assurance tools to drive retention. During recent renewals, we retained 33 of 34 of our large accounts. Before I hand over to William, I just want to highlight the progress on our key strategic alliances with RACQ and RAC in WA, which will expand our ability to protect more Australians. We successfully completed the RACQ acquisition on 1 September, and its integration, as I mentioned before, is progressing well. It's been great to welcome more than 800 new people to IAG and have the opportunity to serve the club's 1.7 million members. We're committed to the alliance with RAC, which would see it maintain its highly regarded local brand and WA-based services while strengthening the business through our technology, global reinsurance arrangements and scale. We're confident the partnership would ensure RAC members and in fact, Western Australians are well protected for a safe, sustainable and connected future. [indiscernible] we're going through the process of reapplying for approval under the ACCC's new mandatory merger regime, acknowledging the decision that we received in December. I'll now hand over to William, who's going to run us through the financials in a bit more detail. William McDonnell: Thank you, Nick, and good morning, everyone. I'll start with the high-level financial summary shown on Slide 15. We're pleased that, in this half, we've generated over $500 million in NPAT, demonstrating our strong earnings capacity and capital generation. In addition to funding the RACQ acquisition and the buyback of up to $200 million that we've announced today, we're also paying an interim dividend at $0.12 per share, representing a payout ratio of 56%. This strong profit is down slightly from the prior corresponding period headline, which was boosted by the $140 million business interruption provision release and $215 million in favorable payroll experience. In this result, the reported insurance margin of 13.5% has been impacted by the RACQ severe perils experience. However, excluding this, we recorded a very strong 17.7%. Finally, on this slide, I'll note that the underlying insurance profit of $804 million, or 15.1% margin, also allows for the additional costs from our strong reinsurance protections, including our long tail adverse development cover and the stop-loss perils protection, which I've previously indicated, have a 50 to 100 basis point impact on margin. I'll now focus on some of the key financial line items. Slide 16 shows the benefit of IAG's comprehensive reinsurance protections. There were several material peril events in this half, and we've recognized recoveries against the adverse experience on the ex-RACQ business. This is a demonstration of our strong downside protections, and it results in net perils being in line with our half year allowance of $646 million. Separately, until the 1st of January this year, RACQ operated its previous stand-alone reinsurance program. The severe Queensland weather events saw the portfolio experience over $800 million in gross peril claims or $224 million net of reinsurance, which was $152 million above its $72 million payroll allowance. For the full year, we have a revised payroll allowance of $1,465 million, which reflects the inclusion of the RACQ portfolio into the group reinsurance program as well as an increase in the quota share to 35%. Our nonquota share reinsurance costs increased by 8% this half to $676 million. $60 million of this cost relates to the RACQ business, so excluding this impact, we saw a 1.5% decrease. We also had a favorable 1st of January renewal, providing further margin support into 2026, and we've now integrated RACQ into our broader reinsurance program, which delivers the target of at least $50 million in synergies on an annualized basis. In terms of the underlying claims, which exclude all perils reserving and discount rate effects, the ratio has improved by 70 basis points from 1H '25 to 51.9%. This figure includes an approximately 50 basis points negative impact from our RACQ, and excluding this, the underlying claims ratio improved 120 basis points. This ratio was assisted by around $115 million of profit commission on reinsurance arrangements compared to around $40 million in 1H '25. New Zealand saw a proportionately greater allocation of the profit commission based on its strong earnings. This further contributed to the strong improvement in its underlying claims ratio. In RIA, there was a modest improvement and the ratio was steady in IIA. Across IAG, we're focused on operational efficiencies to mitigate ongoing claims inflation, including an array of artificial intelligence initiatives. And some specific callouts for each division are: in RIA, we saw benefits from claims handling and supply chain initiatives while experiencing a further moderation in motor inflation, assisted by a reduction in total loss claims, which was partly offset by the ongoing impact of third-party credit hire activities; IIA has seen improvement in long tail experience, improved cycle times and reduced fraud but slightly adverse large loss experience in commercial property, predominantly in the first quarter; and in New Zealand, we're seeing reduced frequency levels compared to prior year in the home and commercial property portfolios. During the half, we've delivered a material reduction in the expense ratio. Our admin costs on an ex levies basis has improved 20 basis points compared to 1H '25 and a material 80 basis points compared to the temporarily elevated level we saw in 2H '25. This includes the impact of the acquired RACQ business and ongoing technology investment, including Gen AI capabilities. This positive trajectory is anticipated to continue for the remainder of the financial year, and I'm confident in the work the team is doing to achieve a level below 11% in FY '27. Investment income has been a solid contributor to this result, although slightly lower than previous halves. The income on technical reserves of $90 million was impacted by mark-to-market movements following the increase in the risk-free rate towards the end of the period. The underlying investment yield declined 90 basis points from 1H '25 to 4.6%. We continue to deliver a spread of around 100 basis points above risk-free with positive active manager performance. Given recent market movements, we also expect an uplift in the yield in the second half of the financial year. The exit yield at the half year was around 5%, and based on the recent increase in the 2-year Govy rate, our investment team is currently forecasting a further yield improvement. Our shareholders' funds income delivered a strong contribution of $186 million with the majority of this reflecting a strong performance in the equities portfolio. The shareholders' funds portfolio remains defensively positioned with a growth asset weighting just under 30%. On capital, we finished the half with a CET1 position above our target range, and I've shown some of the material movements in this waterfall. Our solid earnings are the source of capital generation during the half, and this has been partially offset by the payment of the FY '25 final dividend. The other major item is the 21 point impact from the completion of the RACQ acquisition. Other call-outs in the waterfall include the stop-loss reinsurance recovery that I mentioned earlier, which reduces the excess technical provision. This is a timing issue at the half year and is expected to unwind by the end of the financial year. And lastly, the weaker New Zealand currency relative to the Australian dollar has a negative impact on the foreign currency translation reserve. Given the strength of our capital position, we're confident in being able to fund the RAC acquisition and announce an up to $200 million buyback. We've shown this waterfall chart previously to demonstrate that our current surplus and the projected organic capital generation can fund the RAC acquisition. It's another example of the confidence we have in the downside protection from our reinsurance program. We've indicated an 8 point benefit, which includes the reinsurance recovery timing impact that I mentioned on the previous slide as well as the capital benefit from increasing the whole of account quota shares to 35% from the 1st of January. We're not providing 2026 NPAT and dividend guidance, but you can see we've included an indicative 23 points of capital, reflecting earnings in line with our through-the-cycle 15% margin target less the final dividend. This is consistent with analyst consensus expectations. We've also included a net 5 point impact of other capital movements, and this reflects the potential benefits from our capital-light strategies that I've previously discussed. Finally, I'll remind you that we've maintained our CET1 target range at 0.9 to 1.1x despite the risk reduction from the downside protections from our comprehensive reinsurance program. As I said last time, our confidence in the projected earnings quality means that we're increasingly comfortable to operate in the lower part of the capital range. With that, I'll now hand over back to Nick. Nicholas Hawkins: Thanks, William. If I sort of turn you now to guidance for FY '26. So firstly, with growth, and we're forecasting to deliver premium growth of high single digits for the full year. And this is slightly lower than our expectations at the beginning of the year, with a key driver for the change being the impact of the strong Aussie dollar relative to the Kiwi dollar and a slightly softer New Zealand commercial markets. We do, though, expect second half growth to be double digits, which is stronger than the first half. And of course, that includes 6 months of the RACQ portfolios and our retail businesses growing at least or above the 4% that we've just delivered in underlying growth in the first half. We'll also maintain discipline in our commercial businesses where we expect markets to remain soft. We're maintaining our FY '26 insurance profit guidance of $1,550 million to $1,750 million, which aligns to our target to deliver a 15% reported insurance margin and reported ROE on a through-the-cycle basis. Importantly, we're retaining our range but do expect to be around towards the bottom of those range, really reflecting both the strong underlying performance that we've been delivering together with against that the one-off RACQ impact that we've absorbed before the full comprehensive reinsurance cover came into play on 1 January. Our ability to retain this guidance range, despite those -- these perils, really does reflect the strength and the resilience of our businesses. Five years ago, we set out to create a stronger and a more resilient IAG, with reduced volatility and a capital-light profile. And here is the successful model that we've created with some of the best customer insurance brands in the world and Julie, Jarrod and now Phil are set up to grow these businesses. We've got a modern, leading scalable technology that supports our brands and our partner brands with insurance products that meet the needs of their customers. And as we look to support 10 million Australian and New Zealanders, we will deliver strong, sustainable shareholder returns driven by a stable margin and low volatility and capital efficiency, which improves the ROE. The results we delivered today are a combination of everything that we put in place. William and I now, of course, are happy to answer any questions. And why don't we start in the room? Kieren Chidgey: Kieren Chidgey from UBS. A couple of questions, if I can. I might start, Nick, on GWP growth. Just interested in a little bit more color predominantly around sort of the home and motor book in Australia, you talked about 4% underlying growth in aggregate, but perhaps you can give us a feel for the composition between rate and volume and some of the differences between home, which looks like it's done better. And sort of I suspect you've seen some volume or unit loss in your motor book in the period? Nicholas Hawkins: Yes. I mean that's sort of the overall story, is we obviously got an acquisition coming in that's delivered 6% first half. It's going to deliver 9% second half. We've got sort of currency going against us between New Zealand and Aussie, but the retail business are going pretty well, I think. Commercial is in a soft market. And so that's some challenges there. But I mean, Jarrod's business grew at 3.5% underlying, pretty pleased with that. NZI's quite tough. So then we sort of come into, I think, the Australian retail, where we are and where we're going. I mean within that, the Australian retail, the home portfolio grew just over 7% underlying, pretty pleased with that. Volume and price, I'd say we held and probably grew a little bit of share around Australia, real strength, great brands, the proposition we're delivering, the service that we're delivering, really feel pretty, pretty strongly about that. Motor, as you say, was quite tough in the last 6 months. That underlying you see in the pack, we called it out. Our underlying motor was around about 1.5% in total. We found New South Wales particularly tough. It's been highly competitive. Sort of behind all that, it's a new business story around -- our retention rates at IAG and our retail business are holding, in fact, improving slightly. So it's really there's a lot of traded new business that's happening in the market, very competitive. I mean what we have done -- and Julie and the team have sort of wanted to maintain their diligence. We also know that in Victoria, we've had frequency issues around car theft and some challenges there on just increasing claims cost that we've had to reflect in pricing, so there's a trade here. What we have done, we've reflected that in pricing. We just -- we're looking again at our new business pricing in New South Wales, where we've definitely been under pressure, probably the most in motor. And we just slightly adjusted our go-to-market. What we have seen, though, in the last month or 2 is a tick up in our new business volumes in motor, so we can see us actually improving. So we'd probably drop back a little bit of share. We're holding and probably even starting to grow a little bit now, really driven by that new business. Retention rates are strong. And so we're seeing some signs of just slight adjustments to that strategy working with our general results, and we've got a couple of weeks of February we can see that looking a bit better as well. So I mean the overall story here is we had underlying in our retail business, for Trans-Tasman, it's about 4%. There's always ups and downs in that. But the underlying, we expect that to be stronger in the second half. A little bit of volume and price flowing through. So we sort of expect a stronger second half retail growth than the first half is sort of the story I want to leave the investors with. Kieren Chidgey: Nick, just specifically on the motor book, I know you don't provide margins by portfolio, but the actions you're having to take on price to improve new business, how should we think about the implications in the margin? Nicholas Hawkins: That margin is -- I mean that -- there's ups and downs in that margin. We've got the strong underlying margin that we sort of started the 6-month period with in the retail business. We've got RACQ that came in that we've had to unwind certain arrangements that were in place. And we have won all the RACQ costs above the line, so just -- there's nothing below the line at IAG. So all the integration, first half, unwinding some of the reinsurance arrangements, that's had a bit of a drag in the first 6-month period. That's going to come off going forward. We made those adjustments, won those costs, changed things around. And so within that overall targeted margin that we sort of talked about for retail, yes, we can make some pricing adjustments within the portfolio that it doesn't go to the heart of -- is that a margin story? No, we have some pricing adjustments that can make us more competitive in New South Wales. We're seeing it happen, and that won't go to margin. We're probably also seeing some of those inflation and claims stories just come off a little bit. So there's probably room to come down a little bit, too. Kieren Chidgey: And second question, just sort of taking that discussion into group margin sort of outlook. There's a lot of noise in this result, obviously, with RACQ making an underlying loss. The group is still looking pretty good at 15.1%, but as we look forward, that loss, hopefully, in RACQ unwinds. I'm keen on your thoughts on what the underlying run rate there is from a margin point of view. You've got synergies coming in. You're talking about a higher underlying yield. You've got admin expense savings coming in. You've got a quota share that's been dialed up in the second half that should, in theory, give you a high margin as well. So there's a lot of positivity in terms of that underlying margin trajectory that to me would suggest you should be tracking closer to 16%. But keen on your thoughts. Nicholas Hawkins: Yes, so just 1 on that big list of things, probably just adding we've unwound and removed some of the specific quota share arrangements that RACQ had for the first 4 months, those -- they've all gone. And there was definitely a drag from all that and we've replaced that with our programs. So there's ups and downs. I mean, I'm working on the basis that when we're doing this presentation in August, we're not talking about RACQ as part of any sort of ups and downs. It's just part of the portfolio. Of course, within Julie's business, we've got different products, different states, different portfolios, and they're not all exactly the same. But as a package, we'll be delivering it to sort of the margin that you mentioned. And some of the -- I mean that's why we've called them one-offs. We genuinely believe there's some one-off things that have occurred that are sort of -- have brought that margin down in the first half, and that's not going to be part of our story in the second half. Kieren Chidgey: Okay. And the group 15% target, Nick, you've had for a while. Will that be revisited at the end of the year, particularly post these quota share changes and sort of everything else that's coming through in the [indiscernible] commission? Nicholas Hawkins: Yes, we've added 2.5%. So it's not hugely different. We're at 32.5% whole of account quota shares, and we've moved to 35% at 1 January. I mean the financial sort of profile, call it that, is we're trying to run the business at our through-the-cycle 15% ROE with way lower volatility, capital-light, you know that story. That relates to about 15%. There's definitely some upside on that. We sort of talked about these profit commissions as part of these comprehensive programs that are coming in from a few places now. There's a 100, 200 basis point additional opportunities there, and we've talked about that before. Now we don't want to bank that in every year because we've got inherent volatility in running of our business. But importantly, the cost of all of that is in the 15%. So that's the message that we want to keep reminding investors that we're -- within our earnings profile is the cost of the protection that's giving us the earnings protection, right? So the downside risk of IAG and its earnings profile is a lot different than probably most other market participants. And you can see that on one of the pages that I went through, there's a little bit of RACQ that wasn't included, but that's all now included from 1 January. And so sort of the certainty of future cash flows are a lot stronger. But yes, there's some -- I think that 15% ROE, 15% margin, that sort of math is consistent but with some upside on that, which is what we talked about. Simon Fitzgerald: Nick and Will, Simon Fitzgerald from Jefferies. Just wanted to maybe start off just with the Queensland situation with the hail, et cetera. Just interested to know what your sort of thoughts are going forward in terms of pricing? And I'm also curious to know what your sort of thoughts are in terms of the consumer and affordability because I would have thought that you're now starting to sort of heat up on some of those levels. Nicholas Hawkins: Yes. I mean guess I'll answer that, the second bit first maybe. Just on affordability, I mean we -- compared to where we were a couple of years ago, actually, sort of the premium rate environment is obviously better. It's still tough and we're still seeing costs increase, inflationary pressure within the business. We're sort of seeing mid-single digits in motor more than that in property just as a theme. Against that, there are some frequency ups and downs as well, so it's not as directing that into pricing and there's other things, reinsurance markets are more favorable. So there's not -- there's always parts to our story. It's never as simple as just one thing. Maybe I'll say this, right, that we are seeing our retention rates -- I mean this is a retail question, I think. Our retention rates are strong and improving. So that -- I mean that goes to the quality of the franchise, the brand proposition. But also, I think that sort of sticker shock that we've seen maybe in the past has caused greater frequency to churn. That's what I'd say in the market has changed a little bit favorably. We do know, though, that new businesses, as I mentioned, around motor, is very competitive. But I would say that it's more stable, would be the way I would describe it. So specific, Queensland had a lot of perils across the industry, like a lot. And there was a lot of events. It wasn't sort of one big event. It was multiple events, and that's been followed by bushfires and storms in early in this calendar year. That will be impacting the overall pricing environment in certain geographies a little bit. Simon Fitzgerald: And then just a little bit about the above average reserve releases. Just wondering if we could get a little bit more explanation in terms of the drivers of that. William McDonnell: Yes. Thank you. So... Nicholas Hawkins: Can I just make a comment? One thing, we're very pleased. I mean, nothing worse than a reserve top-up and that -- we've spent a lot of time and Jarrod and the team are setting us potentially in the long-tail classes, obviously, within our commercial businesses. We spend a lot of time going back through that, really ensuring that we're not in that position. So that the lens to which Jarrod and the team have around reserving long-tail liabilities is a bias to conservatism. So that's just the -- and we know that we disappointed a number of years ago with some top-ups that I was not happy with. I would say just the bias of our business and the way we're conducting and creating our balance sheets and reserving our loss ratios are definitely taking a conservative bias. I mean that's -- I know there's some detail, sorry, but I think that's the setting of the reserves in the first place. William McDonnell: Yes, exactly. So we believe our reserves are strong and -- but a feature of those strong reserves is that we also will have releases. Just to give you a little bit of color in there, so in the releases, we have some releases across long-tail lines. We have some releases from the remaining part of that business interruption provision. On short tail lines, we also have some releases from prior period from perils positions in prior years. We have some increase against that in motor and home, where average claim sizes increased a bit for both fire and water losses. But obviously, the net of all of that is the release that you can see. Andrew Buncombe: Andrew Buncombe from Macquarie Securities. Just 2 from me. Hopefully, the first one is an easy one. Apologies if I missed it in the scrum of announcements this morning. Nicholas Hawkins: I hope I can answer then. Andrew Buncombe: What is the new attachment points on the volatility cover now that Queensland is included? William McDonnell: It is $1,465 million. Andrew Buncombe: That is the attachment point. That hasn't changed since Q went in. William McDonnell: No, it has changed. But of course, it would come down a bit for the change in the quota share but then goes up for RACQ coming in. Andrew Buncombe: So it's still flush with the allowance? Nicholas Hawkins: Yes. So maybe that's -- there's ups and downs in that a little bit because of some of the mechanics of the 32.5% to 35%. But it's the attachment of the allowance. Yes. So there's no gap between allowance and attachment. Andrew Buncombe: Yes, that's perfect. And then the second one, just in terms of the capital waterfall slide, there was still the 5 basis points of additional capital optionality from additional reinsurance. I'm just wondering whether that's contingent on getting the Lloyd's license by [ 1 7 ]. Nicholas Hawkins: Maybe I'll make a comment. Then you come in, William. The concept of us being capital light is one that is part of the thing about IAG. And so there's a cost to that, and we -- there's various structures that we've got in place. And we have quite a lot of optionality around how to make that all happen. And we're trying to create some variability in the forms and structures to which we're delivering a capital-light strategy. Lloyd's is kind of just one of the many, many ideas that we've done. So we shouldn't -- I don't want to overweight that as a thing. And so we are constantly thinking and looking for -- I mean we've got traditional structures we could just expand, which were -- in a way, were just done with 32.5% to 35%, and we've got many other counterparties that would like to be part of that. So that would be -- but we're always looking at what are some other ways we can do that, just to make sure we've got appropriate diversification in counterparty structure tenure. So that's the package. So it's not -- we're not sort of relying on one thing. But I mean you can comment specifically on Lloyd's, but that's just one of many ideas. William McDonnell: Yes. I don't have much to add to that. But we continue to believe, as we set out at the Strategy Day a year ago, that a logical next step for us would be to bring a bit of additional reinsurance behind the intermediated businesses. So that's something we continue to explore. Nicholas Hawkins: It's definitely -- just on that Lloyd's. There's definitely a lot more examples of that happening in the market. And that's probably a good thing because that means sort of nontraditional capital providers will be getting more familiar with structures like that, and that will probably ease off transaction. It will make it better. Right, and I also thought [ Mark ] was better because Mark's guiding -- for those on the video, Mark's guiding me to go to the video. So I apologize. So go to the video. Operator: Your next question comes from Julian Braganza with Goldman Sachs. Julian Braganza: Just the first one, could you -- can you maybe just talk a little bit more just about the premium rate increases that you're seeing at the moment across the portfolios? And also just the claims inflation, if you could put some numbers just around it, that would be great. Nicholas Hawkins: Yes. I mean I'll do sort of around the ground. So the problem is we end up being quite high level, don't we? What we're experiencing, obviously, commercial markets are quite tough. At the -- I mean, in Australia, we've got WFI and we're sort of at the SME smaller end of town. So we're definitely seeing rate flow through those portfolios and I mean Jarrod delivered 3.5% underlying. I'd say in New Zealand, that's a lot tougher. And probably average premium is relatively flat or even slightly negative, but our 10% is really also driven by -- often, we're taking a smaller share of risks so that we're just sort of coming back as well. And it's not such a volume game. We might be taking a smaller share. So that's sort of driving the 10% more than -- it's not a 10% price reduction. It's 10% reduction in sort of exposure almost. The price is flat or probably slightly negative. That's driven by lots of factors around the world. So then into the retail businesses. If I start with New Zealand, I would say the -- I mean the margins in the retail businesses are strong, obviously. We had -- we sort of talked about 3% to 4% growth there and sort of expect that to be stronger in the second half underlying. At the moment, that would be mostly volume and not much price as an average across that retail, I would expect that to be stronger in the second half, price as well as continued volume. So that's why that number will be higher in the second half compared to first half. We are putting through rate in New Zealand on our retail business now. And then that sort of comes into Australia, where I expect home to be similar, second half to be -- to what we've just experienced first half. We are seeing sort of mid- to high single-digit claims inflation. We're seeing reinsurance costs come more favorable. We're seeing some movements in frequency. We had a discussion around Queensland hail. So there'll be some perils-affected areas that will be different than others. But I would expect rate increase to be flowing through in home in sort of that 5% to 10%-type range. And then motor, we've had high single double-digit almost rate increases in motor, particularly inside Victoria. There's probably a bit of pressure coming off that and similar in New South Wales. We are seeing a little bit of relief around inflation. That's why the comment around new business for motor, we made. And so it's probably slightly lower. And then if I look at what's driving that, reinsurance is obviously slightly more favorable. We are seeing a little bit of cost increase year-on-year. We call it -- we call everything inflation now. I just keep using that word but we're seeing year-on-year cost increases in repairing a car that's smashed. Against that, though, it's like total losses and sort of value of secondhand cars coming back a little bit in some markets. So that -- this is sort of working favorably against some of these. But so that sort of mid-single-digit type rate increases. The thing about motor, I'll just say again, Julie and the team are all over this. We definitely have found it a bit tough and we're not happy with 1.5% underlying growth for the first 6 months, and we'll expand that in the second half. Julian Braganza: Okay. Great. That's clear. And then maybe just in terms of margin expectations by division, you've flagged there as well that New Zealand margin is quite strong. So just as that starts to normalize, where will the expansion come from? And how are you expecting the expansion to be in, whether it's intermediated through expense ratio benefits or even just in the retail business from here? Nicholas Hawkins: I mean there's a few parts to it out there. I mean we know that commercial businesses, we really set ourselves up differently here in Australia, and there's an opportunity. We sort of set Jarrod and the team a target of $250 million. They're delivering against that. And they've got a lot of strategies in place to improve expense ratio, capability. We're deploying technology now and we're accelerating into that program of work. So we really see -- I mean we've said many times that our starting position in the CGU business here in Australia, we're starting behind some of our global competitors, and we just can't keep -- that can't be the structure of us going forward, and we're closing that gap. And I would expect to continue to see that over the next number of years. And so that's probably some margin improvement there. We know that within Julie's business, retail here in Australia that -- I mean we called -- we sort of called it out, some one-off. That's not really saying anything about the business we bought. That's just saying we bought them. We had some very large perils, we had to unwind some arrangements in place all in the first 4 months. We took all that cost into the margin. We haven't tucked anything below the line. So there's some -- there's obviously that drag will be gone in the second half. So we should see some expansion there. And then probably in New Zealand, which is a high -- which the margins are pretty strong there, there's probably some risks that, that could drift down a little bit as a blend. Against that, we've got profit commissions. We've got quite a few things going our way and from how we see the next sort of 6, 12, 18 months. William McDonnell: And if I could just add. So then, RACQ obviously will get -- will be a lot closer to its run rate because, as we said, the reinsurance synergies, which originally we talked about getting those synergies of in excess of $50 million in the first full year, which would be FY '27, we've already got that from the 1st of January. Against that, the underlying for the RACQ part will just have a little bit of a drag in the second half because we've got a little bit more reinstatement premium just to expense that we incurred during Q2 under its old program. Julian Braganza: Okay. No, that's clear. And then maybe just a question around just the stop-loss and the profit commission. So $115 million this period, I just want to understand, again, any comments on how conservatively that estimate is being estimated at? And is there further upside on a best estimate basis? And secondly, how much did you rely on your stop-loss protection over the last 6 months? Are you able to provide some commentary just to help us understand the other side of the equation in terms of just the benefits that you're getting on that stop-loss aggregate? Nicholas Hawkins: Yes. So just to take that second part. So for the stop-loss, we -- ex RACQI, we were $137 million. Perils were over allowance before allowing for that. And then so the stop-loss recovery accrued at the half year is $137 million. And then I think your other question, you're asking about the $115 million of profit commission. Did I get that right? Julian Braganza: How conservatively is that being booked? Or is that now a more best estimate view of profit commissions? Nicholas Hawkins: Yes. So we -- I mean, we assess that with some risk adjustment on it. So that is a conservative calculation. And that number includes both profit commission on the multiyear peril stop-loss and on the whole of account quota share. And indeed, the increase relative to last year is mainly whole of account quota share profit commission. But I'd say all with the risk -- on a risk-adjusted basis. Julian Braganza: Got it. And just as a final question for me. Is there a reason why the BI provisional rates was taken in the reported margin as opposed to the corporate expense line this period? William McDonnell: So we said -- I mean, we said last year when we did that substantial release of $140 million, $200 million pretax, we said at that time that the remaining part of the provision, which I think was about $50 million, we would then just treat as BAU. And you'll remember previously, we also had our dividend policy, was about paying out net of BI and then we just changed that. So we just treat it as part of BAU now. Nicholas Hawkins: At a practical level, I mean we obviously are calling it out, and we're not including the underlying margin. Actually, I just don't want anything below the line. We're trying to make our results super simple, that's just part of our normal process. It's relatively modest amounts of money now. And so it's sort of in the spirit of simplicity in the way we report go-to-market, run our company, we just wanted to run along that. And the same on the negatives, remember? So that's why we -- in Julie's business, we've had to wear some of the additions, some of the sort of one-off costs associated with the acquisition, where everything is just -- everyone's had to wear everything in their business unit results. And that's sort of how we want to run it. Julian, I don't want to open up a can of worms, but I'll also just say a comment on that recovery from the stop-loss. That's also a drag in our capital. So even that -- so that's -- let's not go down a hole on this one, but there is a $130-odd million drag on our capital calculation from that. Now we settled that at 30th of June, so that will go away. But -- so that's sort of the way APRA rules work. So there's probably -- the capital is slightly stronger than the way we represented it by $135 million because that's not -- that recovery is not recognized from an APRA point of view. But of course, it's real, and we'll -- that position stays, we'll cash settle that with the counterparties at 30th of June. Julian Braganza: But it should [indiscernible] the full year. Nicholas Hawkins: Yes, and the capital reversal at 30th June, so the capital number's gone. We highlight that in the detail in the pack, but I don't want to miss the opportunity just to highlight it. William McDonnell: Yes. It's purely a half year effect because at the half year, we haven't technically got to the attachment part. Nicholas Hawkins: It's a positive to the capital account. Operator: Your next question comes from Siddharth Parameswaran with JPMorgan. Siddharth Parameswaran: [indiscernible] questions if I can. Firstly, just RACQ, I just want to understand some of the moving parts in that result in the first half '26. I calculate the underlying margin at minus 7%. And I think, Nick, you said that you're expecting that book to come in similar to the group. Maybe that was including the reinsurance synergies. But even if I include what you expect to get, it still has a very, very low underlying margin, near 0. So just wanted to understand where -- how we should think about -- well, firstly, is this book coming on a lot worse than you thought? And what steps you're taking to remediate it. Nicholas Hawkins: Yes, sure. I mean, there's a few parts there. Obviously, there were some headline perils that impacted that number, but I know you're talking underlying. So sort of you park that. Within that, there was some -- what we see as pretty unfavorable reinsurance arrangements, particularly around the way the quota share, which is quite a drag, and we call that underlying. So that's not really remediation. That's just been sort of 1 January that's changed. And so that drag that was in that P&L -- and the way that arrangement worked was it was compounded by the perils, sort of the arrangements get a lot worse because of the perils. Unfortunately, that all plays out in underlying, so we didn't call it perils, it also have impacted the actual underlying margin. We have completely -- all those arrangements are canceled, so those don't exist anymore. So I would say that, that business is sort of coming into us pre-synergies as we expected. Probably we're sort of running high single digits, close to maybe 10% type margin. And then we sort of had the synergies and benefits and opportunities and some of the things we can do differently with that business, we sort of quickly get that business to sort of that 15% plus type margin that the blend of the retail business is operating at. And I don't see that as that much of a stretch. And so that's -- so sort of the words -- I don't think of this as a remediation at all. I think of this as we've materially changed some of the drivers of that just by changing the arrangements, which is what we've done. Of course, we've got an environment where pricing flowing through in Queensland, and so there are changes we are making. And then against that, we're developing -- we'll be delivering synergies. So that's why I said I don't expect RACQ to be a major theme or a theme really in the second half. There's a tiny drag that William highlighted before around some of the reinstatement on some of the reinsurance that we paid in -- during the spring, but that's relatively modest. So I don't see this as a remediation story at all, but I see it as a great business that's coming into IAG that's going to deliver some solid returns into Julie's business. Siddharth Parameswaran: Okay. I mean I'm just wondering, would they read certain premiums in the first half? Nicholas Hawkins: Yes. Siddharth Parameswaran: Yes. So were they material? They might have impacted those numbers. Nicholas Hawkins: A little there. Siddharth Parameswaran: I think if my numbers are right, but yes. Nicholas Hawkins: Yes, Sid. I mean, unfortunately, we don't call the unfavorable quota share reinsurance arrangements perils. So we sort of call that reinsurance. So we sort of highlight the actual perils cost. The knock-on impact into the underlying margin driven by the perils, it was quite material. That's why I sort of have the confidence -- I don't see this as the way you described it. I see it as 1 January, this business is sort of operating maybe a little bit below where the rest of the retail business is operating. But if we put in the synergies, benefits, it definitely sort of gets us there. William McDonnell: And we wrapped both of those parts up in the -- when we talk of the $174 million that we talk about in terms of the one-off RACQ impact associated with perils. So some of that is the underlying part as well. Siddharth Parameswaran: Yes. Okay. Just a second question just around rates versus inflation. So just -- I mean just the comments you've made through your report suggests that -- I mean you're saying home, you're getting high single digits on claims inflation, low to mid-single digits. These numbers seem higher than what you're getting on rate and quite a bit higher. I'm just wondering, on a go-forward basis, are you hoping to cover the inflation? Nicholas Hawkins: I mean we know that's a problem with some of these spot sort of parts of the story. We know that in property, reinsurance and perils is a big chunk of the cost. We know our reinsurance costs are more favorable in '26 versus '25. We know that our perils allowance are capped in the way we've put in place those reinsurance arrangements and discussion we had before around having the volatility cover [indiscernible] the perils allowance. So yes, some elements are growing like that. We know there's some ups and downs in frequency as well. So I think, Sid, if your question is how does all that work and what does that do to margin, I mean, we're comfortable that the pricing that we are going to market with is covering the cost, the inflationary costs that we're experiencing, factoring in frequency, factoring in what's happening with perils allowance, factoring in what's happening with the cost of reinsurance. And that's the package because, as you know, there's more to pricing than just the cost of building products. There's more to that story. So that's the blend that we're experiencing in relation to inflation. I don't -- will this one be a margin -- this is -- we're pricing to maintain the margin of the company and grow the business. Siddharth Parameswaran: Okay. Just one final question. It's been asked a couple of times. So I just want clarity around that profit commission contribution. So I think there was -- I mean you said $115 million taken in the half last year, I think it was around $85 million for the full year. I just want to [indiscernible]. I think it suggests an annual run rate of up to $200 million before it was possible. So it seems we're tracking ahead of that, and that's taking in both your underlying annual reported margins. So it doesn't suggest that there's more upside, but you seem to be suggesting that there is more upside. So I just want to be clear, what is the final message you want to give us on profit commissions contribution to this result versus what is likely going forward? William McDonnell: So the 100 to 200 basis points upside we talked about before was in relation to the whole of account quota share profit commission. The $115 million for the first half includes also the perils protection profit commission, which was pretty much that was the $40 million you saw last year in the same period. So that increase from year-on-year is largely what's happened to the whole of account quota share profit commission, which I think we indicated we believed would be starting to emerge this year and increasingly become a feature of our results. And of course, we get that because the underlying business is performing well and generating profit. And then the profit commission above a certain level, then we just have that sort of like multiplier on the profits that we are generating across the business. Nicholas Hawkins: And Sid, I'd use 100 to 200 on that. I mean we've got some -- we now have, I think, a better structure where we have a few different drivers, which is what William just went through. So we're not sort of relying just on one thing. Obviously, in itself, that gives -- we're more diversified in the earnings stream of the profit commission, so that -- and I'd be sort of using 100 to 200. There's potential upside in a period that -- where the company's sort of delivering results like we're delivering. Siddharth Parameswaran: Sorry, upside on first half '26? Nicholas Hawkins: No, just in total. In total, in total. Siddharth Parameswaran: In total versus which period? Nicholas Hawkins: Just, I mean, there will be a little bit of volatility here. I just think in relation to sort of if you're factoring in what could profit commission add to the IAG results, I'd be using 100 to 200 basis points on average. There may be some volatility in that, right? Siddharth Parameswaran: Okay. Okay. In total. Okay. So we're already getting -- we're already at the top end of that included in this... Nicholas Hawkins: Yes. But these are multiyear deals, right? So that doesn't mean 1 year can't make more than that, but they're all multiyear. I mean we're trying to -- we are trying to run a capital-light, confidence in earnings profile, but there's a cost to that. So the downside risk on the cash flows of IAG have mitigated because of the actions we have taken, and there's definitely some upside that we can receive. We're just being cautious about that, right? We don't want to get to a position where we disappoint on these. So I think using 100 to 200, yes, it might be slightly more in some years, but as a way of valuing the company, I'd be thinking that way. Operator: Your last question today comes from Nigel Pittaway with Citi. Nigel Pittaway: Most of my questions have been answered. But I think I just want to delve a little bit more into the margin volume trade-off in the Australian retail book. I mean it seems as if this time, you're obviously disappointed in motor units. You're slightly happy with home units. But my understanding is home maybe got a little bit more competitive towards the end of the half, and it seems like you're putting in price increases there. So I mean are you really sort of in a position you think where those units, you can improve on that unit growth given the action we're needing to take on pricing to cover the claims inflation you've identified. Nicholas Hawkins: Yes. Thanks, Nigel. I mean we're seeing -- I'm not sure -- I mean, our business is very strong in home is what we're experiencing, strength of the brand, go to market. We know we perform well with some of these large perils have occurred in spring of '25 and then what's happened January and February this year. And actually, we're not really seeing what you said in our home portfolio. We're seeing the business be very strong. On motor, we just found it really tough on new business. I mean, our retention on motor is still great, improved slightly. It's a new business story mode. We took a price position in Victoria. We obviously had just a lot of disruption in that market that's real. And so Victoria and New South Wales, but particularly in New South Wales as well. That new business, we really found quite tough, and Julie and team have been all over this. And we sort of -- we've seen some probably slightly more positive inflation around our pricing points. So we sort of changed that slightly. The evidence that we've actually got is in the last few months in that we are -- our new business volumes are increasing. So we know that we are growing our business slightly more today than we were 3 months ago, and we know we're winning more new business. And that has -- and that our retention rates are holding and probably slightly improving. So that -- if we can keep running that story, that will be a good story for the next 6 months. And we're sort of spending a lot of time on this, and that story is playing out. So we feel pretty good about the second 6 months for where we're at the pricing. Obviously, it's helpful, the business has got a strong margin and some of the one-offs from that conversation we've had with Sid around RACQ, some of that drag is going to go away. So we sort of have a neater story in the second half retail business here in Australia. It's definitely been tough though, and it's been a very competitive motor in Australia. Nigel Pittaway: Okay. And then maybe just on the topic, because you're on the profit commissions as well. I mean is there any sense to which that release for the whole of the account this time has been influenced by the relatively high perils because that doesn't get the benefit of the stop-loss in terms of the profit commission accumulation. Nicholas Hawkins: I mean, actually, the biggest perils, of course, were in the RACQ business, which we're in the -- which is why we didn't get the protection. Nigel Pittaway: Yes. But still relatively -- still quite a bit higher than [indiscernible] stripping out RACQ. Nicholas Hawkins: Yes. No. We've got a methodology we're employing. We're trying to take the volatility out of that. We're trying to take a conservative lens on that. We have got multiple arrangements now that sort of make that more of a blend, which is better rather than just having one. A bit like the whole capital structure in a way, we're trying to diversify by counterparty, by product, by design so that we really have a package, and we can -- within that, within -- we've got this big picture earnings volatility covers. Now we're into the detail on an element of it and the way that's being delivered. We're trying to even create diversification in the way that works so that we can ensure that's more of an annuity. That's the concept we're putting in place. William McDonnell: Yes, it's not all on identical terms and indeed, the duration is also -- there's a range of durations on it. Operator: As we come to the end of the call. I'll now hand back to Mr. Hawkins for closing remarks. Nicholas Hawkins: Mr. Hawkins, I feel like I'm talking to my dad. Thanks, everyone. I mean, we -- thanks for turning out. We're pretty pleased with the result. You can see the strength of the franchise, what we've delivered in the first 6 months. That leaves us in good shape for the second. We've got expectations of sort of underlying growth or growth in our retail business as we expect stronger second half than first. We've got RACQ for the full 6 months, which will deliver around about 9%. Margins are strong. We know commercials are challenging, but we're being very disciplined in our underwriting approach. And we expect to have a strong 6 months and look forward to talking to you again in August. Thanks, everybody.
Stuart Irving: Good morning, and thanks for joining us for Computershare's 1H '26 Results Conference Call. As usual, Nick Oldfield, our CFO, is with me, along with Michael Brown from our IR team. We've released the presentation pack on our website, and I'll take you through the highlights on this call. Nick will then take you through the financials in more detail, then we'll open the lines for Q&A. And just to remind you, we will be talking in U.S. dollars constant currency and comparing to 1H FY '25 unless we state otherwise. Now there is a lot of detail on the results pack, but let me take you straight away to the key features of the result that matter on Slide 2. Business performance. EBIT ex MI, which really talks to the underlying business results was up 12%. And Nick will talk you through all the moving parts, but our BAU OpEx costs were contained below the rate of inflation. And excluding margin income, our margins expanded to 16%. And I think we're well on our way to the 20% EBIT ex MI margin target that we have called out. Now the margin income result, I thought was a standout. We knew that margin income was a headwind going into this year with the prospect of rate cuts, which actually came quicker than the curves predicted last August. And I know that U.S. cash rates have been a focus for many investors, and they did fall sharply in the half. U.S. cash rates were down over 17% compared to the PCP. However, Computershare's margin income was only down 5%. So there's clearly more to this than cash rates alone, and Computershare's natural hedge worked, and I'll explain that a bit later. Event and transactional revenues were also a highlight, up almost 13%. And we are seeing increased corporate action activity in some areas, although not firing on all cylinders across all regions yet. Employee share plan transaction volumes continue to grow, which is really a reflection of the continuing growth in the use of equity and remuneration and is really underpinned by increased issuance by companies. And finally, from a key points perspective, with a solid first half under our belts, stronger business performance and improved outlook for margin income, we are upgrading full year earnings guidance to $1.44 per share, and that's growth of 6% over the PCP. So these are the key points to start with, but let's move to Page 3, which is really a summary of the results. Management EPS was up 3.9%, and we have delivered earnings growth and consistently high returns in a lower interest rate environment. ROIC was over 36%, and our debt leverage reduced to 0.3x. And you may remember that future buybacks are tax inefficient for Computershare at the moment. So the Board has stepped up the interim dividend to the top half of the payout ratio range. AUD 0.55 per share is a 22% increase in the interim dividend, and Nick has kindly tipped in a few of his franking credits for this one as well. Now let's move to Slide 4. This new chart shows the long-term track record for each of our 3 key business lines and their 7-year CAGRs. The key point is that through organic growth and complementary acquisitions, all of our businesses have delivered solid revenue and EBIT growth over time. Now we've come a long way, and there are some impressive growth rates here. Employee share plans has delivered almost 10% revenue CAGR, underpinned by the issuance tailwind that we have spoken about. Issuer Services has been a consistent high-quality performer as we leverage our strength and build out complementary product lines. Corporate Trust has delivered the fastest EBIT growth over the period, including that step-up from the Wells Fargo acquisition. And we expect to continue to deliver long-term growth across all our businesses. We will continue to strengthen our competitive positions, widen our competitive moats and deploy new technologies to enhance customer value and, of course, efficiencies. Now just going into a little bit more detail on each of the business lines for the half. Issuer Services delivered the fastest rate of revenue growth across the group with contributions from all business lines. Registered maintenance revenues improved by over 4%, supported by new client wins across all our major markets. Corporate Actions revenues are recovering with revenue growth of over 12%. And while activity levels are still about 25% below peak 2021 levels, we have seen some strong improvement in some product lines since around November. IPOs in Hong Kong are a highlight. There's a sharp increase in completed deals, and we have increased our market share of new listings. But here is a good example of the flow-on effect in our business. In Hong Kong, we have seen north of a 400% increase in retail participation and applications for these IPOs. These applicants become shareholders. Now of course, we earn a corporate actions fee for the listing, but then we end up earning recurring fees for maintaining the register going forward. M&A volumes, on the other hand, are yet to fully recover, as I mentioned earlier on. The number of completed deals was down across all markets apart from Australia. But based on the deal pipelines, the outlook is a little bit more positive, but it is hard to predict which half year period it will actually land in. Elsewhere in Issuer Services, in January '25, we completed 2 small investor-related acquisitions, which were not in the PCP. Now these businesses are small and the margins are lower as we build out scale and capability. We also touched on tokenization within Issuer Services at our AGM. Since then, we have continued to actively engage with regulators and market participants to help shape the structure of digital markets, and we see this as a long-term positive for us. Computershare has always, at its heart, been a technology company whose key role is to support and advise issuers. We have applied our deep understanding of the rationale and benefits of existing market structures to design a tokenization model, which we call issuer-sponsored tokens or ISTs. We have been engaging with the digital task force at the SEC on this proposal. And I think it's really encouraging to see that our pro-issuer stance is being reflected in the latest communications from the task force, and we really see that as an opportunity going forward. I mean, our goal is really to replicate the trust, compliance and protections of traditional registered ownership while enabling the benefits of digital transferability, interoperability and, of course, approaching 24/7 accessibility. Now moving to Corporate Trust. The business is performing well. Fee revenue up over 12%. We are benefiting from increased issuance volumes across most product categories with strong volume growth in key structured products, RMBS, ABS and CMBS. As expected, higher activity levels are generating higher client balances, and we continue to strengthen our platform and capabilities as we patiently pursue acquisition targets. Employee share plans delivered another set of strong results. Revenues increased by 5%. Client wins across all markets drove higher fee revenues and transactional revenues grew. The plans book continues to grow with the increasing use of equity and employee remuneration. In Europe, for example, issuance of units increased by over 20%. Recognizing the business has an element of sensitivity to equity markets, I do think we've built an impressive portfolio of multinational clients across diversified industry sectors. And it's really the size of that book that fuels the growth, and we see the number of units being administered increasing over time. Now let's move to Slide 5, where we talk a little bit about Computershare's natural interest rate hedge. I do think that it's a very important part of Computershare's model. But it allows us to really unwrap why margin income is so resilient at down 5% when the U.S. cash rates for the period was down some 17%. And there are really several parts to this hedge. First of all, and we've been saying this for a while, lower rates stimulate more activity across our business lines. And as you will see, client balances are up and higher balances can mitigate lower yields. And as a reminder, only about 1/3 of our balances are fully exposed to short-term rate movements. And there's also another part to this hedge with lower interest costs on group debt. Now there are 2 drivers there, lower interest costs and reduced debt. All our debt is deliberately at floating rates. So we are also benefiting from the lower rates to the tune of some $14 million. Therefore, including interest rate savings, the net impact on lower rates of Computershare overall in the first half was only $8 million. That's only about 1.5% of PBT. So when we combine higher balances, the benefit of our hedge book and lower interest rate costs on a strengthening balance sheet, you can see that looking at lower cash rates alone sometimes misses the bigger picture. Let me now turn to the outlook on Page 8. In August, we provided initial guidance for management EPS for FY '26 to be up by around 4% to $1.40 per share. This assumed a full year profit contribution from U.K. Mortgage Services, which we successfully divested and closed last week. Even without this additional contribution for the last 5 months of the year, we now expect to deliver management EPS of around $1.44 per share, up 6%. We do have momentum across our key business lines, lower interest costs and of course, the benefit of the share buyback we completed last year. But we will maintain our focus on executing our strategic plans to deliver higher quality Computershare that generates consistent results and enduring returns for shareholders. Nick, now over to you to go through some of the numbers in more detail. Nick Oldfield: Thank you, Stuart, and good morning, everyone. So as you've heard, we delivered $0.679 per share of management EPS in the first half of FY '26. Now there's been some noise on costs overnight, so I want to start by clearing this up. First of all, BAU OpEx was up 2.6%. We have said consistently, our objective is to manage BAU OpEx at or below inflation. This result is firmly in that target range. So what was the noise? Well, we calculate BAU OpEx as general cost increases less the cost-out benefits delivered around the group. Total cost-out benefits totaled $16.5 million. This was $6.2 million in operating synergies from Corporate Trust, whilst our ongoing Stage 5 cost-out program delivered $10.3 million in savings. The next component of cost is investment spend. This is really about the next stage of growth at Computershare. This added $25.7 million of cost. It includes $5 million for 6 months of new ownership of Ingage, CMi2i and BNY Corporate Trust Canada. The remainder was investment in both technology and people to support ongoing product innovation and revenue growth, particularly in Issuer Services, investments to establish our corporate trust capabilities in Europe and the launch of a social value fund in our U.K. deposit protection service. This does, of course, cut both ways. In the second half FY '26, you will see the benefit of lower cost from the divestment of U.K. mortgage services. Around 800 people have left the business as a result of that transaction. The third point is a slight delay in the benefits arising from our Stage 5 program. Estimated savings for FY '26 have been reduced by about $6 million. $3.3 million of this reflects a slight delay in the timing of benefits. The other $3 million is simply the fact that we sold the U.K. mortgage services at the end of January before the savings could flow through. More details on the cost-out programs are included on Slide 38. And today, we announced that these cost-out benefits will also extend to FY '27. We now expect pretax cost savings from Stage 5 and corporate trust programs of $23.2 million in FY '27 and the EBIT ex MI margin will be higher again. I'd now like to touch on stranded cost. As you may recall, in August, I said that there was $40 million of stranded clark costs included in the FY '25 cost base in the Technology Services and Operations segment and that these were to be reallocated out to the business lines in FY '26. In 1H FY '26, around $19 million has been allocated, and the remainder will be allocated in the second half of FY '26. To be clear, these costs existed in FY '25 and they exist today. They're not an increase. They are stranded simply as they represent costs we have to pay to support the business, and we've just reallocated them out to the divisions. To manage overall costs, therefore, we focus on cost savings elsewhere. And so the $16.5 million of cost out I mentioned earlier offsets these stranded costs almost one for one. Below-the-line costs were also lower. I said in August, they'd be 40% lower in FY '26, higher than FY '27 and disappear by FY '28. I now expect them to be 30% lower in FY '26. This is what we achieved in the first half and second half of FY '26 will be similarly reduced. Not quite the 40% I expected, but this is largely due to timing of some redundancy expense in the second half. I expect a 55% reduction in FY '27 and still elimination by the first half of FY '28. To reiterate, FY '27 will be the last year of these below-the-line costs. This is all shown on Slide 12. So let me now touch on MI and guidance before we move to questions. In FY '26, we expect to generate around $730 million in MI, an upgrade of $10 million compared with the expectation of $720 million back in August. You can see this on Slide 9. This is based on average balances of $30.8 billion, in line with exit balances at the end of December. We expect a yield of 2.37% based on the assumption of one rate cut in the U.S. in March and one rate cut in the U.K. in May. This is based on curves as at the 9th of February. Moving forward, I expect MI to continue to be resilient. The hedged yield should increase further to over 3.5% in FY '27. And as we've demonstrated in 1H '26, if rates do fall further and each 50 basis points in global rates is worth around $48 million in margin income, any negative impact can be materially constrained by growth in balances, lower cost of debt and increases in hedged yields. Turning to guidance. Slide 13 shows the second half bridge. Relative to 2H FY '25, there's $0.03 per share of organic business growth and cost out. This continues the momentum of the first half. Yes, EBIT ex MI growth in absolute terms is a bit lower, but that's because the second half is always bigger and because we're dealing with the sale of U.K. mortgage services. That would have contributed $0.01 per share in the second half had we not sold it, around 2% of EBIT ex MI. Margin income is down $0.02 per share versus the PCP. Interest expense is down $0.04 per share. This is the natural hedging action powered by a full 6 months of benefit of paying off the USPP in November 2025. Tax is broadly neutral, and there's $0.01 per share of buyback accretion. We expect this to deliver us $0.76 per share of earnings in 2H FY '26. This would be a record half for Computershare. I'll now hand back to Stuart. Stuart Irving: Thank you, Nick. I think we are really looking forward to some of the questions. So why don't we move straight to that. Operator: [Operator Instructions] The first question comes from Kieren Chidgey with UBS. Kieren Chidgey: I might start with a sort of follow-up question on costs. Thanks for the additional detail you provided, Nick. I just wanted to circle back on some of your comments. So the investment number you called out in first half '26, I think, around $25 million, you're saying $5 million was acquisition-related, $20-odd sort of tech investment in the business. I'm just wondering if you can sort of talk to that tech investment around how one-off you kind of see that or whether or not truly it is sort of ongoing investments you need to make more broadly on a go-forward basis? And also around sort of the additional benefit you flagged in '27, which I think you said $23 million, whether or not sort of that's the full scope of, I guess, what you see left post Stage 5 of your cost programs and whether or not we should think about or be prepared for any stranded costs out of your U.K. mortgage services sale as well? Nick Oldfield: Okay. Thanks, Kieren. So let's try and -- I think there's probably 3 questions in there. So the first one, the $20 million of non-M&A investment in the first half, yes, look, a large part of that is really one-off. So it's a one-off sort of step-up. I don't anticipate it being a recurring $20 million. There will be a little bit -- there will be a similar investment perhaps in the second half, but it will level out. And then you shouldn't see that recur going through to FY '27. The second piece was... Kieren Chidgey: Just around the '27 sort of cost... Nick Oldfield: Yes. So the $23.2 million of cost savings in '27, that should be the -- it's largely the end of the -- by the end of '27, we'll have delivered the programs. So they will all be finished, but there will probably be a little bit of flow-through of benefits into FY '28, partly because of the timing of when that $23.2 million will hit in FY '27. So if you think about our EBIT ex MI margin, I'd anticipate it being sort of 19-ish percent in FY '27 and 20% in '28, if that makes sense. Kieren Chidgey: And Nick, is there any sort of -- is that a gross or a net number? Is there sort of any stranded costs out of the... Nick Oldfield: Sorry, and the stranded costs on U.K. mortgage services. There is a small amount of stranded costs. But we have -- and that's really the cost of supporting the TSA over the next 12 months. We anticipate that through the course of the 12 months, as we wind down the TSA, we'll be able to eliminate that cost. So we're not anticipating a legacy sort of stranded cost issue in the business. We anticipate... Stuart Irving: Definitely it's different from U.S. mortgage services because the U.K. business, as you'll be aware, was up for sale for a long time. So that has actually given us time to strip out some of these traditional stranded costs and have it pretty much run along as a sort of separate entity, so to speak. So the stranded cost issue in U.K. mortgage services is a very different picture. Kieren Chidgey: Okay. My second question was broadly around tokenized equities. Obviously, it's a big subject matter, so I don't expect to unpack it in full today. But Stuart, I guess the question was more going to if you do see an opportunity here, what additional investment you need to make across the organization, either organic or inorganic to get the tech blockchain solutions that you might require? How you're thinking about sort of that investment slate -- and sort of at the same time, I guess you've still got the interest in building corporate trust through inorganic growth if that pipeline does open up. So how are you sort of lining up those 2 opportunities? Stuart Irving: Yes. So if we start about sort of tokenization of digitized securities, et cetera. And I think that in the U.S., where really the discussion on tokenization is the most advanced, I think that the regulator is all about been ensuring the same level of investor protections and transparency for tokens and view them as very much regulated securities. And issuers will still require a regulated third party or a transfer agent to really sort of maintain what we call the master security file and administer corporate actions and force transfer restrictions, et cetera. So we have been speaking with a number of market participants and regulators and also third parties about how we could structure it. We proposed something called an issuer-sponsored token, which is really designed to replicate that trust compliance and protections. And you would have seen perhaps some of the disclosures by the regulator that they fully expect that an IST model can work, but it will work alongside the current business that we have just now. So what does that mean? Well, it just means that we have to integrate into whatever distributed ledger or blockchain-type technology there is. As you would have seen, you've got NASDAQ thinking about doing something. You've got NYSE thinking about doing something. You've got DTCC thinking about doing something. You've got other third parties. Now they're all talking about doing things which are nothing to do with the transfer agency component, right? That's got to be very, very clear, especially because of the model in the U.S. all the brokerage positions, custodian positions, et cetera, they're all held at DTCC anyway, right? We never see them, right? We just have one account that covers their position. We look after registered sort of mom-and-pop type shareholders. So -- but we would need to integrate. Now part of that is just APIs into whatever technology solution may well be part of that. It may well mean that we'll either develop, acquire or partner to do certain blockchain components of that. I think my view is this is going to take a long time to play out. I do not see it as a negative. In fact, the independence of the transfer position or a transfer agent is still being maintained at Computershare. And whatever technology comes, we'll integrate it, we'll own it, et cetera. I don't think it's going to be a huge cost element into Computershare. But what we want to do is we just want to make sure that issuers are protected and issuers are in charge of doing their own token. And look, we're not seeing a lot of demand for it at all apart from a couple of noisy companies whose business is around crypto. But just rest assured, Computershare is at the forefront of it. But it is a big topic, and I look forward to sort of further dialogue over the coming days on it. Operator: The next question comes from Nigel Pittaway with Citi. Nigel Pittaway: I was just wondering, first of all, if it's possible to get a bit of divisional color about this sort of EBIT ex MI margin improvement that you're targeting and flagging. Obviously, previously, you had a target for CCT to reach a 20% margin. So is that incorporated in that sort of guidance? And how should we think about it sort of happening across the various divisions? Stuart Irving: Yes. So what we've said is EBIT ex MI, we have a target of around about 20% margins. That's really what we are targeting from a growth perspective. Now in CCT, which is our Corporate Trust business, as you'll remember, Nigel, quite often, there's the fee structure there means it's a lot -- it used to be a lot of margin income and less fees. And we're gradually sort of changing some of that sort of model into sort of more fee income, which helps improve the EBIT ex MI line. But I think it's really going to be a contributor from all the divisions. Issuer is more of the mature business, and it's got some, shall we say, sort of start-up early growth businesses in it around investor engagement and other bits and pieces, which compresses a little bit of the margins on that front. But if you look at the EBIT ex MI performance over the last few years, we have been making step changes and improvements as we head towards that target. So I think it will be, as I said, across more of the business lines, CCT plans and Issuer probably in that order. Nigel Pittaway: Okay. And I mean, is there any reason why plans margins have been relatively static given you've sort of had quite a lot of transactional improvement there? I mean is that just some investment going in, in the first half or... Stuart Irving: Yes. Yes. I mean FY sort of '26 is really the first year where the major platform integration components of that business have been completed. So it's kind of -- it's got over the large-scale global complex technology integrations and migrations, et cetera, sort of running through. I think that it's a pretty good margin business as it stands. I think that whenever we talk about EBIT ex MI margin businesses, I think the future capability for Computershare to use new technology that's getting deployed, and I'm not going to jump on an AI bandwagon here, but the ability to reduce some of our back-office reconciliation costs in these highly regulated business, et cetera, will lead to sort of future margin expansion because the cost to run some of these businesses there. Of course, the trick is not to sort of have that competed away these benefits, and we'll work hard on that. But I think with -- now that the bulk of that tech integration is over, we can then sort of focus on more efficiencies and deploying some of these new technologies over the next few years that are coming through, which should help us expand the margins. Nigel Pittaway: And then maybe just quickly on the footnote to Slide 38, this initial FY '27 target of $46.1 million growth. Just to be clear, is that the cost-out target? And how does that relate to -- I think it was -- did you say 23.2 earlier? Nick Oldfield: The $46.1 million is the cost to achieve, Nigel. Nigel Pittaway: Right. Okay. Yes. So it's below the line. Nick Oldfield: So it ties to the -- it should tie to the chart on Slide 12. Nigel Pittaway: Yes. Okay. Fair enough. And then finally, could you just maybe give us sort of some idea of the assumptions over the key drivers that are in guidance, so things such as what you're sort of allowing for corporate actions, corporate debt, share plans volumes, et cetera? Stuart Irving: Yes. No, absolutely. I think that's important. I mean, on the corporate actions front, as I mentioned earlier, the first sort of 4 or 5 months, generally was pretty flat year-on-year, notwithstanding Hong Kong IPO. But what we have seen certainly is a momentum coming through late November, December and into January on corporate actions. I mean, M&A volume, for example, was down across all regions in this half with the exception of Australia, but we see that now picking up. There's always a lag between announced and completed M&A, of course. So we think at this sort of early stage of the second half with a bit of momentum, we should see improved corporate actions performance. Employee share plans, I know that there's certainly a view that it's tied to where equity markets are going to be. But I think the fundamental is the number of units and the size of that book is really going to be the driver of that sort of trading revenues. The AUA on that book sort of increased 25% in 1H '26 versus 1H '25. The number of units are up some 20% in some regions, so -- and the big regions. So that will continue to be sort of a driver so fairly consistent sort of coming through from a performance perspective. And then we touched on -- I mean, corporate trust debt issuance has been picking up and recovering. So all 3 of the businesses have some elements of momentum in them to the second half. That will offset, obviously, sort of lower margin income, but then we get the benefit of the lower debt costs as well. So that's really how we see that sort of flowing through at this early stage of the second half. Operator: The next question comes from Andrew Buncombe with Macquarie. Andrew Buncombe: Just 3 relatively simple ones, please. The first one, I think the buyback thesis is well understood now. So you've obviously increased your dividend payout ratio this half. How should we think about the dividend payout ratio in second half '26 and then again into FY '27, please? Stuart Irving: Look, I think we've tipped into sort of the higher point of our range. Sort of I think the payout ratio is like 52% or whatever. We've got a little bit room to go there. It's good to see that step up just in terms of returns for shareholders. Even with this step-up, net debt should continue to actually drop. I think that's a really important factor there. So there's headroom there. And there's always a balance in terms of what to do. I mean, obviously, I mean, personally, I'm a little bit frustrated about the whole buyback situation as well. I think that's a generally pretty good mechanism in terms of returns for shareholders. But once we flow through to the second half, the Board will look at that sort of payout ratio and probably look at that in the sort of low to mid-50s range. That's what you would probably expect to see. And then as for '27, that will depend on what other capital we may deploy elsewhere, et cetera. So hard to give you a full prediction on that. Andrew Buncombe: Yes, that's fair. The second one was just in relation to the 20% target for EBIT ex MI margins. Can you just remind us when you were targeting to actually achieve that at a group level? Nick Oldfield: Yes. Well, when we first thought it would sort of take us 2 to 3 years to get there, Andrew. And I think that's still sort of relevant. So it's going to be sort of FY '28. Andrew Buncombe: Yes. And then the final one was just on the tax rate. You're at the lower end of the full year guide in the first half on a management accounting basis. Is there anything unusual that's going to cause that number to step up in the second half? Or should we assume that, that effective tax rate guidance for FY '26 is pretty conservative? Nick Oldfield: Look, I think it's reasonable. I wouldn't say it was necessarily conservative. Based on how we're seeing the business, how we're seeing the first half, I think the guidance is reasonably accurate. There's nothing out there that I think that could materially change things. Operator: The next question comes from Siddharth Parameswaran with JPMorgan. Siddharth Parameswaran: A couple of questions, if I can, please. First is just on just the transactional revenues. And maybe if you could just make some comments on where you think we are in the cycle on Issuer Services and also share plans? And also just how -- what you're assuming when you target this 20% EBIT ex MI margin target in FY '28, just whether you're expecting those transactional-related revenues to normalize lower or continue at these levels? Stuart Irving: Yes. So if you look at the transactional elements across the different business lines, so you start off with Issuer Services. The transactional sort of fees within that really are corporate actions and a little bit of SRM and shareholder paid fees. In terms of where we're at the cycle, as I mentioned before, corporate actions are, I would say, below cycle. They are improving, as I said, but I think there's more to go there. There's always a bit of a lag between that component. The SRM component, which is stakeholder relationship management, that's kind of big large proxy jobs. It's a little bit harder to predict where we are. It's not really a cyclical component on that perspective. As far as plans are concerned, you'd say that the transactional revenues would be above market cycle if the book was the same size as what it was 2 years ago. But the thing is the book is considerably larger, the number of units being issued that are larger. So I would not say that we're at the top of the cycle with there. I mean, clearly, there's equity markets in most sectors are sort of doing okay. But it's a larger size of the book that will actually continue to drive that. So we're pretty optimistic on sort of maintaining and, in fact, growing some of that. And it's also a very diversified book. We're not -- it's not just all tech stocks or all health stocks or all resource stocks. It's very diverse, both from a sector perspective, geography perspective. So I think I wouldn't say that we're at a high from a sort of cyclical perspective there. And then finally, although it's technically not a transactional issue, but just to go on to the theme of the cycles, I think that debt issuance is recovering. We were below cycle on a number of these structured products, and you can see that sort of increasing. And part of what we did in one of the earlier slides in terms of showing that sort of 7-year track record is through these cycles, right, on the track record and the CAGR growth. But anyway, so a little bit of a mixed bag sit there, but that's my perspective at the moment. Siddharth Parameswaran: And sorry, just for the FY '28 targets, just what you're assuming versus where we are today? Stuart Irving: I'm not assuming any significant change to these transactional volumes to be able to meet targets for '28. Siddharth Parameswaran: Yes, similar point in the cycle is your assumption. Yes. Got it. Okay. Just one other question then just around the margin income side. So you've pushed your banks hard again. It seems like for the last while, we've had the hedged yield continue to surprise on the upside. The recapture rate has now improved on the non-hedged side. Just wondering if you could comment on whether you feel that this is the new steady state, whether there's more you can do in terms of either lengthening tenure, extracting more yield on the hedge book. And also on the recapture rate, whether that's the 95% odd that we're at now is the go-forward level, whether there's more you can do there? Nick Oldfield: Yes. So look, Sid, in terms of the recapture rate, 95% is probably as good as it's going to get. There is a -- we get a better -- a lot of it will come down to the geographic mix. And so we get a better recapture rate in the U.S. versus, say, Canada and the U.K. And so if we saw more swing towards the U.S. versus the U.K. and Canada, then we might see the recapture rate increase further again. But I think that in reality, it's not -- I don't anticipate the U.S. becoming more heavier in the sort of -- in the portfolio than it is currently. In terms of the hedge rate, that's really going to trend broadly in line with the 5-year swap rate. That's about 3.5% at the moment. I don't think -- because of the nature of the book, it's going to tip over sort of 3.5% in FY '27. I think it perhaps peaks around 3.6% given where the current swap rate is. And then it will sort of stabilize in that sort of 3.4% to 3.6% range for the next 4 to 5 years. The weighted average life of the book is -- was 5 years at the end of December. It's tipped up a little bit in January because of some trades that we've done. But we target a weighted average life between 5 and 6 years. So we're not really looking to put any more tenure in at this point. Operator: The next question comes from Ed Henning with CLSA. Ed Henning: Just the first one, can you highlight where you've seen and where you can see in the future average fee increases either by rolling out additional products and seeing some more uptake there or increasing pricing to improve margins going forward? Stuart Irving: Yes. So look, I think improving margins is going to be about fees and then also about cost to serve. We are in a competitive marketplace. But I think if you look at Issuer Services, for example, some of the things that we're trying to build out that sort of one-stop shop around entity management and Investor Relations beneficial shareholders and then shareholder advisory, putting that all together, which will be quite a unique offering into the marketplace and drive sort of the fee structures from that more sort of digitization of some of the interactions will lower the cost to serve, et cetera. So the margin expansion is going to come from clearly sort of the top line fee elements where we can and also back-office efficiencies. So we look at that across the board. And we track the average fees per client, the average fees per either shareholder or employee, the per deal fee, all that type of stuff. We track it quite heavily and continue to try and sort of push the boundaries on that, notwithstanding the competitive markets we're in. Ed Henning: And then just the second one, maybe just touch on the balance sheet and acquisitions. Look, I understand you've talked about being patient. But can you just run through at the moment, what are the hurdles to deploy capital? Is it just the price for assets? Is rates falling in the U.S. helping at all? And are there any areas that are looking more promising at the moment or just still kind of scratching around? Stuart Irving: Yes. Look, it's a good point, Ed. I think one of the things, if you look at from a Corp Trust perspective, it's really about making sure that we've got the appropriate regulatory approvals to put us in the best possible position to actually pursue these acquisitions. So that takes some time to go through that. We've got our applications in for various jurisdictions around the world, and that really makes us a strong counterparty. So you've got to be patient for that. But it is ironic that sometimes when there is -- if there's a market correction and prices are lower, they are the best times to buy businesses. And I think I look at lots of other businesses around the world. I look at Computershare in history as well. And I've seen that sort of pressure come down and go out and buy at high price. That's how you're going to destroy shareholder value. So patience is key here. And we remain committed to the disciplined framework for M&A. And that really is where we will get the confidence to drive long-term shareholder value on that patience. But a number of things come across. Prices are still high for certain types of assets. And so again, patience. That's the key. Ed Henning: No, that's great. And just to clarify on the approvals that you're seeking, is there any time lines for the European and stuff approvals to come through. Or is it a bit uncertain? Stuart Irving: Look, I think that we have a main EU application in, which has been done through the Netherlands and also our applications in with the FCA in the U.K. They generally take 6 to 12 months to go through that process. So look, I would be a little bit disappointed/frustrated if that's not there by the end of this calendar year. Operator: The next question comes from Julian Braganza with Goldman Sachs. Julian Braganza: Just the first one. In terms of the cost-out programs coming to an end, just more broadly, how are you thinking about medium-term BAU cost growth? And also just secondly, any thoughts on implications and further cost-out benefits that could come through from embedding AI within the organization? Stuart Irving: Yes. So look, I mean, just on the cost-out programs, these were sort of large-scale announced trackable product projects. And it doesn't mean that they come to an end. We're not going to be doing anything, I can assure you, right? But just in terms of how we'll structure it internally, it will be a bit different. And I do think that implementation of new technologies will help us reduce costs. There's no doubt about it. I mean you mentioned AI. It's certainly a technology that will provide various degrees of efficiencies across the group. Like lots of companies are sort of talking about it. We have projects in place. The length of time it takes developers to build something in an AI model is coming down, and that means that your time to market new products gets there or you require sort of less sort of on the tech side. You've got the other products and tools that you can put in, which will also drive that. So at the moment, there is some certainly challenges in terms of getting a return on your investment on some of that big AI stuff. Some of the tech costs that we are is us investigating these. We have multiple projects vying for attention, and it's sort of my job and Nick's job to sort of assess these from an investment perspective. And these are both revenue-generating and cost reduction opportunities. But we're not sort of flying the flag, but I certainly think these technologies will allow us to improve margins going forward as well. So yes, we'll certainly be a deployer of these techs. Julian Braganza: Okay. Great. And then secondly, it looks like part of the cost saves are also coming through in the form of revenue synergies. Can you maybe just talk a little bit about that. And also just any revenue synergies that should come through in FY '27 and which divisions that's being floated up into? Nick Oldfield: Yes. The revenue synergies, Julian, you'll see on sort of Slide 38 that we called out that some of the benefits from the CCT or the Corporate Trust program are coming through in the form of revenue synergies. That's really in new product offerings that we've been able to kind of develop through the synergy and integration program that we've been running. And so when we called out $80 million of overall program benefits from that acquisition that we included in that $80 million target some revenue synergies and benefits. And you can see in FY '26 first half is about $5 million or so of revenue benefits, and you probably sort of see something similar in the second half. Julian Braganza: Got it. And then lastly, just in terms of margin income and specifically balances, can you maybe just talk to medium-term upside to balances? I know previously, you were flagging about $3 billion to $5 billion over the next couple of years. Is that still your view given where we're at? We're starting to see green shoots of recovery in corporate activity? Is the improvement in balances matching up to expectations. Or is there a bit more runway relative to that previous guidance that you given the market? Nick Oldfield: Yes. Look, I mean, I think if you look over the last 3 or 4 halves, you'll have seen that balance has steadily inched up every single half as rates have dropped down. So there's certainly a bit of a trend there. If you go back and look over history, then you only have to go back to sort of FY '21, and you'll see that overall balances were about $3 billion to $4 billion higher than they are today. So certainly, we are at least 10% off the peak. I think as Stuart already talked about earlier, corporate actions volumes were pretty subdued really from our perspective in the first half. And so both a pickup in corporate actions activity and ongoing growth recovery in debt issuance should drive those balances higher over the medium term. Operator: The next question comes from Andrei Stadnik with Morgan Stanley. Andrei Stadnik: Can I ask my first question around the Corporate Trust? So you noted stronger mandates, particularly in the higher-margin structured products in the half. How do you view that unfolding over the rest of the year? Stuart Irving: Look, I think that there's definitely been sort of momentum across these ones here. Just in terms of the market, RMBS issuance up 35% commercial mortgage-backed security, up 5% in the market, so probably a little bit more room there. CLO issuance up 10%, asset-backed securities up over 35%. So there has been some pretty good U.S. debt issuance volume come back. So -- but that was recovery, right, because it came to -- it dropped for a while. So there's nothing that I can see in the short term that won't sort of change that in terms of as we move through into the second half. I mean there's still a lot of sort of debt being issued. And it's always part of the underlying sort of structural growth of our Corporate Trust businesses. There's no doubt about it that it's elevated, but it's elevated because it's doing catch-up. So I think that it should continue through to the second half. Andrei Stadnik: Including that favorable mix to structured products? Stuart Irving: Yes, I think so, yes. Andrei Stadnik: And look, my second question, just one slide earlier on Issuer Services on Slide 20. You showed some very strong Registered Agent units under administration growth about 10%. Can you talk a little bit about what's driving that? And then maybe also just what are the differences for the trends in direct versus partnerships? Stuart Irving: Yes. So Registered Agent business, I mean, it's fundamentally the registering legal entities across all the various states in the U.S. And some of that customers do directly through us. Some of them do it through large-scale accountancy firms, et cetera, where we have relationships with, which is kind of like an indirect. So look, it continues to grow in terms of number of entities. I mean in the background on that business, we've been building out new technology capability because it is a lower-margin business than core registry. And we're working on the integration of that -- some of these systems -- newer systems to lower the cost to serve. And our real focus there, not only is just growing entities, it's really actually improving the margins in that business and scaling it. So it has a track record of continuing to grow, but it's got somewhere to go there. And I also think there's some inorganic opportunities that will come down the road on that particular business as well that will help us with some of that scale. But that's really sort of entity management. Operator: I'll now hand the call back over to Mr. Irving for any closing remarks. Stuart Irving: Yes. Well, listen, thanks so much for joining us. I think in summary, good start to the year. Businesses have momentum into the second half, and it is encouraging to see some of the recovery in some of that more market-sensitive activities. But I do think there's more to go. We did give a modest upgrade to the full year guidance and a nice step-up in the dividend for our shareholders. But I think importantly for me, the operating businesses are performing consistently and predictably, which really gives me that confidence for the full year and beyond. We talked about the pursuit of attractive acquisitions. As I mentioned, answering the question, patience is key. We remain committed to our sort of frameworks and confidence we'll be able to drive long-term shareholder value with these in the future. But I can assure you that in the meantime, we're going to focus on driving organic earnings growth and consistent high returns regardless of the interest rate market. But anyway, thanks so much for joining the call, and I really look forward to meeting with many of you over the coming days.
Operator: Welcome to the Vimian Group Q4 Report 2025 Presentation. [Operator Instructions] Now I will hand the conference over to the speakers, CEO, Alireza Tajbakhsh; and CFO, Carl-Johan Zetterberg Boudrie. Please go ahead. Alireza Tajbakhsh: Good morning, everyone, and welcome to Vimian's 2025 Year-end and Fourth Quarter Earnings Call. I'm Ali Tajbakhsh, the new Group CEO since end of last year after leading Veterinary Service segment for the past 4 years. To give you some background, during my 4 years as Head of Veterinary Services, the business developed from a Northern European purchasing organization into a global service platform with over 10,000 member clinics. I personally experienced Vimian's ability to attract talent and entrepreneurs and take something relatively small with potential and build it into global scale market leader. I'm a firm believer in our strategy of organic and acquisition-driven growth, and we operate in an exciting and resilient industry going through change. I know the sector, the customers, the business and our organization well, and I'm confident about our industry and Vimian's future. We will now go through Vimian's full year and fourth quarter, and Carl-Johan will later give you deeper insights into the financials. Looking back at full year 2025, Vimian delivered revenue growth of 13% and adjusted EBITA growth of 11%. We saw broad-based growth across most of our businesses, not least in specialty pharma, veterinary services and our MedTech dental businesses. We also put in focused efforts to address the headwinds within MedTech orthopedics, in particular, in the U.S. In fall, we received a positive judgment in the U.S. indemnification process and all our counterparts have now, as per year-end, paid us in full share. The year also delivered a strong operational cash flow of EUR 105.7 million, corresponding to a cash conversion of 101%. Last but not least, we also completed the list change to NASDAQ Main Market, where we are now a large cap company. Going deeper into Q4 and looking at the quarter, we delivered a solid finish to 2025 with 6% organic growth and 6% adjusted EBITA growth. Excluding currency effects, adjusted EBITA grew by 12%. We saw continued momentum within our Specialty Pharma segment. We saw a strong finish with MedTech dental, while active measures were taken in the quarter within MedTech orthopedics. Veterinary Services continued to perform at scale, reaching over 10,000 members. And in the quarter, we increased our M&A activity with 3 acquisitions across 3 different segments and expanded our M&A pipeline in the past few months ahead of 2026. I-Vet, an important milestone for our Diagnostics segment was signed just before Christmas and is an acquisition to strengthen the companion animal offering within that segment. The quarter also delivered strong cash conversion. Looking at Q4, we had 4% revenue growth to EUR 109 million. Our organic revenue growth was 6%, driven by Specialty Pharma, Veterinary Services and our MedTech dental business. 3% contributions from acquisition, and we saw a 4% negative impact from currency movements, in particular, the movements within U.S. dollars. We improved our margin by 60 basis points versus Q4 2024, driven by bolt-on acquisitions and delivered 6% adjusted EBITA growth for the quarter. And as I said before, excluding currency effects, adjusted EBITA grew -- growth was 12%. Looking at Specialty Pharma, we continue to see positive performance in the fourth quarter with 6% organic growth following an exceptionally strong Q4 '24, where we reported 22% organic growth. Normalizing the positive effects from the national sales campaign in the U.S. in the fourth quarter 2024, the underlying organic growth was double digit in the fourth quarter this year. All 4 therapeutic areas delivered growth in the quarter with the strongest contribution from our dermatology portfolio. Overall, organic growth continues to be driven by our innovation, cross-sales activities and veterinary education. Adjusted EBITA grew 4% or 7% adjusted for currency effects to EUR 13.8 million, which is an all-time high quarter for us. The margin improved from 29.4% to 30%, driven by revenue growth at stronger gross margin. For the full year, Specialty Pharma grew 6% to EUR 182.4 million and adjusted EBITA by 10% to EUR 53.9 million. In January, our Head of Specialty Pharma, Magnus announced his departure after 10 years in the company. I believe the business stands strong and a recruitment process for a successor is ongoing, and we've secured a strong transition plan with Carl-Johan as Interim Head of Specialty Pharma. As Interim Head of MedTech since end of July, I'm happy to see the accelerated momentum in our Dental business in the quarter as well as early operational improvements within our Orthopedic business, although we still have work to be done and the market remains soft. In total, we delivered 4% organic growth in the fourth quarter, supported by strong growth in our Dental business and Orthopedics in Europe and APAC. Within Orthopedics, we have implemented a reorganization in the quarter with focus on strengthening commercial performance. We built out our field sales organization in the U.S., and we reviewed and rationalized our product portfolio where we had over 22,000 SKUs and have decided to discontinue over 4,000 overlapping SKUs. We are still in transition phase in U.S. orthopedics during the initial period of 2026. We continue to drive sequential sales improvements, but do not expect Orthopedics to deliver year-on-year growth until later in spring. The recruitment for a permanent Head of MedTech is ongoing and progressing well. The margin in the quarter of 24.6% is a 370 basis point improvement versus Q4 '24, mainly driven by the consolidation of bolt-on acquisition within dentistry in '25. Adjusted EBITA grew 23% in the quarter and 32%, excluding currency effects. For the full year, MedTech grew revenues by 25% to EUR 155.5 million, where our acquisitions within dentistry contributed 30%. Full year adjusted EBITA grew 15% to EUR 39.6 million. Veterinary Services delivered another strong quarter with 10% organic growth. In October, we completed the acquisition of a local service platform in Belgium with 300 member clinics and passed the 10,000 milestone when it comes to member clinics, closing the year with 10,900 member clinics. As previously communicated, we are accelerating our investments into new geographies and services in the quarter, taking the margin to 26.6%. For the full year, Veterinary Service increased revenues by 11% to EUR 64.3 million and adjusted EBITA grew 9% to EUR 18.4 million. Michael Thunell, who has been part of Veterinary Services since 2018, was appointed Head of Veterinary Services when I became CEO, and I'm pleased to see how the team has come together and continue to build momentum as the global leading veterinary service platform. Our Diagnostic business reported 5% organic growth in the quarter and a margin of 9.2%, reflecting our investments in new products and personnel to strengthen the companion animal offering. The growth was supported by Blue Tongue outbreaks in Europe and Avian influenza globally. For the full year, Diagnostics grew by 9% to EUR 22.9 million, while adjusted EBITA declined 3% to EUR 2.2 million. As I said initially, we welcomed 5 new businesses in 2025 that expanded our portfolio and geographic footprint. We've seen improving M&A momentum towards the end of the year, with 3 out of these 5 acquisitions coming in the fourth quarter. We've built a stronger pipeline over the past months, and I'm optimistic about the M&A opportunities going into 2026. We continue to focus on successful entrepreneurial-led businesses that can grow and reach their full potential faster as part of Vimian. A good example of that is I-Vet that we signed in December. I-Vet is one of the top 3 in companion animal diagnostics in Italy and forms an important addition to our Diagnostics segment. I-Vet is a typical Vimian acquisition, high-growth, successful and entrepreneurial-led business where the entrepreneur Daniele is highly motivated and will continue to lead the business as part of Vimian. Annual revenues of EUR 5.6 million, where 2/3 of the revenues comes from laboratory services, where they have 3 vet labs in Italy and the remaining 1/3 is from sales and in-clinic diagnostic tests. I-Vet also has a well-renowned educational platform with over 100 courses annually and offer residency program in partnership with universities. Looking at our sustainability, as we now close 2025, we can see that we continue to make important progress within our ESG agenda. Our sustainability agenda is closely integrated into the core of the business and focuses on animal, our people and the planet. During 2025, we educated 65,000 veterinary professionals to improve animal health, and we launched 94 new products to advance veterinary medicine. Our employee Net Promoter Score reached 30, and we have exceptionally high scores from our teams in areas of inclusion, trust and autonomy. On the environmental side, we continue to reduce our emissions in total with 25% since 2022. We also received external recognition for our work with an improved rating at both MSCI to AA and Sustainalytics to low risk. With that run-through of the year and the quarter, I will now hand over to Carl-Johan. Carl Johan Boudrie: Thank you, Ali. And let me give you some further insights to the financials for the fourth quarter and full year. Adjusted EBITA in the fourth quarter was EUR 26.1 million, an increase of 6%. This represents a margin of 24.0% for the quarter. The margin increase is primarily an effect of consolidation of bolt-on acquisitions within MedTech dentistry during 2025. Also our largest segment, Specialty Pharma, contributed to the margin expansion supported by operational leverage in the business. We reported an operating profit of EUR 19.2 million, a significant 54% increase from last year's result of EUR 12.5 million. Items affecting comparability decreased in the quarter and totaled minus EUR 0.7 million. The majority of items affecting comparability is relating to Medtech. This consists of minus EUR 1.6 million in restructuring costs from organizational changes and inventory write-down as a consequence of the product portfolio rationalization, as well as EUR 2.7 million relating to payments net of litigation costs in the U.S. indemnification dispute. Acquisition-related costs amounted to EUR 1.1 million in total for the group. Net financial items amounted to minus EUR 7.5 million and consists of 4 main parts: financing expenses of minus EUR 4.1 million with an average interest rate of 4.5% during the quarter. A quarterly discounting impact of minus EUR 1.6 million and a negative impact of minus EUR 3.1 million from probability adjustments related to contingent considerations. The probability adjustments primarily relates to stronger performance in our acquired dental businesses. A negative result of EUR 0.7 million from liquidation and divestments of subsidiaries and lastly, a positive impact of EUR 2.2 million from exchange rate effects on the revaluation of debt. Income tax expense for the quarter was EUR 0.8 million, with an effective positive tax rate of 7%. In the fourth quarter, the tax expense as a percentage of pretax profit was positively affected by recognition of deferred tax -- on tax losses carried forward at year-end, amounting to EUR 3.7 million. The effective tax rate was inflated by nondeductible expenses, mainly probability adjustments of contingent liabilities. In total, this results in a profit for the period of EUR 12.2 million with an earnings per share of EUR 0.02 for the quarter. Cash flow from operating activities reached EUR 55.7 million, including payment from U.S. indemnification dispute of EUR 28.7 million in the quarter. Excluding the litigation payment, cash conversion was 92% for the fourth quarter. Net working capital amounted to EUR 96.6 million at the end of the quarter, equal to 23% of revenue, a decrease from EUR 102.2 million at the end of the third quarter, which equaled 24% of revenue. The majority of the EUR 5.6 million decrease in working capital relates to lower current receivables and increase in trade payables. Cash flow from investing activities amounted to minus EUR 17.5 million, primarily relating to acquisitions, earn-out payments and investments in tangible and intangible assets. Cash flow from financing activities of minus EUR 35.5 million from repayment of borrowings. At the end of the quarter, net debt amounted to EUR 245.4 million, which is down from EUR 253.5 million at the end of the third quarter. Cash and cash equivalents amounted to EUR 55.0 million, an increase compared to EUR 51.3 million at the end of September. External lending was EUR 223.3 million at the end of the fourth quarter. This resulted in a leverage at the end of the quarter equal to 2.0x, which is down from 2.1 at the end of the third quarter. And we remain well capitalized with an ability to execute on our strengthened acquisition pipeline. With this financial review, I hand the word back to Ali for concluding remarks. Alireza Tajbakhsh: Thank you, Carl-Johan. We delivered a solid finish to 2025, and we are well positioned in a resilient market that continues to grow. I'm a firm believer in our strategy of combining organic and acquisition-driven growth, and my focus is to accelerate what is working well and address the areas we need to improve. We have an attractive platform for entrepreneurs, and I'm optimistic about our M&A pipeline going into 2026. I hear frequently from industry peers and partners that the entrepreneurial spirit and the quality of our people consistently stands out. This is something we take pride in, and we will continue to build upon. With our focus on global market niches with unmet medical needs and high growth potential with a strong team in place and with the products and services we offer, I'm confident we can deliver a good 2026. Thank you. Operator: [Operator Instructions] The next question comes from Kavya Deshpande from UBS. Kavya Deshpande: I have a couple, please. So the first was on organic growth from here after the very good exit you've had in Q4. I understand you don't give annual guidance, but could you give us a sense of how significant an organic acceleration we can expect in 2026? I ask because you have a long-term guidance for double-digit organic growth to 2030, you're at 7% for the first 2 years of the plan. Consensus has you at high single digits for '26. So that obviously implies quite a ramp towards the end of the decade. Are you comfortable with this cadence? Or do you think we can start to get closer to that double-digit organic growth target sooner? Alireza Tajbakhsh: Thank you for the question. I think we see an overall -- and the overall animal health market continues to grow, and we have positive business momentum, as I said, in most parts of Vimian. So I think we should be able to deliver good growth in 2026. Kavya Deshpande: And my second question is just on Spec Pharma and the cross-selling initiatives there. If I have it right, it slowed a fair bit sequentially in terms of the contribution to the divisional organic growth in Q4 of Q3 and also of Q2. Are you just reaching sort of the end of this program? And if not, then how much of a contribution can we expect to come from cross-selling for Spec Pharma and group organic growth in 2026, please? Carl Johan Boudrie: Yes. Thank you. Cross-selling has been and continues to be a robust contributor to organic growth. We saw in '25, just as we saw in '24, that 1/3 of the organic growth was driven and supported by our cross-selling initiatives. And we are launching, and we launch new cross-selling initiatives going forward. In 2026, 8 new cross-selling initiatives will be launched, while we see continuous runway for a solid contribution from cross-sales in 2026 and beyond. Kavya Deshpande: Apologies. Just to clarify, so is it 1/3 of organic growth in the quarter because the press release says in 2025, and I think the previous ones give it as year-to-date. Just to confirm that would be great. Carl Johan Boudrie: The 1/3 is the year-to-date number. So for 2025, 1/3 of the organic growth was supported by cross-sales. Operator: The next question comes from Adela Dashian from Jefferies. Adela Dashian: Ali, congratulations on the new appointment. A couple of questions from me as well. Firstly, if we start with MedTech, I believe you said here that you don't expect an acceleration or year-over-year growth until spring. Should we read that as some sort of guidance that you do expect MedTech to return to double-digit organic growth by Q2? Alireza Tajbakhsh: We see early operational improvements, but we are undergoing significant change with the new sales team fully in place as of January. So I think Q1 or spring will be a transition phase for us, but we continue to drive sequential sales improvements, but we don't expect it, as you said, to deliver year-on-year growth until later this spring. I think that's all we can say at this stage. But I think or I can add to a full recovery will probably require the market to regain momentum as well. Adela Dashian: And by a full recovery, you mean double digits? Alireza Tajbakhsh: Yes, the market remains soft right now. So I think the combination of our efforts into the operational side of the business and the market returning to better growth is needed to get to double digits. Adela Dashian: I see. And then you mentioned also a number of SKUs being discontinued. Could you just -- have those already been discontinued? Or is this an effort that will take place now in 2026 as part of the new commercial efforts? Alireza Tajbakhsh: We've already initiated the work of discontinuing those SKUs, but there are a few that will be transitioned and discontinued now early this year as well. Adela Dashian: Would it be possible to quantify what the impact of that was on sales in 2025? Alireza Tajbakhsh: Limited. This is overlapping SKUs. So the SKUs we are discontinuing, we have equivalent products that are better and more relevant for our customers to buy. Adela Dashian: Okay. Great. And then lastly, on veterinary services, still a high pace of investments. What's the, I guess, phasing of that? Do you expect a continuation even in 2026 or a slowdown at some stage? Alireza Tajbakhsh: We see continued momentum in Veterinary Services. It's been one of our segments performing very well for a long period of time, and we see that to continue. The investments we're doing is to ensure that we capture the full potential and the inbound need we get from our partners and veterinarians across the world. Operator: The next question comes from Sten Gustafsson from ABG Sundal Collier. Sten Gustafsson: I was wondering if you could give us a little bit of color on the M&A market right now in terms of number of opportunities, price levels on targets? And also where you focus your efforts on? Where do you want to grow? What areas specifically are you looking to go after? Alireza Tajbakhsh: We see an increased M&A momentum. As we stated, 3 out of the 5 acquisitions we made in 2025 happened in Q4. We're also confident about the building of our pipeline going into 2026, where we see Vimian being a good and interesting platform for entrepreneurs in animal health to join. With the acquisition of I-Vet in Diagnostics, I think we now have 4 active verticals looking at interesting bolt-on or platform acquisitions. Sten Gustafsson: And in terms of price points, has there been any change, would you say, like compared to a year ago? Carl Johan Boudrie: No, I wouldn't say that we see a change. We have a historical average of approximately 9x EBITDA, and we are around that average. As previously communicated, typically, platform acquisitions such as iM3 within the dental space come with a slightly higher multiple, whereas add-on acquisitions to that comes with a lower multiple, but the average is 9x. Sten Gustafsson: Okay. Perfect. And then a quick question on the U.S. MedTech market. What do you hear from your customers? What kind of feedback? And what do they tell you in terms of the market sentiment and activity levels? Alireza Tajbakhsh: I think the feedback from our customers are similar going into 2026 than during '25 from a market sentiment perspective. But with our approach of now building a field sales team in the U.S., this allows us to come even closer to our customers and together with them, support them in growing the business into the future. Sten Gustafsson: But sort of what are they waiting for in terms of -- for the market to return? Is that sort of higher consumer confidence? Or what's the sort of inflection point that will drive the market back to normal levels? Alireza Tajbakhsh: A simplified question on that is, of course, macroeconomics in general. There is still -- I mean, this is Advanced Care. But I think with the macro return, we will see impacts on the business as well. Operator: The next question comes from Arvid Necander from DNB Carnegie. Arvid Necander: So first off, on Spec Pharma, do you expect this segment to be able to return to double-digit organic growth in 2026? And if so, it would be great to sort of get your view on what would be the main drivers for this surge in growth? And then secondly, on MedTech, comparisons have become a bit easier, of course. But if we look at the industry data, it seems to have stabilized somewhat since midyear. Do you view this as a genuine inflection point? And how would you characterize the overall market sentiment right now? Carl Johan Boudrie: Arvid, I'll start with your question on Specialty Pharma. So we have a good momentum in Specialty Pharma. If we look through the full year and if we look at the fourth quarter of 2025, all of our 4 therapeutical areas grew and had a good momentum. In the end of the year in the fourth quarter, we delivered 12% organic growth if we exclude or normalize for the national sales campaign that we did in Q4 of 2024 that we did in Q3 of 2025. So we see a continued positive momentum in Specialty Pharma, and we see that as a double-digit growth business in terms of what will take us sort of to continue to deliver on a good growth momentum. We have a two-pronged strategy in terms of organic growth and inorganic growth. From the organic growth perspective, we are focusing, as we discussed before, on cross-sales, on innovation and on education. And we see that all those 3, let's say, organic initiatives will drive and contribute to continued good momentum in organic growth in Specialty Pharma. Arvid Necander: Okay. Just a quick follow-up on that one. How would you characterize the pipeline for 2026 versus 2025, if you would sort of size the growth opportunities? Carl Johan Boudrie: I would -- we have a continued good momentum in the business, and we see continued opportunities to expand in existing areas and to find new growth in new areas. Arvid Necander: Okay. Fair enough. Alireza Tajbakhsh: And then to your MedTech market question, I think going into 2026, we see the U.S. surgery market condition remaining relatively unchanged. There are signs of stabilization, but I don't think it's returned to healthy growth yet. With that said, I mean, we are confident in our strong product portfolio and the brands we offer and combining that with the actions I mentioned we're taking, over time, I think we will get back to good growth and also beat the market. But given that we have a new sales team fully in place as of January, we believe that Q1 and spring is still a transition phase, but we see sequential sales improvements quarter-by-quarter. Operator: The next question comes from Adrian Elmlund from Nordea. Adrian Elmlund: I have a few questions, please. So first off, could you provide perhaps some more details here into the field sales organization build-out in the MedTech business in the U.S.? And kind of also, we've had a previous question regarding the portfolio streamlining. But kind of could you give some more color, I guess, on what you expect this will impact the business over the coming year? Could there be some positive mix effect? Alireza Tajbakhsh: I think with the field sales in place as of January, we're convinced that that's the right strategy going forward, being close to our customers and together through our educational platforms and efforts we do drive growth. Given that it's a new sales team in place and the investment we're doing into that, we believe that, as I said before, the spring -- and Q1 and the spring will be slightly soft. But over time, with driving sales up on the back of having a strong and present field sales with our customers, that will also drive margin up. With that said, we expect the margin to be fairly flat beginning of the year. Adrian Elmlund: And there's no specific mix effect with reducing the SKUs there? In terms of gross margins or EBIT margins? Alireza Tajbakhsh: Nothing substantial. Adrian Elmlund: Okay. Another question regarding mix effects. You had some negative ones in the Vet family business. What should we expect going forward? And kind of what were the results there? Alireza Tajbakhsh: I think the Vet family margin, as we guided throughout last year as well on the back of these investments has gone down, although there are some mix effects as well, but we believe the margin will improve throughout the year on the back of these investments starting to show signs of effect. Adrian Elmlund: Right. Okay. And regarding here the recruitment of a potential successor here for Kjellberg of Nextmune, kind of what profile are you prioritizing here? And could his departure perhaps prompt any shift in strategy in any way, shape or form? Alireza Tajbakhsh: No, I think Magnus has been a very appreciated colleague and has built specialty Pharma throughout the last 10 years. We believe that with him departing, we will look for a strong operator, somebody that can help us take the business and continue the successes we've had and take the next step. There's so much more things we believe Specialty Pharma can do and continue to grow. At the same time, the leadership bench within Specialty Pharma and also Vimian is very strong. So I believe the business is run by our strong operators in the market. So I'm confident that what we've built up until now will continue to drive similar success in the future. Adrian Elmlund: Okay. Last question here. I don't know if I missed this, but what was the main reason here behind the large change in the operating receivables in the quarter? Is this purely the patent litigation? Or did I miss something? Carl Johan Boudrie: To a large extent, that's driven by the patent litigation as we received EUR 28.7 million in the quarter. Operator: [Operator Instructions] There are no more questions at this time. So I hand the conference back to the speakers for any closing comments. Alireza Tajbakhsh: No, thank you very much for listening in on our Q4 call. As I started off with, we are extremely ready for 2026. We delivered a solid finish to 2025, and we look forward to continue growing the business together with all the fantastic employees we have within. Thank you very much.
Operator: Good afternoon. My name is Kevin, and I will be your conference operator today. At this time, I would like to welcome everyone to the Q2 Holdings Fourth Quarter and Full Year 2025 Financial Results Conference Call. [Operator Instructions] I will now hand the conference over to Josh Yankovich, Investor Relations. Sir, please begin. Josh Yankovich: Thank you, operator. Good afternoon, everyone, and thank you for joining us for our fourth quarter and full year 2025 conference call. With me on the call today are Matt Flake, our CEO; and Jonathan Price, our CFO. This call contains forward-looking statements that are subject to significant risks and uncertainties, including, among other things, with respect to our expectations for the future operating and financial performance of Q2 Holdings and for the financial services industry. Actual results may differ materially from those contemplated by these forward-looking statements, and we can give no assurance that such expectations or any of our forward-looking statements will prove to be correct. Important factors that could cause actual results to differ materially from those reflected in the forward-looking statements are included in our periodic reports filed with the SEC, copies of which may be found on the Investor Relations section of our website, including our annual report on Form 10-K for the full year 2025 and the press release distributed this afternoon and filed in our Form 8-K with the SEC regarding the financial results we will discuss today. Forward-looking statements that we make on the call are based on assumptions only as of the date discussed. Investors should not assume that these statements will remain operative at a later time, and we undertake no obligation to update any such forward-looking statements discussed in this call. Also, unless otherwise stated, all financial measures discussed on this call other than revenue will be on a non-GAAP basis. A discussion of why we use non-GAAP financial measures and a reconciliation of the non-GAAP measures to the most comparable GAAP measures is included in our press release, which is available on the Investor Relations section of our website and in our Form 8-K filed today with the SEC. We have also published additional materials related to today's results on our Investor Relations website. Let me now turn the call over to Matt. Matthew Flake: Thanks, Josh, and good afternoon, everyone. Thank you for joining us today. I'll start by walking through our fourth quarter results and highlights, then step back and recap full year 2025 performance before sharing the key themes that define our strategy as we enter 2026. I'll then hand the call over to Jonathan, who will cover our financial performance, provide guidance for 2026 and share our new financial framework. Starting with the fourth quarter, we delivered a strong finish to the year with performance that reflects solid execution across bookings, revenue and profitability. In the fourth quarter, we generated strong year-over-year subscription revenue growth of 16%, expanded our adjusted EBITDA margins by over 400 basis points year-over-year and produced meaningful free cash flow of $56.6 million. While Jonathan will walk through the numbers in more detail, the headline is that we closed the year with strong results across all of our key financial metrics. We had an outstanding quarter on the bookings front. The fourth quarter was our second largest bookings quarter in company history and came directly on the heels of a record third quarter. This performance underscores both the strength of demand and our ability to execute, particularly in the larger, more complex deals. As we said at the start of 2025, we expected our larger deals to be weighted toward the back half of the year, and that expectation continued to play out in the fourth quarter with 8 total Tier 1 and enterprise deals, notable wins included the Tier 1 institution that purchased both relationship pricing and commercial digital banking, a $40 billion digital banking customer that expanded its commercial and new fraud products and a Helix deal with the top 5 credit union. Within our sales execution during the quarter, we continued to see a healthy balance of net new and expansion activity, which remains a defining characteristic of our bookings performance. Stepping back to the full year, 2025 was our strongest year as a company across bookings, revenue and profitability. On the sales front, we executed well in a strong demand environment. We saw consistent activity upmarket throughout the year, with a total of 26 enterprise and Tier 1 deals, expansion continued to play a critical role in our bookings profile with half of those Tier 1 and enterprise deals coming from expansion with existing customers and the other half driven by new logos. Those wins came from across the product portfolio, and we feel good about the momentum in each of our major product areas. Our digital banking platform provided a strong foundation for our bookings success contributing a diverse range of deals across banks and credit unions, large and small, retail and commercial, demonstrating the competitive strength of our platform approach. Relationship pricing delivered solid performance throughout the year, highlighted by strong net new execution in the Tier 1 space, the successful go live of the top 5 bank and the long-term renewals with multiple top 10 U.S. bank customers. Risk and Fraud remained one of our fastest-growing product lines in 2025 as well. Financial institutions are increasingly prioritizing investment in fraud mitigation solutions. And as a result, our risk and fraud solutions consistently performed as stand-alone products helping new customers for Q2, and regularly showed up as our top cross-sell product as well. They also contributed meaningfully to our success up market throughout the year, including the largest fraud deal in company history with a $200 billion bank. Lastly, as bank M&A activity began to pick back up in 2025, it contributed positively to our business as institutions continued to overwhelmingly choose Q2 Solutions post transaction of the M&A deals involving a Q2 customer in 2025, 93% of them chose Q2 as a go-forward solution. We believe our experience in effectively executing post-acquisition technology conversions is a competitive advantage for us and one that helps our customers derisk their transactions and realize value in their M&A deals. Looking beyond sales and product success, 2025 was also a year which we successfully executed against our profitable growth strategy. Today, we'll unveil a new financial outlook, which Jonathan will share shortly. With that in mind, I want to take a minute to share our product strategy and why we're confident in our ability to execute against our long-term vision. At the core of our business is digital banking, where our single platform approach continues to resonate with a heightened focus on deposit growth and retention, our platform gives financial institutions the ability to streamline their technology environments, while also providing best-in-class experiences that help them compete for win and retain critical relationships across retail, small business and commercial customers. Within the single platform, our commercial banking solutions remain a particularly important growth driver. We believe the maturity of our commercial solutions, combined with the usability of our modern interface give us a durable competitive advantage. To demonstrate the scale of our commercial solutions, in 2025, we processed over $4 trillion in transaction volume, representing 21% year-over-year growth, with December being our first month ever to break $400 billion in transaction volume. As customers continue to invest in modernizing their commercial capabilities to support deposit growth, improve profitability and compete more effectively upmarket our scale and continued investment translated directly into both new wins and meaningful expansion opportunities. Rounding out the digital banking story, Innovation Studio has become a foundational component of our strategy. In 2025, nearly every net new digital banking deal included Innovation Studio. And we continue to see it deepened relationships with existing customers. It's enabling faster product delivery, better economics and stronger engagement. And as new priorities like AI emerge in financial services, we believe Innovation Studio puts Q2, our partners and our customers in a position to adapt swiftly, reinforcing Q2's role at the center of innovation in the banking industry. Relationship pricing is another area where we continue to see strong demand. Customers are using these solutions across loans, deposits and fee-based products to enhance profitability and improve consistency across their organizations. We believe this is a best-in-class solution in an area of growing demand, and it remains a key entry point into some of the largest financial institutions in the country. Lastly, as we look ahead to 2026, risk and fraud has emerged as one of the most strategically important areas in our portfolio. And as financial institutions elevate their focus on fraud mitigation, fraud is no longer episodic or confined to a single channel. It's continuous, cross-channel and embedded in nearly every digital interaction across retail, small business and commercial banking. As a result, financial institutions are placing greater emphasis on greater -- and greater investment on modernizing how they manage fraud. At the same time, the traditional approach of relying on fragmented point solutions is becoming increasingly complex and costly. While these tools can be effective in isolation, managing fraud across a growing number of channels and threats requires faster coordination, better visibility and the ability to respond in real time, something that can be difficult to achieve with disconnected systems. We believe Q2 is uniquely well positioned to meet this moment. Our stand-alone risk and fraud solutions continue to be strong land-and-expand products for the business, including with some of the largest enterprise and Tier 1 institutions. Customers frequently adopt multiple fraud solutions over time and frog that relationships often expand into broader partnerships across the Q2 portfolio. In addition, because of the central role our digital banking platform plays in customers' operations and data flows, we have earned access to the data, signals and real-time contexts that are increasingly critical to fighting fraud more holistically. Looking into 2026, we believe this combination of proven stand-alone solutions and a platform-level approach position us well to capitalize on growing demand and help financial institutions address fraud more effectively. Before I hand it over to Jonathan, I want to spend a moment discussing our approach to AI, which we view as an important enabler of our long-term strategy for a few key reasons. First, we believe our single platform puts us in the best position of any financial institution partner to deliver meaningful AI innovation. We occupy the center of our customers' digital experiences in retail, small business and commercial relationships. This allows us to deliver AI solutions that execute high-value banking operations for both bankers and end users across a wide range of use cases. Second, because of that privileged position, the data that powers our platform makes us the system of context for our customers. For financial institutions, the core processor serves as the transactional system of record. At Q2, however, we sit in the flow of every digital interaction and see every log in, transaction, alert, message and user decision, coveted data that gives us the real-time signals needed to understand what's happening and what should happen next. The most effective AI solutions rely on specific context to create value. And we believe that the rich data we generate in the platform gives us a tremendous amount of banking-specific context that can be additive to value generation and differentiate it from other solutions. And finally, after many conversations with customers over the past few years, we firmly believe that our regional and community financial institutions will depend on us as a trusted partner as they go on this journey with AI. Because of our strategic role and experience in supporting digital innovation for our customers, we believe it's our duty to help our customers navigate AI, just like we did with Internet banking, mobile and cloud. Our customer base and established ecosystem model opens a valuable distribution channel to other AI innovators looking to serve this market efficiently. The combination of these factors is why we believe AI innovation within financial services will flow through Q2, not around us. And we believe we are well positioned to translate that into tangible outcomes for our business over time. We intend to continue to use AI to enhance existing products and build new ones more efficiently, unlocking new bookings and revenue potential over the long term. We've also identified several important areas where we can help deliver value with AI to our customers, including fraud, personalization, back office, banker-facing operations and tasks across the Q2 portfolio. We have several products across these areas that are live or an early adopter stage today. Over time, we believe our product innovation can create monetization opportunities that we will continue to evaluate as part of our long-term operating model. Next, we believe that in the near future, embedded AI capabilities will become integral to delivering digital banking. This is where we believe our platform approach and our deep integration set give us a competitive advantage. And today, we are building platform-level AI innovation like AI-assisted coding capabilities for developers on our platform and AI-enhanced Q2 support tools to even further improve the customer experience. Lastly, we believe AI will play a meaningful role in providing operating efficiency back to our business over the long term. We're already using AI to improve how Q2 operates across core functions like support, delivery and engineering, improving efficiency and scalability that we believe can support long-term margin expansion, while making our teams faster, more skilled and more productive. Let me now shift to what we're seeing in our pipeline as we head into 2026. We exited '25 with a very strong back half bookings performance. And at a macro level, fundamentals of our end market remain solid with improving credit quality, stable margins and reaccelerating M&A activities, all supporting a constructive demand environment as we enter 2026. And from a pipeline perspective, we continue to see healthy pipeline activity across both net new and expansion opportunities with particular strength in larger deals where our platform approach and product portfolio differentiate us. As was the case last year, we do expect Tier 1 and enterprise activity to be weighted toward the back half of the year. Overall, we feel great about our momentum and pipeline, and we're confident in our ability to continue executing in 2026 and beyond. With that, I'll turn the call over to Jonathan to walk through our updated guidance and long-term outlook. Jonathan Price: Thanks, Matt. We're pleased to announce fourth quarter and full year results that outperformed the high end of our guidance. As we delivered strong results across several metrics, which demonstrated continued execution of our profitable growth strategy. We saw growth in our subscription-based revenues, advanced our operational efficiency and exceeded our free cash flow conversion target of at least 90%, enabling us to improve capital allocation. We believe our record backlog and solid subscription ARR growth positions us well for continued success in 2026 and beyond. With that, let me start by discussing our financial results in more detail, and I'll finish with our 2026 guidance as well as our longer-term financial framework. Total revenue for the fourth quarter was $208.2 million, an increase of 14% year-over-year and 3% sequentially, driven by subscription-based revenues, resulting largely from the delivery of new customer go-lives and expansions with existing customers. Total revenue for the full year was $794.8 million, up 14% from the prior year, representing our highest annual growth rate since 2021. Subscription revenue growth for the full year was 17% and represented 82% of total revenue. Based on the strength in subscription-based bookings we observed throughout 2025, we expect the mix of this high-margin revenue stream to continue increasing as a percentage of our overall revenue mix in 2026. Total nonsubscription revenues increased by 2% for the full year in 2025, partially driven by an increase in services revenue, which benefited from an easier comparison versus the prior year as well as higher professional services revenues, primarily driven by M&A-related core conversions. Total annualized recurring revenue, or total ARR grew to $921 million, up 12% year-over-year from $824 million at the end of the fourth quarter of 2024. Our subscription ARR grew to $780 million, up 14% from $682 million in the prior year period. Our year-over-year subscription ARR growth was largely driven by bookings from new customer wins as well as expansions with existing customers. Our total ARR growth remains below subscription ARR growth driven by the recent trends we've discussed in nonsubscription-based revenue over the last few years. Our ending backlog of $2.7 billion, increased by $175 million sequentially or 7% and $472 million year-over-year, representing 21% growth. The year-over-year and sequential increases were supported by booking success across new expansion and renewal activity. While we continue to see ample opportunity ahead, as we have mentioned previously, the sequential change in backlog may fluctuate quarter-to-quarter based on the number of renewal opportunities available within that quarter. Our trailing 12-month total net revenue retention rate for 2025 was 113%, up from 109% in 2024. When looking at only subscription-based revenues, our subscription net revenue retention rate ended the year at approximately 115%, compared to 114% in 2024. Our revenue churn for 2025 was 5.2%, compared to 4.4% in 2024, reflecting an increase in overall M&A activity year-over-year. As a reminder, heading into the year, we expected a higher level of M&A activity relative to prior years. As Matt mentioned, we continue to be selected as the go-forward solution in the vast majority of M&A transactions within our customer base. While this activity can influence churn trends in a given period, M&A has consistently been a net positive as we have largely retained and expanded our relationships as a result of those transactions. Gross margins were 58.6% for the fourth quarter, up from 57.4% in the prior year period and 57.9% in the previous quarter. Both the year-over-year and sequential increase in gross margin were driven by an increasing mix of higher-margin subscription-based revenue. Gross margins were 58% for the full year, up from 56% in the prior year, representing approximately 200 basis points of improvement. This margin expansion was driven by an increasing portion of subscription revenue in our overall mix, coupled with enhanced operational efficiencies from our global workforce and partially offset by increased costs related to our cloud migration, which we completed in January 2026. Total operating expenses for the fourth quarter was $78.9 million or 37.9% of revenue, compared to $75.4 million or 41.2% of revenue in the fourth quarter of 2024, and $76.1 million or 37.7% of revenue in the previous quarter. The year-over-year improvement in operating expenses as a percent of revenue was largely derived from continued scaling across G&A and sales and marketing, while the modest sequential increase was driven by higher research and development costs as we continue to invest across the areas Matt discussed earlier. Full year operating expenses of $306.7 million represented 38.6% of revenue in 2025, down from 42.3% of revenue in the prior year period. The improvement in operating expenses as a percent of revenue for the full year was driven by higher revenues and a focus on operational efficiency, primarily manifested within G&A and sales and marketing. We ended the year with 2,549 total employees, up from 2,476 at the end of 2024, with the majority of additional resources onboarded within R&D. Total adjusted EBITDA was a record $51.2 million in the fourth quarter, up 36% from $37.6 million in the prior year period, and up 5% from $48.8 million in the previous quarter. Full year adjusted EBITDA was $186.5 million, up 49% from $125.3 million in the prior year, with adjusted EBITDA margins up by approximately 550 basis points as we continue to mix towards higher-margin revenue streams and drive operational efficiencies across the business. We ended the quarter with cash, cash equivalents and investments of $433 million, down from $569 million at the end of the previous quarter, driven by the retirement of $191 million of 2025 convertible notes that matured in November as well as the repurchase of $5 million of our stock in the open market. We generated cash flow from operations of $64 million in the fourth quarter, driven by new bookings, larger annual invoices and seasonal strength in working capital. We also generated free cash flow of $57 million in the quarter, resulting in free cash flow for the year of $173 million, representing a 93% free cash flow conversion rate as a percentage of adjusted EBITDA. This better-than-expected conversion rate was attributable to increased focus on profitability across the business, streamlined operational processes and effective working capital management. Let me finish by sharing our first quarter and full year 2026 guidance. We forecast first quarter revenue in the range of $212.5 million to $216.5 million and full year revenue in the range of $871 million to $878 million, representing year-over-year growth of approximately 10% for the full year. We previously communicated the expectation for full year 2026 subscription revenue growth of approximately 13.5%, and we are now raising that outlook to at least 14%. We forecast first quarter adjusted EBITDA in the range of $52.5 million to $55.5 million, and full year 2026 adjusted EBITDA in the range of $225 million to $230 million, representing approximately 26% of revenue for the full year. We are now in the final year of the 3-year framework we introduced in February of 2024, and we have meaningfully outperformed those initial goals. Those targets called for average subscription revenue growth of approximately 14%, average annual adjusted EBITDA margin expansion of 300 to 400 basis points and free cash flow conversion greater than 70% of adjusted EBITDA. For that 3-year period, we are now expecting average subscription revenue growth of approximately 16%, average annual adjusted EBITDA margin expansion of at least 450 basis points and free cash flow conversion continuing to exceed 90%. This represents meaningful outperformance relative to our initial 3-year framework and reflect the consistency of our execution, the strength of our business model and the discipline of our team. As we enter the final year of our previous framework, we are taking the opportunity to provide additional clarity on how we think about the business beyond 2026. This includes both our initial expectations for 2027 and a longer-term financial framework that reflects the operating leverage of our business model. Starting with initial expectations for full year 2027, we are targeting annual subscription revenue growth between 12.5% and 13%, and adjusted EBITDA margin expansion between 150 and 200 basis points. We are also introducing longer-term profitability targets of where we expect the business to operate over approximately the next 5 years. By the end of 2030, we believe the business will achieve non-GAAP gross margins of at least 65% and adjusted EBITDA margins of at least 35%. These are not near-term objectives, nor will we necessarily have a linear progression over this time period. But these targets reflect our longer-term expectations as operating leverage continues to build in the business. In summary, we delivered strong results in 2025, finishing the year ahead of expectations and above the high end of our guidance. while also driving meaningful expansion and profitability and cash flow conversion. As we enter 2026, we're raising our subscription revenue outlook for the year and providing a clear view into how we believe the business can perform as it scales. We intend to continue to execute on our profitable growth strategy by balancing investments to sustain durable subscription revenue growth and drive operating leverage over time, while prioritizing effective capital allocation. With that, I'll turn the call back over to Matt for his closing remarks. Matthew Flake: Thanks, Jonathan. I'll close by stepping back and putting the year into perspective. 2025 was a defining year for Q2. We've delivered strong execution across bookings, revenue and profitability. We're seeing demand across our major product lines, digital banking, relationship pricing and risk and fraud. And we're seeing that demand show up in larger deals with both new and existing customers, expansion continues to be a defining characteristic of our business, and our customers are choosing to deepen their partnerships with Q2 because our platform is delivering real value across their most critical priorities. As we move into 2026, we do so with a strong pipeline, a clear strategy for profitable growth and a platform that we believe positions us at the center of the next phase of innovation and banking, whether it be deposit growth, fraud management or AI, we're confident in our ability to continue executing, investing thoughtfully and delivering value for our customers and our shareholders. With that, operator, let's open the call up for questions. Operator: [Operator Instructions] And our first question comes from Alex Sklar of Raymond James. Alexander Sklar: Matt, first one for you. Just with some of the growing expectations around core modernization within your FI base over the next several years. Can you just talk about what you typically see in terms of demand for your own solutions when an FI decide to migrate its core to the cloud or switch core vendors. How often does that create and is that bad for you? And any change in terms of what you're seeing there in the pipeline related to those opportunities? Matthew Flake: Yes. Thanks, Alex. Any time a bank or credit union decided to make a change to their technology, whether it's in the core area, in particular, it opens up an opportunity for us, and we are expecting to get some opportunities from that. I consider it found money. I haven't had -- I don't have it built into the numbers this year. But I think we're well positioned to get a lot of at bats for those that happen. I don't know the timing on those. And there's some natural conversions that happen every year. But as you know, there's some -- some of the core providers are forcing conversion. So it should create some opportunity. It's just hard to quantify it, but I like how we're positioned, and I think it should create opportunities for us. Alexander Sklar: Great. And then, Jonathan, maybe one for you. I appreciate the early view into already giving a little bit of an above 2027 subscription growth outlook. Can you help us understand the right way to think about your underlying visibility into that subscription growth? Is it just on the strength in the strong Q4 bookings, is anything embedded in terms of what you need to go get still in 2026? And maybe where could there still be areas of upside to that early outlook? Jonathan Price: Yes. Thanks, Alex. We feel good about the early look into '27 and the range we provided. I think you should definitely look to the first half of '26 bookings execution is having an impact potentially on '27 that could drive upside to that. But we feel good about what we're putting out there based on the strength of not just the fourth quarter, but all of 2025. When you look at the mix of deals in the year, especially in the back half, Matt talked about just how much we skew towards larger deals in the back half. And because of the time to revenue on those larger deals, the full brunt of those that will hit revenue really give us visibility into 2027 from that perspective. So we're very comfortable with the range we provided. And I would just look to -- once you get to the back half of 2016, the likelihood of it having a big impact in '27 is smaller. So it's really our first half bookings execution that could theoretically drive upside to that range. Operator: And your next question comes from Ella Smith of JPMorgan. Eleanor Smith: So first for Matt, you cited very good traction with cross-sell in the quarter, particularly fraud tech. Can you please update us on the latest metrics as to how much room there is to still expand within your existing customer base for all the auxiliary products you sell outside digital banking. Jonathan Price: Yes. I can take that. I mean one of the ways I would quantify it is if you just look at our Tier 1 customer base. So every financial institution above $5 billion, only 10% of them have all 3 of our retail, commercial and relationship pricing and fraud solutions. If you look at just the fraud opportunity, it's a little tricky because we have so many fraud solutions that are in the hands of clients standalone, meaning they are just on fraud products, and we can use that opportunity to cross-sell into digital. But if you look at the digital banking customer base and say, how much opportunity could we -- or sell fraud products into that base, we still think there's a huge opportunity, maybe to the tune of 25%, 30% penetrated in totality, but there is a significant penetration opportunity when you think about not just the Q2 set of products, but also the Innovation Studio partner ecosystem in the fraud tech space. So it's very early days from our standpoint, when we think about the opportunity to monetize fraud products within the digital banking customer base. Eleanor Smith: Great. Very clear. And for a follow-up, given the strength of your free cash flow conversion, how do you weigh using your cash for share repurchases versus M&A versus anything else? Jonathan Price: Yes. What I'd say there is the performance on the free cash flow generation side kind of gives us the flexibility to be thoughtful around what is the right answer at any point in time. You heard that in the fourth quarter, we started the repurchase activity associated with the authorization that we called out on the last earnings call. And you can assume with where the share price has been that we've continued down that path throughout January and the first part of February here. But that doesn't preclude us from the other capital allocation alternatives that are out there. Our cash balance, I think, gives us the freedom to still explore M&A actively. But the other thing I'll point to is as you look at the operating leverage in the business implied in our '26 and '27 outlook, you can see less expansion than what we've shown in '23, '24 and '25 in the next 2 years. And a big chunk of that is reinvesting into areas like R&D that are going to drive an elongated growth trajectory for the business. So -- we are very focused on balancing that idea of generating more free cash flow, but also reinvesting it prudently into the business to drive long-term growth. Operator: Your next question comes from Terry Tillman of Truist. Terrell Tillman: Congratulations on the fourth quarter, strong bookings finish. The first question is going to be double clicking and just digital banking, holistically. I'm curious, if we take a step back, where do you think we are in terms of baseball analogy on innings in terms of just dynamism and kind of replacement opportunities for retail, small business and then commercial. And then I had a follow-up for Jonathan. Matthew Flake: Yes, Terry, I think if you think about the vast majority of banks and credit unions are using legacy core processor systems for digital banking, which in some cases, are in desperate need of an upgrade. And we just seem to operate at a pace different than they do. They're great companies. They'll be around for a long time. But the demand environment kind of tells you that we're differentiated in this for retail, small business and corporate with a single platform. Jonathan talked about the expansion opportunities, which you have seen for the last probably 8 quarters, so whether it's an existing customer where we can go sell retail, small business, commercial or even relationship pricing or a net new customer, the customers -- our customers are doing very well. If you look at it, the stocks are up, they're operating in this environment pretty well. They got through the '22, '23 period of time. And they are focused on what we've been talking about all time, deposit acquisition, retention and growth. They're looking for operating efficiencies. They're looking for ways to generate revenue, which comes from commercial deposits largely. And I just think there is a significant amount of runway for us. And if I look at the pipeline, the ASPs, our win rates. It lays out really well for a great '26 and hopefully '27. So I don't know what inning that is, but just say the beginning of the fourth. Terrell Tillman: I guess for Jonathan, risk and fraud, can you remind us again, I'm sure you have an aggressive pipeline for '26. But I'm just curious like how quickly is that to go win it and be able to implement it and start recognizing revenue. Is that a faster time to revenue-type product. And said another way, is that potentially kind of a meaningful swing factor if you do upside your sub revenue, it would become from like risk and fraud and those products go in faster. Jonathan Price: Thanks, Terry. I mean I hate to say it really depends, but it does from the standpoint of are you selling it standalone to a customer, in which case we can typically see implementation timelines that are faster than traditional digital banking. But if it's in the context of a digital banking net new, often it will follow the timeline of the go live on digital. For an existing customer that's already live on digital, though, that's where you can see faster time to revenue because if we're cross-selling a centric solution or an Innovation Studio partner on the fraud and risk side, that's where you can see much, much faster time to revenue outcome. So it's a little bit of both. But like we -- in general, I would say that the timelines for going live on the fraud side are going to be faster outside of the very large net new deals that are associated with the digital banking implementation. Operator: And your next question comes from Andrew Schmidt of KeyBanc. Andrew Schmidt: Good results here. Wanted to start off just on the commercial side. Clearly, the solution has been resonating very well in market. No surprise since the commercial side has gotten more competitive with FIs. And I think you're hitting that pretty well. Maybe talk about just how demand has evolved for the last couple of years and the demand into '26 is trending on the commercial side? And then maybe just an overarching question on just overall pipeline and composition would be helpful. I know you mentioned that in prepared remarks, but if you could drill down on that, that would be super helpful. Matthew Flake: Yes. The real driver for the demand was the change in rates and the access to deposits and the importance of deposits. And as I've said many times, commercial deposits are the stickiest, the largest and the most profitable because they're able to charge for services around that, whether it's wires, ACH, information reporting, and so you're seeing a significant amount of demand for these products so that they can go get those commercial accounts and the operating accounts on the customers that they have lines of credit with. And so that demand environment as long as rates are going to be in the vicinity. I don't think we're ever going to get back, or not in my lifetime, back to the 0% rate or 1% rate. I think that demand is going to continue because that's the lifeblood of these businesses. They've got to have the deposits. And I feel very good about that opportunity for us as we move forward. As far as the shape of the pipeline, I think it will be similar to last year. I think you'll see larger -- the larger deals kind of come through in the second half of the year. We do have some nice deals in the first half. I think you'll see more out of PrecisionLender in the first half and more fraud than the first half just because of the momentum we have there. But we've got a really healthy digital banking pipeline, with some significant Tier 2s and Tier 3s and a couple of Tier 1s that are working for the first half. I feel very good about the pipe for the first half. You're closer to it and so you can see it. And then the coverage ratios for the back half of the year are really good as well. So coming off a really strong third quarter and the second best quarter in the history of the company to feel that way, we feel really blessed. Andrew Schmidt: Yes. No, it all sounds great. And then maybe you could just ask on the 2030 targets, the margin targets, understanding those are longer term in nature, and they could fluctuate between now and then. But maybe just talk about some of the assumptions that go into that. Is there tech modernization in there? Is it just scale, cost optimization. Just if you could unpack that a little bit, that would be helpful. Jonathan Price: Thanks, Andrew. It's really a combination of all the things you mentioned as well as the continued mix shift on the subscription side. So in 2025, full year '25 subscription revenue mix was 82%, as you get out to 2030, I'd expect that to continue to mix up into the mid-80s, if not higher. So that's going to be a contributor from a cost of sales perspective, we see efficiency opportunities throughout those line items, and we're still optimizing from a global offshoring perspective. We're later stage in that one, but there's still some execution there that will drive opportunity over the next 5 years. And then as we think about the OpEx opportunities sales and marketing and G&A are going to be the biggest areas of leverage as you look out to 2030. And R&D, while maybe not as much, you can see that in the '26 and '27 numbers specifically. By the time you get out to 2030, we expect there will be efficiency that's driven from that line item as well. Operator: And your next question comes from Matt VanVliet of Cantor Fitzgerald. Matthew VanVliet: I guess as we look at AI, you mentioned a number of opportunities. So one, obviously, the efficiencies internally are seemingly already showing up. But maybe as we think about innovation studio and some of the other monetization efforts, how are you guys thinking about that between having very discrete sort of charges to use that? How does that mix in and then what is the sort of counter to that of just saying, here's more value of the platform that should help us win customers and maybe more slowly monetizing it over time, understanding that maybe some of these processes are the most compute-intensive like we might see in other areas. Matthew Flake: Yes, Matt, the beauty of the Innovation Studio is we have a revenue-sharing model already in place. And we firmly believe we're the gateway for these AI products and features that could be coming to us and our customers are asking us to help with AI and how are we going to work together to do that. And then what's interesting is a lot of the companies that go to these banks directly, the banks are steering them to us. And so it just reiterates the point that we think there's an opportunity to partner with people, to build our own products. And we are well down the path of building AI products using AI to help us become more efficient, helping our customers use AI products to become more efficient. So it really sets up well for us with the overhang on our customers in a highly regulated environment, security, compliance, and the integrations and the trust we built with these customers over the last 20-plus years, puts us in a great position to capitalize on it, and we are very excited about it. Matthew VanVliet: And then I guess, as we look towards the framework you outlined, so maybe this is for Jonathan, but I guess, how much of the yet to be released sort of in-process R&D components? Are you including in some of that or should we think about some of the moving pieces, potentially adding additional top line growth that could materialize and maybe give you some upside or at least some cushion in the targets you laid out? Jonathan Price: Yes. I would say they would be upside to the targets. I think we have conviction in this model and this framework in the paradigm we're operating in today. Not to say that from an efficiency standpoint, we're not already seeing and expect to see more benefits throughout -- through that 2030 time period. But if you're talking about specific monetization opportunities and the benefits from what Matt talked about, that would be upside to this framework. Operator: And your next question comes from Parker Lane of Stifel. Matthew Kikkert: This is Matthew Kikkert on for Parker. To start, what is your view on kind of banking M&A landscape right now? And what impact does that have on your 2026 guidance compared to historical trends? Matthew Flake: Well, clearly, it's picking up. And as we said in the prepared remarks and we've said historically, we -- last year, we were at 93% of the time, we're the surviving entity. We tend to have customers that are inclined to acquire other banks to grow. If you look at the number of customers we have over [ 5 billion ] , I think it's up to [ 200 billion ] now. 50% the top 100. So we feel very well positioned in the M&A environment. And Jonathan, do you want to talk about it? And I think it's going to continue, obviously, and Jonathan, do you want to talk about the -- in the plan? Jonathan Price: Yes. And what we know in terms of deals that have been announced and that where we have either booked a contract with regards to an M&A deal that's now closed or we have visibility into it, that would be captured. What we don't do is model like hypothetical M&A that may be coming or that we don't know about as some sort of plug into the forecast where, again, in most of these cases, that would lead to upside. And to the extent in the 5% to 7% of time, historically, it has not gone in our favor. Typically, that takes some time to roll off, including potentially being mitigated by buyout. So we feel good about it. I think we have a lot of conviction in the '26 guide we're giving and most of the time, we would expect there to be upside from the M&A outcome. And if there's anything that happened the other way, we think we could absorb it within the context of that framework anyway. Matthew Kikkert: Okay. And then my second question is on internal AI efficiencies. I'm just wondering kind of what you're working on there? And how does that play into the EBITDA expansion target for 2026? Matthew Flake: Yes. As we talked about in the November call, we structured the business in a way to where we could maximize our engineering team working with our hosting team, our support team and our delivery teams to make sure we're using all the AI tools that are available. Our go-to-market team is using AI tools, HR, finance, accounting, every single department of this company are using AI tools to drive efficiencies in their business. And how we layered in, we're going to be cautious with that because there's an expense to get all these tools and then it takes a little time to do that. But we're seeing some early signs of some real positive outcomes. Jonathan Price: Yes. What I would just add to that is, as you think about the '26 and '27 margin expansion commentary we provided and the ranges we gave we have conviction in those regardless of AI efficiency, and we do already see some early returns that are coming from internal use cases with AI. As you look out beyond 2027 and the path to that 35% target, I think that's where you can assume that AI efficiencies will have a meaningful impact. But again, we feel confident in the ability to hit those numbers no matter how it plays out, but the early returns are strong enough that we certainly think by the third through fifth year of that framework, we're going to be seeing some meaningful leverage when it comes to AI across this company. Operator: Your next question comes from James Faucette of Morgan Stanley. [Operator Instructions] Michael Infante: It's Mike Infante. Any interesting trends in the actual tech spend of your customers and how they're reallocating dollars right now? In particular, I'm curious if you're seeing vendor consolidation to fund AI-related spend? And if that would represent a sustained tailwind to more platform consolidation RFPs that would combine digital with fraud, commercial, et cetera? Matthew Flake: Yes. I haven't seen it for AI purposes, but if you go back to '22 and '23, when rates went up so rapidly, you began to see vendor consolidation occur and it was -- the vendor consolidation was the back office providers and then front office providers. And we were obviously a net beneficiary of that if you look at bookings from the back half of '23 through '25. So I think that, that is where they started to drive the efficiencies to be able to spend more on digital experiences as opposed to kind of run the bank stuff. We consider ourselves change the bank. And I think that trend will continue. And I think AI will be a tailwind to that as well that we're certainly in a position to capitalize on in talking with our customers. Michael Infante: That's helpful, Matt. And then maybe just on your agentic strategy broadly, like what's the push and pull right now from customers? Do they want you to -- do they want agents to sort of operate within a Q2 governed framework? And if so, do you think that could represent a tailwind to Innovation Studio just given its ability to sort of stitch together a variety of different point solutions. Matthew Flake: Yes. I think you have to remember, these are probably the most conservative group of business people in the country. And compliance is where they start and the regulatory environment is obviously something that -- is something that they start with that when they start looking at technology solutions. So as I said earlier, all of our customers that we've talked with are coming to us and asking about how they should think about it. We're still teaching them about agentic AI and the opportunities and how we can get ahead of other people by building these solutions with our customers and talking to them about how it works. And so that's why one of the reasons we talked about the system of context in that we have data that we think is really important, transaction flows, user behavior signals, integrations, real-time decision-making and allows you to not only know what they just did, but what they may do next, which is really where agentic comes into play. So we think there's a lot of opportunity there, and we're working with our customers. But we've tried some things and some have worked and some haven't, but we're definitely -- we think that's going to be a pretty big tailwind for us as we get deeper with our customers. Operator: Your next question comes from Charles Nabhan of Stephens. Charles Nabhan: I know it's becoming a smaller piece of the revenue pie, but can you talk about the outlook for non-subscription revenue and given that it's dilutive to margins, the degree to which any recovery is assumed in the '27 or longer-term framework? Jonathan Price: Yes. So from a nonsubscription standpoint, sort of commented on this briefly in the prepared remarks, despite the strength we saw in 2025, in totality, we expect the combined services and transactional line items to decline in both years. And as far as we can see for the foreseeable future in the mid-single-digit range. So you're right, those are margin dilutive line items, but we also don't expect a recovery based on what we see. And the big drivers to that are really continued weakness when it comes to discretionary spending on services engagements as well as legacy bill pay. Those continue to be the drivers. And the upswing we saw in 2025 was really driven by a significant pickup from a really low base in M&A core conversions. And while we expect that to remain high, we don't expect that to grow off of the elevated levels of '25. So you really don't see the opportunity to grow those line items to the extent we did in '25 as we look forward. So did that answer your question, Chuck. In general, we expect the profile to be mid-single-digit degradation in those line items and they are margin dilutive, but they're also shrinking in scale. Charles Nabhan: Got it. That's super helpful. And as a follow-up, and apologies if I missed this, but could you give us an update on the Innovation Studio from the standpoint of your monetization effort, how big it could become potentially as a revenue contributor as well as the role it plays in your overall AI initiatives. Jonathan Price: Yes. I mean it's become a core part of what we are calling our platform from a digital banking perspective. When you think about the revenue model of that business, where we're getting net revenue from our clients and so the margin profile is very high. The adoption of both our FIs and their adoption of these products is increasing. 2025 was a very big year in uptick on all of our internal KPI indicators. And then to your point, in an AI-first world, we just see that our -- the value of our data and our distribution are something that's the best technologies, whether it's existing products that develop an AI-driven value proposition that modernizes their offering or a new AI-first product that wants to enter financial services that -- as Matt said, we are the gateway to do it. And without the scale and security and maturity of the Innovation Studio, I don't think we'd be in nearly as good a position to capitalize on this opportunity. So we feel strategically, this is a huge opportunity for this business and continue to see it as a revenue contributor, a margin contributor and a key element of both winning net new deals and retaining our existing customers, and being that path to capturing AI opportunities in financial services that we don't necessarily build. Operator: Your next question comes from Matthew Inglis of RBC Capital Markets. Matthew Inglis: This is Matthew Inglis on for Dan Perlin at RBC. I was wondering if you guys could update us on the cadence and magnitude of the cost savings in 2026 as you exit data centers as part of the completion of the cloud migration. Jonathan Price: Yes, definitely. So you sort of see it in our framework when you look at our 2026 guide. We have included in that framework for '26 gross margin expectation of north of 60%. And so when you look at it, whether you look at the fourth quarter of '25 or the full year of 2025, we are expecting a significant step-up in that gross margin metric. And then as you think about now sitting here in mid-February, complete from a cloud migration standpoint, when it comes to customer migrations, and fully complete certainly in all facets as we exit Q1, if not sooner, we're in a great position to capitalize from seeing all of those data center-related costs roll off the P&L. And so that's really the biggest driver of that step-up in the 2026 gross margin guidance that you're seeing. And then as you see that evolve to the target we put out for 2030, it's some of the levers I talked about earlier. And one of them includes once we've had a chance to operate in the cloud environment, there are opportunities to optimize elasticity and cost for the new environment. And it probably just takes us a little bit of time in the cloud in the AWS to understand how to do that with conviction and safety for our customers. But as we get into '27 and beyond, we think there's another step function opportunity from a gross margin perspective within that cloud spend bucket. Operator: Your next question comes from Cris Kennedy of William Blair. Cristopher Kennedy: There's been a lot of changes in the regulatory environment. Can you just give us an update on Helix and kind of the prospects for that business going forward? Jonathan Price: Yes. I mean I think from a regulatory perspective, I wouldn't say there's anything in the last 3 months that has changed our outlook for the Helix business. I think we are continuing to see opportunities. We talked about 1 in the quarter, a very large credit union that chose Helix for 1 of their strategic product offerings. And we continue to see banks and credit unions exploring what I'll call -- what we call fabric or core modernization opportunities that are really about bringing together a retail strategy that makes more economic sense relative to the legacy infrastructure that's out there for a certain cohort of their customers. That continues to be the big opportunity for Helix going forward from an existing customer perspective, we've executed well in renewing our large number of -- a large existing client base and especially the ones that drive the majority of the revenue in that business. And then we feel good about the way that those businesses are investing and making their programs more profitable, and we're seeing the benefit of that. So no real change. Clearly not the demand environment that we saw back in '20 through '22, but nothing in the last 3 months that's pivoted our outlook on the Helix business at large. Cristopher Kennedy: Great. And then just we noticed the 50 SMB customers on the digital banking platform. Can you just talk about kind of the opportunity to expand that metric? Jonathan Price: Yes. I mean when we think about SMB and commercial still and you think about the total of about 500 digital banking customers, that's a huge area of opportunity. I mean we think that SMB is an area of focus for a lot of these institutions and in some ways, a gateway to larger commercial. So we feel really good about that. And as Matt talked about, the demand for commercial is extraordinarily high, and we think our positioning and our differentiation on the commercial side is helping us win a lot in the market. So if there's anything to add? Matthew Flake: Yes, I mean, the banks can -- as the bigger banks get bigger, they kind of abandon businesses that are $25 million, $50 million in revenue, and these customers need to expand their offering to go get a larger customer for the operating accounts, and that drives more revenue for us through utilization. So it's another tailwind for us. Operator: There are no further questions at this time. This concludes today's call. Thank you for attending. You may now disconnect.